Author: Zacks Equity Research

Essential Utilities’ (WTRG Quick QuoteWTRG – Free Report) strategic acquisitions, organic ventures and systematic capital expenditures will collectively expand and strengthen its water, wastewater and natural gas infrastructures.

WTRG – which currently has a Zacks Rank #4 (Sell) – is subject to unfavorable weather conditions and interest rate hikes.

Tailwinds

Massive infrastructural investments are required to upgrade and maintain the water utilities, as old and soiled water pipelines are quickly nearing their effective service life. Essential Utilities plans to invest $3.3 billion from 2023 through 2025.  It is committed to lowering emissions and aims to reduce annual emissions by 60% by 2035. Rate hike application and approval from the commission will further help the company to recoup expenditures and fund future capital projects.

The highly fragmented U.S. water utility space requires consolidation. Essential Utilities is actively exploring opportunities to expand utility operations by acquiring municipal assets. In 2022, WTRG completed three acquisitions, which added 23,175 customers.  It expects the water and wastewater customer base to increase 2-3% year over year in 2023 through acquisitions and organic means.

Essential Utilities continues to increase shareholders’ value through annual dividend increases. The company has been paying dividends for the past 78 years. Its dividend rate hike, approved in February 2023, marked the 32nd consecutive year of dividend increases. The June 2023 raise represents a 7% year-over-year increase.

Headwinds

The water utility business is capital-intensive and requires steady capital investments. Any disruption in capital markets and the ongoing interest rate hike might make it difficult for Essential Utilities to raise funds at a favorable rate.

Other major factors affecting the company’s business and financial conditions are the risk of water contamination, stringent government regulations and fluctuating weather conditions.

Stocks to Consider

Some better-ranked utilities in the same sector are Veolia Environnement (VEOEY Quick QuoteVEOEY – Free Report) , Global Water Resources (GWRS Quick QuoteGWRS – Free Report) and NewJersey Resources (NJR Quick QuoteNJR – Free Report) . Veolia Environnement sports a Zacks Rank #1 (Strong Buy) while Global Water Resources (GWRS Quick QuoteGWRS – Free Report) and NewJersey Resources carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Veolia Environnement, Global Water Resources and NewJersey Resources’ 2023 earnings per share indicates year-over-year growth of 11.7%, 29.2% and 6%, respectively.

Long-term (three- to five-year) earnings growth Veolia Environnement, Global Water Resources and NewJersey Resources is pegged at 206.8%, 15% and 5.6%, respectively.

Salesforce (CRM Quick QuoteCRM – Free Report) is scheduled to report first-quarter fiscal 2024 results on May 31. The cloud-based software maker’s first-quarter performance is likely to have benefited from the robust demand environment as customers are undergoing a major digital transformation.

Click here to know how CRM’s overall fiscal first-quarter results are likely to be.

Cloud Adoption to Boost Q1 Revenues

The rapid adoption of software-as-a-service-based platforms amid the ongoing hybrid working trend is expected to have spurred the demand for Salesforce’s cloud-based solutions. Salesforce’s diverse cloud offerings are likely to have helped expand its clientele, fueling the top line.

Salesforce’s initiatives to capitalize on the overseas demand for cloud-based applications are anticipated to have bolstered the top line during the period in discussion. Further, the improved customer experience is anticipated to have aided the cloud segment.

Salesforce’s ability to provide an integrated solution for customers’ business problems is expected to have been the key driver. CRM’s Customer 360 Truth platform, which helps connect the data from sales, service, marketing and commerce and build a single Salesforce ID for each customer, is likely to have boosted its performance. Also, its focus on AI and the substantial progress in its Einstein Analytics platform make it optimistic about the upcoming quarterly results.

However, a decline in software spending by small and medium businesses amid ongoing macroeconomic headwinds and geopolitical issues might have affected Salesforce’s fiscal first-quarter performance. Further, stiff competition from Oracle and Microsoft is a concern, along with forex headwinds.

Zacks Rank & Stocks to Consider

Salesforce currently carries a Zacks Rank #3 (Hold). Shares of CRM have soared 62.5% year to date (YTD).

Some better-ranked stocks from the broader technology sector are Meta Platforms (META Quick QuoteMETA – Free Report) , Manhattan Associates (MANH Quick QuoteMANH – Free Report) and CrowdStrike (CRWD Quick QuoteCRWD – Free Report) . While Meta and Manhattan Associates each sport a Zacks Rank #1 (Strong Buy), CrowdStrike carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Meta’s second-quarter 2023 earnings has been revised 27 cents northward to $2.87 per share in the past 30 days. For 2023, earnings estimates have been revised 9.9% upward to $12.04 per share in the past 30 days.

