H.B. Fuller manufactures adhesives, sealants, paints and other specialty chemical products for customers in packaging, hygiene, paper converting, woodworking and construction in more than 100 countries.

The company is worldwide, operating in four geographic regions: North America, Latin America, Europe and Asia Pacific.

H.B. Fuller Beat by 10.2% in the Fiscal Fourth Quarter

On Jan 18, H.B. Fuller reported its fourth quarter and fiscal 2011 full year results. It blew by the Zacks Consensus by 6 cents a share for the quarter. Earnings per share were 65 cents compared to the Zacks Consensus of 59 cents.

Fiscal Q4 had 14 weeks of activity while the fourth quarter of 2010 had 13 weeks.

Revenue rose 21% to $436.5 million compared to last year, or 13% when adjusted for the extra week. The quarter was boosted by higher average selling prices, favorable foreign currency translation and higher volume.

Organic revenue increased by 18.6% compared to a year ago.

For the full year, which also had an extra week, adjusted revenue climbed 13% to $1.6 billion compared with fiscal 2010. Higher average selling price also played a role.

Outlook for 2012 Still Looks Bullish

The company is optimistic as it heads into 2012. Despite continued raw material cost escalation, it had been able to improve gross margins in 2011.

H.B. Fuller expects revenue up 4% to 7% relative to 2011, or 6% to 9% growth when adjusted for an extra week in 2011.

Earnings are expected in the range of $2.05 and $2.15. This was above the analysts' consensus at the time.

As a result, the analysts have been scrambling to raise estimates. 5 have moved higher in the last month, pushing the fiscal 2012 Zacks Consensus Estimate up to $2.09 from $2.03 per share.

That is earnings growth of 9.8%.

Shares Breakout But Is There Still Value?

For nearly 3 years, shares had been in a narrow trading despite solid earnings and revenue numbers.

But that all changed in 2012 as FUL joined in on the recent stock rally and broke out to new multi-year highs.

Despite the hot stock, there's still value in the shares.

H.B. Fuller has a forward P/E of 14.3, which, while not dirt cheap, is still below the 15x cut-off I use for value stocks.

It also has an attractive price-to-book ratio of 2.1. A P/B under 3.0 usually indicates a company has value.

And to top it all off, the price-to-sales ratio is under 1.0, at 0.95, which usually means that a company is undervalued.

The chemical companies are a good indicator of the global economy as they are the first to see the slowdown (and the first to see any turnaround.) While most investors thought the doom was in last summer, the companies surprised by keeping up the growth.

Even with the recent surge in the stock price, H.B. Fuller still has attractive valuations. An investor gets value and hopefully further earnings growth to boot.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec.

 
FULLER(HB) CO (FUL): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Wed, 08 Feb 2012 00:00:01 EST CNO Financial Group (CNO) to Underperform based on the continuous deterioration in the premium revenue of its Bankers Life segment, coupled with the significant underwriting and pricing risks. The company's third-quarter earnings results were driven by poor top-line performance in most business segments.

The current interest rate environment, which is generating spread compression, will continue to put pressure on the bottom line. We do not expect any significant improvement on that front in the forthcoming quarters as the pricing pressure is expected to persist for awhile.

Our six-month target price of $5.75 equates to 7.9x our earnings estimate for 2011. This price target implies an expected negative total return of 10.9% over that period. This is consistent with our Underperform recommendation on the shares.
 
CNO FINL GRP (CNO): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Wed, 08 Feb 2012 00:00:01 EST Caterpillar Inc.'s (CAT) fourth quarter EPS increased 53% to $2.25 and revenues surged 35% to a record $17.2 billion, driven by increased machine demand. Results were way ahead of Zacks Consensus Estimates.

With the Bucyrus acquisition, the company is positioned to be the #1 mining equipment manufacturer in the U.S. with a strong footing in the major mining markets of China and India. Caterpillar's strong brand name, pricing power and global dealer network put it in a position to capitalize on the growing need for infrastructure development worldwide.

We maintain our Outperform recommendation, which indicates that it will perform better than the market. Our $134.00 target price, 14.5x our 2012 EPS estimate, reflects this view.
 
CATERPILLAR INC (CAT): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Wed, 08 Feb 2012 00:00:01 EST

Akorn, Inc.  (AKRX)

Another essential cog in the new healthcare machine will be the availability of low-cost generic medicine for common conditions and perhaps even more importantly for specialized niche care.

It is extremely important to keep the production of critical drugs flowing into the hands of consumers in need. Companies like Akorn that have a diverse business model, years of experience and a strong line of drugs and pharmaceutical products that are in demand will benefit from increases in coverage and health awareness.

Company Description & Developments
Akorn, Inc. is a niche generic pharmaceutical company that develops, manufactures and markets pharmaceutical products in the areas of ophthalmology, antidotes, anti-infectives in addition to controlled substances for pain management and anesthesia around the world since 1971.

Akorn’s customer base is well diversified from physicians to clinics and long term care facilities, retail pharmacies and even other pharmaceutical companies. To keep focused on their different lines, the company is divided into three segments, Specialty Therapeutics and Injectable Pharmaceuticals, Ophthalmologic Pharmaceuticals and Contract Manufacturing. 

On January 17th, AKRS announced that their revenues would exceed prior estimates for 2011 and anticipated full-year results above the upper end of its prior outlook for both revenues and adjusted EBITDA of approximately $41 million to $43 million, with revenue projections between $130 million and $132 million on gross margins of approximately 57%.

This came on the heels of news that Akorn’s wholly-owned subsidiary, Oak Pharmaceuticals, acquired three off-patent, branded, hospital-based injectables from the US subsidiary of H. Lundbeck A/S.  That acquisition will also immediately contribute directly to their bottom line.

The company also intends to expand its sales force and re-organize them into two distinct focus areas, Ophthalmics and Hospital Injectables. Expansion plans include increased investments in R&D to accelerate product development.

All in all the news flow and earnings momentum has been very positive for the stock.  Subsequently, shares of the drug maker are sharing in that impetus.

Financial Profile
Akorn is a small-cap (1.14 billion) company that is trading at about 54 times trailing earnings (P/E).  This makes it a bit expensive when you compare it to the broad market average.  Looking forward, Zacks Consensus Estimates are calling for that number to drop closer to 30 with no change in price over the next year.  

Akorn became a Zacks Rank 1 strong buy on January 20th.

The pharmaceutical company reported a quarterly sales increase of 14% at their last earnings report.  Annual sales were up 70% compared to Q32010 with total sales of roughly 86.4 million in FY2010.  AKRX earnings leapt from a 28 cent loss to a 22 cent profit from FY2009 to FY2010.  Akorn is expected to earn $0.29 in FY2011 according to the Zacks Consensus Estimate. 

Earnings Estimates
Since AKRS is a small cap, only 2 analysts cover the stock, but both raised estimates higher for the coming quarters as well as FY2011 and FY2012 in the past month.  Akorn will report Q42011 results on February 28th.  Expectations are for Akorn to generate $0.08 in income this quarter.  Of the 2 analysts who cover AKRX, the consensus is for the company to grow earnings by 32% in the current year (FY2011) and roughly 36% in FY2012. 

In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were 90 days ago for the current and next quarters as well as FY2011and FY2012. 

Akorn beat estimates last quarter by 60% and has averaged to beat estimates by over 64% during the past year. 

Market Performance & Technicals
Akorn’s chart are almost perfectly what we call “bottom left to top right” indicating steady upward price movement over the past year.  The stock has been making new 52 week highs almost weekly since May of 2010 and trades decent volume for a small cap. 

Akorn has remained above its 50 day moving average for most of the year and has not dipped below its 200 day at all in that time.  The averages currently stand at $11.00 (50 day) and $8.52 (200 day). 

