Tag Archives: zacks

Better-Than-Expected Q3 Earnings Lift Industrial ETFs

Despite global growth slowdown, most of the major industrial players managed to beat earnings estimates in the past one week. This along with better-than-expected U.S. jobless claims and dovish comments from the European Central Bank President Mario Draghi has led the Dow Jones Industrial Average to record its best point and percentage gain in yesterday’s (October 22, 2015) trading session since September 8. However, revenue weakness was widespread among the industrial players. The blame goes largely to the stronger dollar as most of these companies have significant international exposure resulting in an unfavorable currency impact. Industrial Earnings in Focus General Electric Company (NYSE: GE ) Diversified industrial conglomerate General Electric posted stellar third quarter performance as it was able to surpass expectations for both earnings and revenues. The company’s operating earnings rose year over year to $3.3 billion or 32 cents a share in the quarter owing to stringent cost-cutting and simplification initiatives. Operating earnings exceeded the Zacks Consensus Estimate by 6 cents (read: Industrial ETFs in Focus on GE Restructuring Plans ). Revenues fell slightly to $31,680 million from $32,107 million in the year-earlier quarter due to lower Industrial segment and GE Capital revenues. However, total revenue topped the Zacks Consensus Estimate of $28,666 million. Organic revenue growth for the Industrial segment was 4% for the quarter. Shares of GE rose 2.6% since its earnings release on October 16 (as of October 22, 2015) (read: 3 Industrial ETFs to Play on GE Q3 Earnings Beat ). 3M Company (NYSE: MMM ) Another major conglomerate, 3M Company reported earnings of $2.05 per share for third-quarter 2015, beating the Zacks Consensus Estimate of $2.01 and increasing 3.5% year over year. The decline in shares outstanding for the latest quarter boosted earnings per share Net sales during the quarter were $7,712 million, down 5.2% year over year and short of the Zacks Consensus Estimate of $7,895 million. The year-over-year decrease in sales was largely due to a significant negative foreign currency translation impact. However, the company achieved organic local-currency sales growth of 1.2%. 3M shares went up 4.1% in yesterday’s trading session post earnings release. Honeywell International Inc. (NYSE: HON ) Honeywell International’s adjusted earnings per share escalated 9.8% to $1.57 in the reported quarter, beating the Zacks Consensus Estimate of $1.55. The uptick in earnings was driven by improved cost management and margins. Revenues in third-quarter 2015 decreased 5% year over year to $9,611 million, missing the Zacks Consensus Estimate of $9,884 million. The decrease in revenues was due to the unfavorable foreign currency impact and divestiture of Friction Material. However, Honeywell delivered 1% core organic sales growth. Shares of the company rose 3.8% since its earnings release on October 16. Caterpillar Inc. (NYSE: CAT ) Mining and equipment behemoth Caterpillar posted disappointing results compared to its peers. The company’s third-quarter 2015 adjusted earnings plunged 56% to 75 cents per share, reflecting the ongoing weakness in mining and oil and gas industries. Earnings, however, came in line with the Zacks Consensus Estimate. Revenues declined 19% year over year to $10.96 billion in the quarter, failing to match the Zacks Consensus Estimate of $11.11 billion due to the unfavorable currency impact along with lower volumes. Nevertheless, shares of Caterpillar rose 2.9% following the earnings release in yesterday’s trading session. Union Pacific Corporation (NYSE: UNP ) The rail transportation operator, Union Pacific reported third-quarter 2015 earnings of $1.50 per share, which came in well above the Zacks Consensus Estimate of $1.43. Earnings, however, declined 2% on a year-over-year basis. Revenues decreased 10% year over year to $5.56 billion in the third quarter, falling short of the Zacks Consensus Estimate of $5.65 billion. A 10% decline in freight revenues hurt the top line. Further, declining coal shipments weighed on the railroad operator’s results yet again. However, shares of the company rose 3.8% following its results in yesterday’s trading session. ETF Impact The upward movement in major industrial stocks caused the shares of industrial ETFs to trade in the green in the past five days (as of October 22, 2015). Below we discuss three of these ETFs having a sizeable exposure to the above stocks. The Industrial Select Sector SPDR ETF (NYSEARCA: XLI ) This product provides exposure to 66 industrial stocks by tracking the Industrial Select Sector Index. General Electric occupies the top spot with 11.5% allocation, while 3M, Caterpillar, Honeywell and Union Pacific have a combined exposure of roughly 16.7% in the fund. XLI has garnered $7 billion in assets and trades in a heavy volume of 10.9 million shares per day. It has a low expense ratio of 0.15%. The product gained 3.4% in the past five days and currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. The Vanguard Industrials ETF (NYSEARCA: VIS ) This fund follows the MSCI US IMI Industrials 25/50 index and holds about 345 securities in its basket. Of these firms, GE occupies the top position with 11.5% share, while 3M, Honeywell and Union Pacific together comprise 10.8% of the fund’s assets. The fund manages nearly $2 billion in its asset base and charges only 12 bps in annual fees. Volume is moderate as it exchanges roughly 105,000 shares a day on average. The product returned 2.6% in the past five days and currently has a Zacks ETF Rank #3 with a Medium risk outlook. The iShares U.S. Industrials ETF (NYSEARCA: IYJ ) IYJ tracks the Dow Jones U.S. Industrials Index to provide exposure to 213 U.S. companies that produce goods used in construction and manufacturing. General Electric occupies the top spot in the fund with 11.4% share while 3M, Caterpillar, Honeywell and Union Pacific have a combined exposure of roughly 11.5%. The ETF manages an asset base of $587 million and trades in an average volume of 82,000 shares. The fund is slightly expensive with 43 basis points as fees. It rose 2.5% in the last five days and currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. Link to the original post on Zacks.com

