Today's Must Read
Cost Control Aids Morgan Stanley (MS), Interest Income a Woe
Strong Medicare and International Business Aids Aetna (AET)
Thursday, October 12, 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 Royal Dutch Shell (RDS.A), Morgan Stanley (MS) and Aetna (AET). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Royal Dutch Shell shares are up +12.6% so far in 2017 vs. the +1.8% gain for the Zacks Integrated Oil industry. The integrated behemoth's upstream unit have benefited from the steady oil recovery, while production contribution of BG assets continues to be strong.
The supermajor has also been able to reduce operating costs and progress on its large divestment program. Importantly, the company generated a surge in cash flows during the most recent quarter, allowing it to cut debt and cover its cash dividend.
However, with oil unable to stay above the psychologically-critical $50 threshold for more than a few days, Shell's near-to-medium term revenue outlook remains cloudy. The Zacks analyst is also apprehensive that the group's disposal program could affect production, which fell 11% sequentially in second quarter. Hence, the analyst advises investors to wait for a better entry point before buying shares in Europe's largest oil company.
Morgan Stanley's shares have outperformed the Zacks Investment Bank industry, over the last six months (+20.8% vs. +16.4%). The performance was supported by the company’s impressive earnings surprise history. It surpassed the Zacks Consensus Estimate for earnings in all the trailing four quarters.
The company’s efforts to offload its non-core assets to lower balance sheet risk and cost saving initiatives (Project Streamline) will likely lead to improvement in profitability. However, continued fall in corporate loan balances remains a near-term concern. This is significantly hurting the company's interest income growth.
Buy-rated Aetna’s shares outperformed the Zacks Health Maintenance Organization industry year to date, increasing +26% vs. a gain of +24.7%. The Zacks analyst expects the company to derive long-term growth from its Government business. Cost-reduction initiatives and growing ACO collaborations pave the way for long-term growth.
A strong balance sheet is another positive. Its International expansion is also perceived as an opportunity in the face of increased regulation in the U.S. Following strong second-quarter results, Aetna rasied its earnings guidance which cements investors' confidence in the company. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 6.3% upward over the last 90 days.
Aetna has, however, been incurring losses in its public exchange business and has been exiting exchanges to avoid losses from this business. Furthermore, its membership growth remains under pressure. Increasing medical benefit ratios are also likely to hurt margins.
Other noteworthy reports we are featuring today include Johnson Controls International (JCI), CSX (CSX) and LyondellBasell Industries (LYB).
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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>>>