Today's Must Read
Robust Snacking Category to Drive PepsiCo's (PEP) Sales
Dividends, Buybacks Aid Union Pacific (UNP) Amid Debt Woes
Friday, January 4, 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 Bank of America (BAC), PepsiCo (PEP) and Union Pacific (UNP). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Bank of America’s shares have outperformed the Zacks Major Regional Banks over the past six months, losing -12% vs. -13.4%. Also, the company possesses an impressive earnings surprise history, beating expectations in each of the trailing four quarters.
Earnings estimates have remained stable ahead of the company's fourth quarter 2018 results. 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, 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 PepsiCo have lost -8.8% in the past year, outperforming the Zacks Soft Beverages industry's decline of -15.2%, due to its robust surprise trend. Earnings topped estimates in the last 11 quarters, while it delivered positive sales surprise in five of the last seven quarters.
The improvement is mainly attributable to strong performances in international divisions, propelled by higher revenue growth in developing and emerging markets. Also, the company’s solid snacks division is boosting the performance.
However, PepsiCo is witnessing strained margins for quite some time due to operating and commodity cost inflation, including higher transportation costs and stepped-up advertising expense. This trend is likely to continue, going ahead.
Additionally, consumers’ awareness on health and wellness, alongside new taxes on sugar-sweetened beverages and growing regulatory pressures are affecting CSD sales, which has caused sluggishness in beverage category.
Union Pacific’s shares have outperformed the Zacks Rail industry (-3.6% vs. -6%) in the past year. The Zacks analyst expects Union Pacific's fourth-quarter 2018 results, scheduled to be unveiled on Jan 24, to be hurt by high operating expenses.
Despite the current downtrend in oil prices, fuel costs are likely to limit bottom-line growth in the fourth quarter. Declining coal volumes might also hurt results. At a presentation in November, the company stated that fourth-quarter volumes in the energy unit had declined 10% as of Nov 25.
Pricing pressures in coal and international intermodal markets are acting as a major headwind. The company's high debt levels are additional concerns. However, the upbeat freight scenario is a positive as Union Pacific derives bulk of its revenues from this source. The company's efforts to reward its shareholders is another cause for optimism.
Other noteworthy reports we are featuring today include Texas Instruments (TXN), Caterpillar (CAT) and Mondelez (MDLZ).
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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>>>