Today's Must Read
Union Pacific (UNP) Strong on Dividends, Hurt by Fuel Costs
Investments in Specialized Distribution to Aid FEMSA (FMX)
Wednesday, July 27, 2022
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 The Walt Disney Company (DIS), Union Pacific Corporation (UNP) and Fomento Económico Mexicano, S.A.B. de C.V. (FMX). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
You can see all of today’s research reports here >>>
Walt Disney shares have declined -35.6% over the year-to-date basis against the Zacks Media Conglomerates industry’s decline of -30.4% as sentiment has soured on the company's streaming business. The company’s profitability is expected to be negatively impacted by higher investments in content, which will drive up programming and production costs at Media and Entertainment Distribution.
Closure of its Asian theme park due to COVID-19 doesn’t bode well for the Parks, Experiences and Products top-line growth. Disney expects this to reduce operating income by up to $350 million in the fiscal third quarter. Disney’s leveraged balance sheet is a concern.
Nevertheless, the company benefits from the growing popularity of Disney+, owing to a strong content portfolio and a cheaper bundle offering. Availability in the Nordics, Latin America and other Asian territories is helping it in expanding user base. Revival in Parks business also hold promise in the long haul
(You can read the full research report on Walt Disney here >>>)
Union Pacific shares have outperformed the Zacks Transportation - Rail industry over the past year (+1.8% vs. +1.7%). The Zacks analyst believes that the efforts to reward its shareholders even in the current uncertain scenario is worth appreciating. The company hiked dividend twice in 2021. In May 2022, UNP upped its quarterly dividend by a further 10%. The railroad operator is also active on the buyback front.
Management expects share repurchases in 2022 to be in line with the 2021 levels of $7.3 billion. UNP's strong free cash flow generating ability supports its shareholder-friendly activities. An uptick in freight revenues as economic activities pick up the pace is an added positive.
However, escalation in fuel costs as oil prices move north induced a 16% rise in the operating expenses in the March quarter. Costs are likely to be high in the June quarter as well. Detailed results will be out on Jul 21. High debt/EBITDA ratio is another worry. Increased capex may also be bothersome
(You can read the full research report on Union Pacific here >>>)
Fomento Económico Mexicano shares have declined -29.8% over the past year against the Zacks Beverages - Soft drinks industry’s gain of +7.7%. The company’s dismal performance can be attributed to continued gross margin pressures, which also led to bottom line miss in first-quarter 2022. Gross margin in the first-quarter was affected by contraction at FEMSA Comercio’s Fuel Division and Coca-Cola FEMSA.
First quarter results were also partly hurt by the impacts of supply-chain disruptions and higher raw material costs. However, the company’s top line surpassed the Zacks Consensus Estimate and improved year over year. This marked the fourth straight quarter of revenue beat.
Revenue growth was driven by gains across all business units. FEMSA’s digital initiatives and business expansion endeavors also act as upsides. Its efforts to expand in the U.S. specialized distribution segment also bodes well.
Other noteworthy reports we are featuring today include Amazon.com, Inc. (AMZN), Cadence Design Systems, Inc. (CDNS), and Valero Energy Corporation (VLO).
Director of Research
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>>>