The trend remains bullish and the momentum continues for AKRX.  The broad market seems to be the only thing that could disrupt Akorn’s assent.  A disappointing earnings report could also have the same effect.  AKRX has exceeded the S&P 500’s performance by over 122% in the past year and over 12% in the past 3 months alone.  This is no doubt a true momentum company.

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

Based on current consensus estimates, analysts project double-digit EPS growth for Yum! over the next several years. It is a Zacks #2 Rank (Buy).

In addition to this growth, the company pays a dividend that yields a solid 1.8%.

Crazy for the Colonel in China

Yum! Brands is one of the largest fast food restaurant companies in the world. It owns 3 globally-recognized brands: KFC, Pizza Hut, and Taco Bell.

The company has been expanding aggressively overseas, particularly in China, where it opened 656 restaurants in 2011, including 327 in the fourth quarter. And why not? Same-store sales rose an incredible 19% there in 2011. It is now the Yum!'s largest division in terms of revenue:

China: 44% of total revenue in 2011
United States: 30%
Yum! Restaurants International (excludes China): 26%

Fourth Quarter Results

Yum! Brands delivered strong fourth quarter results after the bell on February 6. Earnings per share came in at 75 cents, beating the Zacks Consensus Estimate by a penny. It was a stellar 20% increase over the same quarter last year.

Total revenue surged 15% to $4.111 billion, ahead of the Zacks Consensus Estimate of $4.030 billion. Excluding foreign currency effects, worldwide system sales were up 11%. Same-store sales rose an incredible 21% in China, 3% at YRI, and 1% in the U.S.

Operating profit rose 14% as rising commodity costs were somewhat offset by fixed expense leverage. When you break it down by division, the company's operating margin was widest in the YRI segment at 19.7%. China's was the thinnest at 11.2% as Yum! had to combat 8% commodity inflation and 20% wage rate inflation. The U.S. was in the middle at 16.1%.

Outlook

Expect analysts to raise their estimates following the solid Q4. The current Zacks Consensus Estimate for 2011 is $3.23, representing 12% EPS growth. The 2012 consensus estimate is 14% at $3.69.

It is currently a Zacks #2 Rank (Buy).

Returning Value to Shareholders

In addition to strong growth, Yum! pays a dividend that yields a solid 1.8%. Since it began paying a dividend in 2004, the company has increased it every year at a double-digit rate.

The company also repurchased 14.3 million shares for approximately $733 million in 2011. That should help boost EPS down the road.

Valuation

Shares of YUM have been on a tear over the last 6 weeks, rising over 20%. But the valuation picture still looks reasonable.

Shares trade around 20x the 2012 consensus estimate, above the industry average of 15x. But this premium seems justified given the company's above-average growth prospects.

The Bottom Line

With strong earnings growth, a solid 1.8% dividend yield and reasonable valuation, Yum! offers investors a lot of upside potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

 
YUM! BRANDS INC (YUM): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Wed, 08 Feb 2012 00:00:01 EST BE Aerospace (BEAV) has provided the market with an excellent track record of positive earnings surprises. Add in the idea of rising estimates for 2012 and aggressive growth investors will be happy to see this stock is a Zacks #1 Rank (Strong Buy).

Company Description

BE Aerospace, Inc. engages in the design, manufacture, sale, and service of commercial aircraft and business jet cabin interior products worldwide.

Earnings Surprises Streak

BEAV has delivered a positive earnings surprise in each of the last seven quarters. Most of the beats are only a few cents, but it shows that management realizes the importance of under promising and over delivering.

The last two earnings surprises have resulted in some good moves for the stock. The September 2011 quarter was revealed to Wall Street in late October and the stock gained 4.3% as a result. The most recent earnings report was released on February 1, 2012 and it saw stock price appreciation of nearly 6%..

UTEK Reported Earnings

On February 1, 2012 the company reported revenue of $655 million up from $542 million in the year ago period. In addition, earnings per share came in at $0.60 up from $0.47 posted a year ago and $0.04 higher than the Zacks Consensus Estimate of $0.56.

Valuations

BEAV trades at a premium to the industry average for most metrics that aggressive growth investors pay attention to. A forward PE of 16x may not seem like much, but in comparison to the industry average of 10x, the premium tends to stand out. One metric that BEAV carries a discount to the industry average is price to book. The company trades at 2.5x compared to the 2.6x for the industry.

The Chart

The price and consensus chart shows that analysts believe the company will continue to deliver higher and higher earnings. When we see a stock significantly lower than the earnings lines on this chart, it is generally a sign that the company is undervalued and primed for growth. BEAV is a Zacks #1 Rank (Strong Buy).

Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service

 
BE AEROSPACE (BEAV): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research ]]> Tue, 07 Feb 2012 17:46:01 EST We maintain our Neutral recommendation on AK Steel Holding Corporation (AKS), a leading producer of flat-rolled carbon, stainless, electrical steel and tubular products.

AK Steel reported fourth-quarter 2011 net loss of $0.26 per share, beating the Zacks Consensus Estimate of a loss of $0.39 per share. Net sales were $1,509.2 million on shipments of 1,409,900 tons versus $1,390.6 million on 1,359,900 tons in the prior-year quarter. Net sales were also above the Zacks Consensus Estimate of $1,481 million.

AK Steel mainly focuses on products with high margins. Carbon, stainless and electrical steel continue to be the company’s strongest product lines. The revival in demand in the U.S. and abroad bode well for the company.

AK Steel continues to experience growth in the average selling price for the company’s products. The company posted an average selling price of $1,070 per ton in the fourth quarter of 2011, approximately 5% higher than $1,022 per ton reported in the fourth quarter of 2010.

However, AK Steel’s cost structure is higher than its peer group driven by greater reliance on external supply of raw materials, such as carbon scrap, purchased slabs, iron ore and purchased coke. Iron ore is the key raw material in steel manufacturing operations. AK Steel pays nearly double for iron ore pellets compared to its integrated competitors, who consume their own pellets.

AK Steel has significant pension fund requirements. Since 2005, the company has made total pension contributions of over $1.2 billion. During 2009 and 2010, AK Steel made pension contributions of $210 million and $110 million, respectively. The company made pension contributions of $170.0 million during the first half of 2011 to satisfy its required annual pension contributions for 2011.

Moreover, AK Steel increased its total pension fund contributions since 2005 to over $1.3 billion. Currently, AK Steel estimates that its required annual pension contributions will average approximately $180 million for fiscal 2012 and $260 million for fiscal 2013.

Due to continued uncertainty and volatility in economic conditions, AK Steel has not provided any outlook for first-quarter 2012 at this time, but intends to provide guidance later. We expect the company’s core operating results to turn profitable by the first quarter of 2012, as higher carbon steel prices will more than offset higher raw material costs and weaker electrical steel prices.

AK Steel is uniquely positioned to focus on products with high margins. Electrical steel continues to be the company’s strongest product line, with demand recovering in the U.S. and abroad, though at a slower rate. AK Steel is operating its plants at above 80% capacity and is well positioned to serve the end markets when the demand rebounds.

However, higher input costs, particularly iron ore, is eroding the company’s margins. Iron ore pricing concerns have led to a negative outlook for steel manufacturers. A K Steel currently retains a Zacks #3 Rank (short-term Hold rating).

Ohio-based AK Steel Holding Corporation is a leading producer of flat-rolled carbon, stainless, electrical steel and tubular products. It operates 7 steel-making and finishing plants in Ohio, Pennsylvania, Indiana and Kentucky. The company competes with Nucor Corporation (NUE), U.S. Steel Corp. (X) and Steel Dynamics Inc. (STLD).

