Tag: 2024

Eli Lilly (LLY): A Golden Opportunity for Investors?

Posted on by The INO.com Team

Eli Lilly and Company (LLY) is well-known for its groundbreaking drug development that addresses several common and rare medical conditions. With a robust drug pipeline and strategic acquisitions, LLY, valued at $847.82 billion, is emerging as a formidable contender in the pharmaceutical industry, poised to reach a trillion-dollar market cap. Eli Lilly’s stock has had a solid run, surging around 61% year-to-date and more than 110% over the past year.

This article delves into Eli Lilly’s diverse drug pipeline, recent acquisitions and partnerships, and financial performance, highlighting why it represents a golden opportunity for investors.

Innovative Drug Pipeline

Eli Lilly’s success is primarily attributed to its innovative drug portfolio, which continues to drive significant revenue and earnings growth. Its product portfolio includes Mounjaro, a revolutionary weight-loss drug that has garnered substantial attention for its efficacy, setting new benchmarks in the weight management sector, and Trulicity, a leading diabetes medication that helps lower blood sugar levels and has become a staple in diabetes management.

Further, the company offers Verzenio, a crucial treatment for breast cancer, Taltz, which targets autoimmune dysfunctions and has proven effective in treating conditions like psoriasis and rheumatoid arthritis, and Jardiance, an oral medication to treat adults with type 2 diabetes, chronic (long-term) heart failure, and chronic kidney disease.

Additionally, Humalog®, a fast-acting insulin, is another cornerstone of LLY’s diabetes treatments, widely used by patients to manage their blood sugar levels effectively. Zepbound, a new addition, is an injectable medication for chronic weight management in adults with obesity or overweight with at least one weight-related condition, including high blood pressure, type 2 diabetes, or high cholesterol.

Recently, Eli Lilly’s Kisunla™ got approved by the FDA for treating adults with early symptomatic Alzheimer’s disease (AD), which includes people with mild cognitive impairment (MCI) and people with the mild dementia stage of AD with confirmed amyloid pathology.

In addition to these established medications, LLY is continuously expanding its pipeline with cutting-edge treatments. Pipeline progress includes optimistic results from two Phase 3 trials of tirzepatide for obstructive sleep apnea, submission of mirikizumab for Crohn’s disease in the U.S. and EU, resubmission of lebrikizumab for atopic dermatitis, and initiation of lepodisiran in a Phase 3 study for atherosclerotic cardiovascular disease.

Strategic Acquisitions and Partnerships

To diversify and strengthen its drug portfolio, Eli Lilly has strategically acquired Morphic Holding, Inc., a biopharmaceutical company specializing in oral integrin therapies for severe chronic conditions. Morphic’s lead development program is a selective oral small molecule inhibitor of α4β7 integrin for the treatment of inflammatory bowel disease (IBD) that can potentially expand treatment options for patients.

This molecule, MORF-057, is currently being evaluated in two Phase 2 studies for ulcerative colitis and one Phase 2 study for Crohn’s disease. In addition, Morphic is developing a preclinical pipeline of other molecules aimed at treating autoimmune diseases, pulmonary hypertensive diseases, fibrotic diseases, and cancer. This acquisition broadens Eli Lilly’s therapeutic reach and underscores its commitment to addressing unmet medical needs.

Daniel Skovronsky, M.D., Ph.D., chief scientific officer of Eli Lilly, said, “We are eager to welcome Morphic colleagues to Lilly as this strategic transaction reinforces our commitment to developing new therapies in the field of gastroenterology, where Lilly has made significant investments to deliver first-in-class molecules for the benefit of patients.”

Also, in June, LLY announced a collaboration with OpenAI, enabling the company to utilize OpenAI’s generative AI to invent novel antimicrobials for treating drug-resistant pathogens. Antimicrobial resistance (AMR) is considered one of the foremost public health and development threats across the global health landscape. This partnership marks a groundbreaking step in combating the increasingly severe yet often overlooked threat of antimicrobial resistance.

Robust First-Quarter 2024 Results and Upbeat Full-Year Outlook

 Eli Lilly’s financial performance in the first quarter of 2024 showcases its resilience and growth potential. For the quarter that ended March 31, 2024, LLY’s revenue increased 26% year-over-year to $8.77 billion, driven by 16% increases in volume and 10% due to higher realized prices. The volume surge was due to solid growth from Mounjaro, Zepbound®, Verzenio, and Jardiance.

LLY’s non-GAAP gross margin grew 33% from the year-ago value to $7.23 billion. The rise in gross margin was primarily driven by higher realized prices, favorable product mix, and improvements in production cost. The company’s non-GAAP net income and earnings per share were $2.34 billion and $2.58, compared to $1.46 billion and $1.62 in the same period of 2023, respectively.