Eyeing Q3 Revenue Growth Potential? Try These Sector ETFs

The ETF industry saw height of volatility in the third quarter of 2015 thanks to speculations over Fed tightening, global growth worries, a commodity market crash, horrendous equity sell-off in China and its shockwaves around the world. On the other hand, a strong greenback and a weak energy sector were the other permanent dampeners in the first three quarters of 2015. These evils are also haunting the Q3 earnings season, which has just picked up pace. Though an accommodative Fed and the probability of a delayed rate hike following momentum loss in the U.S. economy charged up stocks to start Q4, issues of the prior quarter will have a significant impact, mostly bad, on the corporate world. Expectations for both earnings and revenue growth remain negative for the quarter. As per the Zacks Earning Trends issued on October 14, 2015, earnings for the S&P 500 are expected to be down 4.9% in Q3 while revenues are likely to decline 5.6%. However, some sectors might surprise, snapping the downtrend and offering decent returns in the ongoing quarter, even if volatility follows through. While looking for these outstanding performers, we would like to highlight those sectors that are likely to post strong revenue gains. This is because; sales are harder to influence an income statement than earnings. A company can land up on decent earnings numbers by adapting cost-cutting or some other measures which do not speak for its core strength. But it is harder for a company to mold its revenue figures. Below, we highlight three lucrative sector ETFs that could be used to book some profits in this whimsical market. Each sector has positive and strong revenue growth estimates for Q3 and offers intriguing fundamentals to protect investors’ portfolios in a dubious global investing backdrop: The Medical or Health Care sector appears the best positioned with an 8.5% revenue growth estimate, the best in the universe of 16 S&P sectors categorized by Zacks. Rise in mergers and acquisitions, the Affordable Care Act, an aging global population and the sector’s non-cyclical nature could earn its some solid gains (read: Obamacare is Here to Stay: 3 ETFs to Buy ). This is especially true as skepticism piles up in the global market. Investors should note that pharma and some biotech companies recently suffered a horrendous sell-off on pricing concerns. On the one hand, the medical device corner showed greater resilience in this tumultuous phase, and on the other hand the sell-off made the entire sector affordable. This should go in its favor. As a result, medical devices ETFs like IHI should log greater gains. XHS is up 2.5% so far this year (as of October 15, 2015) and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 2 ETFs Rising to Rank #1 This Earnings Season ). The SPDR S&P Retail ETF (NYSEARCA: XRT ) Though retail sales remained soft lately as evident by the lower-than-expected sales data in September, the revenue growth prospect remains strong. Apart from medical, this is the only sector expected to see revenue growth in high single digits. To add to this, the Fed lift-off talk is now off the table. The Fed is also likely to opt for a slower rate hike trajectory once the step is actually taken, most probably sometime in early 2016. This should favor a cyclical sector like retail. Moreover, the still-subdued oil price is another tailwind for the sector as it would add up to consumers’ fuel price savings and encourage them to buy more discretionary products. However, lackluster job data is undoubtedly a concern for the sector. Retail/Wholesale is projected to register 7.3% revenue growth in Q3, the second best in the pack. XRT is down about 5% so far this year (as of October 15, 2015) and has a Zacks ETF Rank #1 with a Medium risk outlook. The iShares North American Tech ETF (NYSEARCA: IGM ) Tech stocks are giving robust performances of late on higher global IT spending, increased usage of smartphones, tablets or other gadgets, decent valuation and the pile of cash the companies are sitting on. As of now, the Zacks Earnings Trend predicts 3.7% expansion in revenues from tech companies, the third best growth rate. MTK is up about 5% so far this year (as of October 15, 2015). The fund currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. Link to the original post on Zacks.com

Banking Earnings Soft: Buy Financial ETFs On Value?

