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Zacks #1 Stocks on the Move 06/22/2017

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Analyst Blog

Why You Should Add Novo Nordisk Stock to Your Portfolio

Posted Thu Jun 22, 10:57 am ET

by Zacks Equity Research

Headquartered in Bagsvaerd, Denmark, Novo Nordisk NVO is healthcare company and a with leadership in the global diabetes market. It looks like a great stock to buy now. Here are some reasons for the same.

Favorable Rank and Solid VGM Score: Novo Nordisk holds a Zacks Rank #2 (Buy) and a favorable VGM score of ‘A’. Back-tested results show that only stocks with a VGM Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Rising Estimates and Share Price Movement: Earnings estimates for Novo Nordisk moved up 0.9% and 0.8% for 2017 and 2018, respectively, over the past 30 days. Also, the company’s earnings performance has been pretty impressive, as it has delivered positive surprises in three of the trailing four quarters. In fact, the average earnings beat over the last four quarters is 3.15%.

Although the company’s share price declined last year, the same rose so far this year. Shares of Novo Nordisk have rallied 21.9% this year so far while the Zacks classified Large-Cap Pharma industry gained 13.2%.

Strong Foothold in the Diabetes Market: Novo Nordisk has a strong presence in the Diabetes care market with a global value market share of 27%. Top line is being consistently driven by strong sales within diabetes and obesity care with the main growth coming from Victoza, Tresiba, NovoRapid and Saxenda.

Victoza, a once-daily human GLP-1 analogue is expected to continue to be a significant contributor to the company’s top line. Earlier this week, the company announced that the Endocrinologic and Metabolic Drugs Advisory Committee (EMDAC) of the FDA voted 17-2 in favor of Victoza that the drug provides substantial evidence of cardiovascular risk reduction in patients with type II diabetes. The positive panel recommendation brings Novo Nordisk a step closer to get the cardiovascular indication included on the label of Victoza. Though the FDA is not bound by the Advisory Committee’s decision , it usually does follow it. The addition of positive cardiovascular outcomes data on the label of the diabetes drug can give sales a boost.

New Products and Others Nearing Approval: The company has recently received approvals for many new drugs.

The company’s once-daily single-injection combination of Tresiba and Victoza – IdegLira which is already marketed in Europe has received FDA approval and will be launched in the U.S. soon.

Rebinyn (Coagulation Factor IX (Recombinant), GlycoPEGylated) for the treatment of adults and children with hemophilia B was approved in the U.S. and granted marketing authorization in Europe this year.

These drugs should contribute to the company’s revenues going ahead.

Also included are Fiasp (fast-acting insulin aspart) which is already marketed in the EU and a regulatory filing has been made in the U.S. Regulatory applications have been filed in the U.S. ,EU and Japan for another candidate semaglutide (diabetes).

Novo Nordisk also has a strong pipeline, primarily focusing on therapeutic proteins within insulin, GLP-1, blood clotting factors and human growth hormone. We are encouraged by the company’s efforts to develop new treatments for diabetes, which is its core area of expertise.

Conclusion

Novo Nordisk faces its share of challenges such as generic competition for some key drugsThe diabetes market is highly crowded given the presence of companies like Eli Lilly and Company LLY which has a strong portfolio of diabetes treatments including Trulicity (GLP-1), Jardiance . Some other companies include Merck & Co., Inc. MRK consisting of products like Januvia and Janumet and Sanofi’s SNY Lantus.

However, Novo Nordisk’s top line should be driven by its diabetes drugs -Victoza and Tresiba.  Further , the addition of positive cardiovascular outcomes data on the label of the Victoza can give sales a boost.

Novo Nordisk A/S Price and Consensus

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Shire (SHPG) Receives MAA Validation for Veyvondi by EMA

Posted Thu Jun 22, 10:54 am ET

by Zacks Equity Research

Shire plc SHPG announced that the European Medicines Agency (EMA) validated the Marketing Authorization Application (MAA) for Veyvondi to prevent and treat bleeding episodes and peri-operative bleeding in adults (age 18 and older) diagnosed with von Willebrand Disease (VWD).

