Today's Must Read
PepsiCo (PEP) Strong on Innovations, Soft CSD Volume Hurts
Higher Tax Rate, Trump's Regulatory Moves to Hurt Broadcom (AVGO)
Friday, March 16, 2018
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 Berkshire Hathaway (BRK.B), PepsiCo (PEP) and Broadcom (AVGO). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Buy-rated Berkshire Hathaway’s shares have gained +20.2% in the last year, outperforming the Zacks Property and Casualty Insurance industry which increased +16.6% during the same period. Berkshire’s fourth-quarter 2017 earnings of $32.6 billion increased more than fivefold year over year, benefiting from the enactment of the 2017 Tax Act.
The Zacks analyst thinks its inorganic story remains impressive with strategic acquisitions. A strong cash position allows it to make earnings-accretive bolt-on acquisitions. Demand for utilities is expected to rise in the future and drive earnings growth. Continued insurance business growth also fuels increase in float. A sturdy capital level further adds impetus to the company.
However, the insurance business generates maximum return on equity but its exposure to catastrophe loss remains a concern. Huge capital expenses due to railroad operations are also headwinds. The stock has seen the Zacks Consensus Estimate for 2018 and 2019 earnings moving north in the last 60 days.
Shares of PepsiCo have gained +0.6% in the last year, underperforming the Zacks Soft Beverages industry, which has increased +17.4% over the same period. PepsiCo’s fourth-quarter 2017 earnings and revenues beat expectations. Notably, this is the seventh consecutive quarter of positive earnings surprise. Improvement in the snack business helped offset continued weakness at its beverage business amid rapidly shifting consumer landscape.
Core earnings grew 7% but revenues remained unchanged year over year. Organic revenue growth improved to 2.3% from 1.7% in the prior quarter, led by the emerging and developing markets, which saw revenue increase by 7%. Notably, Frito-Lay North America organic revenues grew 5%.
On the flip side, NAB division reported dismal results with revenues and operating profit decreasing 6% and 29%, respectively. Again, overall gross margin contracted 50 bps owing to weakness in the NAB segment. Shifting consumer preferences toward healthier options is a potent headwind.
Broadcom’s shares have handily beaten the Zacks Electronics - Semiconductors industry over the past year, gaining +21.1% vs. +14%. Broadcom reported impressive first-quarter results. The Zacks analyst thinks the company is benefiting from strong demand of its wireless solutions and expanding product portfolio, which makes it well-positioned to address the needs of rapidly growing technologies like IoT and 5G. The company also has strong ties with leading OEMs across multiple target markets that will help it to gain key insights into the requirements of customers.
Moreover, the upcoming launch of the next generation WiFi products is expected to be a growth driver for the segment. However, customer concentration, intensifying competition, integration risks due to frequent acquisitions and leverage balance sheet are key headwinds.
Further, President Trump recently released an order asking Qualcomm to immediately and permanently abandon its proposed takeover by Broadcom on grounds of national security concerns. This doesn't bode well for the company.
Other noteworthy reports we are featuring today include Sirius XM (SIRI), Air Products (APD) and Dr Pepper (DPS).
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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>>>