According to the agreement, UCB will manufacture and supply Cimzia to Astellas for commercialization. Astellas will exclusively distribute the drug and also book sales, while both Astellas and UCB will jointly develop and commercialize Cimzia in Japan. Under the agreement, UCB will receive an initial cash payment and is also eligible to receive clinical, regulatory and commercial milestones payments.

We note that earlier UCB had an agreement with Japanese pharma company Otsuka Pharmaceutical Co., Ltd. for the development and promotion of Cimzia in Japan. Last month, the companies mutually decided to focus on the development of therapeutics for central nervous system (CNS) disorders, and thereafter discontinued their collaboration in immunology.

UCB and Astellas have filed Cimzia with the Japanese regulatory authority, seeking approval of the drug for the treatment of RA in patients who have responded insufficiently to current therapies.

Cimzia is currently marketed in the US and Europe for the treatment of adults with moderate-to-severely active RA. The drug is also marketed in the US for reducing signs and symptoms of Crohn's disease (CD).

Our View

We are encouraged by this agreement as recently UCB has changed the terms of a couple of its collaboration agreements – one with Otsuka Pharma (mentioned earlier), and another with Immunomedics, Inc. (IMMU). In December last year, UCB returned its buy-in right to Immunomedics for the cancer indication of epratuzumab, and in return got the flexibility to select a partner to sublicense epratuzumab’s rights for certain territories.

Epratuzumab is currently being evaluated in two late-stage trials, EMBODY1 and EMBODY 2, for the treatment of patients with moderate-to-severe lupus. Initial results from these trials are expected in the first half of 2014.

We currently have a Zacks #3 Rank (short-term Hold rating) on the stock.

California-based Unity Semiconductor licenses its technology and production know-how to memory semiconductor companies. The company has also pioneered a technology for developing non-volatile memory in a scalable manner. The technology, CMOx, is expected to gain popularity among semiconductor companies, since memory chips manufactured with this technology will be faster, will lower manufacturing costs and increase data reliability, outshining the benefits of NAND technology.

Post-integration, the existing staff of Unity Semiconductor will continue to develop the unique solution with the help of Rambus’ expertise. With the advent of CMOx technology, Rambus will have an additional technology within the licensing portfolio.

Higher volume of data storage, retrieval and transfer are the reasons for the growing demand of flash memory nowadays. U.S. market research firm Gartner expects the flash memory market to witness double-digit growth by 2015 based on the increasing sales of tablets, laptops and smartphones. The firm also predicts overall growth in the semiconductor industry by 2015.

Hence, we believe that Rambus, well equipped with the new memory technology, will be able to grab a huge share of the growing market for flash memory in electronic devices.

Rambus has been very efficient in enriching its semiconductor licensing portfolio. Earlier in May 2011, the company acquired Cryptography Research for $342.5 million. Cryptography’s set of solutions complemented Rambus’ semiconductor as well as lighting and display technologies.

To this point, Rambus has clinched deals with many semiconductor giants. The most recent being its tie-up with semiconductor giant Broadcom Inc. (BRCM), which is a well deserved achievement. We believe that the association with Broadcom will aid Rambus’ fundamentals in the upcoming quarters. And success at Broadcom could fetch similar deals from the semiconductor industry.

Though Rambus’ growth prospects are imminent, we remain on the sidelines given the Fed’s decision to declare three of its patents invalid. This would reduce its growth to the extent that it is dependent on the three patents.

Currently, Rambus has a Zacks #3 Rank, indicating a short-term Hold rating.

Featured Post

Solar Power: Is It Ready for Real This Time?

To me investing in solar is all about short periods of time because these stocks are so volatile. I read a few articles about solar lately. Costs of production are coming down because a key ingredient poly-silicon is in over abundance; price drop is 93% as of a few months ago.

This price drop has put solar energy production much closer to a breakeven. When countries in Europe started pulling the plug on government subsidies solar stocks tanked a few years ago. I'm looking SunPower (SPWR) on a pull back, like a lot stocks SPWR has been hot year to date.

GE (GE) is building a huge solar panel plant. With production costs going down and the big guys (GE) getting in Solar power is not going away. SPWR has some big name investment house attention lately with their 5 energy plays this year. When SPWR pulls back a little I'm in.

There are others names left in solar since the industry shake out last year. Solar is still a very risky trade but there are good signs that it could be rewarding risk.

The most recent picks by «horsedentist» are:
A buy rating on SunPower (SPWR),
a buy rating on United Rentals (URI) and
a buy rating on Silver Wheaton (SLW).

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Geographically, sales for the 27-day period dropped due to marginally below trend in the western region as well as significantly below trend in Central region. However, the company’s Eastern region performance was flat year over year.

Product-wise, sales trends for shoes and home and furniture categories lived up to the company’s expectations in the 27-day period. However, sales for men’s apparel and accessories significantly missed expectations.

Fourth-Quarter 2011 Sales Performance

Dillard’s total sales for the 13 week-period ended January 28, 2012 inched up 2% to $1,951.5 million compared with $1,914.6 million in the year-ago period. Comparable sales for the same period registered a year-over-year growth of 3%.

Fiscal 2011 Sales Performance

For the 52 weeks ended January 28, 2012, the company’s sales totaled $6,199.0 million, registering an increase of 3% from total sales of $6,020.3 million reported in the same period last year. Comparable store sales increased 4% for the 52-week period ended January 28, 2012.

This month’s performance has broken Dillard’s run of positive comps and sales growth since April 2011. Moreover, the company has also registered positive comparable and total sales growth in every quarter of fiscal 2011.

On the back of 2% growth in comparable sales for the first quarter of fiscal 2011, Dillard’s earnings doubled to $1.31 per share. Similarly, the company’s earnings reached 32 cents per share for second-quarter 2011, on the heels of 6% rise in comparable sales. The trend continued in the third quarter as well as earnings more than doubled to 50 cents per share primarily driven by a rise of 5% in comparable sales.

Peer Performance

Dillard’s operates its retail merchandise business under highly competitive conditions. Despite being a large regional department store, the company has many competitors at the national level, who compete with the individual stores, including specialty, off-price, discount and Internet and mail-order retailers.

Among the company’s peers, Kohl’s Corporation (KSS) reported a marginal comparable sales growth of 0.6%, while net sales inched up 2.4% to $844 million during the five-week period ended January 28, 2012. Dillard’s another competitor Ross Stores Inc.’s (ROST) comparable sales grew 5% and total sales surged 10% to $483 million compared with $441 million in prior-year period.

Our Take

We believe that the company’s sales will improve in near term given its increased focus on online business. Dillard’s has recently made a huge investment of $4 million in Acumen Brands, a Fayetteville, Arkansas-based ecommerce company.

As per the deal, Acumen Brands will provide technological marketing services which will boost Dillard’s brand online. Further, the company has also announced to open a new Internet Fulfillment Center in Maumelle, Arkansas, in spring 2012.

We believe that the company benefits from its improvements in inventory management, focusing on more conservative purchasing and efforts to better match the timing of receipts with demand, ultimately resulting in reduced markdowns.

Dillard’s has recently taken a revolutionary step to boost its liquidity position by forming a real estate investment trust company, which will open the avenues for debt and equity markets. Moreover, the company has also formed a wholly-owned captive insurance company, which we believe will enable it to manage its risks more efficiently while providing access to more reinsurance markets.

Dillard's shares maintain a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation on the stock remains Outperform.

The outer harbor with capacity of 100 million tons per year is a pivotal investment toward providing infrastructure for world class resource base development in Pilbara. The project has an embedded option to expand by a further 100 million tons per year and is expected to be reviewed for full approval in the fourth quarter of calendar year 2012.