Veyvondi is the first and only recombinant von Willebrand factor (rVWF) treatment for adults living with VWD. It is currently available in the U.S. as Vonvendi [von Willebrand factor (Recombinant)].

Notably, Shire plc underperformed the Zacks classified Medical-Drugs industry year to date. The stock gained 0.2%, while the industry gained 7.9%.

In Dec 2016, Shire announced positive top-line results from a phase III trial of Vonvendi to treat bleeds in elective surgical settings for adults with severe VWD. The study met its primary endpoint and indicated that VonvendiI effectively controlled bleeding and blood loss during an operation in adults undergoing major, minor and oral elective surgical procedures.  THE EMA filing is based on results of this trial.

Willebrand Disease is the most common inherited bleeding disorder worldwide, caused by a deficiency or dysfunction of VWF. This in turn results in impaired blood clotting, and affects women and men equally. In this context, Veyvondi is considered to be an innovative VWF replacement therapy.

Additionallly, Shire is also seeking prophylaxis and pediatric indications for Vonvendi, with trials anticipated to end in 2019 and 2020, respectively.

Shire PLC Price and Consensus

Zacks Rank and Stocks to Consider

Shire plc currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in health care sector include VIVUS, Inc. VVUS, MEI Pharma, Inc. MEIP and Sanofi SNY. While VIVUS and MEI Pharma sport a Zacks Rank #1 (Strong Buy), Sanofi carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

VIVUS’ loss per share estimates narrowed from 50 cents to 39 cents for 2017 over the last 60 days. The company delivered positive earnings surprises in all four trailing quarters, with an average beat of 233.69%.

MEI Pharma’s estimates moved up from loss per share of 1 cent to gain per share of the same for 2017, over the last 60 days. The company came up with positive earnings surprises in three of the four trailing quarters, with an average beat of 66.56%. The share price of the company has increased 47.9% year to date.

Sanofi’s earnings per share estimates increased from $3.08 to $3.18 for 2017 and from $3.26 to $3.30 for 2018, over last 30 days. The company pulled off positive earnings surprises in three of four trailing quarters, with an average beat of 5.10%. The share price of the company has increased 20.2% year to date.

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Infineon (IFNNY) Upgraded to Strong Buy on Positive Guidance

Posted Thu Jun 22, 10:45 am ET

by Zacks Equity Research

On Jun 22, Infineon Technologies AG IFNNY was upgraded to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The upgrade can primarily be attributed to the company’s impressive fiscal 2017 guidance, which has driven earnings estimates higher over the last 30 days.

Based on better-than-expected second-quarter results, management raised the full-year guidance. For fiscal 2017, Infineon now forecasts revenue growth of around 8%-11%, based on an assumed exchange rate of $1.10 to Euro, with segment operating margin of 17% at the mid-point of revenue guidance.

For third-quarter 2017, Infineon expects revenues to increase 3% (+/- 2%) sequentially. At the mid-point of the guided revenue range, segment operating margin is expected to be 17.5%.

The Zacks Consensus Estimates for 2017 has increased 1.03% to 98 cents over the last 30 days. For 2018, the consensus estimate is currently pegged at $1.20, up 3.44% over the same time frame.

We also note that shares of the company have outperformed the Zacks Electronics-Semiconductors market on a year-to-date basis. While the industry gained 23.3%, the stock returned 28.3%.



Growth Catalysts

The company has high growth prospects in the automotive market. Its customer base includes eight of the top-10 electric vehicle makers including Tesla TSLA, BMW and Renault. Moreover, the company’s focus on energy-efficient solutions is a key driver.

We believe continued high demand for driver assistance systems and products deployed in hybrid and electric vehicles and home appliances, traction, electric drives backed the revenue growth in the second quarter, which saw year-on-year increase of 9.7%. These factors continue to be key growth catalysts for the company.

