Wednesday, September 18, 2024

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 The Home Depot, Inc. (HD), The Southern Co. (SO) and Infosys Ltd. (INFY), as well as two micro-cap stocks Kewaunee Scientific Corp. (KEQU) and Friedman Industries, Inc. (FRD). The Zacks microcap research is unique as our research content on these small and under-the-radar companies is the only research of its type in the country.

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 >>>

Shares of Home Depot have gained +9.0% over the past three months against the Zacks Building Products - Retail industry’s gain of +10.6%. The company gains from its “One Home Depot” plan focused on expanding supply chain facilities, technology, and improving the digital experience. The interconnected retail strategy and strong technology infrastructure have consistently boosted web traffic in recent quarters. 

HD is also advancing investments to build a Pro ecosystem. HD’s sales saw modest recovery in second-quarter fiscal 2024 driven by contributions from the recent SRS acquisition. 

However, due to higher interest rates and macroeconomic uncertainty, dampening consumer demand for home improvement stock has lagged the industry. While Home Depot exceeded sales and EPS estimates in the fiscal second-quarter, EPS declined year over year. Inflationary pressures, including lumber prices, continue to hurt financial performance.

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

Southern Company’s shares have outperformed the Zacks Utility - Electric Power industry over the past year (+31.3% vs. +21.2%). The company is leveraging the demographics of its operating territories, as in healthy population and job growth, it has gradually increased its customer base. 

With good rate base growth, constructive regulation, and with the power supplier’s recent success in bringing the Vogtle nuclear project online, Southern is expected to generate steady earnings and dividend growth going forward. 

However, the utility’s high leverage restricts financial flexibility, while an increased focus on nuclear energy could face opposition amidst growing environmental concerns. As it is, the utility sector remains sensitive to interest rate fluctuations and market sentiment. Therefore, Southern Company warrants a cautious stance from the investors.

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

Shares of Infosys have outperformed the Zacks Computers - IT Services industry over the past year (+30.4% vs. +21.6%). The company is gaining from large deal wins and fast-growing digital services. Its sustained focus on Agile Digital and AI-driven Core services is a tailwind. The strong demand for its services in the cloud, the Internet of Things (IoT), cyber security and data and analytics is a key driver. 

Higher investments by clients in digital transformation, AI and automation are an upside. The solid traction of its Cobalt cloud portfolio is another positive. The latest forecast for worldwide IT spending by Gartner is an upside for Infosys as well. 

However, the company is suffering from increasing anti-outsourcing sentiments in certain countries. Higher subcontractor costs and compensation revision with higher variable pay and incentives are weighing on its margins. Further, currency volatility between the Indian rupee and the U.S. dollar is a concern.

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

Kewaunee Scientific’s shares have outperformed the Zacks Instruments - Scientific industry over the past year (+108.8% vs. +13.5%). This microcap company with market capitalization of $107.46 million have a growing order backlog, which reached $159.4 million as of July 31, 2024, which provides strong visibility into future revenues, driven by stable domestic sales and a solid operational performance. 

Domestic revenues increased 0.3% year over year, with net earnings rising to $2.9 million. Improved cost management helped maintain profitability despite a 2.9% decline in sales. Internationally, Kewaunee Scientific’s backlog suggests growth opportunities, supported by its global presence, despite a 10.7% drop in sales due to construction delays in India. 

However, rising operating expenses, a 28.8% decline in pre-tax earnings, and increased competition in the laboratory furniture market pose risks. Additionally, the company's long-term debt, tied to high financing costs, may limit financial flexibility.

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

Shares of Friedman Industries have gained +8.7% over the past year against the Zacks Metal Products - Procurement and Fabrication industry’s gain of +35.2%. This microcap company with market capitalization of $96.95 million demonstrated strong risk management in first-quarter fiscal 2025, using hedging gains of $5.4 million to protect margins amid falling hot-rolled coil prices, resulting in $2.6 million in net earnings. 

Friedman Industries’ robust working capital of $123.6 million provides financial flexibility, while operational efficiencies have reduced selling, general and administrative (SG&A) expenses by 24% year over year in the fiscal first quarter. The tubular segment shows potential with an 11.1% volume increase, though challenges remain with declining prices. 

Yet, revenues fell 16.6% year over year in the fiscal first quarter, and rising costs along with lower demand could pressure margins. Rising interest expenses, macroeconomic headwinds, steel price volatility and high inventory levels pose risks to future performance.

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

Other noteworthy reports we are featuring today include McKesson Corp. (MCK), Digital Realty Trust, Inc. (DLR) and Verisk Analytics, Inc. (VRSK).

Mark Vickery
Senior Editor

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>>>