Today's Must Read
Alphabet (GOOGL) Rides on Strong Mobile, Legal Troubles Ail
Branch Expansion, Loans Aid BofA (BAC), Mortgage Fees a Woe
Loan Growth Supports Wells Fargo (WFC), Legal Issues Linger
Tuesday, October 30, 2018
The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 17 major stocks, including Microsoft (MSFT), Alphabet (GOOGL), Bank of America (BAC) and Wells Fargo (WFC). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Buy-ranked Microsoft’s shares have outperformed the Zacks Technology sector on a year-to-date basis (up +25.1% versus -1.5%). Microsoft reported stellar first-quarter results. The Zacks analyst thinks the company is benefiting from growing user base of its different applications like Office 365 commercial, Dynamics, Outlook mobile and Teams.
Azure’s expanding customer base is a key catalyst. Microsoft’s gaming segment is performing well, primarily driven by a combination of Xbox Live, Game Pass subscriptions and Mixer, which are driving user engagement. Further, acquisitions like PlayFab and GitHub expand Microsoft’s total addressable market (TAM) and penetration. However, projections of a moderating growth rate in commercial cloud gross margin, and OEM Pro and Windows commercial businesses is a headwind.
Shares of Alphabet have outperformed the Zacks Internet Services industry on a year-to-date basis (the stock is up +2.9% vs. a -21.3% decline for the industry). Alphabet's third-quarter earnings were driven by robust mobile growth. However, sales growth slowed down during the quarter.
The Zacks analyst thinks the company's focus on innovation, AI, cloud, home automation space, strategic acquisitions and Android OS should continue to aid earnings growth. Further, its partnership with PayPal remains positive.
The company has shown good execution to date, more or less maintaining its dominant share in a competitive, fast-growing search market. However, the company suffers from litigation issues which might hurt its profitability.
Alphabet's increased spending on its consumer gadgets, YouTube video app and cloud computing services remain concerns. In addition, rising competition in the online advertisement market poses a serious risk to the company's position.
Bank of America’s shares have outperformed the Zacks Major Regional Banks industry over the past year, losing -3.6% vs. -6.1%. Also, the company possesses an impressive earnings surprise history, beating expectations in each of the trailing four quarters. Its third-quarter 2018 results reflect rise in net interest income, card fees and equity underwriting income as well as lower provisions and operating expenses.
The Zacks analyst thinks rise in loan and deposit balances, higher interest rates, expansion into new markets and efforts to manage expenses are likely to support profitability. Also, lower tax rates and a strong balance sheet position will aid growth.
However, a fall in mortgage banking income due to lower volumes and a decline in refinancing activity along with uncertainty related to performance of capital markets remain major concerns. These are expected to hurt the bank's revenues to some extent.
Shares of Wells Fargo have underperformed the Zacks Major Regional Banks industry year to date (-15.6% vs. -11.1%). The company possesses a disappointing earnings surprise history, having beaten expectations in only one of the trailing four quarters.
Third-quarter results were impacted by lower fee income, rise in expenses and reduced loans balance. Following the sales scandal and other issues, Wells Fargo has been slapped with new sanctions, including a cap on the assets position by the Federal Reserve.
The Zacks analyst thinks the crisis related to the revelation of illegally opening millions of accounts in 2016, auto-lending issues and impact of other malpractices will take some time to alleviate. However, the company’s ongoing investment in the businesses — aimed to enhance the compliance and risk management capability, build a better bank and strengthen core infrastructure — bodes well. Also, lower tax rate and easing of regulations will likely support its growth.
Other noteworthy reports we are featuring today include 3M (SYK), Gilead (TSLA) and Morgan Stanley (ISRG).
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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>>>