Notably, the company recently demonstrated post-quantum cryptography on a contactless security chip, which will make transition between today’s security protocols to next-generation post-quantum cryptography (PQC) simpler. The first-of-its-kind technology is anticipated to provide the company a first mover’s advantage.

All these have worked together to aid the company’s growth.

Key Picks

Other stocks that can be considered by investors are Applied Optoelectronics, Inc. AAOI, and Applied Materials, Inc. AMAT, both sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Applied Optoelectronics and Applied Materials is projected to be 20% and 16.58%, respectively.

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Chicago Bridge & Iron Clinches $40M Contract from DuPont

Posted Thu Jun 22, 10:42 am ET

by Zacks Equity Research

Chicago Bridge & Iron Company N.V. CBI recently announced that it has clinched a contract worth approximately $40 million from U.S.-based chemical behemoth, E. I. du Pont de Nemours and Company (DuPont).

Per the contract, the premium technology and infrastructure services provider will offer engineering, procurement and construction services for expanding DuPont's Sabine River Works ethylene plant in Orange, TX. Leveraging on the company’s proprietary Short Residence Time pyrolysis heater technology, the new cracking furnace will boast an ethylene capacity of 200 million pounds per year.

Chicago Bridge & Iron remains confident that its state-of-the-art solutions will help Du Pont to fortify its ethylene copolymers portfolio in a cost-effective and low-risk manner. Previously, the company had secured a contract from DuPont to provide an ethylene technology license and engineering services for the furnace.

The recent award marks another major win for Chicago Bridge & Iron in the U.S. Gulf Coast, where it has managed to win a couple of major awards in the past few months. The most notable among them is the $1.3 billion ethane cracker project secured from Total Petrochemicals & Refining USA, Inc., a subsidiary of Total S.A. TOT. It was the fourth major one clinched by the company on the U.S. Gulf Coast. These contracts are likely to provide the much-needed boost to the company’s waning top line and cash flow.

Over the past couple of years, Chicago Bridge & Iron has been grappling with a host of macroeconomic issues, which has affected its financials. Like most other companies operating in the energy domain (particularly oil and gas sector), volatility in commodity pricing continues to be a major drag for its profitability. Precipitous decline in capital investments poses as a major threat.

Over the past six months, Chicago Bridge & Iron’s shares have plunged 61.5%, far wider than the average loss of 13.7% recorded by the Zacks classified Building Products-Heavy Construction industry. Taking into consideration the company’s drab guidance during first-quarter 2017 results and the $2 billion legal spar with Westinghouse, we believe the stock will continue to slump hard on the bourse, at least in the short-term.

The analysts are showing no favor toward the Zacks Rank #5 (Strong Sell) stock at present. Chicago Bridge & Iron has seen six downward estimate revisions compared with none upward over the past couple of months. This has led the Zacks Consensus Estimate for full-year 2017 to move down from $4.15 to $3.41, underlining a decline of 17.8%. This reflects decidedly bearish analyst sentiment.

Top Picks

Some top picks in the broader sector include TopBuild Corp. BLD and EMCOR Group, Inc. EME. While TopBuild sports a Zacks Rank #1 (Strong Buy), EMCOR holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

TopBuild has a positive average earnings surprise of 6% for the last four quarters, having beaten estimates three times.

EMCOR has a robust earnings surprise history, with an average positive surprise of 15.5%, having beaten estimates thrice in the trailing four quarters.

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CSRA Down to Strong Sell, Doubt over NSA &TSA Deal Prevails

Posted Thu Jun 22, 10:40 am ET

by Zacks Equity Research

On Jun 22, CSRA Inc. CSRA was downgraded to a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies carrying a Zacks Rank #5 are likely to underperform the broader market in the next one to three months.

Revenue concentration, budgetary constraints, uncertainty related to significant contract renewals and leveraged balance sheet are major concerns for CSRA.

