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Owens & Minor, Inc. OMI has announced a partnership with Google Cloud, owned by the parent holding company, Alphabet GOOGL to enhance the existing capabilities of its cloud-based clinical inventory management system, QSight. The collaboration will combine the company’s expertise in optimizing the healthcare supply chain with Google Cloud’s Vertex AI platform, to tackle the modern supply chain management complexities and support the patients more effectively.
The latest development demonstrates the progress Owens & Minor has been making toward its strategic goals for the Products & Healthcare Services segment.
Following the news, shares of OMI edged up 0.2% to $14.42 at Tuesday’s close. By staying at the forefront of technology, including making investments with one of the most renowned innovators in the market, the company consistently delivers value to its customers and improves clinician efficiency. We expect the market sentiment on OMI stock to stay positive around this development.
Significance of OMI’s New Partnership
The implications of inefficient inventory management in healthcare can extend beyond the stockroom and into the operating room. This includes the risks of expired products being used in patient care and loss of inventory if products expire before. There is also an increasing pressure to deliver high-quality care while managing costs and optimizing efficiency — with less support from clinical staff.
However, traditional clinical inventory management systems often lack the real-time visibility and predictive capabilities to oversee the complex healthcare supply chains, leading to increasing costs and higher workloads for clinical staff.
The partnership between Owens & Minor and Google Cloud aims to focus on enhancing QSight’s ability to help hospitals and health systems optimize how they manage the thousands of medical-grade supplies, high-value surgical implants and human tissue products required for patient care. The company will also lay the foundation for future platform and service innovations with the potential to improve the QSight customer experience.
Favorable Industry Prospects for Owens & Minor
A report by Research and Markets valued the healthcare inventory management software market at $331.5 million in 2021 and forecasts it to see a compound annual rate of 8.9% through 2028.
The rising complexity of the healthcare supply chain, such as worldwide sourcing, diversified product portfolios, regulatory constraints, and the demand for real-time monitoring, have increased the need for sophisticated inventory management systems. Healthcare organizations are implementing advanced inventory management solutions that provide greater visibility, automation and analytics.
Other Major Developments Within OMI
In July 2024, Owens & Minor announced a definitive agreement to acquire Rotech Healthcare Holdings, Inc., a home medical equipment provider based in the United States, for $1.36 billion in cash. The acquisition directly aligns with the company’s broader strategy to expand into the fast-growing home-based care space. In addition, it also bolsters its Patient Direct product offerings through expansion across a complementary portfolio including Respiratory, Sleep Apnea, Diabetes and Wound Care.
OMI Stock Price Performance
In the past year, Owens & Minor shares have plunged 10.8% against the industry’s 18.4% growth.
OMI Estimate Trend and EPS Surprise History
In the past 30 days, estimates for Owens & Minor’s 2024 earnings have remained constant at $1.57 per share. The company beat estimates in each of the trailing four quarters, the average surprise being 11.1%.
OMI’s Zacks Rank and Top MedTech Stocks
Owens & Minor currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space are Boston Scientific BSX and AxoGen AXGN, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Boston Scientific’s shares have risen 55.9% in the past year. Estimates for the company’s earnings per share have remained constant at $2.40 in 2024 and $2.71 in 2025 in the past 30 days. BSX’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 7.2%. In the last reported quarter, it posted an earnings surprise of 6.9%.
Estimates for AxoGen’s 2024 loss per share have remained constant at 1 cent in the past 30 days. Shares of the company have surged 141.4% in the past year compared with the industry’s growth of 15.7%. AXGN’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 96.5%. In the last reported quarter, it delivered an earnings surprise of 200%.
Zacks Investment Research
For Immediate Release
Chicago, IL – September 12, 2024 – Zacks Equity Research shares Eli Lilly LLY as the Bull of the Day and Hertz Global HTZ as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Shopify SHOP, Alphabet GOOGL and Amazon AMZN.
Here is a synopsis of all five stocks.
