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Starbucks Q4 Earnings Show Strength: ETFs In Focus

Leading coffee chain Starbucks Corporation (NASDAQ: SBUX ) ended its fiscal 2015 fourth quarter with lower-than-expected earnings. The softer earnings were driven by higher employee and digital investments. However, the company’s top line saw a strong upside, thanks to outstanding growth in traffic trends in the U.S. Starbucks’ fiscal 2016 outlook was in line with the market as well as our expectations. Shares of the company rose in the trading session following the earnings release but fell thereafter. Earnings in Detail Starbucks’ adjusted earnings of 43 cents per share missed the Zacks Consensus Estimate of 44 cents by 2.3%. However, earnings were on the higher end of management’s guided range and grew 16% year over year as solid top-line growth offset lower margins. Fiscal fourth quarter sales escalated 18% year over year to $4.91 billion, outpacing the Zacks Consensus Estimate of $4.89 billion by 0.5% driven by robust comps. Global same-store sales (comps) growth of 8% was higher than a 7% rise in the previous quarter, driven by increased traffic trends. The comps rise included 4% improvements each in global traffic and average ticket. Higher food/beverage sales, strong comps in the U.S. and Europe and incremental revenues from Starbucks Japan primarily drove sales. The coffee giant opened 1,677 net new stores in fiscal 2015, ending the fiscal year with 23,043 stores in 68 countries. Starbucks expects revenues to grow more than 10% in fiscal 2016, excluding the extra 53rd week. Comps are expected to grow somewhat above the mid single-digit range. The company expects to open 1,800 stores in the next fiscal year. Adjusted earnings (including the 53rd week) are expected in the range of $1.87 to $1.89 per share during fiscal 2016, in line with the Zacks Consensus Estimate. Excluding the extra week, management expects to deliver earnings growth of at least 15%. Starbucks also announced a 25% hike in the dividend to 20 cents per share, which should be welcoming news for income-hungry investors out there. ETFs in Focus Despite lower-than-expected earnings, Starbucks’ growing comps – an important metric in the restaurant industry – make us confident about the company. Strong traffic growth both in the U.S. and China are the key opportunities for the company (read: 4 Solid Reasons to Buy Consumer Discretionary ETFs ). Further, the restaurant industry has been benefiting from cheap fuel and rising income, which along with an improving U.S. economy, better job prospects and increasing consumer confidence are making the segment a great space to stay invested. In addition, with the holiday season fast approaching, investors should keep a close eye on the below mentioned Consumer Discretionary ETFs with a good exposure to Starbucks (see all Consumer Discretionary ETFs here). PowerShares Dynamic Leisure & Entertainment Portfolio ETF (NYSEARCA: PEJ ) PEJ tracks the Dynamic Leisure and Entertainment Intellidex Index, holding 30 stocks with Starbucks occupying the fifth position with 5.13% allocation. The fund includes many other restaurant stocks, such as, Papa John’s International Inc. (NASDAQ: PZZA ), Denny’s Corp. (NASDAQ: DENN ), etc. It has amassed $196 million in assets and trades in a moderate volume of nearly 34,000 shares. The product charges 63 bps in fees and returned 8.9% in the year-to-date timeframe (as of November 2, 2015). It carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Consumer Discretionary Select Sector SPDR ETF (NYSEARCA: XLY ) This top-asset grossing consumer discretionary ETF follows the Consumer Discretionary Select Sector Index, holding 88 stocks. Starbucks occupies the sixth position in the fund with 3.82% allocation. Amazon.com (NASDAQ: AMZN ) and Walt Disney (NYSE: DIS ) are the top two holdings in the fund. The product has garnered a robust $11.5 billion in assets and trades in a strong volume of 6.5 million shares. It is one of the cheapest ETFs in its category with only 15 bps in annual fees. The fund has been up 12.7% so far this year and holds a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. Fidelity MSCI Consumer Discretionary Index ETF (NYSEARCA: FDIS ) This product provides exposure to a large basket of 383 stocks by tracking the MSCI USA IMI Consumer Discretionary Index. Starbucks is at the sixth position holding a share of 3.03%. Amazon and Walt Disney are the top two holdings in the fund. The product manages nearly $286 million in asset base and trades in a solid volume of 129,000 shares per day. It charges a negligible 12 bps in fees and gained 9.5% in the year-to-date period. FDIS carries a Zacks ETF Rank #3 with a Medium risk outlook. Link to the original post on Zacks.com