The first phase of the Outer Harbor Development would include the proposed construction of a four kilometer jetty, a four-berth wharf, 32 kilometers of dredged departure channel and landside infrastructure, including stockyards and a rail spur. The first half of calendar year 2016 is when the project is expected to start-up.

The funds approved for initial work has been projected to finance the project feasibility studies and procurement of long lead time items as well. Dredging works subject to necessary regulatory approvals are anticipated to start alongside engineering studies for mine and rail expansions for expanded port capacity.

In a separate story, BHP Billiton reported to have exercised an option to sell its 37% non-operated interest in Richards Bay Minerals (RBM) to Rio Tinto; thereby exiting the titanium minerals industry. BHP Billiton held a 37% equity stake in RBM, a South African mineral sands mining and smelting operation and the leading producer of chloride titanium feedstock. The other equity partners included Rio Tinto (37%), Black Economic Empowerment (BEE) parties (24%) as well as employees (2%).

Way back in 2009, as part of the restructuring of RBM, BHP Billiton and Rio Tinto plc. (RIO) concluded a put option agreement that made provision for BHP Billiton to sell its interest in RBM to Rio Tinto pursuant to an agreed valuation process. Completion of the sale by BHP is now conditional upon the fulfillment of customary regulatory approvals with the final consideration, which will be determined according to the agreed valuation process.

However, BHP Billiton will continue to operate its Southern African energy coal, aluminium and manganese businesses.

BHP Billiton is one of the world’s largest diversified resource companies with operations spanning over several continents. It operates in metals and mineral exploration, production and processing, oil and gas exploration and development, and steel production and merchandising. The company contests directly with its peers, such as Alcoa. Inc (AA), Vale S.A (VALE).

In the present scenario, a slower global growth rate, alongside the prolonged effects of European crisis and dwindling U.S. economy cloud over the demand for the company’s products. We suspect a dampening revenue growth for the coming quarters under such circumstance.

BHP has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).

According to the Water Recycling Committee (WRC), a drinking program of the CDPH, the C3500D UV disinfection system has met the criteria defined in the California Code of Regulations (CCR) for recycled waters, thus gaining the approval.

The WRC scrutinized whether C3500D Wastewater met the microbiological standards and were in adherence with the 2003 Ultraviolet Disinfection Guidelines for Drinking Water and Water Reuse. Moreover, recycled waters, which meet these stringent microbiological standards, can be used not only for the irrigation of crops but also in golf courses, recreational waters, and other non-potable applications.

The shortage of water coupled with rising demand is driving growth for the water reuse market. Therefore, through this approval, Calgon Carbon’s C3500D can establish its foothold in different markets.

The company is slated to release its fourth-quarter and full-year 2011 results on  February 22, 2012. In the third quarter of 2011, Calgon reported a profit of 25 cents per share compared with 18 cents in the year-ago quarter, surpassing the Zacks Consensus Estimate of 22 cents. Sales in the third quarter increased 15.5% to $143.6 million. Currency translation had a positive impact of $5.1 million on sales for the third quarter due to the weak dollar.

Currently, the company maintains a Zacks #3 Rank (short-term “Hold” recommendation). Calgon mainly competes with MeadWestvaco Corporation (MWV) and ITT Water & Wastewater Herford GmbH.

The acquisition is expected to provide a boost to Regal’s Mechanical segment by improving upon the end market situation and widening the gearing solutions suite of products. Revenues of around $60 million are expected to be added to the fiscal 2012 financial results of Regal Beloit along with an increase of 3 cents – 6 cents in diluted EPS. Furthermore, diluted EPS for 2013 is projected to rise about 12 cents – 16 cents due to the acquisition.

More details of the acquisition are expected to be declared during the final quarter financial results. As previously projected, the company expects adjusted EPS to range between 67 cents and 73 cents in its fourth quarter 2011.

During the third quarter the company reported a 10.2% year-over-year rise in revenues at the Mechanical segment on the back of robust demand from the end markets. Gross margin for the segment also increased to 28.2% compared with 26.5% in the third quarter of 2010. We hope that the Milwaukee Gear deal would fetch further profits in the long run.

Established in 1955 and headquartered at Beloit, Wisconsin, Regal Beloit Corp. is a leading manufacturer of electrical and mechanical motion control products. It operates primarily through two segments – Electrical and Mechanical – and is currently the second largest manufacturer of electric motors for industrial applications. The company’s primary competitors include Plug Power Inc. (PLUG), UQM Technologies Inc. (UQM) and Schneider Electric SA (SBGSY).

In the short run, the stock retains a Zacks #3 Rank, which translates into a short-term rating of Hold. We currently have a long-term Neutral recommendation on the company.

New York-based Hess Corporation is an integrated energy company engaged in oil and gas exploration, production and refining as well as marketing. We believe that the company holds strong exploration upside potential in Brazil, Ghana, Libya and offshore Australia. Hess’ holding in the Bakken acreage also holds a lot of promise.

Hess, in recent times, has turned its attention to the development of unconventional oil (including sources like oil shales, coal-based liquid supplies etc.) and gas resources. Following the build-up of position in the North American Bakken oil field for unconventional oil, we foresee Hess as pursuing unconventional gas extraction in the Marcellus Shale play.

We also remain optimistic about Hess’ long-term oil and gas production growth target of 3−5%. We expect this growth to be in the range of 4–7% through 2017, based on an expected ramp-up in activities at Bakken, Eagle Ford and Marcellus in the U.S. as well as in other overseas regions. In an attempt to mitigate future risks, the company has also hedged approximately 45% of its 2012 forecast oil production (or 120,000 barrels of oil per day) at an average Brent price of $107.70 per barrel.

However, these positive aspects are somewhat mitigated by the company’s lower-than-expected fourth quarter and final year 2011 results. Hess’ earnings and revenue figures missed our projection and crude oil production declined year over year.

Moreover, during the fourth quarter, Hess entered into a deal with Statoil ASA (STO) for the sale of its 3% interest in the Snohvit LNG project in Norway for $170 million. We remain apprehensive about the fact that this disposition will likely impact the company’s 2012 production level.

Hess’ sensitivity to gas/oil price volatility, as well as drilling results, costs, geo-political risks and project delays, also limit the upside potential of its shares.

Hess currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

During the five-week period, the company saw growth in women’s contemporary and “gold range” designer apparel; handbags; and men’s accessories, clothing and contemporary apparel. However, the strong performance in these sectors was partially offset by the warm winters experienced this year.

For the fourth quarter 2012, which ended on January 28, 2012, sales totaled $905.1 million, up 6.4% from $850.8 million reported in the prior fourth quarter ended January 29, 2011. Comparable store sales increased 7.7% for the fourth quarter.

For the fiscal year 2012, owned sales totaled $2,955.7 million, which was 7.8% higher than $2,740.6 million reported in the previous year. Comparable store sales increased 9.5% for the fiscal year.

Due to the seasonal nature of the business, approximately 30% of Saks' sales are generated during the fourth quarter, and normally a large portion of its operating income is generated only during the fall season. Nevertheless, the company generated strong third-quarter 2011 earnings of 11 cents per share, which surpassed both the Zacks Consensus Estimate by 2 cents and the prior-year earnings by 5 cents.
 
The economy is still weak and given the uncertainty in the economy, customers are staying away from discretionary items. It would take more than couple of quarters for Saks to see a substantial improvement in its sales.

Saks holds a Zacks #3 Rank, which translates into a short-term Hold rating. Currently, we maintain a long-term Neutral recommendation on the stock.

The shareholders of BofA filed a lawsuit against the company in federal court in Manhattan in 2009. They claimed that it has concealed information about bonuses to Merrill employees and also kept secret the financial losses suffered in the fourth quarter of 2008. The complaint lodged claims that BofA deceptively misrepresented the facts by providing materially misleading statements.