Bull of the Day:
Eli Lilly has long been a reliable name in the healthcare sector, providing stability for investors during periods of market turbulence. As a leading pharmaceutical company, it enjoys the defensive qualities of healthcare stocks, which typically perform well even in uncertain economic conditions.
In 2022, when the broader market declined by 18%, Eli Lilly delivered an impressive 34% return. However, what sets Eli Lilly apart from other defensive stocks is its explosive growth potential, particularly in the rapidly expanding GLP-1 weight-loss drug market.
Furthermore, Eli Lilly currently boasts a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions and increasing the odds of a near-term rally. Analysts have raised earnings estimates unanimously and across timeframes by as much as 23.4% over the last two months.
LLY is Dominating the Weight-Loss Drug Market
The GLP-1 drug market, which includes treatments for diabetes and obesity, is forecasted to grow at an astonishing rate of 20% annually through 2030. Eli Lilly’s Mounjaro (tirzepatide) has already established itself as a blockbuster drug, outperforming market expectations in both efficacy and sales. With obesity rates rising globally and increased healthcare awareness, the demand for weight-loss drugs like Mounjaro is expected to surge in the coming years.
The company’s success in this space has been a key driver of its financial performance. In Q2 2024, Eli Lilly reported a 36% increase in revenue, driven largely by Mounjaro and other key drugs like Zepbound and Verzenio. Earnings per share (EPS) for the quarter surged 68% year-over-year, exceeding analysts’ estimates by 42%. This strong performance led Eli Lilly to raise its full-year revenue guidance by $3 billion, highlighting its confidence in sustained growth.
A Robust Pipeline and More Growth on the Horizon
Beyond weight-loss treatments, Eli Lilly boasts a rich pipeline of drugs that positions it for continued growth. Notably, the company recently received FDA approval for Kisunla, a treatment for Alzheimer’s disease, and Jaypirca for mantle cell lymphoma in Japan.
Positive clinical trial results for tirzepatide in treating heart failure and obesity further underscore the potential of its pipeline. These developments in key therapeutic areas such as Alzheimer’s, oncology, and autoimmune disorders add more growth levers for Eli Lilly moving forward.
With revenue projected to grow 23% this year and EPS forecasted to increase by 33.3% annually over the next three to five years, Eli Lilly’s growth story is far from over. Analysts expect the company to continue delivering strong results as it expands its offerings and capitalizes on its leadership in the GLP-1 space.
Valuation Justified by Growth Prospects
At first glance, Eli Lilly’s valuation—currently trading at 38.3x next year’s earnings—might appear steep. However, considering its dominant position in a rapidly growing market, the elevated valuation may be justified. The combination of robust earnings growth, a rich drug pipeline, and strong market leadership justifies its premium valuation.
Can Eli Lilly Join the $1 Trillion Market Cap Club?
Currently, Eli Lilly’s market cap sits at approximately $535 billion. However, given the company’s growth trajectory, it is not far-fetched to imagine LLY reaching a $1 trillion market cap within the next five years.
With the GLP-1 market expected to hit $133 billion by 2030 and Eli Lilly holding a dominant position, the stock has the potential to double in value. If the company maintains its current sales growth and sales multiple, it could indeed join the exclusive trillion-dollar club.
Eli Lilly is a Defensive Play with Explosive Upside
For investors seeking a blend of stability and growth, Eli Lilly offers an attractive opportunity. Its defensive characteristics make it a solid choice during times of market volatility, while its exposure to the booming GLP-1 market and a strong pipeline of innovative drugs provide significant upside potential. With the GLP-1 market set to expand and Eli Lilly well-positioned to maintain its leadership, the stock is poised for long-term growth.
Bear of the Day:
Hertz Global business has been stagnant over the last three years, and its stock price has plunged 84% during that time. While the company is a well-known name in the rental car industry, it continues to face significant headwinds. The earnings revision trend has turned sharply negative, and despite a valuation that might catch the eye of some bargain hunters, the broader picture remains concerning.