Is Budget Deal A Boon/Bane? Look At These Sector ETFs

After crossing swords for months, President Barrack Obama finally signed the two-year government budget deal early this week that lifted the debt ceiling to March 2017 and increased spending limits through September 2017. The deal was also passed by the House and the Senate last week. The accord has given the American economy a shot in the arm, thrusting it to the positive direction for the first time since 2010, as per Bloomberg. In the past five years, fiscal policies at local, state and federal governments dragged down economic growth. Now, Washington will spend more money over the next two years, boosting fiscal conditions and securing modest GDP expansion. As a result, a number of sectors will be the direct beneficiaries of the deal while one space will face a blow. Below we highlight them in detail and spell out their related ETFs: Sectors to Win Defense The new government budget deal is a huge boon to the defense stocks and ETFs. This is especially true as the deal vowed to raise $50 billion in spending for fiscal 2016 and $30 billion for fiscal 2017, split evenly between defense and non-defense programs. Additionally, it will provide an additional $32 billion in overseas contingency operations, divided equally between military and the State Department. Investors could play this sector with any of the three options available in the space – iShares U.S. Aerospace & Defense ETF (NYSEARCA: ITA ) , Power Shares Aerospace & Defense Portfolio (NYSEARCA: PPA ) and SPDR S&P Aerospace & Defense ETF (NYSEARCA: XAR ) . The trio gained over 2% on solid third-quarter earnings and the budget agreement in the past week. The three products currently have a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. Social Security Disability The new budget deal averts a looming shortfall in the social security disability trust fund, which was about to run out of money next year and threatened to cut disability benefits by a big 20%. The pact will reallocate funds from the Social Security retirement program to the disability insurance program. In addition, another 0.57% will be taken from the 12.4% payroll tax for the next three years, starting 2016. With these amendments, the disability insurance program will remain solvent until 2022. Currently, there is only one pure play product – Barclays Return on Disability ETN (NYSEARCA: RODI ) – targeting this niche segment. This ETN offers exposure to the companies that have attracted and serve people with disabilities along with their friends and family as customers and employees. The fund follows the Return on Disability US LargeCap ETN Total Return USD Index, which measures the 100 largest companies that are outperforming in the disability market. The note charges 45 bps in annual fees from investors and trades in a meager volume of about 100 shares. The ETN added 0.3% in the past one week. Healthcare Like the social security disability benefits, the accord also prevents an unprecedented 52% rise in the premiums for Medicare Part B, the healthcare program that covers the costs for doctor’s visits, outpatient services and durable medical equipment, slated for next year. The new budget deal calls for just a 14% increase in Medicare premiums to a rate of $120 per month plus a $3 per month surcharge instead of an increase from a rate of $104.90 to $159.30. Notably, about 16 million Americans receive the Medicare Part B benefits. Though a number of healthcare ETFs will likely gain from the prevention of big hikes in Medicare premiums, iShares U.S. Healthcare Providers ETF (NYSEARCA: IHF ) is much more directly related to this industry. The ETF follows the Dow Jones U.S. Select Healthcare Providers Index with exposure to companies that provide health insurance, diagnostics and specialized treatment. In total, the fund holds 52 securities in its basket. United Health takes the top spot in the basket with 12.9% share while the other firms hold no more than 8.7% of assets. The fund has amassed $844.7 million in its asset base while volume is moderate at about 151,000 shares per day on average. It charges 43 bps in annual fees from investors and gained 1.5% over the past week. The product has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook. Energy Sector: A Bane While the above three sectors will benefit the most from the deal, the problems of the energy sector will aggravate. This is because the budget has the provision to sell 58 million barrels of oil from the U.S. emergency reserves, which hold more than 695 million barrels of crude, over the six years starting in fiscal 2018 in order to help funding. The sale will raise $5 billion in federal revenue during the same period. In particular, the sale of oil started with 5 million per barrel annually and then ramped up to 10 million by 2025. Further, the deal allows the Department of Energy (DOE) to sell another 25-40 million barrels of oil or $2 billion from the reserve in case of any oil disruption emergency. The move, if taken, will crush the already battered energy sector, especially its oil production corner, which is struggling as it is, with declining profit margins and high debt loads. That being said, the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP ) , iShares U.S. Oil & Gas Exploration & Production ETF (NYSEARCA: IEO ) and PowerShares Dynamic Energy Exploration & Production ETF (NYSEARCA: PXE ) will be impacted the most by the budget deal. The trio has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook. However, the product gained in double digits over the past week on a rise in oil prices. Original post .