Moreover, BofA was forced in January 2009 to take a second bailout from the federal Troubled Asset Relief Program due to Merrill losses. This led to 93% drop in the bank's stock price.

BofA denied certification, arguing that the investors have no evidence to verify that losses were met after relying on substantially misleading omissions, but was turned down by the federal judge.

Investors winning the class-action status include owners of BofA’s stock or call options between September 2008 and January 2009, and holders of common stock on October 10, 2008, who got the permission to vote on the Merrill acquisition.

Moreover, class certification of the suit filed will help plaintiffs to proceed in a group, rather than individually, thereby reducing costs for them.

Last week, The Goldman Sachs Group Inc. (GS) was also ordered by the federal judge in Manhattan to deal with a securities class-action lawsuit. The lawsuit accused Goldman of misleading investors relating to mortgage-backed securities worth $698 million.

The complaint lodged claims that Goldman deceptively sold the sub-prime mortgage-linked securities that gradually failed and also misrepresented the value of instrument by providing materially misleading statements.

Among other banks, Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), HSBC Holdings Plc (HBC) and M&T Bank Corp. (MTB) have also been legally accused for misrepresenting documents related to mortgage-backed securities and other losses.

The increasing number of lawsuits could dent financials of banks in 2012. BofA currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

FLIR System’s earnings were above the Zacks Consensus Estimate in the last quarter while below the estimates in the first and second quarters of 2011 as well as in the fourth quarter of 2010. The company’s average positive earnings surprise for the trailing four quarters was 0.65%.

Third Quarter Highlights

FLIR Systems reported third-quarter 2011 earnings per share from continuing operations of 40 cents, above the Zacks Consensus Estimate of 37 cents and prior-year earnings of 39 cents. Earnings in the quarter were affected by net after tax impact of the severance cost, excluding which earnings per share in the quarter came in at 43 cents

Total revenue was $371.3 million, an increase of 12% year over year. FLIR’s revenue increased in both its division, adding to total revenue growth. Total backlog at the end of September 30, 2011 was about $546 million, up $60 million during the quarter.

Commercial Systems division was $196.4 million, up 16% year over year. Government Systems division was $174.9 million in the quarter, up 7% year over year.

Agreement of Estimate Revisions  

In the last 30 days, of the analysts providing estimates on the stock, none changed their estimate for the fourth quarter, first-quarter 2012 or full-year 2011 and 2012.

Magnitude of Estimate Revisions  

In the last 7 days, there was no change in earnings estimate for the fourth quarter, first-quarter 2012, full-year 2011 or 2012. In the last 30 days also, the estimates remained unchanged, except for full-year 2012, for which the estimate decreased from $1.69 cents to $1.68.                          

Our Take  

FLIR Systems is witnessing increased interest for its solutions across many governments and agencies. The company’s competitive advantage lies in its ability to provide highly capable and rapidly obtainable products with prices and customer service that are better than its competitors.

Though the company’s TVM segment sales increased by 10% year over year in the third quarter, it was affected by a drop in sales of security products. Dollars booked from security products declined 20%, driven by orders of uncooled cameras.

The company witnessed a drop in sales for cooled cameras due to an international board of security order received in the third quarter of 2010. For 2011, the company decreased its revenue guidance in the range of $1.55 billion to $1.6 billion from its prior guidance of $1.6 billion to $1.65 billion.

FLIR Systems Inc. is a leader in design, manufacture and marketing of thermal imaging systems. Its products are used in a wide variety of applications in commercial, industrial and government markets, internationally as well as domestically. It offers a wide variety of system configurations to suit specific customer requirements. The company’s business is organized into three divisions: Government Systems, Commercial Vision Systems and Thermography Products.

We continue to maintain a Neutral rating on FLIR System for the long term. The company has a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.

Third-Quarter Synopsis

Time Warner’s third quarter earnings of 79 cents per share beat the Zacks Consensus Estimate of 75 cents, and surged 27% from 62 cents earned in the prior-year quarter on the heels of the box office success of "Harry Potter and the Deathly Hallows: Part 2" by Warner Brothers, higher television advertising demand and increase in television license fees.

Including one-time items, earnings came in at 78 cents per share, reflecting a steep rise from 46 cents in the year-ago quarter.

Time Warner, which competes with News Corporation (NWSA) and Walt Disney Company (DIS), registered an increase of 11% in total revenue to $7.1 billion from the prior-year quarter, reflecting growth across Networks and Filmed Entertainment segments. Also, revenue for the quarter handily surpassed the Zacks Consensus Estimate of $7 billion.  

Agreement of Estimate Revisions

Of the 27 analysts covering the stock, 2 analysts revised estimates upwards in the last 30 days, while 3 moved in the opposite direction.

In the last 7 days, 1 analyst revised the estimates in the upward direction, while none of the analysts revised their estimates downwards.

Magnitude of Estimate Revisions

Despite of the estimate revisions, the Zacks Consensus estimate remained stable over the period of last 30 days. 

Positive Earnings Surprise History

With respect to earnings surprises, Time Warner has topped the Zacks Consensus Estimate over the last four quarters in the range of 1.8% to 8.1%. The average remained at 5.6%, indicating that the company has outperformed the Zacks Consensus Estimate by the same magnitude in the trailing four quarters.

Our Take

The company has been expanding its digital presence to facilitate consumers to enjoy contents in more platforms and devices. Time Warner has enhanced the reach of HBO GO streaming service to mobile devices and entered into a deal with Apple so that the print subscribers of Time, Fortune and Sports Illustrated may access the iPad editions of these magazines at no additional cost.

Further, Warner Bros. became the first movie studio to offer video on demand, and acquired Flixster, a movie search application on smartphones and mobile devices.

Moreover, Time Warner’s significant international presence has helped broaden its client base and product portfolio. Time Warner operates in the United Kingdom, Germany, Canada, France, Japan and other countries apart from the United States. We believe that its strong international exposure will drive growth in the coming quarters.

However, the significant potential risk is the company’s high dependence on advertising revenue, which we believe will remain under pressure given the ongoing economic upheaval.

Currently, we have a long-term Neutral rating on the stock. Moreover, Time Warner has a Zacks #3 Rank, which translates into a short-term Hold recommendation

The venture would combine Coinstar's Redbox new release DVDs and Blu-ray disc rentals with an on-demand streaming and download service from Verizon. The service is slated to be introduced in the second half of the year. While the financial terms were not disclosed, Verizon will hold a majority 65% stake in the venture while Coinstar own the remaining 35%.

The success of both Verizon and Coinstar will depend on the pricing of the video streaming services and the quality offered in the booming subscription video service market. The alliance would strengthen their respective competitive positions against Netflix and other online rivals like Amazon.com Inc. (AMZN) and Hulu Plus.

The pact represents Verizon’s first venture in video streaming beyond its operating region. The company currently offers Web video services through its FiOS TV service, which is gaining strong momentum in the U.S. market despite stiff competition from cable providers like Comcast Corp. (CMCSA) and Time Warner Cable (TWC).

We believe the venture is highly beneficial to Verizon, as it will attract new subscribers and add a new line of business, in turn drawing additional revenues. Coinstar revenue jumped 33% in the fourth quarter of 2011 largely backed by Redbox. In addition, we expect Redbox to boost Verizon’s profitability when the venture comes online, despite additional expenditure on the service.

At year-end 2011, Redbox had 35,400 kiosks nationwide in McDonald’s, grocery and drugstores while Verizon had 4.2 million FiOS Video customers and 4.8 million FiOS Internet customers.

