Today's Must Read
Slowing User Growth Rate & Dim Outlook Hurts Facebook (FB)
Global Business Aids Thermo Fisher (TMO) Amid Rising Costs
Friday, July 27, 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 Amazon (AMZN), Facebook (FB) and Thermo Fisher (TMO). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Amazon’s shares have outperformed the broader market year to date by a wide margin. (the stock is up +54.6% vs. the +6.6% gain for the S&P 500 as a whole). Amazon reported strong second-quarter earnings driven by robust performance from Amazon Web Services (AWS) and retail. Advertising also had a strong growth in the quarter.
Moreover, retail continues to grow, driven by the Prime program, increasing engagement of Prime customers and solid third-party selection. The Zacks analyst thinks Amazon is benefiting from an expanding AWS enterprise customer base. Notably, AWS generates much higher margins than retail, positively impacting Amazon’s profitability.
Additionally, Amazon’s expanding distribution footprint bodes well for Prime. However, an anticipated increase in fulfillment cost prior to the holiday season can put margins under pressure. Moreover, intensifying competition in the cloud computing market from the likes of Microsoft Azure and Google cloud is a significant headwind.
Shares of Facebook have underperformed the S&P 500 index over the last three months, gaining +2.4% vs. +7.7%. Facebook’s second-quarter results were hurt by a slowing user base growth rate primarily due to the increased concerns over data privacy. Moreover, the company’s cautious guidance hurt investor’s confidence.
Facebook now expects expenses to increase at a faster rate as compared with revenues in 2019. Nevertheless, the Zacks analyst thinks the company’s cautious guidance reflects conservatism. Although aggressive investments would definitely hurt profitability in the near term, the initiatives related to improving ad transparency, removal of fake accounts and curbing fake news are prudent to ensure healthy growth in the long haul.
Moreover, the aggressive spending on securing the platform would surely help in rebounding user growth, going forward. However, slower Stories and Messenger monetization would hurt Facebook’s top-line growth in the near term. Increasing competition is also a concern.
Thermo Fisher’s shares have outperformed the Zacks Medical Instruments industry over the last year (+33% vs. -5.9%). Thermo Fisher ended the second quarter on a promising note. The Zacks analyst likes the company’s solid international performance on strong growth in China.
Thermo Fisher also saw strength in all end markets categorized either by customer type or geography. A series of product launches along with major progress in precision medicine initiatives aided the company’s performance. Moreover, the Patheon buyout has been substantially adding an impetus to the company’s value proposition for biopharma customers.
Also, Thermo Fisher’s initiative to buy Gatan in order to boost electron microscopy suite buoys optimism. On the flip side, in the reported quarter, Thermo Fisher’s business segments were impacted by unfavorable business mix. Also, competitive headwinds and rising operating costs continue to pose a threat.
Other noteworthy reports we are featuring today include Home Depot (HD), Sherwin-Williams (SHW) and Progressive Corp (PGR).
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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>>>