Why the Downgrade?

We note that the National Security Administration’s (NSA) Groundbreaker program and the Transportation Security Administration’s (TSA) Information Technology Infrastructure program that comprise two crucial government programs (making up about 10% of company revenue) are going up for re-compete this year. Hence, the uncertainty over the renewals of TSA and NSA contracts are potential headwinds to CSRA’s industry leading margins, especially as the competition becomes more intense.

Additionally, the delay in awarding the C4ISR systems contract and slow ramp up of the Office of Personnel Management (OPM) background investigations contract has impacted top-line growth in the last reported quarter. Moreover, we expect sluggishness in award procurement to continue in the near term (over the next two quarters), due to numerous ongoing transitions within the Trump administration.

Furthermore, revenue concentration is a major risk for CSRA. In fiscal 2017, 94% of revenues came from sales to the U.S. federal government either as a prime contractor or subcontractor. Due to this massive dependence, any adverse changes in government’s IT spending budget could mar the top-line growth.

Further, CSRA’s leveraged balance sheet adds to the risk of investing in the company. As of Mar 31, 2017, the company had total debt (including the current portion) of $2.58 billion. Meanwhile, it just had $126 million as cash and cash equivalents as of Mar 31, 2017.

On May 24, 2017, CSRA reported fourth-quarter fiscal 2017 results wherein earnings of 49 cents beat the Zacks Consensus Estimate while revenues of $1.25 billion missed the same. On a year over year basis, revenues fell 3%. Also, revenues for the full fiscal were down 4% year over year to $4.99 billion.

Consequently, the company has been seeing downward estimate revisions. In the last 30 days, the Zacks Consensus Estimate for fiscal 2018 declined 4.4% (9 cents) to $1.95 per share while that for fiscal 2019 dropped 2.3% (5 cents) to $2.13 a share.

CSRA Inc. Price and Consensus

 

CSRA Inc. Price and Consensus | CSRA Inc. Quote

We also note that CSRA’s share price movement has been dismal in the past six months. Shares have gained a meager 0.2% compared with the Zacks categorized Computers - IT Services industry’s increase of 11.2%.

Stocks to Consider

Better-ranked stocks in the broader tech space include EPAM Systems, Inc. EPAM, CoStar Group, Inc. CSGP and MAM Software Group, Inc. MAMS. EPAM Systems sports a Zacks Rank #1 (Strong Buy), while both CoStar Group and MAM Software Group carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the trailing four quarters, EPAM Systems, CoStar Group and MAM Software Group delivered average positive earnings surprises of 3.24%, 11.34% and 92.86% respectively.

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Sunrun Enters Florida's Solar Market, Offers Rooftop Panels

Posted Thu Jun 22, 10:38 am ET

by Zacks Equity Research

Solar energy provider, Sunrun Inc. RUN, has recently entered the market of Florida by promising to offer solar power at more affordable rates to residents of the state.

For installation of rooftop solar panels at their house, consumers can either own their system outright with Sunrun BrightBuy, or finance their system purchase with Sunrun Bright Advantage, using a loan arranged by Sunrun.

Apart from providing cheap clean energy options, this initiative is also anticipated to boost employment across Orlando and Tampa.

A Brief Note on Florida’s Solar Market

The state of Florida’s physical and geographic conditions is third best in the country for solar power generation, consequently making it ideal for expansion of solar power. Yet the state does not have a renewable energy portfolio standard and does not allow power purchase agreement, which drive utility investment in other states.

Nevertheless, realizing the strong potential for rooftop solar in Florida, residents of the state voted in favor of cleaner energy choices in Nov 2016 and legislators responded by passing Senate Bill 90 (SB 90). The SB 90 in turn offered a tax rebate for those investing in renewable energy sources. No doubt, this legislature has offered ample opportunities for solar energy providers like Sunrun to grow in the ‘Sunshine State’s solar market.

How Will this Help Sunrun?