In addition to stagnant sales growth, Hertz Global also has negative earnings and faces stiff competition in the rental car market. In this article we will cover the reasons why investors should avoid Hertz Global Stock.
Falling Sales and Earnings Estimates
Hertz Global currently has a Zacks Rank #5 (Strong Sell) rating, reflecting downward trending earnings revisions and dimming the stock’s outlook. Analysts have unanimously lowered earnings estimates across timeframes by hefty margins.
Beyond the earnings revisions, Hertz Global has struggled with flat to declining sales growth over the last five years. Additionally, despite efforts to rebuild the business, the company remains in negative earnings territory, a troubling sign for investors.
Hertz Stock Appears Cheap
One noteworthy point is that Hertz is expecting sales of nearly $10 billion next year, while its current market capitalization is just $800 million. This gives the stock an incredibly low forward price-to-sales ratio of 0.1x, which is very cheap by any standard. However, despite this attractive valuation metric, the company has yet to show any material profits, which is critical for turning sentiment around.
Should Investors Avoid Hertz Global Stock?
While Hertz may appear undervalued from a sales perspective, the company’s declining earnings revisions, negative earnings history, and significant stock price drop make it a risky bet at this time. Until Hertz can demonstrate a turnaround in profitability or its Zacks Rank moves higher, investors would be wise to avoid the stock and look for better opportunities elsewhere.
Additional content:
Shopify Declines -12.5% YTD: Buy, Sell or Hold?
Shopify shares have lost 12.5% year to date, underperforming both the Zacks Computer & Technology sector and the Zacks Internet Services industry. Over the same timeframe, the sector and industry have gained 13.6% and 4.7%, respectively.
The underperformance in SHOP’s shares can be attributed to challenging macroeconomic conditions that have negatively impacted small and medium businesses, which form its major merchant base. This cohort has been suffering from persistent inflation.
Nevertheless, Shopify’s expanding merchant base is noteworthy. This has been driving its Gross Merchandise Volume (GMV) which surpassed $1 trillion cumulatively. Offline business surpassed $100 billion in cumulative GMV since the launch of Shopify POS.
So, is this expanding GMV bodes well for Shopify investors or are the near-term challenges too hot to handle for them?
Let’s analyze to find out.
SHOP Stock to Rebound on Expanding Clientele
Shopify’s expanding clientele is a key catalyst. The growing number of multinational brands like EVEREVE and MAJOURI on its platform is noteworthy. These brands are launching online and offline with Shopify, which, on a combined basis, includes more than 130 locations across four regions.
Merchant-friendly tools like Shop Pay, Shopify Collective, Shopify Audiences, Shopify Capital and Shop Cash offers are helping it win new merchants regularly in a challenging economic environment.
In second-quarter 2024, Shop Pay processed $16 billion in GMV and accounted for 39% of SHOP’s Gross Payments volume (GPV). In the reported quarter, GPV grew to $41.1 billion, constituting 61% of GMV processed.
Shopify recorded the highest-ever B2B GMV month with a 140% year-over-year increase fueled by the growth of Plus merchants.
Integration of Shop Pay Installments into the point-of-sale terminal and general availability of Pro makes it easier for merchants to discover and engage their customers.
Shopify plans to improve the operating efficiency of its point-of-sale offering by introducing features, including a new remote smart grid layout editor, omnichannel return rules and the ability to stack multiple discounts at checkout, making it easier for merchants to customize their promotional strategies.
Expanding Partner Base to Aid SHOP Stock
An expanding partner base that includes TikTok, Snap, Pinterest, Criteo, IBM, Cognizant, Alphabet, Amazon, Manhattan Associates, COACH and Adyen is expected to expand its merchant base further.
Alphabet division YouTube recently expanded its partnership with Shopify to bring more brands for its YouTube Shopping affiliate program.
Shopify’s strategy to focus on the core business by divesting the logistics business has been a noteworthy development. Its partnership with Amazon allows Shopify merchants to use the former’s massive fulfillment network. The relationship with Target also strengthens SHOP’s footprint.
