Monday, July 15, 2024

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features a real-time update on the Q2 earnings season and new research reports on 16 major stocks, including Microsoft Corporation (MSFT), Eli Lilly and Company (LLY) and UnitedHealth Group Incorporated (UNH), as well as a micro-cap stock Tile Shop Holdings, Inc. (TTSH). 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 >>>

Q2 Earnings Season Scorecard

Including this morning's reports from Goldman Sachs and BlackRock, we now have Q2 results from 29 S&P 500 members. Total earnings for these companies that have reported are up +12.8% from the same period last year on +6.4% higher revenues, with 82.8% beating EPS estimates and only 44.8% beating revenue estimates.

The one notable feature of this admittedly small and Finance-heavy sample of results is the very small proportion of the companies that are able to beat revenue estimates. The 44.8% revenue beats percentage compares to 69% for the same group of 29 S&P 500 members in the preceding quarter (2024 Q1) and is a low for the preceding 20 quarters.

We will be watching closely how the revenue beats percentage unfolds in the days ahead as we move into the heart of the Q2 earnings season.

For the Finance sector, we now have Q2 results from 20.6% of the sector's total market capitalization in the S&P 500 index. Total Q2 earnings for these Finance sector companies are up +8.1% from the same period last year on +11.9% higher revenues, with all the companies beating EPS estimates and 83.3% beating revenue estimates.

The Finance sector's EPS and revenue beats percentages are tracking above the 20-quarter averages for this group of sector companies.

Looking at Q2 as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total earnings are expected to be up +8.4% from the same period last year on +4.7% higher revenues.

Today's Featured Analyst Reports

Microsoft shares have outperformed the Zacks Computer - Software industry over the past year (+31.2% vs. +25.9%). The company is riding on strong growth from Intelligent Cloud and Productivity and Business Processes. Intelligent Cloud revenues are driven by growth in Azure and other cloud services. 

Productivity and Business Processes revenues continue to rise due to the strong adoption of Office 365 Commercial solutions. Microsoft 365 Consumer subscribers grew to 80.8 million in the third quarter. Continued momentum in the small and medium businesses and frontline worker offerings, as well as a rise in revenue per user, drove top-line growth. 

However, the office's declining commercial licensing has been a headwind due to the continued customer shift to cloud offerings. Higher operating expenses and spending on Azure enhancements amid stiff competition in the cloud space remain a concern.

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

Shares of Eli Lilly have outperformed the Zacks Large Cap Pharmaceuticals industry over the year-to-date period (+62.7% vs. +24.2%). The company boasts a solid portfolio of core drugs for diabetes, autoimmune diseases and cancer. Its revenue growth is being driven by higher demand for drugs like Mounjaro, Verzenio, Jardiance, Taltz and others. Its new tirzepatide medicines, diabetes drug Mounjaro and obesity medicine, Zepbound, are seeing exceptionally strong demand trends. 

Lilly has also launched some other new products like Omvoh and Jaypirca. Mounjaro, Zepbound and other new products are expected to drive Lilly’s top line in 2024. Lilly is also making rapid pipeline progress in areas like obesity, diabetes and Alzheimer’s. 

However, generic competition for some drugs, rising pricing pressure and challenges in meeting strong demand for incretin products like Zepbound and Mounjaro are some top-line headwinds.

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

UnitedHealth shares were in line with the Zacks Medical - HMOs industry over the past year (+5.6% vs. +5.5%). The company’s top line remains poised for growth on the back of a strong market position, new deals, renewed agreements and expansion of service offerings. UnitedHealth’s solid health services segment provides diversification benefits. 

The Government business remains well-poised for growth in the future. Adjusted net earnings per share are anticipated to be in the $27.5-$28.00 band in 2024, higher than the 2023 reported figure of $25.12. A sturdy balance sheet enables business investments and prudent deployment of capital via share repurchases and dividend payments. In June 2024, management approved a 11.7% hike in the quarterly dividend. 

However, membership in its global business continues to be a concern. High operating costs due to rising medical expenses are hurting margins. As such, the stock warrants a cautious stance.

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

Shares of Tile Shop have outperformed the Zacks Building Products - Retail industry over the past year (+17.4% vs. +10.4%). This microcap company with market capitalization of $320.59 million has a strong financial health, with zero long-term debt and $24 million in cash as of first-quarter 2024. This positions the company to invest in growth and weather economic fluctuations. 

Gross margins improved to 65.8% due to lower freight and product costs, reflecting effective cost management. Expansion of product lines, including new luxury vinyl tile (LVT) lines, enhances revenue diversification. E-commerce sales growth reflects a strategic shift to capture online markets. Effective cost management led to a 5.5% decline in SG&A expenses. 

Yet, challenges include a 10.2% fall in comparable store sales, weak macroeconomic conditions, high SG&A expenses, inventory management issues and potential margin pressures. Dependence on professional customers, stiff competition and limited store footprint growth are other concerns.

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

Other noteworthy reports we are featuring today include Lockheed Martin Corporation (LMT), Infosys Limited (INFY) and McKesson Corporation (MCK).

Director of Research

Sheraz Mian

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>>>