Thursday June 1, 2017

The Zacks Research Daily presents the best research output of our analyst team. Today’s publication features new research reports on 16 major stocks, including Salesforce (CRM), FedEx (FDX) and Occidental Petroleum (OXY). 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 >>>

Before we discuss today’s featured analyst reports, a brief comment about this morning’s ISM and labor market surveys is in order. These broadly positive readings come ahead of tomorrow’s all-important government jobs report that will have direct Fed implications.

The closely watched manufacturing ISM index came in better than expected at 54.9, just a shade above April’s 54.8 reading, indicating a steadily improving backdrop for the factory sector.  This key gauge of the manufacturing sector’s health struggled the last two years, occasionally falling under the ‘50’ level – the dividing line between expansion and contraction, but appears to have broken out to the upside this year. While the domestic economic backdrop has not changed in any meaningful way, notwithstanding expectations of growth-friendly policy initiatives from the Trump administration, the international growth outlook has starting improving lately and that appears to be helping this export-oriented part of the U.S. economy. Stable prices for oil and other commodities lately have also been helpful.

In other economic data today, the ADP jobs report for May came in very strong, with the ‘headline’ number coming in at 253K vs. consensus expectations of a 170K read. The main use of this report is to serve as a preview for the monthly jobs reading from the government’s Bureau of Labor Statistics, which comes out tomorrow morning (Friday) and is expected to show ‘headline’ gains of 185K. Given the proximity of the BLS report’s release, we may not see much change in consensus expectations data. But it’s reasonable to assume that ‘whisper expectations’ will be north of 200K for tomorrow’s report. That said, the ADP report hasn’t always closely tracked the BLS reading in the past, though both reports do move in the same direction.

You can check out our latest about the aggregate earnings picture in our weekly Earnings Trends report here >>> Earnings Growth Likely Peaked in Q1

Today's Featured Research Reports

Salesforce shares have handily beat the broader Tech sector this year, with the stock up almost double the Zacks Technology sector's +16.2% gain in the year-to-date period. Driving this momentum is the company's dominant position in 'front-office' applications and strong cloud offerings that provide it one of the best growth profiles in the large-cap tech space. All of these positive attributes were on display in the company's recent quarterly report when it beat on both the top- and bottom-lines. Substantial increase in revenues was backed by growth across all its business segments and the Salesforce ExactTarget Marketing Cloud platform.  While stepped-up investments on international expansion and data centers could impact near-term results, but the company's long-term growth outlook remains very compelling. (You can read the full research report on Salesforce here >>>).

FedEx have lagged the broader market this year (FDX is up +6.6% vs. +8.1% gain for the S&P 500 index YTD), but it has done better than both UPS as well as the Zacks Transportation sector. The company's dominant market share in the package delivery space has made it a proxy for the secular growth in e-commerce. But concerns about the seemingly never ending cycle of capital spending that weigh on its ability to generate free cash flows and potential competitive challenges, particularly from Amazon, remain key headwinds. Uncertainty about integration of the TNT operations remains an another issue. On the positive side, management's bullish comments about the current period at the time of the last earnings release is encouraging. The company reports quarterly results on June 20th and is expected to come out with $3.84 in EPS on $15.5 billion in revenues, up +16.3% and +19.6% from the year-earlier period, respectively. The stock has a history of responding strongly to quarterly results; it was up following the last quarterly release on the aforementioned positive outlook even though it missed EPS estimates. (You can read the full research report on FedEx here >>>).

Occidental Petroleum shares have suffered this year, as have shares of all oil producers, to reflect the commodity's price slide and uneven outlook. That said, it has done better than its E&P peers (the stock is down -14.7% in the year-to-date period vs. -23% decline for the Zacks E&P industry), reflecting Occidental's strong position in the Permian basin and solid balance sheet. The Zacks analyst likes Occidental’s plans to sell its low-margin assets and focus on higher-quality assets. The company’s focus on Permian Resources and its initiative to produce more oil will boost its performance in the long term. The highly competitive oil and gas space, operational interruptions and stringent environmental regulations are headwinds. (You can read the full research report on Occidental Petroleum here >>>).

Other noteworthy reports we are featuring today include Sun Life Financial (SLF), Amphenol (APH) and Marathon Oil (MRO).

The Best & Worst of Zacks

Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 11X worse than the market.  See these critical buys and sells free >>   

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>>>