Today's Must Read
New Drugs to Drive Merck's (MRK) Sales as Competition Soars
Technological Investments Drive Raytheon (RTN) Amid Rivalry
Wednesday, May 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 Home Depot (HD), Merck (MRK) and Raytheon (RTN). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Home Depot’s shares have gained +20.5% over the last year, outperforming the Zacks Retail Building Products industry’s +14.1% increase. The Zacks analyst thinks that this performance is attributable to its five-year long trend of beating earnings estimates, which continued in first-quarter fiscal 2018.
Further, both the top and bottom line improved year over year in the first quarter. Results gained from strength in core business as well as relentless focus on affording innovative products, boosting interconnected customer experience and driving productivity. Steady housing market recovery and strong customer demand also remain tailwinds.
Going into the fiscal second quarter, the company continues to witness strength in all lines of business in the first few weeks of May. Consequently, it provided an optimistic view for fiscal 2018. However, the top line lagged estimates mainly due to colder-than-normal weather that led to softness in the spring season categories, particularly garden. This softness also resulted in a decline in comparable transactions.
Shares of Merck have outperformed the Zacks Large Cap Pharmaceuticals industry year to date, gaining +5.2% versus a loss of -4.0%. Merck beat estimates for earnings while missing the same for sales in Q1.
The Zacks analyst thinks that new products like Keytruda, Lynparza, and Bridion should continue to contribute meaningfully to the top line in 2018. Keytruda sales are gaining momentum with approval for additional indications especially in the first-line lung cancer setting as it is the only anti-PD-1 approved in this setting. The Animal Health unit is also strong and remains a core growth driver for Merck.
Meanwhile, Merck will continue to focus on cost-cutting initiatives to drive the bottom line. However, generic competition for several drugs and pricing pressure will continue to be overhangs on the top line. Rising competitive pressure on the diabetes franchise and on products like Isentress (HIV), Zepatier (HCV) and Zostavax (vaccine) will remain headwinds in 2018.
Raytheon’s shares have risen around +14.5% over the last six months, outperforming the Zacks Defense Equipment industry, which has increased +10.7% over the same period. However, Raytheon kick started 2018 on a solid note. The company’s first-quarter earnings and revenues comfortably surpassed expectations.
The Zacks analyst thinks the company is one of the best-positioned large-cap defense players due to its non-platform centric focus. Due to its wide range of combat-proven defense products, the company continues to receive numerous orders from both Pentagon as well as foreign allies. Raytheon’s Patriot missile-defense systems have seen a number of buyers in recent times including international customers from Europe as well as the Middle East.
However, factors like tough competition and political uncertainty continue to be major headwind for Raytheon. Moreover, the company is overvalued compared to its broader industry in terms of EV/EBITDA ratio.
Other noteworthy reports we are featuring today include BB&T (BBT), Eaton (ETN) and Sun Life Financial (SLF).
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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>>>