Monday, October 7, 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 Meta Platforms, Inc. (META), Cisco Systems, Inc. (CSCO) and Philip Morris International Inc. (PM), as well as two micro-cap stocks Earth Science Tech, Inc. (ETST) and Frequency Electronics, Inc. (FEIM). 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 >>>

Meta Platforms’ shares have outperformed the Zacks Internet - Software industry over the year-to-date period (+68.9% vs. +24.3%). The company is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement for its offerings like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver.

META has been leveraging AI to improve the potency of its platform offerings. These services currently reach more than 3.2 billion people daily. User growth remained solid in the United States, with WhatsApp reaching more than 100 million monthly users and Thread approaching 200 million milestone. It witnessed good year-over-year growth across Facebook, Instagram and Threads.

Meta now expects to invest significantly more over the next few years in developing more advanced models and the largest AI services in the world. However, monetization of these AI services will take considerable time, which is a concern.

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

Shares of Cisco have outperformed the Zacks Computer - Networking industry over the year-to-date period (+7.8% vs. +7.1%). The company’s business model has evolved with subscription revenues accounting for more than half of its total revenues. Splunk acquisition enhances its recurring revenue base.

The buyout significantly expands Cisco’s portfolio of software-based solutions, contributing more than $4 billion in ARR and makes it one of the largest software companies in the world. The launch of AI-powered Hypershield, which combines security and networking, strengthened Cisco’s security portfolio.

However, it has been suffering from sluggish networking sales, primarily due to lackluster demand from telecommunication and cable services providers, as well as stiff competition. Cisco’s prospects are further challenged in the AI-driven networking space due to stiffening competition aggravated by Hewlett Packard’s deal to acquire Juniper.

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

Philip Morris’ shares have outperformed the Zacks Tobacco industry over the past three months (+16.2% vs. +14.4%). Robust momentum in smoke-free products, IQOS and ZYN, along with combustible pricing, has been working well for the company. Higher pricing variance and solid cost efforts aided the bottom line amid strong currency headwinds in the second quarter of 2024.

The consistent success of IQOS and the noteworthy economics of ZYN have further solidified the company’s position, keeping it well-placed to become a majority smoke-free company by 2030. These upsides encouraged management to raise its guidance for 2024, wherein net revenues are likely to increase 7.5-9% on an organic basis.

However, Philip Morris expects SG&A expenses to remain high in the third quarter due to its planned key commercial activities. The company continues to encounter tobacco leaf inflation.

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

Shares of Earth Science have outperformed the Zacks Medical - Biomedical and Genetics industry over the year-to-date period (+143.9% vs. -1.7%). This microcap company with market capitalization of $512.53 million posted a remarkable 3,796.1% revenue increase to $8.6 million in first-quarter fiscal 2025, largely due to the acquisitions of RxCompound and Peaks. It reported a net profit of $1.1 million against the prior year’s loss.

RxCompound’s licensing in 22 states provides significant expansion potential, and synergies with Peaks’ telemedicine platform enhance growth opportunities. Despite a strong balance sheet, the company faces risks including reliance on key customers, rising expenses, supplier concentration and regulatory hurdles.

While its 75% gross margin supports profitability, challenges in cost control and supply-chain disruptions could impact future performance. Competitive pressures and share buybacks may also strain resources, challenging future profitability.

(You can read the full research report on Earth Science Tech here >>>)

Frequency Electronics’ shares have outperformed the Zacks Instruments - Control industry over the year-to-date period (+19.2% vs. +12.7%). This microcap company with market capitalization of $115.38 million posted strong fiscal Q1 2025 results, with revenues rising 22% to $15.1 million, driven by U.S. government satellite programs. Operating income rose 15% to $2.37 million, reflecting higher margins and cost efficiency.

FEI’s expansion into the fast-growing satellite market, including low-cost synchronization systems for LEO satellites, positions the company to capitalize on rising demand for smaller, faster-deployed satellites. Additionally, FEI’s quantum technology initiatives, such as magnetometers, provide growth potential. Gross margin reached a 24-year high of 44.4%.