Shopify’s expanding international footprint is noteworthy. In the second quarter, it launched a point-of-sale terminal in eight additional countries, contributing to an impressive 2.4 times increase in GMV.
SHOP Stock to Ride on Robust Q3 Guidance
Shopify offered solid guidance for the third quarter of 2024. It expects revenue growth in the low-to-mid-twenties on a year-over-year basis. The gross margin is expected to increase 50 bps sequentially.
The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $2.11 billion, indicating 22.89% year-over-year growth.
The consensus mark for earnings is pegged at 27 cents per share, unchanged over the past 30 days and suggests 12.5% growth from the figure reported in the year-ago quarter.
Shopify Stock Is Overvalued
The Value Score of D suggests a stretched valuation for Shopify at this moment, which makes it a risky bet for investors despite promising growth prospects.
SHOP stock is trading at a premium with a forward 12-month Price/Sales of 8.97X compared with the industry’s 4.87X.
Conclusion
Shopify is benefiting from strong growth in its merchant base as well as expanding its international footprint. Hence, the long-term growth prospects are hard to ignore.
However, challenging macroeconomic conditions and persistent inflation are a near-term concern, along with a stretched valuation.
Shopify currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Zacks Investment Research
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index.Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Zacks Investment Research
Boston Scientific (BSX) closed at $82.94 in the latest trading session, marking a -0.14% move from the prior day. This change lagged the S&P 500's 1.07% gain on the day. At the same time, the Dow added 0.31%, and the tech-heavy Nasdaq gained 2.17%.
The medical device manufacturer's stock has climbed by 9.4% in the past month, exceeding the Medical sector's gain of 3.34% and the S&P 500's gain of 2.92%.
The upcoming earnings release of Boston Scientific will be of great interest to investors. The company is expected to report EPS of $0.58, up 16% from the prior-year quarter. Alongside, our most recent consensus estimate is anticipating revenue of $4.03 billion, indicating a 14.34% upward movement from the same quarter last year.
In terms of the entire fiscal year, the Zacks Consensus Estimates predict earnings of $2.40 per share and a revenue of $16.26 billion, indicating changes of +17.07% and +14.18%, respectively, from the former year.
Any recent changes to analyst estimates for Boston Scientific should also be noted by investors. Recent revisions tend to reflect the latest near-term business trends. With this in mind, we can consider positive estimate revisions a sign of optimism about the company's business outlook.
Our research shows that these estimate changes are directly correlated with near-term stock prices. Investors can capitalize on this by using the Zacks Rank. This model considers these estimate changes and provides a simple, actionable rating system.
Ranging from #1 (Strong Buy) to #5 (Strong Sell), the Zacks Rank system has a proven, outside-audited track record of outperformance, with #1 stocks returning an average of +25% annually since 1988. Over the past month, the Zacks Consensus EPS estimate has remained steady. Currently, Boston Scientific is carrying a Zacks Rank of #2 (Buy).
From a valuation perspective, Boston Scientific is currently exchanging hands at a Forward P/E ratio of 34.63. Its industry sports an average Forward P/E of 24.47, so one might conclude that Boston Scientific is trading at a premium comparatively.
It is also worth noting that BSX currently has a PEG ratio of 2.75. Comparable to the widely accepted P/E ratio, the PEG ratio also accounts for the company's projected earnings growth. The Medical - Products industry had an average PEG ratio of 2.04 as trading concluded yesterday.
The Medical - Products industry is part of the Medical sector. At present, this industry carries a Zacks Industry Rank of 84, placing it within the top 34% of over 250 industries.
The strength of our individual industry groups is measured by the Zacks Industry Rank, which is calculated based on the average Zacks Rank of the individual stocks within these groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.
Keep in mind to rely on Zacks.com to watch all these stock-impacting metrics, and more, in the succeeding trading sessions.
Zacks Investment Research
Shopify SHOP shares have lost 12.5% year to date, underperforming both the Zacks Computer & Technology sector and the Zacks Internet Services industry. Over the same timeframe, the sector and industry have gained 13.6% and 4.7%, respectively.
