Today's Must Read
Mobile Ad Growth, Instagram Strength Benefits Facebook (FB)
Strong Service and Benefits Business Aids UnitedHealth (UNH)
Monday, February 04, 2019
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 Microsoft (MSFT), Facebook (FB) and UnitedHealth (UNH). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Microsoft’s shares have lost 5% in the past six months, underperforming the Zacks Computer Software industry’s decline of 1.7% during the same period. Microsoft reported modest second-quarter results. Notably, both top and bottom line increased year over year.
Robust execution and better-than-expected demand from customers for hybrid cloud offerings drove the quarterly results. The Zacks analyst thinks Microsoft is benefiting from growing user base of its different applications like Office 365 commercial, Dynamics, Outlook mobile and Teams.
Moreover, Azure’s expanding customer base is a key catalyst. Microsoft’s gaming segment is performing well, primarily driven by a combination of Xbox Live, Game Pass subscriptions and Mixer, which are driving user engagement. Further, acquisitions like PlayFab and GitHub expand Microsoft’s TAM and penetration.
However, projections of a moderating growth rate in commercial cloud gross margin, and OEM Pro and Windows commercial businesses is a headwind. Also, competition is stiff and its dominant position in the PC market continues to be challenged.
Shares of Buy-ranked Facebook have outperformed the S&P 500 index over the past three months, gaining +11.4% vs. -0.7%. Facebook reported impressive fourth-quarter 2018 results, driven by solid ad revenues that benefited from impression growth on both Instagram Stories and Feed.
But the Zacks analyst thinks only Instagram Stories is likely to be the key catalyst for impression growth in 2019. Facebook needs to improve ad pricing to drive top-line growth. Further, the company’s plan to introduce commerce in Instagram is expected to be a major growth driver. Additionally, the company’s plan to integrate messaging apps — WhatsApp, Instagram, and Messenger – is expected to take time (not before 2020).
Management believes that the integration will boost user experience by making the services more secure through end-to-end encryption. However, continued mix shift toward Stories is expected to hurt ARPU.
Strong Buy-ranked UnitedHealth’s shares have performed nearly in-line with the Zacks Medical Insurance industry's rally in the past year (up +22.1% vs. +22.5%). UnitedHealth Group’s fourth-quarter 2018 earnings of $3.28 per share beat expectations by 2.5% and increased 27% year over year.
Higher revenues, strength in both segments — UnitedHealthcare and Optum — plus membership growth led to this outperformance. The Zacks analyst likes UnitedHealth’s balance sheet strength, strong operating performance, favorable business profile and solid enterprise risk management. Increased earnings from operations are being driven by higher revenues, appropriate pricing, good medical cost management and operational efficiencies.
The company also benefits from services, technology and innovations from its segment Optum. However, slowdown of growth in international operations, Commercial and Medicare, Part D stand-alone membership, increase in leverage and interest burden and medical care ratio are some headwinds.
Other noteworthy reports we are featuring today include AT&T (T), Mastercard (MA) and ExxonMobil (XOM).
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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>>>