Today's Must Read
E-Commerce, Dividends & Buybacks Buoy UPS Amid High Costs
High-Margin Output, Focus on Permian Aids Occidental (OXY)
Thursday, August 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), United Parcel Service (UPS) and Occidental Petroleum (OXY). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Home Depot’s shares have gained +29.6% over the past year, outperforming the Zacks Retail Building Products industry’s +28% increase. The Zacks analyst thinks that this performance is attributable to its five-year long trend of beating earnings estimates, which continued in second-quarter fiscal 2018.
Moreover, sales reverted to a positive surprise trend after a miss in the last-reported quarter. Results gained from a rebound in the seasonal business that impacted sales in the fiscal first quarter and solid execution. Further, its relentless focus on offering innovative products, boosting interconnected customer experience and driving productivity seems to be paying off. Steady housing market recovery and strong customer demand also remain tailwinds.
Backed by the solid performance in the first half of fiscal 2018, the company raised earnings and sales forecasts for fiscal 2018. However, commodity cost inflation in various categories, including rising raw material and transportation costs as well as recently enacted tariffs are likely to pressure margins.
Shares of United Parcel Service have outperformed the Zacks Air Freight and Cargo industry in the last six months, gaining +12.9% vs +7%. Additionally, solid e-commerce growth is a huge positive for the company.
The Zacks analyst is also impressed by UPS' efforts to reward shareholders. To this end, in February 2018, UPS hiked quarterly dividends by 10%. A further uptick in such shareholder-friendly activities cannot be ruled out, in the light of the savings induced by the Tax Cuts and Jobs Act. In fact, UPS' solid free cash flow in second-quarter and the bullish full-year forecast support the possibility of a dividend hike in the near future.
The metric is now expected to be $5 billion in 2018 (previous guidance was between $4.5 billion and $5 billion). However, high operating expenses continue to limit bottom-line growth. Also, UPS' 2018 capex forecast, which is higher than 2017 levels, is expected to weigh on the bottom line.
Occidental Petroleum’s shares have underperformed the Zacks Domestic Integrated Oil industry in the last six months, gaining +12.9% vs. +15.6%. Occidental Petroleum’s second-quarter earnings missed estimates. However, total revenues beat the same owing to a strong production from Permian Resources coupled with revenue growth from Midstream & Marketing segment.
As oil prices continue to improve, Occidental Petroleum gains from more oil production in the Permian Resources and concentrating on high-margin production region. The Zacks analyst thinks the ongoing capital investment will further strengthen the existing operations of the company. The company generates a stable cash flow and its Chemical plant will further improve the same.
Occidental Petroleum, like other oil and natural gas companies, faces the risks of cost overruns and development interruptions due to delays in drilling and other approvals. Stringent federal and state laws are tailwinds for the company.
Other noteworthy reports we are featuring today include Disney (DIS), HSBC Holdings (HSBC) and Blackstone (BX).
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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>>>