The underperformance in SHOP’s shares can be attributed to challenging macroeconomic conditions that have negatively impacted small and medium businesses, which form its major merchant base. This cohort has been suffering from persistent inflation.
Nevertheless, Shopify’s expanding merchant base is noteworthy. This has been driving its Gross Merchandise Volume (GMV) which surpassed $1 trillion cumulatively. Offline business surpassed $100 billion in cumulative GMV since the launch of Shopify POS.
So, is this expanding GMV bodes well for Shopify investors or are the near-term challenges too hot to handle for them?
YTD Performance Chart
Let’s analyze to find out.
SHOP Stock to Rebound on Expanding Clientele
Shopify’s expanding clientele is a key catalyst. The growing number of multinational brands like EVEREVE and MAJOURI on its platform is noteworthy. These brands are launching online and offline with Shopify, which, on a combined basis, includes more than 130 locations across four regions.
Merchant-friendly tools like Shop Pay, Shopify Collective, Shopify Audiences, Shopify Capital and Shop Cash offers are helping it win new merchants regularly in a challenging economic environment.
In second-quarter 2024, Shop Pay processed $16 billion in GMV and accounted for 39% of SHOP’s Gross Payments volume (GPV). In the reported quarter, GPV grew to $41.1 billion, constituting 61% of GMV processed.
Shopify recorded the highest-ever B2B GMV month with a 140% year-over-year increase fueled by the growth of Plus merchants.
Integration of Shop Pay Installments into the point-of-sale terminal and general availability of Pro makes it easier for merchants to discover and engage their customers.
Shopify plans to improve the operating efficiency of its point-of-sale offering by introducing features, including a new remote smart grid layout editor, omnichannel return rules and the ability to stack multiple discounts at checkout, making it easier for merchants to customize their promotional strategies.
Expanding Partner Base to Aid SHOP Stock
An expanding partner base that includes TikTok, Snap, Pinterest, Criteo, IBM, Cognizant, Alphabet GOOGL, Amazon AMZN, Target TGT, Manhattan Associates, COACH and Adyen is expected to expand its merchant base further.
Alphabet division YouTube recently expanded its partnership with Shopify to bring more brands for its YouTube Shopping affiliate program.
Shopify’s strategy to focus on the core business by divesting the logistics business has been a noteworthy development. Its partnership with Amazon allows Shopify merchants to use the former’s massive fulfillment network. The relationship with Target also strengthens SHOP’s footprint.
Shopify’s expanding international footprint is noteworthy. In the second quarter, it launched a point-of-sale terminal in eight additional countries, contributing to an impressive 2.4 times increase in GMV.
SHOP Stock to Ride on Robust Q3 Guidance
Shopify offered solid guidance for the third quarter of 2024. It expects revenue growth in the low-to-mid-twenties on a year-over-year basis. The gross margin is expected to increase 50 bps sequentially.
The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $2.11 billion, indicating 22.89% year-over-year growth.
The consensus mark for earnings is pegged at 27 cents per share, unchanged over the past 30 days and suggests 12.5% growth from the figure reported in the year-ago quarter.
Shopify Inc. Price and Consensus
Shopify Inc. price-consensus-chart | Shopify Inc. Quote
Shopify Stock is Overvalued
The Value Score of D suggests a stretched valuation for Shopify at this moment, which makes it a risky bet for investors despite promising growth prospects.
SHOP stock is trading at a premium with a forward 12-month Price/Sales of 8.97X compared with the industry’s 4.87X.
Price/Sales Ratio (F12M)
Conclusion
Shopify is benefiting from strong growth in its merchant base as well as expanding its international footprint. Hence, the long-term growth prospects are hard to ignore.
However, challenging macroeconomic conditions and persistent inflation are a near-term concern, along with a stretched valuation.