Following an outstanding first-quarter performance, Eli Lilly raised full-year 2024 revenue guidance by $2 billion. Also, the company increased non-GAAP EPS guidance by $1.30 to be in the range of $13.50 to $14.

Bottom Line

LLY’s relentless focus on innovation, strategic acquisitions and collaborations, and expanding its drug pipeline ensures sustained growth and profitability. Its significant progress in addressing some of the world’s most critical healthcare challenges has led to a higher demand for its medicines. To support future growth, the company is making substantial pipeline investments and rapidly expanding its manufacturing capacity to ensure its incretin medicines reach more patients.

Moreover, in May, Eli Lilly more than doubled its investment in its Lebanon, Indiana, manufacturing site with a new $5.30 billion commitment, raising the company’s total investment in this site from $3.7 billion to $9 billion. This expansion will boost Lilly’s capacity to manufacture active pharmaceutical ingredients (API) for Zepbound® injection and Mounjaro®, allowing more adults with chronic diseases like obesity and type 2 diabetes to benefit from these vital treatments.

Analysts also remain highly bullish due to the pharma giant’s robust fundamentals and growth prospects. Berenberg analyst Kerry Holford recently raised the price target on Eli Lilly from $850 to $1,000 and maintained a Buy rating on the stock. Moreover, Barclays analyst Carter Gould maintained an Overweight rating for LLY and increased the price target from $913 to $1,025.

With its stock up more than 60% year-to-date, Eli Lilly is on a clear upward trajectory. If this trend continues, the company is well-poised to join the exclusive trillion-dollar stocks club, a milestone that signifies immense market confidence and stability. For investors seeking a resilient and growth-oriented pharma stock, LLY stands out as a prime choice, promising substantial returns in the long run.

Nvidia’s GPUs a Game-Changer for Investors?

Posted on by The INO.com Team

NVIDIA Corporation (NVDA), a tech giant advancing AI through its cutting-edge graphics processing units (GPUs), became the third U.S. company to exceed a staggering market capitalization of $3 trillion in June, after Microsoft Corporation (MSFT) and Apple Inc. (AAPL). This significant milestone marks nearly a doubling of its value since the start of the year. Nvidia’s stock has surged more than 159% year-to-date and around 176% over the past year.

What drives the company’s exceptional growth, and how do Nvidia GPUs translate into significant financial benefits for cloud providers and investors? This piece will explore the financial implications of investing in NVIDIA GPUs, the impressive ROI metrics for cloud providers, and the company’s growth prospects in the AI GPU market.

Financial Benefits of NVDA’s GPUs for Cloud Providers

During the Bank of America Securities 2024 Global Technology Conference, Ian Buck, Vice President and General Manager of NVDA’s hyperscale and HPC business, highlighted the substantial financial benefits for cloud providers by investing in NVIDIA GPUs.

Buck illustrated that for every dollar spent on NVIDIA GPUs, cloud providers can generate five dollars over four years. This return on investment (ROI) becomes even more impressive for inferencing tasks, where the profitability rises to seven dollars per dollar invested over the same period, with this figure continuing to increase.

This compelling ROI is driven by the superior performance and efficiency of Nvidia’s GPUs, which enable cloud providers to offer enhanced services and handle more complex workloads, particularly in the realm of AI. As AI applications expand across various industries, the demand for high-performance inference solutions escalates, further boosting cloud providers’ financial benefits utilizing NVIDIA’s technology.

NVDA’s Progress in AI and GPU Innovations

NVIDIA’s commitment to addressing the surging demand for AI inference is evident in its continuous innovation and product development. The company introduced cutting-edge products like NVIDIA Inference Microservices (NIMs), designed to support popular AI models such as Llama, Mistral, and Gemma.

These optimized inference microservices for deploying AI models at scale facilitate seamless integration of AI capabilities into cloud infrastructures, enhancing efficiency and scalability for cloud providers.

In addition to NIMs, NVDA is also focusing on its new Blackwell GPU, engineered particularly for inference tasks and energy efficiency. The upcoming Blackwell model is expected to ship to customers later this year. While there may be initial shortages, Nvidia remains optimistic. Buck noted that each new technology phase brings supply and demand challenges, as they experienced with the Hopper GPU.

Furthermore, the early collaboration with cloud providers on the forthcoming Rubin GPU, slated for a 2026 release, underscores the company’s strategic foresight in aligning its innovations with industry requirements.

Nvidia’s GPUs Boost its Stock Value and Earnings

The financial returns of investing in Nvidia GPUs benefit cloud providers considerably and have significant implications for NVDA’s stock value and earnings. With a $4 trillion market cap within sight, the chip giant’s trajectory suggests continued growth and potential for substantial returns for investors.