Meta’s earnings beat the Zacks Consensus Estimate twice in the preceding four quarters while missing the same on two occasions, the average surprise being 15.5%. Shares of META have surged 117.7% YTD.

The Zacks Consensus Estimate for Manhattan Associates’ second-quarter 2023 earnings has been revised upward by a couple of cents to 72 cents per share for the past 60 days. For 2023, earnings estimates have moved upward by 17 cents to $2.87 per share in the past 60 days.

Manhattan Associates’ earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 33.6%. Shares of MANH have soared 47.6% YTD.

The Zacks Consensus Estimate for CrowdStrike’s first-quarter fiscal 2024 earnings has been revised a penny northward to 50 cents per share in the past 60 days. For fiscal 2024, earnings estimates have been increased to $2.30 per share from $2.26 60 days ago.

CrowdStrike’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 24.4%. Shares of CRWD have rallied 46.4% YTD.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Live Nation Entertainment, Inc. (LYV Quick QuoteLYV – Free Report) is benefiting from pent-up demand for live events and robust ticket sales, reflecting strong contributions from all its operational segments. Also, the performance growth of Ticketmaster added to its uptrend.

Recently, LYV reported impressive first-quarter 2023 results, with earnings and revenues beating the Zacks Consensus Estimate by 44.4% and 39.6%, respectively. Also, the top and bottom lines grew year over year by 73% and 35.9%, respectively. The upside was attributable to the robust performance of Ticketmaster and an increase in fan spending. In first-quarter 2023, 19 million fans attended shows across 45 countries and more than 145 million tickets were sold.

LYV has a trailing four-quarter earnings surprise of 21%, on average. Moreover, the company has a strong VGM Score of A, backed by a Value Score of B and a Growth Score of A.

However, this live entertainment company is facing headwinds in the form of high costs and expenses.

Earnings estimates for 2023 have moved south to 40 cents per share from 59 cents per share over the past 30 days. This depicts analysts’ concern over the company’s growth prospects.

Let’s discuss the factors broadly.

Tailwinds

Live Nation is witnessing growth thanks to pent-up demand for live events and robust ticket sales. The company said that after the pandemic, demand for concerts remains high. Year to date, the company has already sold more than 90 million tickets, which rose more than 20% from the same period in 2022.

In the first quarter of 2023, the Concert segment’s revenues totaled $2,281.2 million, up 89% year over year. Also, total estimated events increased to 19,509, up from the prior year’s 10,898 events. In the quarter, the Ticketing segment’s revenues amounted to $677.7 million, up 41% from the prior-year quarter, and the total estimated tickets sold rose to 145,779,000.

LYV witnessed increased demand for digital ticketing post-pandemic, reflecting the robust performance of Ticketmaster. In first-quarter 2023, Ticketmaster sold 15,000 tickets per minute in North America, with more than 20 million fee-bearing tickets sold each month globally.

In the first quarter, more than 99.9% of transactions on Ticketmaster were processed without any technical issues. Ticketmaster expects to benefit in the remaining 2023 from increased Live Nation concert ticket sales and additional sales from new clients.

LYV’s sponsorship continues to witness robust growth. In the first quarter of 2023, the company added partners for 2023 and beyond, including Google Pixel, PayPal and Levi’s, and is witnessing solid contributions from them. In the same quarter, total revenues from Sponsorship & Advertising business came in at $170.1 million, up 47% from $115.7 million reported in the previous year.

Image Source: Zacks Investment Research

Shares of Live Nation have soared 17% in the past six months compared with the Zacks Leisure and Recreation Services industry’s growth of 8.4%.

Headwinds

Live Nation witnesses cost increases due to increased labor-hiring costs, artist activation costs and other operational expenses. In first-quarter 2023, total direct operating expenses were $2,115.6 million compared with $1,071 million reported in the prior-year quarter. Selling, general and administrative expenses in the same quarter were $690.3 million compared with $570.2 million reported in the prior-year period.

The company is cautious of cost overruns related to the development and expansion of live music venues. An increase in costs is likely to affect the company’s bottom line.

Zacks Rank & Key Picks

Live Nation currently carries a Zacks Rank #3 (Hold).

