Today's Must Read
McDonald's (MCD) Gains From Re-Franchising, High Costs Ail
Gilead (GILD) Poised to Grow on HIV Franchise Strength
Thursday, April 19, 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 IBM (IBM), McDonald's (MCD) and Gilead (GILD). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
IBM’s shares have underperformed the broader market on a year-to-date basis, losing -3% vs. the S&P 500’s +1.2% gain. IBM’s first-quarter 2018 results were unimpressive. Although revenues and earnings per share increased from the year-ago quarter, the growth rates reflected sluggishness. This can primarily be attributed to the company’s ongoing heavily time-consuming business model transition to cloud.
Additionally, intensifying competition is a major concern. Nevertheless, improving position in the cloud, security and analytics bodes well. Moreover, accretive acquisitions have expanded IBM’s product portfolio into higher-growth segments, such as Cloud computing and Big Data.
Further, expanding footprint in the rapidly growing blockchain market is positive. However, the Zacks analyst thinks these emerging fields as well as the strategic imperatives will take some more time to report meaningful growth and offset weakness in the traditional business.
Shares of McDonald's have gained +21.4% over the past year, outperforming the Zacks Restaurants industry which has gained +9.7% over the same period. Notably, growing guest count remains McDonald’s top priority and it is undertaking various sales and digital initiatives to this end. Increased focus on delivery, enhancement of digital capabilities, and accelerated deployment of Experience of the Future restaurants in the U.S should drive growth too.
Efforts to attract customers in International Lead & High Growth Markets also bode well. In fact, global comps at McDonald’s have been positive over the past eight quarters. Yet, high labor costs and currency headwinds might keep profits under pressure.
Earnings estimates for the current year have declined over the last two months raising concerns. Even so, augmented focus on refranchising will cut the company’s capital requirements and facilitate EPS growth and ROE expansion in the long run.
Buy-rated Gilead’s shares have outperformed the Zacks Biotech industry in the last one year, increasing +13.8% vs. a decline of -6.8%. Gilead’s HIV franchise continues to gain traction, courtesy of the rapid adoption of TAF-based regimens in the United States and EU.
The TAF-based regimens now represent 62% of total HIV prescription volume following the launch of Genvoya, Odefsey and Descovy in 2016. The approval of Gilead’s latest triple HIV therapy, Biktarvy, is likely to provide an impetus to the stock as Gilead is now banking on its HIV franchise and newer avenues like the CAR-T therapy post Kite acquisition.
However, the HCV franchise is under tremendous pressure due to lower patient starts and increasing competition. Both pricing and market share are expected to stabilize by mid-2018 while patient starts are expected to decline further.
Other noteworthy reports we are featuring today include Celgene (CELG), Phillips 66 (PSX) and Lam Research (LRCX).
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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>>>