Today's Must Read
Coronavirus Candidate Boost Gilead (GILD) Amid Competition
Digitalization Aid Starbucks (SBUX), Coronavirus Crisis Hurts
Monday, April 20, 2020
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 Alphabet (GOOGL), Gilead Sciences (GILD) and Starbucks (SBUX). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
We have also provided here an update on the ongoing Q1 earnings season, which ramps up in a major way way this week, with more than 250 companies reporting results, including 72 S&P 500 members.
Q1 Earnings Season Scorecard
Including all of this morning's reports, we now have Q1 results from 50 S&P 500 members. Aggregate net income for these 50 index members are down -30.2% on +2.8% higher revenues, with 70% beating EPS estimates and 68% beating revenue estimates.
Relative to other recent periods, this is weaker performance from these 50 index members and reflective of the disruption caused by the pandemic, though admittedly the all-around shelter-in-place policies arrived only in the last three weeks of March.
For Q1 as a whole, combining the actual results that have come out with estimates for the still-to-come companies, aggregate net income for the index is expected to drop -14.1% on +1.1% higher revenues.
Estimates for the current period (2020 Q2), which is expected to be epicenter of the ongoing downturn, have beeen coming down in a major way, with S&P 500 earnings now expected to be down -27.1% from the same period last year. Estimates for the second half of the year also showing declines now.
For full-year 2020, S&P 500 earnings are now expected to be down -15.5% from the 2019 level, which is a decline from the +7.9% growth expected in January 2020.
Alphabet’s shares have outperformed the Zacks Internet Services industry over the past six months (+1.6% vs. +0.5%). The Zacks analyst believes that Alphabet's strengthening cloud unit is aiding substantial revenue growth. Moreover, expanding data centers will continue to bolster its presence in the cloud space.
Further, major updates in its search segment are enhancing the search results, which is a major positive. Moreover, Google’s robust mobile search is gaining solid momentum. Additionally, strong focus on innovation of AI techniques and the home automation space should aid business growth in the long term.
Further, its deepening focus on wearables category remains a tailwind. However, the company’s growing litigation issues and increasing expenses might hurt profitability. Further, the company faces persistent pressure from advertisers to tighten controls on YouTube video service. This remains a concern.
Shares of Gilead have gained +35.4% over the past year against the Zacks Biotech industry’s rise of +6.5%. The Zacks analyst believes that competition is stiffening for the HIV franchise from the likes of Glaxo. Moreover, the uptake of Yescarta hasn’t been very impressive and the treatment faces stiff competition from Kymriah.
Gilead has shifted focus to the HIV franchise and newer avenues like CAR-T therapy due to a massive decline in HCV franchise sales. The HIV franchise maintains momentum, driven by the strong performance of Biktarvy.
Encouraging initial uptake of Descovy for the pre-exposure prophylaxis (PrEP) setting also boosted performance. The company’s experimental candidate, remdesivir, has shown promise in treating patients with COVID-19 and any positive outcome will significantly boost the stock.
Starbucks’ shares have lost -17.7% over the past three months against the Zacks Food & Restaurants industry’s fall of -16.3%. The Zacks analyst believes that although sales in comparable store sales in China are likely to decline sharply in second-quarter, the company is witnessing recovery in sales trend.
In February, China comparable stores sales plunged 78%. The company has trimmed its second-quarter fiscal 2020 guidance due to the pandemic. The company’s adjusted earnings in second-quarter fiscal 2020 is estimated to be 32 cents, down sharply from the prior-year quarter adjusted earnings of 60 cents.
Of late, estimates for current quarter and year have also witnessed downward revisions. However, enhanced customer experience, and digitalization bode well. The company has a very strong balance sheet, which will help it tide over the coronavirus crisis.
Other noteworthy reports we are featuring today include Tesla (TSLA), Vertex Pharmaceuticals (VRTX) and Intuit (INTU).
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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>>>