NVDA’s first-quarter 2025 earnings topped analysts’ expectations and exceeded the high bar set by investors, as Data Center sales rose to a record high amid booming AI demand. For the quarter that ended April 28, 2024, the company posted a record revenue of $26 billion, up 262% year-over-year. That compared to the consensus revenue estimate of $24.56 billion.

The chip giant’s quarterly Data Center revenue was $22.60 billion, an increase of 427% from the prior year’s quarter. Its non-GAAP operating income rose 492% year-over-year to $18.06 billion. NVIDIA’s non-GAAP net income grew 462% from the prior year’s quarter to $15.24 billion. In addition, its non-GAAP EPS came in at $6.12, up 461% year-over-year.

“Our data center growth was fueled by strong and accelerating demand for generative AI training and inference on the Hopper platform. Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets,” said Jensen Huang, CEO of NVDA.

“We are poised for our next wave of growth. The Blackwell platform is in full production and forms the foundation for trillion-parameter-scale generative AI. Spectrum-X opens a brand-new market for us to bring large-scale AI to Ethernet-only data centers. And NVIDIA NIM is our new software offering that delivers enterprise-grade, optimized generative AI to run on CUDA everywhere — from the cloud to on-prem data centers and RTX AI PCs — through our expansive network of ecosystem partners,” Huang added.

According to its outlook for the second quarter of fiscal 2025, Nvidia’s revenue is anticipated to be $28 billion, plus or minus 2%. The company expects its non-GAAP gross margins to be 75.5%. For the full year, gross margins are projected to be in the mid-70% range.

Analysts also appear highly bullish about the company’s upcoming earnings. NVDA’s revenue and EPS for the second quarter (ending July 2024) are expected to grow 110.5% and 135.5% year-over-year to $28.43 billion and $0.64, respectively. For the fiscal year ending January 2025, Street expects the chip company’s revenue and EPS to increase 97.3% and 111.1% year-over-year to $120.18 billion and $2.74, respectively.

Robust Future Growth in the AI Data Center Market

The exponential growth of AI use cases and applications across various sectors—ranging from healthcare and automobile to retail and manufacturing—highlights the critical role of GPUs in enabling these advancements. NVIDIA’s strategic investments in AI and GPU technology and its emphasis on collaboration with cloud providers position the company at the forefront of this burgeoning AI market.

As Nvidia’s high-end server GPUs are essential for training and deploying large AI models, tech giants like Microsoft and Meta Platforms, Inc. (META) have spent billions of dollars buying these chips. Meta CEO Mark Zuckerberg stated his company is “building an absolutely massive amount of infrastructure” that will include 350,000 H100 GPU graphics cards to be delivered by NVDA by the end of 2024.

NVIDIA’s GPUs are sought after by several other tech companies for superior performance, including Amazon, Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), and Tesla, Inc. (TSLA).

Notably, NVDA owns a 92% market share in data center GPUs. Led by Nvidia, U.S. tech companies dominate the burgeoning market for generative AI, with market shares of 70% to over 90% in chips and cloud services.

According to the Markets and Markets report, the data center GPU market is projected to value more than $63 billion by 2028, growing at an impressive CAGR of 34.6% during the forecast period (2024-2028). The rapidly rising adoption of data center GPUs across cloud providers should bode well for Nvidia.

Bottom Line

NVDA’s GPUs represent a game-changer for both cloud providers and investors, driven by superior performance and a compelling return on investment (ROI). The attractive financial benefits of investing in NVIDIA GPUs underscore their value, with cloud providers generating substantial profits from enhanced AI capabilities. This high ROI, particularly in AI inferencing tasks, positions Nvidia as a pivotal player in the burgeoning AI data center market, reinforcing its dominant market share and driving continued growth.

Moreover, Wall Street analysts remain bullish about this AI chipmaker’s prospects. TD Cowen analyst Matthew Ramsay increased his price target on NVDA stock from $140 to $165, while maintaining the Buy rating. “One thing remains the same: fundamental strength at Nvidia,” Ramsay said in a client note. “In fact, our checks continue to point to upside in data center (sales) as demand for Hopper/Blackwell-based AI systems continues to exceed supply.”

“Overall we see a product roadmap indicating a relentless pace of innovation across all aspects of the AI compute stack,” Ramsay added.

Meanwhile, KeyBanc Capital Markets analyst John Vinh reiterated his Overweight rating on NVIDIA stock with a price target of $180. “We expect Nvidia to deliver higher results and higher guidance” with its second-quarter 2025 report, Vinh said in a client note. He added solid demand for generative AI will drive the upside.