The U.S. is on path to replace an estimated 70% of grid infrastructure that is nearing the end of its useful life. While Utilities are spending billions of dollars to add capacity to grids – the actual electricity demand remains flat.

Rooftop solar is believed to be one of the best opportunities to create a low cost, reliable modern infrastructure, leading to lower utility expenditures. It is estimated that a typical home solar system would save approximately $750 in future annual infrastructure costs which is in addition to the benefits of clean energy that the system generates.

Following Florida’s legislature’s announcement, the subsidiary of Tesla Inc. TSLA - SolarCity entered the solar market of Florida in December, by launching residential solar services in the state. This initiative was to make most of the opportunity. Vivint Solar, Inc. VSLR followed suit by entering the market in March this year, by expanding availability of its affordable solar energy systems into Orlando. However, we believe the solar market in this state is still in a nascent stage and Sunrun’s move is evidence of its intent to capitalize on the yet to be unearthed opportunity.

Considering the fact, that Sunrun is a well known company in residential solar energy systems across multiple states like Arizona, California, Delaware, Colorado, Connecticut, Hawaii, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New York, Oregon, Pennsylvania and South Carolina, its latest entry in Florida will further boost growth.

Price Movement

In the last six months, Sunrun has outperformed the Zacks categorized Solar industry. The company’s shares increased 19.9%, while the industry gained 10.6%.

The outperformance can be attributed to the company's growth strategy to develop relationships with third parties. It has been resourceful in establishing strategic relationships with market players across a variety of industries, including large retailers, to generate new customers. The company has also undertaken several steps to introduce new products to penetrate new markets and to expand footprint across states in the U.S.

Stock to Consider

Sunrun currently carries a Zacks Rank #3 (Hold).

A better-ranked player from the Solar space include SolarEdge Technologies, Inc. SEDG. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SolarEdge Technologies reported a positive earnings surprise 39.13% in first-quarter 2017. Its 2017 estimates have risen by 14.43% to $1.11 per share in the last 60 days.

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Here's Why Geron (GERN) is a Good Stock to Invest in Now

Posted Thu Jun 22, 10:36 am ET

by Zacks Equity Research

Geron Corporation GERN is developing anti-cancer therapies based on telomerase inhibitors. The company’s telomerase technology platform represents significant commercial opportunity. The successful development of products that target telomeres could change the treatment paradigm for several diseases, including oncology, which exhibits huge commercial potential.

The small biotech currently has one candidate in its pipeline, imetelstat. It is being developed for the treatment of hematologic myeloid malignancies like myelofibrosis (MF) and myelodysplastic syndromes (MDS). Geron enjoys a strong collaboration with Johnson & Johnson’s JNJ subsidiary Janssen for imetelstat. We remind investors that imetelstat has orphan drug status in the U.S. for the MF and MDS indications.

 In 2016, J&J announced unfavorable findings from the planned internal reviews of initial data from the two studies of imetelstat – IMbark (phase II) for MF and IMerge (phase II/III) for MDS.

However, in Apr 2017, Geron informed that Janssen has completed the second internal data review of the two studies to inform on further development plans. As a result of the review, both trials are continuing unmodified.

For IMerge, the company believes that the benefit/risk profile supports continued development. If Janssen decides to proceed to Part 2 of IMerge (a larger, 170 patient, phase III study), patient enrollment will begin in the fourth quarter of this year.

For IMbark, the results suggested that the clinical benefit and potential overall survival benefit observed supports continuation of the trial without modifications. However, Janssen will evaluate maturing data from the IMbark study during next year, including an assessment of overall survival.

Geron has a Zacks Rank #2 (Buy). Loss estimates have narrowed 80% for 2017. For 2018, estimates have gone up from breakeven to 2 cents per share over the past 60 days. The average earnings surprise over the past four quarters is 27.98%. Shares of the company have risen 37.7% this year so far, outperforming the Zacks classified Medical - Biomedical and Genetics industry which rose 10.6%.