The company declared a $1.00/share dividend in July 2024, supported by its debt-free balance sheet and strong cash position. Risks include a 10% backlog decline, negative operating cash flow, rising R&D expenses, and heavy reliance on government contracts, which could introduce revenue volatility.

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

Other noteworthy reports we are featuring today include Norfolk Southern Corporation (NSC), Ameriprise Financial, Inc. (AMP) and Royal Caribbean Cruises Ltd. (RCL).

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>>>

Today's Must Read

User Growth, Instagram Strength Aids Meta Platforms (META)

Cisco (CSCO) Benefits From Strong Security Products Adoption

Philip Morris (PM) Benefits from Strong Smoke-free Revenues

Featured Reports

Norfolk Southern (NSC) Strong on Dividends Amid Freight Woes
The Zacks analyst is concerned about the challenging freight environment. Efforts to reward shareholders, however, bode well.

Restructuring Efforts Aid Ameriprise (AMP), High Costs Ails
Per the Zacks analyst, Ameriprise's efforts to restructure operations, focus on core businesses and robust AUM balance will aid revenues. Yet, rising costs, volatile markets and outflows are concerns.

Cummins (CMI) to Ride on Strength of the Power Systems Unit
Higher volumes in power generation and better pricing will aid Cummins' Power Systems. However, the Zacks analyst is concerned that weak engine shipments could affect the company's overall results.

Water Infrastructure Unit Drives Xylem (XYL), High Costs Ail
Per the Zacks analyst, Xylem is benefiting from strength in Water Infrastructure segment, driven by growth in the transport application business. However, increasing operating costs remain a concern.

Strength in PLM & CAD Solutions Aid PTC Amid Forex Headwinds
Per the Zacks analyst, heightened demand for PTC's product lifecycle management (PLM) and computer-aided design (CAD) solutions propels growth prospects. Forex volatility remains a woe.

Investments & Expanding Customer Base Aid ONE Gas (OGS)
Per the Zacks analyst, ONE Gas' capital expenditure should improve pipeline integrity and boost its performance. Rising demand from an expanding customer base should further boost the top line.

Haemonetics (HAE) Gains Ground on Growing Plasma Business
Per the Zacks analyst, high end-market demand for biopharmaceuticals should continue driving Haemonetics' plasma unit growth. The ongoing enhancements in its NexSys platform should complement growth.

New Upgrades

Strong Booking Trends Aid Royal Caribbean's (RCL) Prospects
Per the Zacks analyst, Royal Caribbean benefits from strong cruising demand and robust booking trends. Also, focus on new innovative ships and onboard experiences bode well.

Targa Resources (TRGP) Gains from Booming Permian Presence
The Zacks analyst believes that Targa Resources is set to benefit significantly from the growth in Permian Basin, America's hottest shale region, with new projects coming online in 2024 and 2025.

AXIS Capital (AXS) Set to Grow on Improved Portfolio Mix
Per the Zacks analyst, AXIS Capital continues to build on Specialty Insurance, Reinsurance plus Accident and Health. Improved portfolio mix and effective capital deployment should pave way for growth.

New Downgrades

Vertex (VRTX) Cystic Fibrosis Sales Slowing Down a Woe
The Zacks analyst says that though Vertex's cystic franchise sales are increasing year over year, the growth rate is slowing down. This is a major concern.

Guess? (GES) Appears Troubled by Higher Freight Costs
Per the Zacks analyst, GUESS? is facing rising freight costs due to ongoing shipping issues from the Red Sea crisis, which will pose a challenge to its gross margin in the back half of fiscal 2025.

High-Cost Structure & Seasonal Fluctuations Ail Vulcan (VMC)
Per the Zacks analyst, Vulcan's prospects are hurt by increased costs and expenses along with weather-related risks.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report

Norfolk Southern Corporation (NSC) : Free Stock Analysis Report

Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report

Philip Morris International Inc. (PM) : Free Stock Analysis Report

Ameriprise Financial, Inc. (AMP) : Free Stock Analysis Report

Frequency Electronics, Inc. (FEIM): Free Stock Analysis Report

Earth Science Tech, Inc. (ETST) : Free Stock Analysis Report

Meta Platforms, Inc. (META) : Free Stock Analysis Report

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