As AI applications expand across various key industries, NVIDIA’s continuous strategic innovations and product developments, such as the Blackwell GPU and NVIDIA Inference Microservices, ensure the company remains at the forefront of technological advancement. With a market cap nearing $4 trillion and a solid financial outlook, NVIDIA is well-poised to deliver substantial returns for investors, solidifying its standing as a leader in the AI and GPU technology sectors.

Micron's AI Momentum: Outpacing Nvidia in the Memory Chip Market?

Posted on by The INO.com Team

Artificial intelligence (AI) has transformed major industries, including healthcare, finance, retail, automobile, and manufacturing. Nvidia Corporation (NVDA) has been at the forefront of advancing AI through its graphics processing units (GPUs). These GPUs are crucial for training large language models (LLMs) such as OpenAI’s ChatGPT, leading to outstanding growth in the company’s revenue and earnings.

As a result, NVDA’s stock has surged nearly 148% over the past six months and is up more than 205% over the past year. Nvidia stock’s exceptional performance lifted its market capitalization above $3 trillion, making it the second-most valuable company in America.

However, another leading semiconductor company, Micron Technology, Inc. (MU), known for its innovative memory and storage solutions, is also experiencing remarkable growth due to rapid AI adoption.

Let’s explore how the ongoing AI boom powers Micron’s impressive growth and assess if it could outpace Nvidia in the memory chip market.

Micron’s Solid Third-Quarter Financials and Optimistic Outlook

MU posted revenue of $6.81 billion for the third quarter that ended May 30, 2024, surpassing analysts’ expectations of $6.67 billion. That compared to $5.82 billion for the previous quarter and $3.75 billion for the same period last year. Robust AI demand and robust execution enabled Micron to drive exceptional revenue growth, exceeding its guidance range for the third quarter.

Micron’s non-GAAP gross margin was $1.92 billion, compared to $1.16 billion in the prior quarter and negative $603 million in the third quarter of 2023. Its non-GAAP operating income came in at $941 million, versus $204 million in the previous quarter and negative $1.47 billion for the same period of 2023.

Furthermore, the company posted non-GAAP net income and earnings per share of $702 million and $0.62, compared to net loss and loss per share of $1.57 billion and $1.43 in the same quarter last year, respectively. Its EPS surpassed the consensus estimate of $0.53.

MU’s adjusted free cash flow was $425 million, compared to negative $29 million in the previous quarter and negative $1.36 billion for the same quarter of 2023. The company ended the quarter with cash, marketable investments, and restricted cash of $9.22 billion. 

“We are gaining share in high-margin products like High Bandwidth Memory (HBM), and our data center SSD revenue hit a record high, demonstrating the strength of our AI product portfolio across DRAM and NAND. We are excited about the expanding AI-driven opportunities ahead, and are well positioned to deliver a substantial revenue record in fiscal 2025,” said Sanjay Mehrotra, Micron Technology’s President and CEO.

For the fourth quarter of 2024, Micron expects revenue of $7.60 billion ± $200 million. The midpoint ($7.60 billion) of its revenue guidance range represents an approximately 90% rise from the same period last year. Its non-GAAP gross margin is anticipated to be 34.5% ± 1%. In addition, the company projects its non-GAAP earnings per share to be $1.08 ± 0.08, a turnaround from a loss of $1.07 per share in the previous year’s quarter.

Vital Role in the AI Ecosystem

MU’s success in the AI ecosystem is primarily driven by its high-bandwidth memory (HBM) chips, integral to high-performance computing (HPC), GPUs, AI, and other data-intensive applications. The chips provide fast and efficient memory access for processing large volumes of data quickly.

Micron sold $100 million of its HBM3E chips in the third quarter alone. Further, the company anticipates its HBM3E revenue to escalate from “several hundred million dollars” in fiscal 2024 to “multiple billions” for fiscal 2025.

Earlier this year, the company started mass production of its HBM2E solution for use in Nvidia’s latest AI chip. Micron’s 24GB 8H HBM3E will be part of NVIDIA H200 Tensor Core GPUs.

Moreover, Micron’s dynamic random-access memory (DRAM) and NAND flash memory are critical components in AI applications. In June, MU sampled its next-gen GDDR7 graphics memory for AI, gaming, and HPC workloads. Leveraging Micron’s 1β (1-beta) DRAM technology and advanced architecture, the GDDR7 delivers 32 Gb/s high-performance memory in a power-optimized design.

On May 1, the company reached an industry milestone as the first to validate and ship 128GB DDR5 32Gb server DRAM to address the growing demands for rigorous speed and capacity of memory-intensive Gen AI applications. Powered by Micron’s 1β technology, the 128GB DDR5 RDIMM memory offers over 45% greater bit density, up to 22% improved energy efficiency, and up to 16% reduced latency over competitive 3DS through-silicon via (TSV) products.