Shopify currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Investment Research
Investors with an interest in Medical - Products stocks have likely encountered both Haemonetics (HAE) and Boston Scientific (BSX). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, both Haemonetics and Boston Scientific are sporting a Zacks Rank of # 2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. But this is just one piece of the puzzle for value investors.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
HAE currently has a forward P/E ratio of 16.13, while BSX has a forward P/E of 34.63. We also note that HAE has a PEG ratio of 1.34. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. BSX currently has a PEG ratio of 2.75.
Another notable valuation metric for HAE is its P/B ratio of 4.16. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, BSX has a P/B of 5.94.
These metrics, and several others, help HAE earn a Value grade of B, while BSX has been given a Value grade of C.
Both HAE and BSX are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that HAE is the superior value option right now.
Zacks Investment Research
The past month has been quite encouraging for Medtronic MDT investors. Solid first-quarter fiscal 2025 organic growth performance and several strategic initiatives to revamp the bottom line, including the COGS cost-out programs, while maintaining pricing and maximizing efficiencies, seem to have boosted market sentiment.
Added to this, growing optimism surrounding the Fed’s approach toward an imminent rate cut in September acts as a strong impetus in driving the stock price. All these have nullified the ongoing impact of global geopolitical pressure, primarily disruptions around the Red Sea, which have significantly increased freight costs and shipping lead times, spelling trouble for Medtronic and other medical device players.
Over the past month, shares of Medtronic have gained more than 12%, steering ahead of the benchmark’s 2% growth, the broader industry’s 8.8% rise and the sector’s 3.7% growth. The company also strongly outperformed its key rivals like Boston Scientific BSX, Abbott ABT and Becton, Dickinson and Company or BD BDX over the past 30 days.
One-Month Price Performance of MDT
MDT Gets Golden Crossover Support
MDT stock has traded significantly above its 200-day moving average since July 26, 2024. The stock witnessed a golden crossover on Sept. 9, 2024, and since then, the 50-day moving average has been ahead of the 200-day moving average. This can be a piece of good news for MDT investors, signaling “support” for a continued uptrend.
MDT Above the 50 and 200-day SMA
Factors Driving Medtronic Shares
Medtronic is strategically expanding its global presence to address the unmet demand for advanced medical devices. A series of strategic product launches are particularly helping the company to enjoy MedTech's most attractive markets like AFib, Structural Heart, robotics, neuromodulation, hypertension and diabetes. AI application across the portfolio has further enhanced market demand for MDT products.
Medtronic's Dividend Track Record
While the Cardiovascular segment is seeing strong growth within the Micra leadless pacemaker franchise and Aurora line of defibrillation solutions, in MedSurg, Medtronic is scaling the production of Hugo RAS.
Innovations and market expansion efforts are helping it offset the impact of supply disruptions and cost escalations. Within Neuromodulation, currently, the company is fast gaining traction, primarily banking on Brain Modulation, which is benefiting from the continued launch of Percept RC with Brain Sense technology — the only complete sensing-enabled DBS system available in the market. Further, the Inceptiv platform has proved to be a game changer in chronic pain therapy.
Diabetes is another area of significant growth for MDT. In the United States, the company is benefiting from the ongoing rollout of the MiniMed 780G system. The company is also hopeful about high market acceptance following the recent full market release of the Simplera Sync sensor in the European market.
Medtronic’s strong liquidity position should allow it to meet its near-term debt obligations. Medtronic apparently looks quite burdened by debt, with total debt (including the current portion) of $27.87 billion as of July 26, 2024. The company’s cash and cash equivalents were $7.8 billion at the end of the first quarter of fiscal 2025. Although the quarter’s total debt was much higher than the corresponding cash and cash equivalent level, the short-term payable debt of $1.55 billion remains lower than the short-term cash level. The company’s times interest earned ratio too is at an impressive level of 7.7 indicating that Medtronic is well capable of paying the interest on its business debts on time.
