Today's Must Read
High Operating Costs Hurt United Technologies (UTX)
Royal Dutch Shell (RDS.A) to Gain from Growing LNG Demand
Tuesday, April 16, 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 Coca-Cola (KO), United Technologies (UTX) and Royal Dutch Shell (RDS.A). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Coca-Cola’s shares have outperformed the Zacks Soft Drinks Beverages industry in the past year, (+4.9% vs. -6.1%), driven by its ongoing productivity efforts and disciplined growth strategies. This aided results in fourth-quarter 2018, wherein earnings were in line while sales beat estimates marginally.
Price/mix improvements due to core business strength also contributed to the solid results. The Zacks analyst thinks acceleration of sparkling soft drinks category through investment and innovation also bode well. Moreover, its transformative global re-franchising initiatives are expected to boost margins. However, the company issued a bleak earnings and sales view for 2019.
Notably, the company expects adverse currency rates to significantly hurt comparable revenues and operating income in the first quarter and 2019. Currency headwinds have persistently hurt the company’s results for the past few quarters, including fourth-quarter 2018. Further, emerging market volatility and soft CSD volumes continue to remain impediments.
Shares of United Technologies have gained +8.5% in the past year, outperforming the Zacks Diversified Operations industry, which has declined -0.1% over the same period. The Zacks analyst thinks strength in commercial and military aftermarket businesses and impressive contribution from its acquired Rockwell Collins business sales will likely boost United Technologies' near-term revenues.
Also, improved top line and cost-cutting measures are expected to enhance profitability, going forward. Backed by these positives, the company has given bullish full-year 2019 revenue guidance. In addition, it intends to become more competent on the back of meaningful business acquisitions.
However, rising costs of sales remain a concern for the company's gross margin. If unchecked, higher costs and operating expenses will prove detrimental to United Technologies' margins and profitability. Moreover, increases in debt levels can increase its financial obligations.
Royal Dutch Shell’s shares have lost -1% in the last six months, outperforming the Zacks Integrated Oil industry’s loss of -3.4% during the same period. Shell’s upstream unit profit has rebounded strongly thanks to steady commodity price recovery, while the integrated gas business — consisting of BG Group activities — impressed on the back of pricing gains.
The Zacks analyst thinks the Anglo-Dutch company's position as a key supplier of LNG should benefit its long-term cash flow growth. However, there are apprehensions that the group's disposal program could affect oil production, which fell 2% year over year in 2018.
The company’s poor reserve replacement ratio is another concern. Hence, investors are advised to wait for a better entry point before buying shares in the integrated major.
Other noteworthy reports we are featuring today include VALE (VALE), Estee Lauder (EL) and Disney (DIS).
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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>>>