Today's Must Read
Lilly's (LLY) New Drugs Drive Sales Amid Rising Competition
Rising Rates Aid BNY Mellon (BK), High Fee Dependence a Woe
Wednesday, July 18, 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 Netflix (NFLX), Eli Lilly (LLY) and BNY Mellon (BK). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Netflix’s shares have increased +97.6% year to date, significantly outperforming the Zacks Broadcast Radio and Television industry’s gain of +33.5% during the same period. Netflix’s second-quarter 2018 subscriber addition rate was disappointing.
Although management cited over-optimistic guidance, the Zacks analyst thinks the pace of subscriber additions has hit a rough patch due to increasing competition. Nevertheless, Netflix’s focus on providing quality content, expanding original movie slate, strong regional content portfolio and aggressive spending is expected to help it steer away competition.
Moreover, partnerships with telcos like Telefonica in Spain and Latin America as well as KDDI in Japan are expected to boost subscriber addition. However, the company’s increasing marketing spends and higher investments on content will hurt profitability, unless subscriber addition rebounds. Further, strengthening U.S. dollar doesn’t bode well for operating margin expansion. Cash burn is also expected to continue in the near term.
Shares of Buy-ranked Eli Lilly have outperformed the Zacks Large-Cap Pharmaceuticals industry year to date (+6.1% vs. -0.7%). Lilly’s new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Lartruvo have been driving revenues and the trend is expected to continue in 2018. Lilly expects to launch 20 new products by 2023, including at least two new indications/line extensions on an average every year.
The Zacks analyst thinks the decision to sell or spin-off the Animal Health segment, which has underperformed lately, is a prudent decision. However, competitive pressure on Lilly’s drugs is expected to rise this year. Challenges remain for the company in the form of upcoming loss of patent exclusivity for products like Cialis and the impact of generic competition for Strattera, Effient and Axiron.
U.S. pricing access pressure will also remain a headwind in 2018. Estimates have gone up slightly ahead of the Q2 earnings release. Lilly has a positive record of earnings surprises in recent quarters.
BNY Mellon’s shares have outperformed the Zacks Major Regional Banks industry in the last six months (-4.6% vs. -7.2%). Also, the company has an impressive earnings surprise history, having surpassed expectations in three of the trailing four quarters. The Zacks analyst thinks higher interest rates, loan growth and improving fee income will aid revenue growth.
Lesser regulations, tax cuts and cost-saving initiatives are likely to continue driving profitability. Further, enhanced capital deployment plan reflects a strong balance sheet. However, concentration risk arising from significant dependence on fee-based income remains a matter of concern.
If there is any change in individual investment preferences, regulatory amendments or a slowdown in capital market activities, it might hamper the company's financials. Also, earnings estimate has moved lower ahead of the company's second quarter results.
Other noteworthy reports we are featuring today include Stryker (SYK), TJX Companies (TJX) and Raytheon (RTN).
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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>>>