Further, Medtronic, as a popular dividend-paying stock, managed to increase its quarterly dividend for the 47th straight quarter this May. Effective May 22, 2024, Medtronic's board of directors approved an increase in its cash dividend for the first quarter of fiscal year 2025, raising the quarterly amount to $0.70 per ordinary share. This represents an annual amount of $2.80 per ordinary share. The current payout ratio stands at 52.9%. This compares with the payout rate of the industry, which stands at a lower level of 36.8%.
All these factors support our bullish stance on the stock.
Cheap Valuation
Meanwhile, if we look at the value components, MDT has a Value Score of B at present.
This is evident from the Price/Earnings ratio. MDT shares currently trade at 16.30X forward earnings, well off its five-year high of 30.08X and below the median of 17.36X. The stock is also trading significantly below the industry’s 21.88X.
The company is also trading at a significant discount to its peers like BSX, whose current P/E is 31.76X, and ABT, whose current P/E is 23.49X. This suggests that investors may be paying a lower price relative to the company's expected earnings growth.
Two Major Stumbling Blocks for Medtronic
Sino-U.S. Trade Complications to Mar Growth: Medtronic, which earns a significant percentage of revenues from China, is currently grappling with the growing Sino-U.S. trade complications. The 2024 National Trade Estimate report depicted severe concern around this scenario and outlined the overwhelming impact of Chinese volume-based procurement (VBP) and the Made in China 2025 industrial plan on U.S. medical device businesses.
Medtronic, which records approximately 7% of its operational revenues from China (as of fiscal 2024), might face a compromised trade situation in the ongoing fiscal if the trade tension between these two countries does not get resolved any time soon.
Margin Pressure: Like its peers, Medtronic is currently affected by the industry-wide increase in costs and expenses stemming from geopolitical concerns. Although inflation stabilized a bit during the fiscal first quarter, it is still higher than the historical trend. The continued increase in raw material and labor costs and oil price volatility are denting the company’s profit. Further, a rising interest rate leading to increasing borrowing costs is concerning. In the first quarter of fiscal 2025, gross margin contracted 76 basis points to 65.1% on a 5.1% rise in the cost of revenues. Further, selling, general and administrative expenses rose 1.6% year over year. Adjusted operating margin contracted 25 bps year over year to 23%.
Our Take: Hold MDT Stock for Now
Despite the company’s several recent upsides and dividend pay-out trend outperforming the industry standard, the ongoing hiccups in the form of international trade challenges and supply chain issues are limiting this Zacks Rank #3 (Hold) stock’s near-term gains. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Oracle ORCL, the tech giant known for its database software and cloud computing services, has reached a new milestone as its stock surged 15% to hit a record high of $160.52 a share following the release of its first-quarter fiscal 2025 results. The surge in share price was primarily driven by impressive growth in the company's cloud division wherein demand for cloud infrastructure continued to outpace supply in the quarter, leaving investors wondering if now is the right time to ride Oracle's success story. (Read More: Oracle Q1 Earnings Surpass Estimates, Revenues Increase Y/Y).
Oracle announced robust fiscal first-quarter results, with total revenues reaching $13.3 billion, a 7% increase year over year in dollar terms and 8% in constant currency (cc). The company’s cloud services revenues surged 21% and 22% at cc to $5.6 billion, driven by substantial gains in both cloud infrastructure and applications. Of this total, $2.2 billion was generated from computing and storage rentals. The remaining performance obligation, which reflects booked sales, was $99 billion.
Oracle has been one of the top-performing large software stocks so far this year, having climbed 47.5% year to date compared with the Zacks Computer and Technology sector and the S&P 500’s growth of 13.6% and 14.4%, respectively.
Year-to-date Performance
ORCL's Cloud Surge: Partnerships Fuel Growth Ambitions
Oracle's aggressive expansion in the cloud computing sector has positioned the company as a formidable player in the global cloud infrastructure market, which was estimated to be worth $602.31 billion in 2023 and is expected to witness a CAGR of 21.2% from 2024 to 2030, per Grand View Research Report.
With an impressive global network of 162 cloud datacenters either operational or under construction, Oracle is making significant strides in infrastructure development. The company's commitment to innovation is evident in its plans for an 800-megawatt datacenter equipped with extensive NVIDIA GPU clusters for large-scale AI model training, as well as its ambitious design for a gigawatt-scale facility powered by modular nuclear reactors.
