Today's Must Read
Chevron (CVX) to Gain from Stellar Permian Operation
Adobe (ADBE) Gains From Acquisitions Amid Risks
Thursday, June 6, 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 Johnson & Johnson (JNJ), Chevron (CVX) and Adobe (ADBE). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Johnson & Johnson’s shares have outperformed the Zacks Large Cap Pharmaceuticals industry so far this year (+4.1% vs. -0.1%). The Zacks analyst thinks J&J is likely to witness significant generic/biosimilar headwinds in the Pharma unit in 2019. However, J&J’s sales and earnings growth is expected to accelerate in 2020, supported by contribution from new drugs like Tremfya and successful label expansion of cancer drugs like Imbruvica and Darzalex and immunology drug, Stelara.
J&J is also making rapid progress with its pipeline and line extensions. It has already gained FDA approval for two new drugs in 2019, Balversa and Spravato. Meanwhile, share buybacks and restructuring initiatives should provide bottom-line support.
Headwinds like biosimilar/generic competition and pricing pressure remain. Allegations that its talc products contain asbestos, which causes users to develop ovarian cancer, continue to be an overhang on the stock.
Shares of Chevron have outperformed the Zacks Integrated Oil industry in the past six months (+1.8% vs. -1.9%). The Zacks analyst thinks Chevron’s financial results have greatly improved over the past few quarters, primarily aided by surging production and free cash flow turnaround. In fact, Chevron's free cash flow and upstream production for 2018 hit a record.
The company’s existing oil and gas development project pipeline is among the best in the industry, targeting a CAGR of 3-4% through 2023 thanks to the planned expansion in the Permian Basin. Moreover, growing free cash flow should enable Chevron to deliver stable and rising dividends in the foreseeable future. However, there are worries of a drop in its downstream earnings.
Meanwhile, Chevron's decision to walk away from the Anadarko transaction meant that the company lost the chance to significantly augment its substantial Permian holdings. Hence, investors are advised to wait for a better entry point.
Adobe’s shares have gained +10.3% over the past year, underperforming the Zacks Software industry which has increased +20.5% over the same period. However, the Zacks analyst thinks Adobe is riding high on benefits gained from the Magento and Marketo acquisitions. Further, increasing demand for its creative products is driving top-line growth.
The company has been making great efforts toward establishing its presence in cloud-related areas such as documents and marketing. Adobe’s market position, compelling product lines, continued innovation, solid adoption of Creative Cloud and Adobe marketing cloud provides cause for optimism. Estimates have been stable ahead of the company’s Q2 earnings release.
The company has a mixed record of earnings surprises in recent quarters. However, lower end-market demand and exposure to Europe remain overhangs. Further, high acquisition expenses do not bode well for margin expansion.
Other noteworthy reports we are featuring today include Boston Scientific (BSX), Las Vegas Sands (LVS) and Southern Copper (SCCO).
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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>>>