While waiting for the company to move ahead with the venture and its pricing, we are maintaining our long-term Neutral recommendation on the stock. Currently, the stock retains the Zacks #3 (Hold) Rank for the short term (1–3 months).

Highlights from the Quarter

Reported net income for the fourth quarter increased roughly 9.5% year over year to $463 million (or 82 cents per share). The company’s results in the reported quarter include special charges (after tax) of about $200 million (or 35 cents per share).

Total revenues were $3,594 million in the fourth quarter, up 3% year over year, beating the Zacks Consensus Estimate of $3,578 million. Domestic revenues for the quarter increased 2% to $1,466 million while overseas sales were higher 3% (up 3% in constant currency) to $2,128 million.

The Plasma Proteins business did not do so well with sales of $397 million, down 4% (down 2% in constant currency) year over year. Antibody Therapy provided better results with revenues of $406 million, higher 5% (up 6% in constant currency) year over year.

We have discussed the quarterly results at length here: Baxter Beats Estimates

Agreement – Estimate Revisions

Estimate for fiscal 2012 is totally weighted on the negative side since the release of the fourth quarter results. Out of a total of 17 analysts covering the stock, none changed their estimates over the past week while 15 have lowered their estimates over the last month with no upward revisions.

The negative trend is also observed for fiscal 2013 with 11 downward revisions (out of 14 analysts) in the past month with no reverse movements. However, there were no changes in the estimates over the past week.

Magnitude – Consensus Estimate Trend

Negative revisions, coupled with sheer directional agreement, have led to a drop in annual forecasts for Baxter. There has been a drop of 11 pennies in the consensus, for the current fiscal year, over the prior month. Estimates for 2013 have dropped by 15 cents over the prior month. The current Zacks Consensus Estimate for fiscal 2012 is $4.54, reflecting an estimated 5.39% year-over-year growth.  

Baxter Stays at Neutral

For the first quarter of fiscal 2012, the company expects growth in revenues of 2% in constant currency and adjusted earnings per share in the range of 98 cents to $1.00.  For the full year, Baxter forecasts constant currency sales growth of 4% to 5% and adjusted earnings per share in the range of $4.47 to $4.57.

The news regarding Baxter still remains mixed. On the positive side, Baxter’s focus on life-sustaining products, which are not commoditized, partly insulates it from an economic downturn. The company is able to generate recurring revenues, and consistent cash flow, due to its focus on chronic diseases. Among other positive factors, Baxter retains a strong product pipeline with several products in late-stage clinical development.

Baxter, in November 2011, completed its acquisition of Baxa Corporation. The takeover highlights the company’s continued commitment toward patient safety and nutrition. It also permits Baxter to provide a wider set of solutions for the safe preparation and delivery of IV medication. Baxa’s know-how will benefit patients across the globe.

Moreover, Baxter struck a deal, in December 2011, to buy Synovis Life Technologies (SYNO), a well-known provider of mechanical and biological products for the repair of soft tissue utilized in a large number of surgical operations. The acquisition, which is expected to close in first-quarter fiscal 2012, will further expand Baxter’s offerings in the area of biosurgery and regenerative treatment.  

On the flip side, despite resilience in Plasma Proteins and Antibody Therapy sub-segments, we are concerned about stagnation in sales, a slightly somber outlook for some hospital spending and tightening of reimbursement. We also account for the unfavorable impact of foreign exchange translation and possible dilution associated with the company’s acquisitions of Baxa and Synovis.

Improved execution has lifted sentiment somewhat toward Baxter. It is a good bet for value investors willing to wait as fundamentals improve further. Among others, the company competes with Becton, Dickinson and Company (BDX) in certain niches. We currently have a Neutral long-term rating on Baxter. The stock currently retains a Zacks #4 Rank, which translates into a short-term Sell recommendation.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/.

The lawsuit filed by the customers stated that the transactions were re-sequenced by JPMorgan in such a way that the largest withdrawals were deducted first instead of being cleared in the order in which they were received. As a result, customers’ balances diminished faster, resulting in a larger number of ‘overdrawn’ transactions, each of which then became chargeable.

With a rise in debit card usage, overdraft fees have become an important revenue driver for banks. Further, banks found it easier to generate revenues through overdraft fees by allowing customers to overdraw their accounts through debit purchases, ATMs, or any other electronic payment gateways. However, at times, customers were not even informed about such fee details, and they would come to know about it after already being charged.

Nevertheless, according to the new regulation passed in 2010, banks will not be able to charge such hefty fees without informing the account holders.

Hence, JPMorgan announced several changes to its overdraft fee structure. The company has stopped charging overdrafts without clients’ permission, lowered the maximum number of fees per day to three from six and revised the order of charges to recognize debit-card transactions and ATM withdrawals as they occur.

Similar Settlements

Last year, Commerce Bancshares Inc. (CBSH) and Bank of America Corporation (BAC) were ordered to repay for their unfair overdraft practices. Commerce Bancshares paid $18.3 million while Bank of America was asked to pay a whopping $410 million to the customers to settle unfair overdraft fees charges.

Moreover in 2010, Wells Fargo & Co. (WFC) was ordered to repay $203 million by the U.S. District Court of Northern California to recompense the customers who had sued the company for charging unfair overdraft fees.

Additionally, in October 2011, Zions Bank, a subsidiary of Zions Bancorp. (ZION), was accused of charging improper overdraft fees under policies that were in place between 2005 and 2010.

Our Viewpoint

Though the announcement of settling unfair overdraft fees will affect JPMorgan’s financials, it will restore the confidence of the customers in the federal laws to some extent.

Currently, JPMorgan retains a Zacks #3 Rank, which translates into a short-term Hold rating.

DMOC acts as the center for distributed virtual combat training exercises, testing and experimentation for the U.S. Air Force. In partnership with 705^th Combat Training Squadron, the U.S Air Force hub integrates virtual and constructive simulations across various networks to support an artificial battle space that models weapons and Command, Control, Intelligence, Surveillance and Reconnaissance systems. This Combat Training Squadron is a part of the 505^th Command and Control Wing that aims at improving warfighter capability through command and control testing, tactics development and training.

Besides assisting the Air Force in the development of tactics, techniques and procedures for tactical and operational training events, Lockheed has supported DMOC for two decades.

Based in Bethesda, Maryland, Lockheed Martin is a global security company that is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

We believe that over the long run the company will register a stable performance and its shareholder return will continue to be shored up by a sustained focus on debt repayment, its ongoing share repurchase program and the incremental dividend. Nonetheless, we currently remain on the sidelines given the U.S. economic fundamentals that keep the risk high for further cutbacks in defense budgets.

Currently, similar to peers Raytheon Company (RTN) and Northrop Grumman Corporation (NOC), the company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Terms of the Deal

Shire will make an upfront payment of $13 million to Sangamo. Sangamo will also be eligible to receive milestone payments of up to $213.5 million based on the achievement of research, regulatory, development and commercial targets. Shire will pay Sangamo tiered double-digit royalties on product sales.

As per the agreement, Shire will get exclusive global rights to ZFP therapeutics designed to target 4 genes for investigating curative therapies for hemophilia A and B. Shire also gets the right to designate 3 additional gene targets.

While Sangamo will undertake all responsibilities till the submission of an Investigational New Drug ("IND") application or European Clinical Trial Application ("CTA"), Shire will reimburse Sangamo’s program-related costs (both external and internal).

This deal is in line with the company’s strategy of pursuing bolt-on acquisitions and alliances to expand its pipeline. In January, the company acquired the US rights of Resolor from Janssen Pharmaceutica N.V., a Johnson & Johnson (JNJ) company.