In a strategic move to enhance its multi-cloud offerings, Oracle recently partnered with Amazon AMZN-owned Amazon Web Services (AWS), complementing its existing collaborations with Microsoft MSFT Azure and Alphabet GOOGL-owned Google Cloud. This partnership will introduce Oracle Database@AWS, allowing customers to leverage Oracle's advanced database services on AWS infrastructure. The integration promises improved database and network performance, with Oracle Cloud Infrastructure (OCI) deployed within AWS datacenters. Set for preview by late 2024 and full availability in 2025, this service will offer seamless management through AWS tools and connectivity with various AWS services.
Simultaneously, Oracle has strengthened its partnership with Google Cloud, announcing the general availability of Oracle Database@Google Cloud across multiple regions in the United States and Europe. This collaboration enables customers to run Oracle's premium database services on OCI within Google Cloud datacenters, eliminating cross-cloud data transfer charges and potentially accelerating application migrations.
Oracle's cloud business projections reflect the company's confidence in its strategy, with expected total cloud revenue growth of 23-25% at cc for second-quarter fiscal 2025. The company anticipates its cloud infrastructure services to surpass fiscal 2024 growth by 50% in the coming year.
The Zacks Consensus Estimate for ORCL’s fiscal 2025 revenues is pegged at $57.83 billion, indicating year-over-year growth of 9.2%. The consensus mark for fiscal 2025 earnings is pegged at $6.20 per share, up 0.3% in the past 30 days. The figure indicates year-over-year growth of 11.51%.
The recent surge in Oracle's shares also reflects the growing influence of artificial intelligence on cloud computing demand. According to Canalys, global cloud infrastructure spending increased 19% year over year to $78.2 billion in the second quarter of 2024, with a significant portion directed toward AI-related investments. Oracle has capitalized on this trend, establishing a strong reputation for handling generative AI workloads and attracting notable clients like Reka and Elon Musk's xAI.
Recently, Oracle announced the general availability of OCI Generative AI (GenAI) Agents with retrieval-augmented generation (RAG) capabilities and enhanced Oracle AI innovations that help customers turn their data into a competitive advantage by making it easier to apply AI to real-world business operations.
The company also launched generative development (GenDev) for enterprises, a groundbreaking AI-centric application development infrastructure. It provides innovative development technologies that enable developers to rapidly generate sophisticated applications. Oracle also introduced AI-powered capabilities for Oracle Fusion Data Intelligence that will help organizations extract maximum value from their data assets and gain a competitive edge in an increasingly analytics-driven business landscape.
Such innovative AI capabilities could prove to be a crucial differentiator in the increasingly AI-driven tech landscape, potentially solidifying Oracle's position in the competitive cloud infrastructure and services market.
Stiff Competition, Stretched Valuation Remain Overhangs
Oracle operates in a highly competitive market, facing intense competition from established tech giants like Microsoft, Amazon and Google as well as newer players like Snowflake and Databricks.
While Oracle has a strong foothold in the database management and ERP software markets, its competitors are making significant inroads in the cloud space. AWS captured a 32% share of the global market during the second quarter of 2024. Microsoft won a 23% share of the market, while Google Cloud captured a 12% share, according to new data from IT market research firm Synergy.
It is also important to consider whether the stock's current valuation accurately reflects the company's long-term growth potential and ability to navigate the competitive landscape.
ORCL is trading at a premium with a price/book of 46.5X compared with the Zacks Computer-Software industry’s 9.33X, reflecting a stretched valuation.
ORCL’s Price/Book Ratio Depicts Stretched Valuation
Conclusion
Oracle's cloud growth strategy, financial projections and technological advancements make it a compelling case for potential investors. The company's strategic partnerships, focus on AI and expansion into key verticals demonstrate a forward-thinking approach, making the stock worth buying in the near term.
Oracle currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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