Aerospace And Defense ETFs Flying High On Strong Earnings

The U.S. bourses saw the majority of Q3 earnings releases getting over last week with headwinds from Q2 still at play. A combination of Energy sector weakness, dollar strength and global growth uncertainties weighed on the results. 341 S&P 500 members, accounting for 75.5% of the index’s total market capitalization, have so far reported results. Total earnings for these companies are down 1% on 4.9% lower revenues, with 71.3% beating earnings estimates and 42.7% coming in ahead of revenue estimates. Companies struggled to beat lowered top-line expectations, with the ratio of companies beating revenue estimates being the lowest in the recent past. However, instead of ‘extremely weak’, the Q3 earnings picture is shaping up to be about in line with the preceding quarter, which was by itself a weak reporting season. Despite the headwinds, aerospace & defense, a relatively smaller sector within the S&P 500, held up well this past quarter. They have not only reported better-than-expected results but also lifted their views in the past two weeks. The earnings beat ratio of the entire aerospace and defense companies unfolding their Q3 results is a stellar 77.8%. The U.S. defense sector performed well given the elevated geopolitical risk, a recovering U.S. economy and strong commercial sales. Escalating geo-political tensions in Eastern Europe, the Middle East, North Korea and Syria boosted demand for defense products. Further, nations such as India, Japan and South Korea are raising their budgets in order to make their defense platforms up to date. Below we have highlighted in greater detail the earnings of some of the major aerospace and defense companies which really drive this sector’s outlook. Quarterly Earnings in Focus The Pentagon’s prime contractor, Lockheed Martin Corp. (NYSE: LMT ), opened this earnings season with robust third-quarter profits. It reported better-than-expected earnings along with higher revenues, solid margins, and strong cash flows, buoyed by robust sales of its F-35 Joint Strike Fighter. The solid quarterly results have enabled it to lift its 2015 guidance for sales, operating profit, and EPS. Aerospace giant, The Boeing Company (NYSE: BA ), delivered third-quarter 2015 adjusted earnings of $2.52 per share, confidently beating the Zacks Consensus Estimate by 13.5%. Earnings also increased 18% year over year on the back of strong operational performance. Revenues came in at $25.85 billion for the quarter, exceeding the Zacks Consensus Estimate by 4.5% and improving 9% from the year-ago level on solid commercial aircraft deliveries. Boeing raised its full-year earnings outlook to the range of $7.95-8.15 per share from the prior guidance of $7.70-7.90 per share. The company also lifted its revenue guidance for the year to the range of $95-97 billion from $94.5-96.5 billion expected earlier driven by increased commercial delivery outlook. Just after winning a multibillion-dollar contract to build a new U.S. bomber, Northrop Grumman Corp. (NYSE: NOC ) reported solid third-quarter 2015 results with revenue and earnings beating the Zacks Consensus Estimate by 6% and 2.4%, respectively. The maker of the current B-2 bomber and Global Hawk unmanned planes has also increased its profit outlook for the full year. General Dynamics Corp.’s (NYSE: GD ) third-quarter earnings from continuing operations of $2.28 per share topped the Zacks Consensus Estimate by 8.6% and also increased 11.2% from the year-ago period on the back of higher defense orders and solid demand for its Gulfstream airplanes. Revenues of $7.99 billion surpassed the Zacks Consensus Estimate by 3.1%. The company raised its 2015 profit outlook based on Q3 results, higher deliveries of Gulfstream business jets and surging sales at the submarine-building unit. Earnings are expected to be between $8.90 and $9.00 per share for 2015, up from $8.70 to $8.80 projected earlier. United Technologies Corporation (NYSE: UTX ) reported third-quarter adjusted earnings of $1.67 per share, down 2% year over year. However, the figure surpassed the Zacks Consensus Estimate of $1.54. Total revenue decreased 6.0% year over year to $13,788 million owing to the impact of adverse foreign exchange and a decline in organic sales. Revenues also missed the Zacks Consensus Estimate of $14,593 million. The company reaffirmed its 2015 guidance. ETFs to Play All these major aerospace and defense companies and their ETFs have been experiencing a surge in share prices, since their solid third-quarter earnings results and improved outlook. For investors who want to play the sector in order to capture the impressive trend, there are a few aerospace and defense ETFs available. Below, we have highlighted some of the key points regarding them. iShares U.S. Aerospace & Defense ETF (NYSEARCA: ITA ) The fund, tracking the Dow Jones U.S. Select Aerospace & Defense Index, holds 39 securities in its basket with Boeing, United Technologies, Lockheed Martin, General Dynamics and Northrop Grumman being the top five stocks. All of them account for more than one-third of the fund assets. With an asset base of nearly $523 million, ITA is the largest player in this space. The fund trades in moderate volumes of roughly 42,000 shares a day and charges an annual fee of 43 bps per year. The fund was up 4.9% in the last two weeks and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. PowerShares Aerospace & Defense Portfolio (NYSEARCA: PPA ) PPA follows the SPADE Defense Index, with 53 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. Lockheed Martin, Boeing, United Technologies, General Dynamic and Northrop Grumman are among the top 10 holdings and together occupy 30% of total fund assets. The product has managed to garner nearly $238 million in assets so far and trades in an average volume of 36,000 shares per day. It charges 66 bps in annual fees and returned 6.8% in the past two weeks. It currently carries a Zacks ETF Rank #3 with a Medium risk outlook. SPDR S&P Aerospace & Defense ETF (NYSEARCA: XAR ) XAR tracks the S&P Aerospace and Defense Select Industry index, holding a basket of 35 stocks. Boeing, United Technologies, Lockheed Martin, General Dynamics and Northrop Grumman score among the top 10 holdings, with a combined share of 18.6%. This product has attracted an AUM of nearly $147 million and exchanges nearly 35,000 shares in hand per day. It charges 35 bps in fees per year and gained 4.6% in the last two weeks. The fund has a Zacks ETF Rank #3 with a Medium risk outlook. Original Post