Today's Must Read
Rising Loans, Rates Aid Wells Fargo (WFC), Legal Issues Ail
AT&T (T) Aims to Capitalize on 5G Despite Legacy Service Woes
Wednesday, January 2, 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 Facebook (FB), Wells Fargo (WFC) and AT&T (T). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Buy-ranked Facebook’s shares have underperformed the S&P 500 index over the past three months, declining -19.3% vs. -14.2%. The Zacks analyst thinks Facebook continues to benefit from mobile ad growth. The company intends to cash in on the ever-increasing trend of video viewing on social media platforms through Watch.
Facebook’s effort to add new features on Instagram, Watch and Messenger are noteworthy. Robust user base on WhatsApp and Instagram is expected to fuel top-line for the company in the near-term. Facebook’s expanding footprint in developing countries is a positive. Moreover, the company’s effort to curb misuse of its platform is a tailwind.
However, 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.
Shares of Wells Fargo have underperformed the Zacks Major Regional Banks industry over the past six months (-17% vs. -13.5%). Also, the company possesses a disappointing earnings surprise history, having beaten expectations in only one of the trailing four quarters.
The Zacks analyst notes that 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. Also, the company’s reputation, which has been harmed by the involvement in several legal issues and malpractices, might take some time to improve.
However, its ongoing investment in the businesses — aimed to enhance the compliance and risk management capability, build a better bank and strengthen core infrastructure — bodes well. Recently, as a silver lining, the bank was able to settle the fake account scandal related lawsuit filed by the shareholders and investigations by about 50 states, enabling it to focus on improving performance.
AT&T’s shares have decreased -24.2% in the past year, underperforming the Zacks Wireless National industry's decline of -7.6%. The Zacks analyst likes how AT&T is ramping up its FirstNet program and revamping its lineup of video products, pricing and promotion initiatives. The company is offering 5G devices over commercial mobile 5G network in multiple U.S. markets from December.
AT&T has also updated its guidance for 2019 following the acquisition of WarnerMedia. It now expects significant growth in free cash flow, which should help it achieve the target of debt ratio in the 2.5x range by the end of 2019 and a low single digit growth rate in adjusted EPS. AT&T is facing a steady decline in linear TV subscribers and legacy services.
The company’s wireline division is facing losses in access line due to competitive pressure from voice-over-Internet protocol service providers. As AT&T tries to woo customers with discounts, freebies and cash credits, margin pressures tend to escalate.
Other noteworthy reports we are featuring today include Intel (INTC), Enterprise Products (EPD) and Glaxo (GSK).
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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>>>