Shire is facing generic threats for several of its key marketed products. The company is already facing generic competition for Adderall XR, one of its top revenue-generating products. Teva Pharmaceutical Industries, Ltd. (TEVA) and Impax Laboratories, Inc. (IPXL) had launched generic versions of Adderall XR in April 2009 and October 2009, respectively.

Vyvanse, currently the top revenue grosser at Shire, is also facing patent challenges. Six companies, including Sandoz, Inc., Amneal Pharmaceuticals LLC, Watson Laboratories (WPI), Roxane Laboratories, Inc., Mylan Pharmaceuticals, Inc. (MYL) and Actavis Elizabeth LLC and Actavis Inc. (both together) have filed ANDAs for their generic versions of Vyvanse. Shire has filed patent infringement lawsuits against all these companies.

Shire is currently fighting patent infringement lawsuits for several of its other products as well including Intuniv, Fosrenol and Lialda.

Our Recommendation

We currently have a Neutral recommendation on Shire. The stock carries a Zacks #3 Rank (hold rating) in the short run.

Shire’s recent collaborations and acquisitions (including Movetis and Advanced BioHealing Inc.) have added immense potential to its pipeline. With several of its products already facing or likely to face generic competition, the company’s pipeline needs to deliver.

The Baker Hughes rig count, issued since 1944, acts as an important yardstick for drilling contractors such as Transocean Inc. (RIG), Diamond Offshore (DO), Noble Corp. (NE), Nabors Industries (NBR), Patterson-UTI Energy (PTEN), Helmerich & Payne (HP), etc. in gauging the overall business environment of the oil and gas industry.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,997 for the week ended February 3, 2012. This was down up by 11 from the previous week’s count and represents the first decrease in 3 weeks.

Despite this, the current nationwide rig count is more than double that of the 6-year low of 876 (in the week ended June 12, 2009) and significantly exceeds the prior-year level of 1,739. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending August 29 and September 12.

Rigs engaged in land operations descended by 11 to 1,938, while inland waters activity and offshore drilling remained steady at 17 and 42, respectively.

Natural Gas Rig Count: The natural gas rig count decreased for the fourth week in a row to 745 (a drop of 32 rigs from the previous week). As per the most recent report, the number of gas-directed rigs is at their lowest level since November 20, 2009 and is down more than 20% from its 2011 peak of 936, reached during mid-October.

The current natural gas rig count remains 54% below its all-time high of 1,606 reached in late summer 2008, but has rebounded strongly after bottoming out to a 7-year low of 665 on July 17, 2009. In the year-ago period, there were 911 active natural gas rigs.

Oil Rig Count: The oil rig count was up by 20 to 1,245. The current tally – the highest since Baker Hughes started breaking up oil and natural gas rig counts in 1987 – is way above the previous year’s rig count of 818. It has recovered strongly from a low of 179 in June 2009, rising roughly 7 times.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 7 was up by 1 from the previous week.

Rig Count by Type: The number of vertical drilling rigs remained flat at 606, while the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) was down by 11 at 1,391. In particular, horizontal rig units came off by 11 from last week’s all-time high of 1,185.

To Conclude

As mentioned above, the natural gas rig count has been falling since the last few weeks, 189 rigs in fact (or 20%) from the recent highs of 934 in October 28. Is this bullish for natural gas fundamentals? The answer is "no," if we look at the U.S. production and the shift in rig composition.

With horizontal rig count – the technology responsible for the abundant gas drilling in domestic shale basins – currently close to its all-time high, output from these fields remains robust. As a result, gas inventories still remain at elevated levels – 25.4% above the 5-year average and 24.6% higher than the same period last year.

In fact, natural gas prices have dropped approximately 48% from last year’s peak of about $5.00 per million Btu (MMBtu) in June to the current level of around $2.60 (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana).

In the absence of major production cuts or a stronger economy to boost industrial demand, which is responsible for almost a third of gas consumption, we do not expect much upside in gas prices in the near term. This is prompting more and more companies to alter their spending patterns, away from gas to the more profitable liquids-rich projects.

Highlights from the Quarter

Revenues rose 5% year over year to $2,898 million, missing the Zacks Consensus Estimate of $2,909 million. Covidien witnessed strong growth across its Vascular and Energy Devices businesses in the quarter.

The larger Medical Devices business posted sales of $1.98 billion, up 6% year over year, paced by double-digit growth across Vascular and Energy Devices product-lines with new products and higher volume contributing to the growth.

Revenues from the Pharmaceuticals division rose 4% fueled by strong gains in the Active Pharmaceutical Ingredients business. Revenues from the Medical Supplies segment were essentially stable year over year as higher sales of medical surgical and nursing care products were offset by lower revenues from SharpSafety and OEM products.

Covidien posted record margins in the quarter. However, the company trimmed its sales growth forecast for fiscal 2012 to reflect a more negative foreign exchange impact.

We have discussed the quarterly results at length here: Covidien EPS Tops, Snips Sales View

Agreement – Estimate Revisions

Estimates for Covidien saw little activity over the past week with no movement in either direction for both the second quarter and fiscal 2012. Over the past month, estimates have tilted towards the positive side with 8 (out of 21 analysts) having raised their forecasts for fiscal 2012 coupled with 7 downward revisions.

However, for the second quarter, estimates manifest a negative bias with 9 (out 17 analysts) downward movements and 3 positive revisions over the past month. The bearish sentiment appears to indicate the unfavorable impact of foreign exchange translation on sales.

Magnitude – Consensus Estimate Trend

Estimate for fiscal 2012 remained stationary (at $4.28 a share) over the past week and month. However, given the downward pressure from the negative revisions, estimate for the second quarter has reduced by a penny over the last 30 days.

Neutral on Covidien

Covidien is a leading global health care products company with a rich history of developing and manufacturing high-quality products in a cost-effective manner. The company boasts of a well diversified product and technology portfolio. Covidien's larger Medical Device unit overlaps with the business of its competitors like Johnson & Johnson (JNJ), Becton Dickinson (BDX) and C.R. Bard (BCR).

The company is expanding its footprint in emerging markets, notably in Asia and Latin America, and boosting market share in core segments through investments in sales and marketing infrastructure. Moreover, Covidien continues to roll out new products and technologies, focusing on faster-growing products and markets, and broadening its product range through acquisition and strategic collaborations.

Covidien is also enhancing shareholder value through dividends and share repurchases leveraging healthy free cash flows and strong earnings power. Moreover, the company is restructuring its three business units to boost its cost structure. Cost savings from restructuring should help offset raw material price inflation and improve margins and profitability.

Covidien, in late 2011, unveiled its plans to spin off its Pharmaceuticals business into a stand alone public company. The division had been beset by heightened generic pressure, supply issues and declining sales of branded products over the last few years.

The spin-off is expected to allow the independent entity to compete more effectively in the growing pain management market. Besides, it would foster opportunities to roll out novel products and provide flexibility to execute growth plans including expansion in the ex-U.S. markets.

Covidien is well placed to achieve its long-term revenue and earnings growth targets based on its attractive fundamentals, effective execution, new product cycle, synergies of acquisitions and expansion into emerging markets.

However, we are concerned about intense competition, reimbursement uncertainty and the sustained pricing and procedure volume pressure, which may weigh on the company’s Medical Devices business in fiscal 2012. The sluggish U.S. and European economies are impacting surgical volume growth.

Moreover, Covidien’s revised guidance for fiscal 2012 indicates a more unfavorable foreign exchange environment. Our Neutral recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/.

Total insurance premium of Torchmark increased 0.7% year over year to $611.3 million, led by higher premium from the Life Insurance business partly offset by lower premium from the Health Insurance business.

Net investment income increased 2% year over year to $178.1 million due to higher invested assets. However, excess investment income, which is the measure of the segment’s profitability, went down 5% to $72.2 million.