AI-Driven Demand in Smartphones, PCs, and Data Centers

AI drives strong demand for memory chips across various sectors, including smartphones, personal computers (PCs), and data centers. In its latest earnings conference call, Micron’s management pointed out that AI-enabled PCs are expected to feature 40% to 80% more DRAM content than current PCs and larger storage capacities. Similarly, AI-enabled smartphones this year carry 50% to 100% more DRAM than last year’s flagship models.

These trends suggest a bright future for the global memory chips market. According to the Business Research Company report, the market is expected to reach $130.42 billion by 2028, growing at a CAGR of 6.9%.

Micron’s Competitive Edge Over Nvidia and Attractive Valuation

Despite NVDA’s expected revenue jump from $60.90 billion in the fiscal year 2023 to around $120 billion this year, MU is projected to outpace Nvidia’s growth in the following year. Micron’s revenue could increase by another 50% year-over-year in the next fiscal year, outperforming Nvidia’s forecasted growth of 33.7%.

In terms of non-GAAP P/E (FY2), MU is currently trading at 13.76x, 60.9% lower than NVDA, which is trading at 35.18x. MU’s forward EV/Sales and EV/EBITDA of 5.98x and 16.44x are lower than NVDA’s 26.04x and 40.56x, respectively. Also, MU’s trailing-12-month Price to Book multiple of 3.28 is significantly lower than NVDA’s 64.15.

Thus, Micron is a compelling investment opportunity for those seeking exposure to the AI-driven memory chip market at a more reasonable price.

Bottom Line

MU is experiencing significant growth driven by the AI boom, with impressive third-quarter financials and a strong outlook for upcoming quarters. The company’s strategic positioning in the AI-driven memory chip market, especially its HBM3E chips, is vital for high-performance computing and data-intensive applications. It has enabled Micron to capitalize on the surging AI demand across various sectors, including smartphones, PCs, and data centers.

On June 27, Goldman Sachs’ analyst Toshiya Hari maintained a Buy rating on MU shares and raised the price target to $158 from $138. Goldman Sachs’ stance indicates strong confidence in Micron’s long-term prospects, particularly with the expansion of AI computing capabilities and its strategic initiatives in the memory market.

Moreover, Rosenblatt Securities reiterated its Buy rating on Micron Technology shares, with a steady price target of $225. The firm’s optimism is fueled by expectations of solid financial performance surpassing analysts’ estimates, propelled by advancements in AI and HBM developments.

Compared to Nvidia, Micron offers solid growth potential at a more reasonable valuation. Despite Nvidia’s dominant position in the AI and data center segment and exceptional stock performance, Micron’s revenue growth rate is projected to outpace Nvidia’s in the following year, driven by its expanding AI product portfolio and increasing market share in high-margin memory products.

For investors seeking exposure to the AI revolution, Micron presents a compelling opportunity with its solid financial performance, innovative product offerings, and competitive edge in the memory chip market.

Oil Stocks on the Rise: Pro-Oil Stance from Trump Boosts Sector

Posted on by The INO.com Team

The recent presidential debate between President Joe Biden and former President Donald Trump has stirred significant movements in the equity markets, especially within the energy sector. Biden’s shaky performance drove sentiment around Trump’s odds of securing a second term in the White House, propelling stocks of private prisons, credit card companies, and health insurance firms.

However, the most notable surge has been in oil stocks, reflecting Trump’s pro-oil policies and the market’s anticipation of potential benefits under his presidency.

Trump’s Pro-Oil Policies: A Catalyst for Growth

Trump’s administration has consistently advocated for deregulation and expansion of oil drilling activities, and a second term could amplify these policies. Last month, Donald Trump told Senate Republicans he would restart oil drilling in Alaska’s Arctic National Wildlife Refuge if re-elected. This promise is seen as a green light for increased oil production, potentially boosting the profitability and growth of oil companies.

Moreover, Trump offered to roll back environmental regulations, hasten permitting and leasing approvals, and enhance tax benefits that the energy industry enjoys if top U.S. oil executives agreed to donate $1 billion for his White House re-election. Lower regulatory hurdles could lead to cost reductions for oil companies, making exploration and drilling more economically viable.

In the wake of the debate, energy stocks emerged as some of the best performers of the S&P 500 index despite a slight dip in Brent crude and West Texas Intermediate prices. Baker Hughes Co. (BKR) led the sector’s rally, with Valero Energy Corporation (VLO), Phillips 66 (PSX), Targa Resources Corp. (TRGP), and Occidental Petroleum Corporation (OXY) following suit.