The favorable numbers and the rapid advances in imetelstat development suggest that the stock could be a good investment.

Other stocks worth considering in the sector include Regeneron Pharmaceuticals, Inc. REGN and VIVUS, Inc. VVUS, both sporting a Zacks Rank #1 (Strong Buy). ). You can see the complete list of today’s Zacks #1 Rank stocks here.

VIVUS’ loss per share estimates narrowed 22% cents for 2017 in the last 60 days. The company delivered positive earnings surprises in all four trailing quarters with an average beat of 233.69%.

Regeneron’s earnings estimates have risen almost 10% for 2017 over the last 60 days. Shares of the company have risen 42.2% so far this year.

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Oracle (ORCL) Beats on Q4 Earnings & Revenues, Stock Up

Posted Thu Jun 22, 10:35 am ET

by Zacks Equity Research

Oracle Corporation ORCL delivered strong fourth-quarter 2017 results. Adjusted earnings (including stock-based compensation) of 82 cents per share and revenues of $10.94 billion comfortably beat the Zacks Consensus Estimate of 73 cents and $10.48 billion, respectively.

Adjusted earnings (excluding stock-based compensation) increased 9.9% to 89 cents per share, which was better than the company’s guided range of 78–82 cents. Unfavorable foreign currency impacted earnings by a penny.

Revenue growth of 3.3% (4% in constant currency) was also better-than management’s guided range of (1%) to 2%. Adverse currency movements hurt total revenue by 1% in the quarter.

Oracle’s top-line growth benefited from the ongoing cloud-based momentum. Total cloud revenue (12.9% of total revenue) advanced 64.1% (60% in constant currency) to $1.41 billion in the reported quarter. Moreover, total cloud and on-premise software revenue increased 7% in constant currency to $8.93 billion in the reported quarter.
 

Oracle Corporation Price, Consensus and EPS Surprise

 

Oracle Corporation Price, Consensus and EPS Surprise | Oracle Corporation Quote

In fiscal 2017, total revenue grew 3% in constant currency to almost $37.90 billion. Total cloud revenue soared 68% in constant currency to $4.74 billion. Software and cloud revenues totaled almost $30.40 billion, growing 6% in constant currency with $24 billion or 79% of that being recurring revenue, up from 75% in last year.

Adjusted earnings increased 6% in constant currency to $2.74 in fiscal 2017.

Shares were up more than 10% in after-hour trading following the results. We note that Oracle’s return of 31.2% is better than the S&P 500’s gain of 9.2% on a year-to-date basis.



Cloud Drove Solid Top-Line

Cloud SaaS revenues advanced a significant 74.7% (76% in constant currency) year over year to $1.00 billion. Cloud PaaS & IaaS revenues surged 42.4% (45% in constant currency) to $403 million.

Gross deferred revenue improved 63% to more than $2.4 billion. Cloud billings grew 42% in the quarter.

Strong cloud results fully mitigated weak on-premise software revenues (68.8% of total revenue), which declined 0.8% (flat at constant currency) to $7.52 billion. ERP and Fusion HCM revenues gained 156% and 96%, respectively. Management noted that the growth rate at Fusion HCM was more than twice the growth rate of Workday WDAY. Database as a Service was up 62% from the year-ago quarter.

Oracle sold $855 million of new annually recurring cloud revenue (ARR) in reported quarter and was $2.1 billion in fiscal 2017. While SaaS bookings were $486 million, PaaS and IaaS bookings $369 million in the quarter. Management noted that the cloud ARR is actually better than salesforce.com CRM for the second consecutive year.

Software updates and product support revenues were almost $4.90 billion, up 3% in constant-currency. This reflected the continued high attach and renewal rates that showed the stability at the company’s installed base of on-premise customers.

Total hardware revenue slipped 13.2% (down 12% at constant currency) year over year to $1.11 billion.

Services revenues increased 2.5% (up 4% at constant currency) to $894 million.

