Today's Must Read
Constellation Brands' (STZ) Beer Business to Aid Top Line
Rising Global Steel Demand & Lower Debt to Aid Vale (VALE)
Wednesday, August 22, 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 Southern Company (SO), Constellation Brands (STZ) and Vale (VALE). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Southern Company's shares have outperformed the Zacks Electric Power industry in the last six months, gaining +4.4% vs +3.3%. The Zacks analyst thinks Southern Company is one of the largest and best-managed electric utility holding companies in the United States, dominating the power business across the southeastern region.
With good rate base growth and constructive regulation, it is expected to generate steady earnings and dividend growth in the coming years through long-term power contracts. Additionally, SO's $12 billion AGL Resources buy has significantly increased its customer base and diversified offerings.
However, continued timing and cost overrun issues over two large construction projects – Vogtle and Kemper – are major overhangs. While the $20 billion Vogtle nuclear plant has gone well over budget and is years behind schedule, Southern's Kemper project suffered yet another setback with the suspension of all coal gasification operations amid additional cost burden. The interplay of these factors account for our conservative investment thesis.
Shares of Constellation Brands have gained more than +1.9% in the past year driven by a robust surprise history, exceeding the performance of the Zacks Alcoholic Beverages industry, which has lost -7.3% over the same period,. Though the company missed earnings estimates in first-quarter fiscal 2019 due to higher marketing expenses and transportation costs, it delivered earnings beat in the preceding 14 quarters.
Further, the company is witnessing solid top-line trends driven by strong depletions in the beer business. Notably, the fiscal first quarter results reflected the 9th sales beat in last 11 quarters. Consequently, management raised its GAAP earnings view for fiscal 2019.
The Zacks analyst thinks the company is benefiting from consistent focus on brand-building efforts and product innovations. However, the market remains concerned about the outcome of the company’s recent $5 billion investment to expand stake in Canada’s Canopy Growth. Moreover, stiff competition, higher debt position and taxes remain concerns.
Buy-ranked Vale’s shares have handily outperformed the Zacks Basic Materials sector in the past year (+24.3% vs. +6.2%). Vale expects to produce more than 100 million tons (Mt) per quarter in the second half of 2018 to meet its full year guidance of approximately 390 Mt.
The company will be able to achieve this as volumes continue to improve at its S11D mine. Vale’s cash cost is expected to be lower than $13 per ton in second-half 2018, benefiting from the competitiveness of growing S11D volumes, seasonally lower costs and higher production. Vale is steadily deleveraging its balance sheet via increased free cash flow generation.
The Zacks analyst thinks the company remains on track to boost shareholders' value over time. Steel demand continues to be strong backed by growing global economy, strong machinery and construction sector activity.
Steel-makers continue to look for higher iron ore grade and low alumina iron ore to increase productivity while lowering emissions. In this regard, Vale is well positioned as a major supplier of sinter fines combining high iron and low alumina.
Other noteworthy reports we are featuring today include CME Group (CME), American Electric (AEP) and Sempra Energy (SRE).
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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>>>