Here are some better-ranked stocks from the Zacks Consumer Discretionary sector.

Royal Caribbean Cruises Ltd. (RCL Quick QuoteRCL – Free Report) presently sports a Zacks Rank #1 (Strong Buy). RCL has a trailing four-quarter earnings surprise of 26.4%, on average. The stock has increased 31.8% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for RCL’s 2023 sales and earnings per share (EPS) indicates a rise of 48.3% and 160.5%, respectively, from the year-ago period’s levels.

MGM Resorts International (MGM Quick QuoteMGM – Free Report) currently sports a Zacks Rank #1. MGM delivered a trailing four-quarter earnings surprise of 81%, on average. Shares of the company have increased 12.6% in the past six months.

The Zacks Consensus Estimate for MGM’s 2023 sales indicates a rise of 15.4%, while the same for EPS indicates a decline of 45.9% from the year-ago period’s levels.

Crocs, Inc. (CROX Quick QuoteCROX – Free Report) currently carries a Zacks Rank #2 (Buy). CROX has a trailing four-quarter earnings surprise of 19.6%, on average. Shares of the company have increased 9.2% in the past six months.

The Zacks Consensus Estimate for CROX’s 2023 sales and EPS indicates a rise of 13.2% and 5.7%, respectively, from the year-ago period’s levels.

Tandem Diabetes Care, Inc. (TNDM Quick QuoteTNDM – Free Report) is well-poised for growth in the coming quarters, backed by the strength of t:slim X2 based on Control-IQ technology and new product launches. In the first quarter, the top line met the high end of the company’s expectations.  However, escalating operating costs and stiff rivalry are concerning.

In the past year, this Zacks Rank #3 (Hold) stock has decreased 62.5% compared with the 3.1% fall of the industry and a 1.7% rise of the S&P 500 composite.

The renowned medical device company has a market capitalization of $1.72 billion. Tandem Diabetes projects an estimated earnings growth rate of 36.9% for 2024 compared with 24.9% of the industry. In the trailing four quarters, TNDM has an average negative earnings surprise of 415.6%.

Let’s delve deeper.

Tailwinds

Q1 Upsides: Tandem Diabetes’ first-quarter revenues were in line with its expectations. The company continues to capture a competitive share in the insulin pump market on the strength of t:slim X2 with Control-IQ technology. Within supplies, TNDM witnessed an increase in cartridges and infusion set sales, with its in-warranty installed base growing to approximately 300,000 people at the end of the first quarter. 

Image Source: Zacks Investment Research

The ongoing inventory transition to Tandem Diabetes’ European distribution center during the quarter witnessed a reduction in logistical supply chain challenges, strong international distributor relations and a closer correlation between pump shipments and pump placements on patients.

t:slim’s Strong Prospects Continue: TNDM’s flagship product, t:slim X2 with Control-IQ technology continues to make a positive clinical impact in terms of overall satisfaction and ease of use and reduces the burden of diabetes management. The company looks forward to making t:slim X2 the first FDA-cleared insulin pump integrated with multiple CGM sensors.

TNDM is working closely with Dexcom to finalize Control-IQ integration with G7 and  coordinate its launch. The integration of Control-IQ technology with Abbott’s FreeStyle Libre 2 and Libre 3 sensors is also underway.

Product Innovation to Contribute: We are encouraged to see Tandem Diabetes’ pipeline of new products and services for the diabetes community, set to launch in 2023. Following the FDA clearance, the company is preparing to expand the diabetes solutions portfolio through the launch of the Tandem Mobi system. The Mobi pump is about half the size of t:slim and can be operated by a smartphone through a mobile application.

TNDM is also working on t:slim X3, which is a technology upgrade to t:slim X2.

Downsides

Mounting Expenses:  In the first quarter, Tandem Diabetes came out with lower-than-expected revenues and earnings. The company registered a wider adjusted operating loss compared to the prior-year quarter on a year-over-year increase of 22.6% in SG&A expenses and 27.1% in R&D expenses.

Tough Competitive Pressure: Tandem Diabetes operates in a highly competitive environment dominated by firms ranging from large multinational corporations with significant resources to start-ups. Also, competitive and regulatory conditions in the markets where Tandem Diabetes operates limit the company’s ability to switch to strategies like price increases.

TNDM primarily competes with Medtronic’s market-leading MiniMed, a division of Medtronic. MiniMed boasts a major portion of the conventional insulin pump market share in the United States.