Operating Details

SaaS gross margin was 65% significantly higher than 54% reported in the year-ago quarter. PaaS and IaaS gross margin was 47%, down 700 basis points (bps) from the year-ago quarter due to continued investments.

Operating expenses (including stock-based compensation) as percentage of revenues decreased 50 basis points (bps) to 57% in the reported quarter. Adjusted operating expenses as percentage of revenues decreased 90 bps to 54.2%.

The decrease can primarily be attributed to lower hardware and sales & marketing expenses, which were down 140 bps and 60 bps, respectively.

As a result, adjusted operating margin (including stock-based compensation) expanded 30 bps from the year-ago quarter to 42.7%. Adjusted operating margin (excluding all one-time items) expanded almost 90 bps to 45.8%.

Balance Sheet & Cash Flow Improves

As of May 31, 2017, Oracle had cash & cash equivalents and marketable securities of $66.08 billion. Operating cash flow was $14.1 billion, up $673 million sequentially. Free cash flow increased $328 million to $12.1 billion.

Share Repurchase & Dividend Continues

Oracle bought back 11 million shares for a total of $500 million in the fourth quarter. In the last 12 months, the company repurchased 86 million shares for a total of 3.5 billion and paid out dividends of $2.6 billion.

Guidance

For first-quarter fiscal 2018, total revenue is anticipated to grow in the range of 4–6%. Cloud revenues including SaaS, PaaS and IaaS are expected to grow between 48% and 52%.

Earnings are anticipated to be between 59 cents and 61 cents for the quarter, with a couple of cents impact from adverse currency headwind.

For fiscal 2018, Oracle expects cloud revenues to materially surpass new software license revenues. Moreover, cloud gross margin is expected to expand and operating income is also anticipated to accelerate. The company projects double-digit earnings growth.

Management expects cloud capital expenditure spending to be about $1 billion in fiscal 2017, roughly equivalent to fiscal 2017 level.

ARR is projected to be better than fiscal 2017. Further, management anticipates SaaS gross margin to eventually rise to 80% in the long haul.

Our Take

Oracle continues to gain traction on its cloud endeavors. Specifically, the company’s offerings in SaaS and PaaS have gained significant momentum in the past few quarters, which improves competitive position against salesforce.com and Workday. Further, the continuing transition to cloud from on-premise as reflected by the AT&T T deal is a key catalyst.

We believe the company’s growing cloud market share will continue to drive top-line growth for the foreseeable future. Moreover, Oracle continues to win new customers in HCM, ERP and CX.

However, higher investments on IaaS will affect gross margin expansion in the near-term. Further, a strong U.S. dollar remains a headwind.

Zacks Rank

Currently, Oracle carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Staples Gains 5% on Talks of Buyout by Sycamore Partners

Posted Thu Jun 22, 10:33 am ET

by Zacks Equity Research

Per Reuters, Sycamore Partners, a private equity firm is in negotiation with Staples, Inc. SPLS to acquire its business. The report suggests that the value of the deal could go beyond $6 billion.

Sycamore is trying to conclude a debt financing for the Staples buyout. Following the news, the company’s shares jumped nearly 5% in after-hour trading session yesterday. In fact, in the past three months, the company’s shares have gained 1.6%, outperforming the Zacks categorized Retail-Miscellaneous/Diversified industry’s decline of 4.6%.

Analysts pointed out that demand for office products (paper-based) has been decreasing due to technological advancements. Smartphones, tablets and laptops are fast emerging as viable substitutes for paper-based office supplies. Moreover, there has been persistent weakness in the office products sector. Further, stiff competition from online retailers such as Amazon.com, Inc. AMZN has been playing spoilsport for the company.

Earlier, U.S. District Judge Emmet Sullivan has ruled out the merger of Staples and Office Depot, Inc. ODP. According to the FTC, the deal would have lowered competition nationwide, resulting in price hikes and fewer options for large corporate houses that usually make bulk purchases. However, if the merger had materialized, the two companies would have created a retail chain with approximately $36 billion in annual revenues and thousands of stores.

