Today's Must Read
Decent Comps to Fuel Costco's (COST) Sales, Cost a Concern
Union Pacific (UNP) Banks on Cost Saving Amid Weak Volumes
Thursday, October 8, 2020
The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 16 major stocks, including Adobe (ADBE), Costco Wholesale (COST) and Union Pacific (UNP). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Adobe shares have outperformed the Zacks Software industry in the year to date period (+49.5% vs. +32%). The Zacks analyst is optimistic about Adobe’s market position, compelling product lines, continued innovation, solid adoption of Creative Cloud and Adobe marketing cloud. Adobe is gaining from strong demand for its creative products.
The company’s Creative Cloud, Document Cloud and Adobe Experience Cloud products are driving the top-line growth. Further, rising subscription revenues and solid momentum across mobile apps are major positives. Additionally, growth in emerging markets, robust online video creation demand and improving average revenue per user are tailwinds.
However, lower end-market demand is a concern. Further, significant exposure in Europe is an overhang due to foreign currency headwinds. Additionally, high acquisition expenses do not bode well for margin expansion.
Shares of Costco have gained +22.3% over the past year against the Zacks Discount Retail industry’s rise of +17.2%. The Zacks analyst believes that the company’s growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business reinforce its position.
Being an essentials retailer, Costco has been benefiting from the coronavirus-induced spike in demand. Cumulatively, these factors have been aiding in registering impressive sales and earnings numbers. Costco put up a stellar performance in fourth-quarter fiscal 2020, wherein both the top and the bottom line beat the Zacks Consensus Estimate and grew year over year.
It also maintained decent comparable sales run. However, Costco witnessed incremental expenses related to COVID-19 for the second quarter in row. Such investments or aggressive pricing strategy are likely to exert pressure on the margins.
Union Pacific shares have gained +37.6% over the past six months against the Zacks Rail industry’s rise of +34.5%. The Zacks analyst expects Union Pacific's third-quarter 2020 results to be hurt by tepid freight revenues as was the case in the first two quarters of the year.
Notably, the metric was down 14% in first-half 2020. The same is being hurt, mainly by coronavirus-induced depressed volumes. Notably, overall volumes are likely to decline around 10% in the current year. However, reduced costs, courtesy of the precision scheduled railroading model, are likely to have aided the bottom line in the September quarter.
Moreover, akin to the first two quarters, the company is likely to have generated impressive free cash flow in the to-be-reported quarter. Notably, free cash flow surged 58.9% in the first six months of 2020. Also, its parcel business is likely to have performed well owing to the buoyancy in e-commerce demand.
Other noteworthy reports we are featuring today include Roche (RHHBY), NextEra Energy (NEE) and Altria Group (MO).
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Director of Research
Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>