Today's Must Read
Decent Comparable Sales Run to Fuel Costco's (COST) Top Line
Glaxo's (GSK) Pipeline Growing Amid Generic Woes for Advair
Friday, April 17, 2020
We bring you the the best research output of our analyst team in this space every day. Today's Research Daily features new research reports on 16 major stocks, including Netflix (NFLX), Costco (COST) and GlaxoSmithKline (GSK). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today. We have also provided below a real-time scorecard of the ongoing 2020 Q1 earnings season, which ramps up in a meaningful way next week, with more than 250 companies reporting results, including 72 S&P 500 members.
Q1 Earnings Season Scorecard
Including this morning's results from Proctor & Gamble (PG), Schlumberger (SLB) and others, we now have Q1 results from 47 S&P 500 members that combined account for 14.1% of the index's total market capitalization. Aggregate net income for these 47 companies are down -31.1% from the same period last year on +2.9% higher revenues, with 68.1% beating EPS estimates and an equivalent proportion beating revenue estimates.
Needless to say that this is a significantly weaker showing than we have been seeing from this group of 47 index members in other recent periods.
The earnings growth pace has been particulalry weak for the Finance sector, whose results dominate this initial sample of results. For the Finance sector, we now have Q1 results from 34.4% of the sector's market cap in the S&P 500 index. Aggregate net income for these Finance companies are down -51.3% on -1% lower revenues, with only 47.1% beating EPS estimates and 64.1% beating revenue estimates.
Estimates for the current period (2020 Q2) and full-year 2020 have been steadily coming down, with earnings for the periods now expected to be down -26.5% and -14.6%, respectively.
Netflix, which reports Q1 results next Tuesday, has been a standout beneficiary of the current shelter-in-place economy, with stock handily outperforming the Zacks Broadcast Radio and Television industry over the past six months (+55.3% vs. +9.8%). The Zacks analyst believes that Netflix is expected to benefit from an expanding content portfolio despite increasing competition from the likes of HBO, Amazon prime video, Disney+ and Apple TV+.
Expanding bundle offerings through partnerships with Telefonica, KDDI, AT&T, Comcast, DISH, Verizon, Charter, Altice, T-Mobile and Sky are a key catalyst. Moreover, the launch of low-priced mobile plans in India, Indonesia, Malaysia, Philippines and Thailand is expected to expand the subscriber base in the Asia Pacific.
Meanwhile, Netflix has a record of positive earnings surprises in recent quarters. Moreover, high streaming content obligation and increased spending are expected to hurt free cash flow generation.
Costco is another beneficiary of the current environment, with the stock standing out in its outperformance. The Zacks analyst believes that the company’s business model and commitment toward opening membership warehouses will continue to drive traffic.
The company’s growth strategies, better price management, sturdy comps performance and strong membership trends reinforce its position. Moreover, with the wave of digital transformation, Costco is rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. Such concerted efforts have been favoring comps.
Comps grew 9.6%, while sales improved 11.7% in the month of March due to coronavirus-induced panic buying as consumers stock up essential items. However, any higher investments or aggressive pricing strategy may hurt margins. Also, rising SG&A expenses and stiff competition pose concerns.
GlaxoSmithKline’s shares have lost -11.9% over the past three months against the Zacks Large Cap Pharmaceuticals industry’s fall of -5.4%. The Zacks analyst is encouraged by the company’s initiatives to focus on its oncology pipeline. In 2020, Glaxo expects at least six potential approvals in oncology, HIV and respiratory.
Glaxo’s three newest products, Trelegy Ellipta, Shingrix and Juluca, are doing well, particularly Shingrix. These products coupled with restructuring in the Consumer Health unit have strengthened Glaxo’s competitive position.
However, pricing pressure and competitive dynamics are hampering sales of Glaxo’s respiratory products. Also, competitive pressure on HIV drugs has risen. Its shares have unperformed the industry this year so far. Estimates have gone down ahead of the Q1 earnings release due to the uncertainty related to the coronavirus. Glaxo has a mixed record of earnings surprises in recent quarters.
Other noteworthy reports we are featuring today include Johnson & Johnson (JNJ), Texas Instruments (TXN) and Cigna (CI).
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Director of Research
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>>><