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Research Daily

Friday, March 24, 2017

Today's Research Daily features new research reports on 17 major stocks, including Cisco (CSCO), Philip Morris (PM), McDonald's (MCD) and General Dynamics (GD).

Cisco shares have outperformed the Zacks Technology sector year to date, gaining +12.4% vs. +9.2%. In the updated research report issued today, the Zacks analyst covering the stock highlights Cisco’s expanding footprint in the rapidly growing security and data center market. Moreover, partnerships with the likes of Pure Storage, and IBM will help Cisco to gain significant traction in the data center, cloud and Internet of Things (IoT) market in the long haul. The recent acquisition of AppDynamics will also help the company to gain traction in the application and business monitoring space. Intensifying competition from several smaller players, slowing order growth from service providers and challenges in emerging markets are the primary headwinds at this stage. (You can read the full research report on Cisco here >>)

Philip Morris shares have been standout performers this year, outperforming both the S&P 500 index as well as the Zacks Tobacco industry (PM is up +23.5% in the year-to-date period vs. +15.6% for the industry and +4.7% for the S&P 500 index). The stock has historically been a dividend play (current yield an attractive 3.7%), but it's recent performance puts it an altogether category. Driving this momentum has been the company's improved operating outlook and expectations of greater consolidation. The analyst likes the company's strong brand portfolio which is crucial in helping it command a leading market share in the tobacco industry. Additionally, the company's efforts to launch new products to cater to changing consumer tastes are also encouraging. Heatsticks and IQOS product category are gaining popularity after they expanded nationally during the quarter. However, large excise tax increase in Argentina, the surge of illicit trade in Pakistan, and the cigarette volume declines in the Philippines and Thailand continued to pressurize the company. Valuation questions are also reasonable following the stock's impressive run up, particularly in a backdrop of unfavorable currencies (all of PM's revenues come from beyond the U.S.) and the emerging uptrend in interest rates. (You can read the full research report on Philip Morris here >>)

McDonald's shares have gained +10.7% over the last six months easily outperforming many of its  peers which have been struggling to survive the restaurant space’s tough operating environment lately. The Zacks analyst likes the focus on improving guest count, rollout of the second phase of All Day Breakfast and its national value platform–McPick 2. Also, attempts to attract customers in international lead markets bode well as the positive global comps over the past 6 quarters show.  Increased focus on refranchising will cut the company’s capital requirements and facilitate EPS growth and ROE expansion over the long-term. On the flip side, higher labor costs, currency headwinds and concerns about the efficiencies of an ever expanding menu remain issues. (You can read the full research report on McDonald's here >>)

Shares of General Dynamics have gained +46.9% over the last one year, outperforming the Zacks Aerospace - Defense industry, which increased +26.5% over the same period. The Zacks analyst likes the fact that revenues are derived from a broad portfolio of products and services whose long-term outlook has notably improved given the administration's plans for material spending increases. General Dynamics will likely see solid growth momentum post 2017, following the introduction of the G500 in 2018, major revenue recognition from Combat Systems’ huge backlog and the Ohio-class Replacement (ORP) submarine program, which should add substantially to the top line by 2019. On the flip side, any slip up in the Trump administration's commitment to raise defense spending remains a headwind for this company as well as many of its peers. Valuation has become an issue as well following its strong post-election showing, with the stock currently trading at a forward 12-month P/E multiple that's the highest since 2002. (You can read the full research report on General Dynamics here >>)

Other noteworthy reports we are featuring today include Union Pacific (UNP), China Life Insurance (LFC) and Cintas (CTAS).

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Sheraz Mian

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 >>>

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