Today's Must Read
Mobile Ad Growth, Instagram Strength Benefits Facebook (FB)
Revenue Growth, Solid Balance Sheet Aid Mastercard (MA)
New Drugs Drive Merck's (MRK) Sales as Competition Soars
Thursday, November 1, 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 Amazon (AMZN), Facebook (FB), Mastercard (MA) and Merck (MRK). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Buy-ranked Amazon’s shares have outperformed the broader market year to date by a wide margin. (the stock is up +36.7% vs. the +1.4% gain for the S&P 500 as a whole). Amazon reported third-quarter results wherein both earnings and revenues improved significantly year over year driven by strengthening retail position.
The company’s expanding physical presence and strengthening Prime program aided its momentum in the retail sector. Moreover, the rapid expansion of grocery services via Prime was a major positive throughout the quarter. Further, expanding customer base of Amazon Web Services (AWS) and its cloud offerings contributed well to the top-line growth during the reported quarter.
The Zacks analyst thinks the improving Alexa features and the growing number of device compatible with it will aid the company’s presence in the virtual assistant market. However, intensifying competition in the cloud computing market is a significant headwind. Also, heavy investment in fulfillment centers remains a concern.
Shares of Facebook have underperformed the S&P 500 index over the past three months, declining -13.9% vs. -4.3%. However, Facebook reported strong third-quarter 2018 results. Both earnings and revenues increased on a year-over-year basis driven by strong growth in Asia-Pacific.
Facebook stated that the developed markets are almost saturated and growth will now come from developing countries. The Zacks analyst thinks Facebook’s top-line benefits from mobile ad growth strength. Moreover, increasing effectiveness of Instagram ads is a key catalyst. Nevertheless, aggressive investments for the initiatives related to improving ad transparency, removal of fake accounts and curbing fake news is expected to hurt profitability in the near term.
Further, the company is expected to lose some ad impression opportunities due to its focus on growth of Stories on the core Facebook app. This is expected to negatively impact top-line growth.
Buy-ranked Mastercard’s shares have increased +33.3% over the past year, outperforming the Zacks Financial Transaction Services industry’s rally of +18.6%. Mastercard’s earnings beat expectations and increased year over year.
Better-than-expected results were primarily backed by higher switched transactions, increase in cross-border volume and gross dollar volume as well as gains from acquisitions. An increase in year-over-year rebates and incentives was a partial dampener.
The Zacks analyst thinks the company is poised for growth, given its solid market position, ongoing expansion and digital initiatives plus significant opportunities from the secular shift toward electronic payments. Its numerous acquisitions are aiding revenue growth. However, escalating costs, higher incentives and rewards will put pressure on the company’s bottom line.
Shares of Buy-ranked Merck have gained +30.8% year to date, significantly outperforming the Zacks Large Cap Pharmaceuticals industry, which has gained +4.1% over the same period. Merck beat estimates for earnings while missing the same for sales in Q3.
The Zacks analyst thinks new products like Keytruda, Lynparza, and Bridion are contributing meaningfully to the top line. Keytruda sales are gaining momentum with approval for additional indications, especially in the first-line lung cancer positioning as it is the only anti-PD-1 approved in this setting. Animal health and vaccine products are also performing strongly and remain core growth drivers for Merck.
Merck will continue to focus on cost-cutting initiatives to drive the bottom line. However, generic competition for several drugs and pricing pressure will continue to be overhangs on the top line. Rising competitive pressure on the diabetes franchise and products like Isentress (HIV), Zepatier (HCV) and Zostavax (vaccine) remains a concern.
Other noteworthy reports we are featuring today include Aetna (AET), Baxter (BAX) and HSBC Holdings (HSBC).
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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>>>