Today's Must Read
Colgate's (CL) Restructuring Plan Likely to Boost Margins
Derivative Product Lines Aid CME Group (CME), High Costs Ail
Tuesday, June 5, 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), Colgate (CL) and CME Group (CME). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Buy-ranked Berkshire Hathaway’s shares have gained +14.9% in the last year, outperforming the Zacks Property and Casualty Insurance industry which increased +11.3% during the same period. The Zacks analyst thinks Berkshire’s inorganic growth 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 an impetus to the company. The insurance business generates maximum return on equity but its exposure to catastrophe loss remains a concern.
Huge capital expenses due to railroad operations have also emerged as headwinds. Capital expenditures are estimated at $10 billion in 2018. Nonetheless, the stock has witnessed its 2018 and 2019 estimates move up in the last 30 days.
Shares of Colgate have lost -10% over the last three months, underperforming the Zacks Consumer Staples sector, which has declined -8.1% over the same period. Colgate has been popular with investors for its meet or beat earnings track record.
Continuing with this trend, the company delivered an earnings beat in first-quarter 2018, after three consecutive quarters of in line earnings. Results continue to be driven by sales growth and significant market share gains. Going forward, the company remains on track with brand building and productivity maximization initiatives. Consequently, it provided a robust outlook for 2018.
Further, the company is encouraged by the progress on Global Growth and Efficiency Program along with additional savings anticipated from the recent expansion of the program. However, the company’s margins continue to be strained by higher raw material and packaging costs. Moreover, Colgate expects the backdrop to remain challenging in 2018 due to uncertain global markets and slowing category growth worldwide.
CME Group’s shares have outperformed the Zacks Securities and Exchanges industry in the last six months, gaining +11.5% vs. +6%. The Zacks analyst thinks the company remains well-positioned for growth on a strong market position with diverse derivative product lines.
Efforts to expand and cross sell its core exchange-traded business via new product initiatives and global reach also support growth. It intends to exit its credit default swap clearing business by mid-2018 and focus on over-the-counter clearing services on interest rate swaps as well as foreign exchange. This will free up $650 million as clearing member capital.
Also, the buyout of Nex Group will help CME generate $200 million in run-rate cost synergies annually by the end of 2021. However, exposure to interest rate volatility and limited credit availability might hamper liquidity.
Other noteworthy reports we are featuring today include Tesla (TSLA), PPL Corporation (PPL) and lululemon (LULU).
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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>>>