Today's Must Read
Organic Growth Drives 3M (MMM) Q2, Currency Woes Remain
Supply Issues in Spine Business Overshadows Stryker (SYK)
Wednesday July 26 2017
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 McDonald’s (MCD), 3M (MMM) and Stryker (SYK). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Buy rated McDonald’s’ shares have gained +28.9% 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. McDonald’s Q2 earnings and revenues exceeded expectations, but revenues fell year over year mainly due to the impact of refranchising.
Meanwhile, the company recorded the eighth consecutive quarter of global comps growth. In fact, McDonald’s grew sales and guest counts in each of its top nine markets, for the first time since 2008. The Zacks analyst likes McDonald’s attempts to reinforce its position worldwide via various sales and digital initiatives.
Also, increased focus on refranchising is expected to reduce its capital requirements, thereby facilitating EPS growth and ROE expansion in the long run. Yet, higher costs along with currency headwinds may hurt profits while a soft industry backdrop in the U.S. and macroeconomic concerns in some parts of the world might limit sales growth.
3M’s shares are up +12.4% in the year-to-date period, outperforming the S&P 500 index (up +10.8%) and the Zacks Conglomerates sector (down -1.4%). Driven by broad-based organic growth across all segments, 3M reported strong second-quarter results with healthy year-over-year increase in earnings and revenues, although it missed expectations on both counts.
The company has raised its earlier guidance for 2017 on strong quarterly results and improved business outlook. The Zacks analyst likes 3M's global footprint, diversified product portfolio and ability to penetrate different markets. However, increased pension expenses remain a significant headwind for 3M and erode its profitability.
Sustained strength in the U.S. dollar will further continue to negatively impact earnings, as exports consume a significant part of the company’s operations and growth prospects. Given its international presence, adverse foreign currency translations are also likely to affect 3M’s ability to realize projected growth rates in its sales and earnings.
Stryker’s shares have gained +18.5% over the last six months, outperforming the Zacks Medical Products industry, which has gained +17.8% over the same period. The Zacks analyst thinks Stryker's performance is likely to be affected by supply-side headwinds. The company has been grappling with issues in its spine business for long and this is expected to affect performance in the second quarter.
China might prove to be a challenging market for the company. Additionally, challenging global economic conditions and rising competition raise concerns. Estimate movement has also been mixed ahead of its second quarter earnings release. However growing adoption of MAKO will drive sales in the orthopedic and reconstructive surgery market. The acquisitions of Sage Products and Physio Control and the tie-up with Indo UK Institute of Health's Medicity Program are also major positives.
Other noteworthy reports we are featuring today include Goldman Sachs (GS), Colgate-Palmolive (CL) and Kinder Morgan (KMI).
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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>>>