Today's Must Read
Focus on Trading Revenues Aids Schwab (SCHW), Costs a Woe
Rising Top-line, Inorganic Growth Aid HCA Healthcare (HCA)
Wednesday, July 3, 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 VMware (VMW), Schwab (SCHW) and HCA Healthcare (HCA). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
VMware’s shares have gained +21.9% year to date, underperforming the Zacks Software industry which is up +32.5% over the same period. The Zacks analyst thinks VMware is benefiting from robust demand for NSX, VeloCloud and vSAN product lines.
The company’s dominance in the software-defined data center (SDDC) domain and an expanding customer base in cloud, driven by partnerships with the likes of IBM and AWS, are positives. Microsoft and VMware are also exploring initiatives to boost integration between VMware infrastructure and Azure. These partnerships are major growth drivers for the company in the long haul.
Nevertheless, growth in license bookings has been muted for the last few quarters, owing to customer delays and macro-economic weakness in some key regions. Moreover, VMware’s margins are expected to remain under pressure due to heavy spending. Intensifying competition is also a concern.
Shares of Schwab have underperformed the Zacks Investment Brokers industry over the past six months, declining -5.3% vs. +4.4%. The company's earnings have surpassed expectations in each of the trailing four quarters.
The Zacks analyst thinks the company remains well positioned to gain from higher interest rates, strong balance sheet and efforts to strengthen trading business. Moreover, the company’s initiatives to improve operating efficiency will go a long way to support profitability.
Its steady capital deployment actions are commendable and will enhance shareholder value. However, continuously rising operating expenses (mainly related to compensation costs and regulatory charges) are likely to hurt bottom-line growth to some extent. Further, the company’s dependence on fee-based revenues remains a major concern, and this might hamper financials going forward.
HCA Healthcare’s shares have outperformed the Zacks Hospital industry in the past year, gaining +30.1% vs. +14.4%. Moreover, it has witnessed its 2020 earnings estimates move north over the past 30 days. Its top line has been growing over the last several quarters on the back of higher admissions, same facility emergency room growth and surgical growth, etc.
The Zacks analyst thinks multiple acquisitions have helped the company gain a strong foothold in the industry, fueling its inorganic growth. A strong balance sheet and free cash flow are other positives for the company. Bullish 2019 guidance should instill investor’s confidence in the stock.
However, high operating expenses due to salaries and benefits and other costs are persistently weighing on margins. It is expected to witness a rise in costs due to constant growth-related investments. High leverage is another concern for the company.
Other noteworthy reports we are featuring today include Constellation Brands (STZ), Cognizant (CTSH) and Hilton (HLT).
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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>>>