This recent surge is primarily driven by the market’s reaction to Trump’s potential White House re-election, which is perceived to favor the oil and gas industry significantly.

Top Beneficiaries of Pro-Oil Stance From Trump

Phillips 66 (PSX)

Valued at a market cap of $59.51 billion, Phillips 66 (PSX) is a global energy manufacturing and logistics company. It operates in four segments: Midstream; Chemicals; Refining; and Marketing and Specialties (M&S). The company’s diversified operations could benefit from reduced regulatory pressures and expansion of oil drilling activities supported by Trump’s pro-oil policies.

On May 21, Phillips 66 agreed to acquire Pinnacle Midland Parent LLC from Energy Spectrum Capital in a strategic move to expand its natural gas gathering and processing footprint in the Midland Basin. Pinnacle’s assets encompass the newly built Dos Picos natural gas gathering and processing system: a 220 MMcf/d gas processing plant, 80 miles of gathering pipeline, and 50,000 dedicated acres through high-quality producers in one of PSX’s focus basins. 

Mark Lashier, Chairman and CEO of Phillips 66, said, “Pinnacle is a bolt-on asset that advances our wellhead-to-market strategy and complements our diversified and integrated asset portfolio. Further, this transaction aligns with our long-term objectives to build out our natural gas liquids value chain, be disciplined with our capital allocation and create sustainable value for our shareholders.”

Also, in April, PSX’s Board of Directors approved a quarterly dividend of $1.15 per share, representing a rise of 10%. The dividend was paid on June 3, 2024, to shareholders of record as of the business close on May 20, 2024. The dividend increase demonstrates the company’s confidence in its growing mid-cycle cash flow generation and disciplined capital allocation strategy, which includes maintaining a secure and competitive dividend.

Since its establishment in 2012, Phillips 66 has consistently increased its dividend, resulting in a CAGR of 16%. Moreover, the company is well-poised to continue delivering substantial shareholder value by executing its strategic priorities, including returning $13-$15 billion to shareholders via dividends and share repurchases from July 2022 to the year-end 2024.

For the first quarter that ended March 31, 2024, PSX reported revenue of $36.44 billion, beating analysts’ estimate of $33.56 billion. Its adjusted earnings were $822 million, or $1.90 per share, respectively. During the quarter, refining operated at 92% crude utilization. As of March 31, 2024, the company had cash and cash equivalents of $1.60 billion and $3.50 billion of committed capacity available under its credit facility.

Further, Phillips 66, through the successful execution of its strategic priorities, remains committed to increasing mid-cycle adjusted EBITDA to $14 billion by 2025 and returning more than 50% of operating cash flow to shareholders.

PSX’s stock is up around 5% year-to-date and has gained more than 45% over the past year.

Occidental Petroleum Corporation (OXY)

Occidental Petroleum Corporation (OXY) also stands to gain significantly from Trump’s pro-oil stance. OXY is a leading energy company with assets mainly in the U.S., the Middle East, and North Africa. The company’s extensive operations in the Permian and DJ basins and offshore Gulf of Mexico, coupled with potential regulatory rollbacks, could enhance its production capabilities.

Over the past six months, shares of OXY have surged more than 3% and approximately 46% over the past year. Moreover, the stock has already shown positive movement following the presidential debate, reflecting investor optimism.

Last month, OXY and BHE Renewables, a wholly-owned subsidiary of Berkshire Hathaway Energy, formed a joint venture for the demonstration and deployment of TerraLithium’s Direct Lithium Extraction (DLE) and associated technologies to extract and commercially produce high-purity lithium compounds from geothermal brine.

By utilizing Occidental’s expertise in managing and processing brine within its oil & gas and chemicals businesses, combined with BHE Renewables’ extensive knowledge in geothermal operations, OXY is exceptionally equipped to advance a more sustainable method of lithium production.

During the first quarter that ended March 31, 2024, OXY posted an adjusted net income attributable to common stockholders of $604 million, or $0.63 per share. Notably, midstream and marketing surpassed guidance for pre-tax income by nearly $100 million. Also, OxyChem exceeded guidance with a pre-tax income of $260 million.

In addition, Occidental’s total production was $1,172 Mboed near the mid-point of its guidance. Solid operational performance drove cash flow from operations of $2 billion and cash flow from operations before working capital of $2.3 billion.

“Operational excellence is fundamental to everything we do at Occidental, and our teams delivered at a high level across all segments during the first quarter of 2024,” stated OXY’s President and Chief Executive Officer Vicki Hollub. “We are executing in all areas of our diversified portfolio and positioned for free cash flow growth.”

