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Research Daily

Tuesday, April 21, 2020

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features the real-time update on the ongoing Q1 earnings season and new research reports on 16 major stocks, including Exxon Mobil (XOM), Oracle (ORCL) and Eli Lilly (LLY). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.

You can see all of today’s research reports here >>>

Q1 Earnings Season Scorecard

Including this morning's releases from Coke (KO) and others, we now have Q1 results from 68 S&P 500 members or 13.6% of the index's total membership. Total earnings for these 68 companies are down -27.3% on +3.6% higher revenues, with 66.2% beating EPS estimates and 69.1% beating revenue estimates. 

The Finance sector, whose results are heavily represented in the Q1 sample of results at this stage and whose earnings have been severely impacted by rising provisions for bad loans, is playing a big role in dragging down the aggregate earnings growth pace at this stage with its -48.6% decline in earnnings. Excluding the Finance sector drag, Q1 earnings for the rest of the S&P 500 companies would be down -2.7% from the year-earlier period. 

Estimates for the current and coming quarters have been steadily coming down, as we have been pointing out in this space all along. For the June quarter, S&P 500 earnings are now expected to be dwon -27.5%. 

For full-year 2020, S&P 500 earnings are now expected to be down -15.7%, which approximates to an index 'EPS' of $136.40, down from $161.84 in 2019.  

Exxon Mobil shares continue to struggle given the free fall in oil prices that pushed front-month futures price for the U.S. benchmark into negative territory this week. The stock has lagged the broader market in a major way because of oil's shaky foundations currently, a trend that will likely continue to some extent even as the public health issue is addressed.  

That said, Exxon’s bellwether status in the energy space, optimal integrated capital structure that has historically produced industry-leading returns, and management’s track record of capex discipline across the commodity price cycle make it a relatively lower-risk energy sector play.

Notably, the company’s plan to slash 2020 capital spending plan by 30%, owing to the coronavirus pandemic, is likely to prevent a massive shortfall in the firm’s cashflows. Moreover, the company estimates gross recoverable resource of more than 8 billion oil-equivalent barrels from offshore Guyana discoveries. However, the integrated energy firm expects upstream profit to decline sequentially in Q1 due to fall in liquids prices.

(You can read the full research report on Exxon Mobil here >>>)

Shares of Oracle have lost -5.5% over the past year against the Zacks Computer Software industry’s rise of +22.3%. The Zacks analyst believes that Oracle is benefiting from strong adoption of cloud-based solutions, comprising NetSuite ERP, Fusion ERP and Fusion HCM, among others.

Further, momentum witnessed in cloud services is a key catalyst. Moreover, strong demand for the latest autonomous database supported by ML is anticipated to drive the top line and provide the company a competitive edge against Amazon Web Services (AWS) in the Database-as-a-Service market. Going ahead, it is expected to reap benefits from rising adoption of SaaS.

However, stiff competition in the cloud market from dominant players is expected to weigh on profitability. Further, lower hardware volumes are likely to hurt the top line.

(You can read the full research report on Oracle here >>>)

Eli Lilly’s shares have gained +8.4% over the past three months against the Zacks Large Cap Pharmaceuticals industry’s fall of -2.8%. The Zacks analyst believes that Lilly’s revenue growth will be driven by higher demand for newer drugs like Trulicity, Jardiance, Taltz, Verzenio, Basaglar, Emgality as well as newly launched Baqsimi and Reyvow in 2020.

Lilly is making significant pipeline progress with several positive late-stage data readouts scheduled for 2020. Lilly is also regularly adding promising new pipeline assets through business development deals.

However, generic competition for several drugs including the expected generic entry of Forteo, rising pricing pressure in the United States and price cuts in some international markets and coronavirus pandemic impact are some top-line headwinds expected in 2020. Estimates have declined slightly ahead of Q1 results. Lilly has a positive record of earnings surprises in the recent quarters.

(You can read the full research report on Eli Lilly here >>>)

Other noteworthy reports we are featuring today include AbbVie (ABBV), Becton, Dickinson (BDX) and Dominion Energy (D).

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Sheraz Mian

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>>>

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