Today's Must Read
New Drugs Drive Merck's (MRK) Sales as Competition Soars
Subscriber Additions, Content Strength Drives Netflix (NFLX)
Monday, January 21, 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), Merck (MRK) and Netflix (NFLX). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Buy-ranked Bank of America’s shares have outperformed the Zacks Major Regional Banks in the past year, losing -8.2% vs. -14.5%. Also, the company possesses an impressive earnings surprise history, beating expectations in each of the trailing four quarters. Its fourth-quarter 2018 results were driven by rise in net interest income, lower operating expenses and decline in provisions.
The Zacks analyst thinks rise in loan and deposit balances, higher interest rates and efforts to control expenses will likely support profitability. While dismal performance of capital markets has been hurting the company’s investment banking operations, its initiatives to expand into new markets and digital offerings are expected to further enhance cross selling opportunities. Also, the bank’s steady capital deployments reflect a strong liquidity position.
Shares of Buy-ranked Merck have gained +23.9% in the past year, significantly outperforming the Zacks Large Cap Pharmaceuticals industry, which has lost -0.8% over the same period. The Zacks analyst thinks Merck’s 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 setting 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. Meanwhile, 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 on products like Isentress (HIV), Zepatier (HCV) and Zostavax (vaccine) remains. Estimates have gone down slightly ahead of Q4 results. Merck has a positive record of earnings surprises in the recent quarters.
Netflix’s shares have increased +49% in the past year, significantly outperforming the Zacks Broadcast Radio and Television industry’s gain of +9% during the same period. The Zacks analyst thinks Netflix’s fourth-quarter 2018 subscriber addition rate reflects growing appeal of the streaming platform, which is primarily driven by a solid content portfolio. This is also helping the company counter competition from the likes of HBO, Amazon Prime video and YouTube.
Moreover, partnerships with telcos like Telefonica in Spain, KDDI in Japan, Comcast and T-Mobile in the United States, and Sky in the U.K. and Germany are expected to drive subscriber addition. However, management’s weak guidance for U.S. streaming paid net additions for the first quarter of 2019 is expected drag down shares.
Netflix’s decision to raise prices is likely to boost top-line growth and offset increasing marketing expenditure. However, continuing cash burn and huge debt level are primary concerns.
Other noteworthy reports we are featuring today include Amgen (AMGN), IBM (IBM) and The Bank of New York Mellon (BK).
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
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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>>>