Estimate Trend

Tandem Diabetes has been witnessing a negative estimate revision trend for 2023. The Zacks Consensus Estimate for 2023 loss per share has moved from 94 cents to $1.03 in the past 30 days.

The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $885.5 million. This suggests a 10.5% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Zimmer Biomet (ZBH Quick QuoteZBH – Free Report) , Penumbra (PEN Quick QuotePEN – Free Report) and Hologic, Inc. (HOLX Quick QuoteHOLX – Free Report) .

Zimmer Biomet has an earnings yield of 5.72% compared with the industry’s -2.31%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. Its shares have increased 6.5% against the industry’s 34% decline in the past year.

ZBH sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have risen 105.2% compared with the industry’s 3% decrease over the past year.

PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.

Hologic, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 4.84% compared to the industry’s -7.06%. Shares of HOLX have risen 2% compared with the industry’s 3% fall over the past year.

Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.

Lockheed Martin Corp.’s (LMT Quick QuoteLMT – Free Report) Space business segment clinched a modification contract involving Trident II (D5) missile. The award has been offered by the Strategic Systems Programs, Washington, DC.

Valued at $27.1 million, the contract is expected to be completed by Sep 30, 2027. Per the terms of the deal, Lockheed will offer services related to production and deployed systems support for Trident II (D5) missile.

Majority of the work related to this deal will be executed in Magna, UT.

Significance of Trident II

The Trident II D5 fleet ballistic missile is a program with the U.S. Navy for the only submarine-launched intercontinental ballistic missile currently under production in the United States. It is the latest generation of the navy’s submarine-launched fleet ballistic missiles, following the highly successful Polaris, Poseidon and Trident I C4 programs.

Lockheed’s Space Systems unit is the prime contractor for the development, production and support equipment of this missile. The company also supplies technical and logistical support at the sites of the missile’s deployment.

Due to its remarkable features, which are well-suited for any military mission, Lockheed continues to witness a steady inflow of orders involving the Trident. The latest contract win is a testament to that. This shall bolster LMT’s revenues from the Space Systems unit.

Growth Prospects

Of late, nations have been increasing their spending on modernization and upgrading of defense military equipment and weaponry amid rising geopolitical tensions. Consequently, the demand for missiles is likely to gain momentum as these play a very important role in military missions.

Per Markets and Markets projections, the global missile defense system market is expected to witness a CAGR of more than 3.9% over the 2021-2036 period. Such projections exemplify immense opportunities for Lockheed to capitalize on the growing demand.

Prominent defense majors that are likely to enjoy the perks of the expanding missile defense market are Northrop Grumman (NOC Quick QuoteNOC – Free Report) , General Dynamics (GD Quick QuoteGD – Free Report) and Raytheon (RTX Quick QuoteRTX – Free Report) that are involved in missile manufacturing or providing support services for the same.

Northrop Grumman’s Missile Products business unit is a leading U.S. supplier of solid rocket propulsion for national security and defense. It provides stages for weapon systems, such as air-launched missiles, interceptors, submarine-launched systems and hypersonic missile systems.

The company has a long-term earnings growth rate of 3.8%. The Zacks Consensus Estimate for NOC’s 2023 sales indicates an improvement of 4.7% from the year-ago reported figure.

General Dynamics’ Ordnance and Tactical Systems designs, develops and produces a comprehensive range of sophisticated weapon systems for ground forces. It also produces next-generation weapon systems for shipboard and aircraft applications. The unit maintains a leading position in providing subsystems in support of U.S. tactical and strategic missiles.

GD boasts a long-term earnings growth rate of 8.9%. The Zacks Consensus Estimate for GD’s 2023 sales indicates an increase of 5% from the prior-year reported number.

Raytheon’s Missiles & Defense is a leading designer, developer, integrator, producer and sustainer of integrated air and missile defense systems. Its technology delivers unprecedented combat power to the world’s most sophisticated fourth and fifth-generation aircraft and across every mission phase.

RTX boasts a long-term earnings growth rate of 8.3%. The Zacks Consensus Estimate for the company’s 2023 sales implies improvement of 8.3% from the 2022 recorded figure.

Price Movement

In the past six months, shares of Lockheed have decreased 7.5% compared to the industry’s decline of 10.6%.

Image Source: Zacks Investment Research

Zacks Rank

Lockheed currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.