The financial sector, which accounts for around one-fifth of the S&P 500 index, had a sluggish- to-decent Q3. Weak capital market activities and global growth worries along with a low interest rate environment dealt a blow to the space. However, modest gains in loan growth amid low interest rates, investment banking activities thanks to surge in corporate actions and cost containment efforts helped the space to stay afloat in the quarter. As evident from the big bank earnings, the sector has been an average performer. Per the Zacks Earnings Trend issued on October 14, financial earnings are expected to jump 9.6% this quarter on 3.7% lower revenues. To be more specific, easy comparisons at Bank of America Corporation or BofA (NYSE: BAC ) is leading the sector. Excluding Bank of America, results would have been much more muted than it looks now. Earnings would fall in absence of BofA’s stellar growth (read: Guide to the 7 Most Popular Financial ETFs ). Let’s take a look at the big banks’ earnings which released lately. Big Bank Earnings in Focus JPMorgan (NYSE: JPM ) reported earnings of $1.32 per share missing the Zacks Consensus Estimate by 4.4% and the year-ago earnings by 2.9%. Managed net revenue of $23.5 billion in the quarter was down 6% from the year-ago quarter. It also compared unfavorably with the Zacks Consensus Estimate of $23.8 billion. Goldman (NYSE: GS ) earned $2.90 per share in Q3, falling short of the Zacks Consensus Estimate of $3.08 per share and declining from the year-ago figure of $4.57. The shortfall in earnings reflected a fall in revenues, hurt by lower trading activity in the quarter, be it bonds, currencies or commodities (read: 3 Sector ETFs Hit Hard by the Market Sell-off ). Net revenue dived 18% year over year to $6.9 billion for the quarter. Revenues also lagged the Zacks Consensus Estimate of $7.3 billion. Lower net interest as well as non-interest income weighed on the top line. Citigroup Inc.’s (NYSE: C ) adjusted earnings per share of $1.31 for the quarter outpaced the Zacks Consensus Estimate of $1.29. Further, earnings compared favorably with the year-ago figure of $0.95 per share. Adjusted revenues of Citigroup declined 8% year over year to $18.5 billion. Also, the revenue figure missed the Zacks Consensus Estimate of $18.76 billion. Wells Fargo (NYSE: WFC ) earned $1.05/share in 3Q15 beating the Zacks Consensus Estimate by a penny. The reported figure was also above the year-ago number of $1.02 per share. The quarter’s total revenue came in at $21.9 billion, outpacing the Zacks Consensus Estimate of $21.5 billion. Moreover, revenues rose 3.3% year over year. Bank of America Corporation’s third-quarter earnings of $0.37 per share outdid the Zacks Consensus Estimate of $0.34. Further, the bottom line witnessed a significant improvement from net loss of $0.04 incurred in the prior-year quarter. Net revenue of $20.7 billion was down 2% year over year and met the Zacks Consensus Estimate. ETF Impact Despite a run of listless results from banks this week, the concerned ETFs buoyed up on the recent Fed-induced optimism. Most U.S. financial ETFs returned at least 1% since the earnings came out (as of October 15, 2015). All the aforementioned companies have considerable exposure in funds like the i Shares U.S. Financial Services ETF (NYSEARCA: IYG ) , the PowerShares KBW Bank Portfolio ETF (NYSEARCA: KBWB ) , the Financial Select Sector SPDR ETF (NYSEARCA: XLF ) , the iShares U.S. Broker-Dealers ETF (NYSEARCA: IAI ) and the Vanguard Financials ETF (NYSEARCA: VFH ) . All the funds are in green post big banks’ results, having returned in the range of 1─1.8% (as of October 15, 2015). It seems that investors are paying more heed to the market rally which could boost the weakling of this quarter – trading activities, going forward. The bond market is also displaying a strong trend on a dovish Fed and a delayed rate hike possibility. This could go in favor banks’ client activity in the fourth quarter. In any case, sooner or later, the U.S. economy is due for a lift-off and U.S. banks are now much more well-balanced than they were at the time of the last recession. All the aforementioned ETFs apart from IAI have a Zacks ETF Rank # 2 (Buy), sport compelling valuation and thus emerge as better plays than an individual stock pick. Link to the original post on Zacks.com