Today's Must Read
Alibaba (BABA) Drives On Cloud Growth; Investments Hurt
NIKE (NKE) Digital Business Act As Catalyst, Expects Soft Q4
Wednesday, June 24, 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 Amazon.com (AMZN), Alibaba Group (BABA) and NIKE (NKE). These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.
Amazon had become a leader of the retail space even before Covid-19 made the company an essential part of many households' only provider of essential supplies during the shelter-in-place phase. The pandemic has boosted digital sales, a trend that was already in place in the pre-Covid world. No doubt Amazon shares have been standout perfomers lately, up +46.1% over the past year, handily outperforming the S&P 500 index's +7.5% gain during the same period.
In addition to Amazon's online retail dominance, the Zacks analyst spotlights the company's AWS business as a key source of competitive advantage in the cloud computing space.
Further, AWS is gaining solid traction among healthcare workers, medical researchers, educational institutions and government organizations owing to coronavirus management measures. Further, Prime momentum owing to fast delivery services and strong content portfolio is benefiting Amazon.
Also, expanding distribution strength and workforce which are helping in addressing the overflowing online orders during this pandemic are major positives. Furthermore, robust Alexa skills and strong smart home product offerings are tailwinds. However, growing coronavirus related expenses might hurt Amazon’s profitability. Also, foreign exchange headwinds and rising cloud competition are risks.
Alibaba shares have lagged Amazon this year, with the stock up +6.2% vs. Amazon's +48.1% year-to-gain, likely reflecting a 'China discount'. The Zacks analyst believes that Alibaba Group is driven by a steady improvement in core commerce and strong cloud business. The company continues to benefit from strong growth in metrics.
Further, Alibaba’s strengthening cloud business with its expanding customer base continues to drive its performance. The company's New Retail strategy is also gaining momentum. This is aiding growth in Tmall Import, Hema fresh food grocery business and Intime Department Stores.
However, higher costs associated with new initiatives remain a major concern. Also, COVID-19 related economic uncertainties and macro headwinds in China are major concerns. In addition, rising competition from e-commerce players like Amazon poses a risk.
NIKE’s shares have gained +25.3% over the past three months against the Zacks Shoes and Retail Apparel industry’s rise of +29.4%. The Zacks analyst believes that the use of its digital ecosystem as a key playbook to combat the COVID-19 crisis has benefitted the company.
Notably, the company retained its positive earnings track record, with earnings and sales beat in third-quarter fiscal 2020. The NIKE Direct business displayed strength backed by more than 30% digital revenue growth across all geographies and Converse.
Nevertheless, the effects of store closures in China due to outbreak hurt Greater China’s revenues in third-quarter fiscal 2020. This resulted in lower sales mix in Greater China, which is its high margin geography, causing gross margin decline in the quarter. Further, the company expects soft results in the fiscal fourth quarter due to store closures.
Other noteworthy reports we are featuring today include AstraZeneca (AZN), 3M Company (MMM) and BP p.l.c. (BP).
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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>>>