Analysts expect OXY’s revenue and EPS for the second quarter (ended June 2024) to increase 3.5% and 26.4% year-over-year to $6.97 billion and $0.82, respectively. Also, the company has topped the consensus EPS estimates in three of the trailing four quarters.

Targa Resources Corp. (TRGP)

With a $29.62 billion market cap, Targa Resources Corp. (TRGP) is a prominent provider of midstream services. The company primarily engages in the gathering, compressing, treating, processing, transporting, and selling of natural gas; transporting, storing, fractionating, treating, and purchasing and selling natural gas liquids (NGLs) and NGL products, like services to LPG exporters; and gathering, terminaling, and purchasing and selling crude oil.

TRGP, with its focus on natural gas and NGLs, stands to benefit from the Trump administration’s favoring fossil fuels. TRGP’s stock has soared more than 14% over the past month and around 52% over the past six months. Moreover, the stock is up nearly 72% over the past year.

Targa recently began operations at its new 120 MBbl/d Train 9 fractionator in Mont Belvieu, TX. Further, construction continues on Targa’s 275 MMcf/d Greenwood II plant in Permian Midland and its 230 MMcf/d Roadrunner II and 275 MMcf/d Bull Moose plants in Permian Delaware. In the Logistics and Transportation (L&T) segment, construction continues on Targa’s 120 MBbl/d Train 10 fractionator in Mont Belvieu, its Daytona NGL Pipeline.

In May, TRGP, to increase production and meet the rising infrastructure needs of customers, announced the construction of a new 275 MMcf/d cryogenic natural gas processing plant in Permian Midland (Pembrook II plant) and the construction of a new 150 MBbl/d fractionator in Mont Belvieu (Train 11).

Moreover, in April, Targa Resources’ Board of Directors declared an increase to its quarterly cash dividend to $0.75 per share, or $3 per share annually, for the first quarter of 2024. This dividend represents a 50% rise from the dividend declared in the first quarter of 2023. The dividend increase indicates the company’s solid financial health and confidence in its continued growth.

In the first quarter that ended March 31, 2024, TRGP’s revenues increased 1% year-over-year to $4.56 billion. Its adjusted operating margin grew 3% from the prior year’s quarter to $622.10 million. Its NGL pipeline transportation volumes were $717.80 million, up 34% year-over-year.

Additionally, the company’s adjusted EBITDA rose 2.7% from the year-ago value to $966.20 million. Its adjusted cash flow from operations was $738.40 million for the quarter.

Street expects TRGP’s revenue for the fiscal year (ending December 2024) to increase 22.9% year-over-year to $19.74 billion. The consensus EPS estimate of $5.36 for the current year indicates an improvement of 46.4% year-over-year.

Bottom Line

The recent debate between President Joe Biden and former President Donald Trump has underscored the potential for significant market shifts based on political outcomes, particularly within the energy sector. With Trump’s pro-oil policies gaining renewed attention, companies like Phillips 66, Occidental Petroleum, and Targa Resources are well-positioned to capitalize on a supportive regulatory environment and expansion of drilling activities.

As the election approaches, the energy sector’s trajectory will likely remain closely tied to political developments. Investors should remain vigilant and consider the implications of potential policy changes on their portfolios. The solid financial performance and strategic initiatives of PSX, OXY, and TRGP, combined with the potential regulatory shifts under the Trump administration, could drive growth and deliver significant shareholder value in the upcoming years.

Why Long-Term Investors Should Eye TSLA's Robotaxi Potential

Posted on by The INO.com Team

Tesla, Inc. (TSLA) is set to release its second-quarter delivery update in early July, which is expected to show a decline for the second straight quarter. Analysts have adjusted their estimates for TSLA deliveries downward due to concerns over consumer demand and intense competition in China. In January, the company cautioned that delivery growth in 2024 would be “notably lower” as the impact of months-long price cuts diminishes.

According to an average estimate derived from forecasts by 12 analysts polled by LSEG, the EV maker is expected to deliver 438,019 vehicles for the April-June period. Seven of these analysts have slashed their expectations in the past three months.

Further, Barclays analyst Dan Levy revised his deliveries forecast to 415,000 vehicles, marking an 11% year-over-year drop. He stated that “a soft delivery result could turn attention back to the currently challenging fundamental environment for Tesla.” Meanwhile, RBC Capital Markets and UBS have set their delivery estimates at 410,000 and 420,000 vehicles, respectively.

For comparison, Tesla delivered 386,810 vehicles in the first quarter of 2024 and 466,140 vehicles in the second quarter of 2023, with its highest deliveries tally in the fourth quarter of the previous year at 484,507 units.

Despite the anticipated dip in quarterly deliveries, many analysts suggest that investor focus is shifting from quarterly deliveries to TSLA’s long-term projects, particularly the highly anticipated Robotaxi event scheduled later this summer.

