Today's Must Read
J&J's (JNJ) Pharma Segment Resilient Amid Generic Headwinds
Cost Cuts Aid Union Pacific (UNP), Low Freight Revenues Ail
Tuesday, November 3, 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 Alphabet (GOOGL), Johnson & Johnson (JNJ) and Union Pacific (UNP). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Alphabet shares have modestly outperformed the Zacks Internet Services industry in the year to date period (+23.7% vs. +22.2%), with most of the gains coming after the search giant's impressive Q3 results. The Zacks analyst believes that Google’s dominant search market share is a positive. Its focus on innovation, strategic acquisitions and Android OS should continue to generate strong cash flow.
Alphabet reported strong third-quarter earnings. The search, cloud and YouTube businesses remained strong in the quarter. The company’s strengthening cloud unit aided substantial revenue growth. Moreover, expanding data centers will continue to bolster its presence in the cloud space. Further, major updates in the search segment are enhancing the search results, which is a major positive.
Moreover, Google’s robust mobile search is gaining solid momentum. Additionally, strong focus on innovation of AI techniques and the home automation space should aid business growth in the long term. However, the company’s growing litigation issues and increasing expenses might hurt profitability.
Shares of Johnson & Johnson have gained +7.4% over the past year against the Zacks Large Cap Pharmaceuticals industry’s rise of +0.4%. The Zacks analyst believes that the Pharma unit is performing at above-market levels, supported by successful label expansion of blockbuster drugs, Imbruvica, Darzalex and Stelara. J&J is also making rapid progress with its pipeline and line extensions.
J&J beat estimates for sales and earnings in Q3. It raised its 2020 outlook due to faster-than-expected recovery in the Medical Devices unit with trends expected to improve further in Q4 and 2021.
Several pivotal data readouts are expected in the near-term. However, headwinds like generic competition and pricing pressure continue. J&J faces numerous lawsuits, which allege personal injuries to patients caused by the use of its products. These lawsuits have resulted in uncertainties.
Union Pacific shares have gained +19.6% over the past six months against the Zacks Rail industry’s rise of +25.1%. The Zacks analyst is pleased by the company's efforts toward promoting safety and enhancing productivity.
Union Pacific is suffering a dismal freight revenue scenario (down 13% in the first nine months of 2020). Freight revenues are being hurt, mainly by coronavirus-induced depressed volumes (down 10%). Weakness in the Bulk, Premium and Industrial units weighed on the overall volume picture. Deterioration in the debt-to-EBITDA ratio is an added woe. However, efforts to control costs, courtesy of the precision scheduled railroading model, are a positive, particularly, in the wake of revenue concerns.
Mainly owing to cost-cutting efforts, the operating ratio is predicted to improve in 2020. The company's ability to generate free cash flow (up 5.8% in the first nine months of 2020) is also a boon. An uptick in the company's parcel business on buoyant e-commerce demand is an added positive. Measures to reward its shareholders are also encouraging.
Other noteworthy reports we are featuring today include Eli Lilly (LLY), Charter Communications (CHTR) and Anheuser-Busch InBev (BUD).
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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>>>