After termination of the merger with Office Depot, Staples has undertaken a strategic review to bring the company back on growth track. It is streamlining operations to enhance productivity and performance in North America by expanding services, strengthening customer base, shutting down underperforming stores and decreasing fixed costs. In a bid to acquire new customers, it intends to increase offering of products as well as services beyond office supplies.

Staples currently carries a Zacks Rank #3 (Hold).

A Stock to Consider

A better-ranked stock in the retail space is Build-A-Bear Workshop, Inc. BBW sporting a Zacks Rank #1 (Strong Buy). The stock has a long-term earnings growth rate of 22.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Alibaba Starts Showing U.S. Businesses the Road to China

Posted Thu Jun 22, 10:29 am ET

by Zacks Equity Research

Alibaba Group Holding Limited BABA has been blazing fast in attracting small businesses at its Gateway '17 confab in Detroit that ended on Jun 21. The announcement of Alibaba’s strategic partnership with Driscoll’s and Chicken of the Sea came straightway from the confab.

Per the deals, Driscoll’s will sell strawberries while Chicken of the Sea will sell seafood in China via Alibaba’s Tmall platform.

According to Jet Jing, Vice President of Alibaba Group, "These mutually beneficial partnerships will allow Alibaba to diversify the options available to consumers on our platforms, and we can help both Driscoll’s and Chicken of the Sea to successfully build their brand and presence in China."

The announcement sent the company’s shares up 3.6% to close at $142.34 on Wednesday.

Alibaba Seems Well Prepared

Alibaba has already developed partnerships and services to ensure that U.S. producers, wholesalers and associations export fresh and prepared foods to China effortlessly. The company’s logistics affiliate Cainiao Network facilitates same day and next day delivery in more than 1,100 counties and districts in China.

During the conference, the company pointed toward a win-win situation for U.S. merchants and Chinese consumers. Co-founder and vice chairman Joe Tsai stated that growing demand for high quality consumption allows American businesses to play a major role in China.

According to Produce Report, 36 million households in China made online purchase of fresh products in 2016 and that figure is expected to increase two times by 2020. It appears that Alibaba is set to pave the way for U.S. sellers to extend their reach in China.

Focus on U.S. Sellers

Alibaba’s increasing focus on U.S. sellers appears to be a strategic move to counter tough competition from established players such as Amazon AMZN, eBay EBAY and JD.com JD in the U.S.

Alibaba Group Holding Limited Revenue (TTM)

The strategy behind attracting small businesses is part of the company’s efforts to tap the relatively untapped portions of the retail market. Unlike big brands, small businesses cater to niche markets and tapping them help Alibaba bring these markets into its fold.

Targeting the Two Biggest Retail Markets

China is currently the world’s largest retail market followed by the U.S. According to eMarketer, the Chinese retail market offers a $4.89 trillion opportunity compared with the U.S.’ $4.52 trillion. So, it seems that by trying to connect U.S. sellers with Chinese buyers, the company is trying to grab the lion’s share of the global retail market.

Should Investors Rejoice?

Alibaba is looking quite confident about its success in the U.S. going forward. This could probably be the reason behind the company’s upbeat revenue guidance for fiscal 2018 that it offered at its investor day in Hangzhou.

It expects staggering revenue growth of 45–49% in the current fiscal, or revenues of around $34.3 billion, far above analysts’ estimates. The company is bullish on the revenue growth and so are investors, given its solid expansion in e-commerce, cloud computing, and strong media and entertainment businesses.

Investors will keep an eye on how Alibaba’s efforts with respect to U.S. small businesses impact its share price that has appreciated a massive 82% over the last one year compared with the Zacks Electronic Commerce industry’s gain of 54.8%.

If Alibaba could repeat its domestic success internationally, especially in the U.S., investors can expect accelerated growth.

Currently, Alibaba sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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