High-Profile Robotaxi Event

CEO Elon Musk officially announced on X that the company will unveil its long-promised Robotaxi on August 8, 2024. The upcoming autonomous vehicle will be built on Tesla’s next-generation vehicle platform. Musk has long hinted at the possibility of a Tesla Robotaxi, even showcasing a fully covered vehicle during a 2023 event unveiling the company's third Master Plan.

Musk previously stated that Tesla will eventually produce a car without human control. He further mentioned that Tesla vehicles equipped with Full Self-Driving Capability will, through software updates, continuously improve their driving skills. He also emphasized that Tesla owners could generate income from their autonomous cars by sending them to pick up and drop off passengers.

That would be a part of the “Tesla Network,” as described in Musk’s Master Plan Part Deux. “You will also be able to add your car to the Tesla shared fleet just by tapping a button on the Tesla phone app," he added, “and have it generate income for you while you’re at work or on vacation, significantly offsetting and at times potentially exceeding the monthly loan or lease cost.”

Several years later, Musk’s vision expanded even further. In 2019, he declared, "By the middle of next year, we'll have over a million Tesla cars on the road with Full Self-Driving hardware." He also claimed that Tesla’s Full Self-Driving (FSD) feature would be so dependable that drivers could “go to sleep.” However, it should be noted that Teslas equipped with FSD software are not fully autonomous, and drivers should not sleep while using them.

While Musk’s promises may not always align perfectly with reality, the success of Autopilot and FSD proves that he remains at the forefront of a societal shift from human-powered vehicles to those piloted by AI.

TSLA’s stock has witnessed a continuous downturn, with a decline of nearly 15% year-to-date and more than 25% over the past year. However, the stock has surged around 16% over the past month as investors increasingly focus on the upcoming Robotaxi event.

While delivery data is crucial for an EV company, investors are looking beyond that. Ben Kallo, an analyst at Robert W. Baird, noted, “Compared to Q124 when investor attention was intensely focused on near-term delivery estimates being too high, we see a growing number of investors shifting their outlook to the Robotaxi event on August 8 and the opportunity related to FSD.”

Ben Kallo anticipates that investor attention will remain toward the long term until the Robotaxi launch, which could include details on low-cost, next-gen vehicles. Meanwhile, Wedbush Securities analyst Dan Ives doesn’t anticipate significant fireworks for the June quarter but believes the 8/8 Robotaxi debut will be a substantial catalyst for TSLA.

UBS, however, is more skeptical about the Robotaxi event being an immediate catalyst for TSLA’s stock price. Nonetheless, the firm acknowledges that the EV maker has made significant technical progress in its Robotaxi and Optimus plans. And it is more likely than most companies to capitalize on AI in the physical world, with long-term benefits for its financial model.

Potential Risks and Challenges

While the upcoming Robotaxi event holds promise, it also has inherent risks and challenges. Autonomous driving technology faces stringent regulatory scrutiny. Tesla must navigate complex legal landscapes to deploy its Robotaxi fleet, which could delay implementation and affect timelines.

TSLA must continue to invest heavily in research and development (R&D) to ensure the reliability and safety of its autonomous vehicles. Critics argue that Musk exaggerates the capabilities of the technology, often with fatal consequences. There have been hundreds of crashes involving Tesla vehicles using FSD and Autopilot, resulting in dozens of deaths. The EV giant currently faces several wrongful death lawsuits.

While the Robotaxi initiative has long-term potential, it requires substantial upfront investment. The financial burden of developing and deploying autonomous vehicles could impact Tesla’s short-term profitability.

Bottom Line

TSLA is scheduled to release its second-quarter deliveries report this week, with analysts expecting to show a decline for the second consecutive quarter amid weak demand due to a lack of affordable new models and stiff competition in China. The deliveries report will be released just a few weeks before the company’s second-quarter earnings release.

Street expects Tesla’s revenue for the second quarter (ended June 2024) to decrease 4.2% year-over-year to $23.88 billion. The consensus EPS estimate of $0.58 for the same period indicates a decline of 35.9% year-over-year.

Despite the expected drop in deliveries and weak quarterly earnings, several market experts suggest that investor focus is shifting to Tesla’s long-term projects, particularly the high-profile Robotaxi event set for August this year. As the EV maker navigates the challenges and opportunities ahead, the Robotaxi initiative is a pivotal development that could redefine its future trajectory.

While short-term concerns persist, including weak consumer demand, regulatory hurdles, and ongoing legal challenges, long-term investors increasingly focus on Tesla’s ambitious autonomous driving vision. The event is poised to showcase the company’s technological advancements and could serve as a catalyst for renewed investor confidence.