Today's Must Read
AbbVie (ABBV) Eyes Diversification With Allergan Buyout
Phillips 66 (PSX) Banks on Midstream Unit, Refining Hurts
Tuesday, August 6, 2019
The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features updated research reports on 16 major stocks, including Chevron (CVX), AbbVie (ABBV) and Phillips 66 (PSX). These research reports have been hand-picked from roughly 70 reports published by our analyst team today.
Chevron’s shares have outperformed the Zacks Integrated Oil industry year to date (+9.1% vs. -2.7%). Chevron's second-quarter earnings increased 26% year over year and exceeded the consensus estimate. Free cash flow rose and production hit a record level. The Zacks analyst thinks Chevron’s existing project pipeline is among the best in the industry, targeting volume growth of around 4-7% in 2019 thanks to planned expansion in the Permian Basin. Chevron pumped 55% more out of the West Texas shale play in the quarter compared with the year-ago period, with output set to soar in coming years. Moreover, growing free cash flow should enable Chevron to distribute steady and attractive dividends in the future. However, drop in refining earnings once again cut into gains from rising E&P income. Its massive capex might also play spoilsport. Hence, investors are advised to wait for a better entry point.
Shares of AbbVie have lost -29.2% year to date, versus the Zacks Large-Cap Pharmaceuticals industry's decline of -2.9%. AbbVie beat estimates for earnings and sales in the second quarter and raised its earnings guidance for the second time this year. The Zacks analyst thinks AbbVie’s key drug, Humira, is performing well based on strong demand trends despite new competition. Additionally, Imbruvica has multibillion dollar potential. AbbVie has been successful in expanding approvals for its cancer drugs, Imbruvica and Venclexta. Moreover, it has an impressive late-stage pipeline, comprising several products with multibillion-dollar potential which are expected to be launched in the near term. The acquisition of Allergan, if successful, should diversify AbbVie’s revenue base and accelerate its non-Humira business. Sales erosion due to direct biosimilar competition to Humira in international markets is a big headwind.
Phillips 66’s shares have outperformed the Zacks Oil Refining and Marketing industry over the past year, losing -22% vs. -36%. The Zacks analyst thinks Phillips 66 is strongly positioned to gain from the rising demand for midstream assets in the United States, where takeaway capacity constraint is a significant problem. Moreover, the company is well-placed for the upcoming change in regulations, namely IMO 2020, with its updated refining assets. It is also committed to returning cash back to stockholders through dividend payments and share repurchases. Recently, the company reported strong second-quarter 2019 earnings, courtesy of contributions from pipeline transportation businesses. However, a lower crude utilization rate has hurt refining operations. Moreover, uncertainties in the global market are likely to hamper demand for petrochemicals, which will affect the firm’s Chemical business. Rising operating costs are also a threat to the company.
Other noteworthy reports we featured today include ConocoPhillips (COP), Qualcomm (QCOM) and Marriott (MAR).
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Note: Our Director of Research 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>>>