Today's Must Read
COVID-19 Test Sales, End Market Growth Aid Thermo Fisher (TMO)
Cost Cutting Ups Union Pacific (UNP), Debt Burden Upsets
Wednesday, February 24, 2021
The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features a real-time scorecard for the Q4 earnings season and new research reports on 16 major stocks, including Microsoft (MSFT), Thermo Fisher Scientific (TMO) and Union Pacific (UNP). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Q4 Earnings Season Scorecard (As of February 24th)
For the 449 S&P 500 members or 89.8% of the index's membership that have reported Q4 results already, total earnings (or aggregate net income) is up +3.6% from the same period last year on +3% higher revenues, with 79.3% beating EPS estimates and 76.4% beating revenue estimates. This is a very strong showing relative to other recent periods for this group of 449 index members.
Looking at Q4 as a whole, combining the actuals from the 449 index members with estimates for the still-to-come companies, Q4 earnings are on track to +3.3% on +3% higher revenues. The trend on the estimate revisions front remains positive, with estimates for the current period (2021 Q1) steadily going up.
Total 2021 Q1 estimates for the index are for +17.8% earnings growth on +4.9% revenue growth, with the earnings growth estimate up from +12.6% at the start of January 2021 and +11.7% in mid-December 2020.
Today's Featured Research Reports
Microsoft shares have outperformed the broader S&P 500 index over the past year (+38.8% vs. +26.2%), though the stock has lagged lately in solidarity with the other large-cap technology stocks as interest rates have perked up. The Zacks analyst believes that Microsoft should continue to benefit from strong momentum in Azure, impressive Teams user growth triggered by coronavirus-led digital transformation, work-from-home, online learning wave and tele healthcare trends.
Solid uptake of new Xbox gaming consoles and Xbox Game Pass drove the top-line growth. Further, the company is gaining from growing user base of its different applications including Microsoft 365 suite, and Dynamics.
However, macroeconomic weakness in job market and lower spend on advertising due to coronavirus pandemic are likely to put pressure on LinkedIn and Search revenues. Further, delays in consulting business are anticipated to limit growth. Increasing spend on Azure enhancements amid stiff competition from Amazon Web Services, is likely to impede margin expansion.
Shares of Thermo Fisher have gained +8.6% in the last six months against the Zacks Medical Instruments industry’s gain of +5%. The Zacks analyst believes that several takeovers, including Advanced Bioprocessing buyout from BD and Patheon, have helped Thermo Fisher expand its inorganic growth profile.
Furthermore, the company’s strong focus on emerging market is also encouraging. However, the coronavirus outbreak has massively disrupted the global supply chain. Foreign currency fluctuations and competitive landscape are major downsides.
Meanwhile, the company delivered an outstanding quarterly performance by leveraging on its capacity to extend support amid the pandemic. COVID-19 response revenue increased to $3.2 billion in the fourth quarter of 2020. The base business also grew 5%.
Union Pacific shares have lost -0.1% over the past three months against the Zacks Rail industry’s gain of +2.7%. The Zacks analyst is, however, pleased with the company's efforts toward promoting safety and enhancing productivity.
Moreover, reflective of the improving freight conditions in the United States, Union Pacific reported a 3% year-over-year increase in overall volumes, measured by total revenue carloads, in fourth-quarter 2020. Notably, revenue carloads rose 9% in the Premium unit, thereby boosting overall volumes.
However, tepid automotive demand hurt fourth-quarter results. Deterioration in the debt-to-EBITDA ratio is another concern. Moreover, despite the recent uptick, freight revenues continue to be weak on a year-over-year basis.
Other noteworthy reports we are featuring today include Facebook (FB), Abbott Laboratories (ABT) and BHP Group (BHP).
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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>>>