Underwriting income increased 2.0% year over year to $121.5 million, primarily due to higher margins at Life, partially offset by a lower margin in Health and Health – Part D.

Administrative expenses were $41 million, up 1.5% from the year-ago quarter.

For the full year 2011, net operating income was $4.68 per share, compared with $4.27 per share in the year-ago period.

Segment Update    

In Life Insurance operations, premium revenue grew 4% year over year to $432 million led by higher premiums written by distribution channels, such as American Income Agency and Direct Response, partly offset by a slight decrease in premium written by LNL Agency. Life underwriting margins increased 6% to $121.4 million. Life net sales increased 5% year over year to $80 million.

Health insurance premium revenue declined 5% year over year to $179.2 million, while underwriting margin was down 5% to $33.8 million. Health net sales grew 7% to $21 million.

Premium revenue from Medicare part D declined 5% year over year to $48.5 million, while underwriting margin decreased 23% to $6.6 million. The company’s new lower cost part D plan helped it to pick up 76,000 low-income subsidized auto enrollees. The product will also enable the company to grow its individual sales. Management expects part D revenues to increase by 40% to 50% next year.

Book value per share, a measure of net worth, was $35.59 -- up 8.9% year over year. Return on equity (ROE) was 14.2% for the quarter, compared  with 13.9%  in the year-ago quarter.

During the quarter, Torchmark repurchased 1.7 million shares at a total cost of $67.3 million at an average price of $40.44 per share.  For the fiscal year, the company repurchased 18.9 million shares.

Looking Ahead

Management reiterated its previously announced FY12 guidance. Earnings per share are expected to be in the $5.10 – $5.40 range. The guidance reflects a reduction of approximately 10 cents as a result of the revised accounting standards adopted by the company, effective January 2012.

Our Take

Overall, Torchmark recorded a strong performance in the fourth quarter as well as full year 2011. Operating results, reflected by earnings per share, return on equity and book value per share, all showed significant increases.

However, a closer look at the segment results shows that Torchmark’s Life Insurance segment, which accounts for the major chunk of its underwriting income, is the only segment to have registered premium growth during the year driven byhigher premiums written by two distribution channels (American Income Agency and Direct Response). The Health segment showed a lackluster performance throughout the year, but a slow recovery is expected in 2012.

On the balance sheet side, management has been able to maintain a sufficient risk-based capital ratio and adequate financial flexibility. Greater share repurchase activity is anticipated, which would support bottom-line earnings in the backdrop of a constrained top-line growth.

Based in Birmingham, Alabama, Torchmark closely competes with Prudential Financial Inc. (PRU), Unum Group (UNM) and others. The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. 

The current Zacks Consensus Estimate for the quarter is 60 cents a share that reflects a growth of 17.6% from the prior-year quarter’s earnings. The estimates in the current Zacks Consensus range between a low of 57 cents and a high of 62 cents a share. The Zacks Consensus Revenue Estimate is pegged at $3,383 million for the quarter under discussion.

Recap of Fourth-Quarter 2011

Whole Foods Market posted better-than-expected fourth-quarter 2011 results on the back of strong sales as shoppers flocked to the grocery chain. The company has been gaining market share compared with other supermarket chains.

Austin, Texas based company Whole Foods’ quarterly earnings of 42 cents a share scraped past the Zacks Consensus Estimate by a penny, and jumped 27.3% from 33 cents earned in the prior-year quarter.

The company sustained its top-line growth momentum with revenue climbing 12.2% to $2,353.8 million in the quarter, but it fell short of the Zacks Consensus Estimate of $2,360 million.

Consumers, who had cut back their spending during the recession, are now gradually returning to the chain. However, rising gasoline and food prices remain matter of concerns, since passing on increased costs to customers through price rise may boomerang.

Whole Foods said that comparable-store sales rose 8.7% in the quarter, flat compared with the prior-year quarter, but up from 8.4% in the previous quarter.

Guidance

During the last earnings conference call, Whole Foods hinted an increase of 13%-15% in total sales, underpinned by a 6.8%-8.8% rise in comparable-store sales and a 6.5%-8.5% growth in identical-store sales in fiscal 2012. The company predicts earnings between $2.21 and $2.26 per share for fiscal 2012.

Zacks Agreement & Magnitude

Of the 19 analysts following the stock, none revised their estimates in the last 7 or 30 days, thereby keeping the Zacks Consensus Estimate unchanged at 60 cents.

Positive Earnings Surprise History

With respect to earnings surprises, Whole Foods has topped the Zacks Consensus Estimate over the last four quarters in the range of 2.4% to 13.3%. The average remained at 7.7%. This suggests that Whole Foods has beaten the Zacks Consensus Estimate by an average of 7.7% in the previous four quarters. Given the past performance, we expect the company to outperform the Zacks Consensus Estimate in the upcoming quarterly results.

Price Stats

Since its last earnings release on November 2, 2011, Whole Foods’ market price has increased 8.5% to $76.41 as of February 6, 2012. During trading hours on February 6, the stock price reached an intra-daylow of $75.85 and an intra-dayhigh of $77.01. Currently, the stock price is within its 52-week low-high range of $52.52 (attained on February 9, 2011) and $78.29 (achieved on January 18, 2012). Over the period from November 2, 2011 to February 6, 2012, the stock dropped to a low of $62.77 on November 21, 2011 and rose to a high of $78.29 on January 18, 2012.

Neutral on Whole Foods

Being one of the leading natural and organic foods supermarkets, Whole Foods Market with a strong brand image, and marketing and merchandising expertise, offers investors one of the strongest growth profiles in the industry. The stock is poised to surge once the economy revives and demand for healthier and natural food improves.

The stringent cost-control measures, effective inventory management, and improved store-level performance are driving earnings growth. Whole Foods also has been revamping its pricing strategy and concentrating more on value offerings, while maintaining healthy margins. In the last five fiscal years, gross margin has been in the range of 34% to 34.9%.

Whole Foods has been spurring its sales through new store openings, acquisitions and comparable store sales growth. Given the fragmented food retailing industry, the company has a track record of successfully integrating regional acquisitions. The company has been gaining market share compared with other supermarket chains.

Whole Foods has been also actively managing its cash flows, by generating healthy free cash and making prudent capital investments. The company’s strong liquidity, positions it to drive future growth. The company has also been utilizing its cash flows in the opening of stores, paying down debt and returning cash to shareholders through dividends.

However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their disposable income triggering a shift in focus from higher priced organic products to cheaper private label brands. This may adversely affect Whole Foods top line growth.

Currently, we maintain our long-term “Neutral” recommendation on the stock. However, Whole Foods, which faces stiff competition from other supermarket operators such as The Kroger Company (KR) and Supervalu Inc. (SVU), holds a Zacks #2 Rank, which translates into a short-term “Buy” rating.

Total revenue was $5.3 billion, down 4% year over year. Underlying sales also declined 4% with U.S. sales down 4% and total international sales down 3%. Supply chain disruptions due to the flooding in Thailand continued to affect Process Management and to a lesser extent Network Power, in total delaying about $300 million of revenue,. However, the company expects to recover most of it in fiscal 2012.

In addition, Investment deferrals by U.S. telecommunications carriers, global HVAC channel inventory destocking, residential construction weakness in the U.S. and China, and European economic uncertainty also led to a contraction of the top line.

Segment Results

The Industrial Automation segment witnessed a sales growth rate of 2%, primarily due to stable demand of capital goods across its end markets and also due to favorable pricing. Underlying sales also grew 2%, with Europe surging 5% and Asia increasing 2%. Sales were flat in the U.S., due to weakness in the hermetic motors business, driven by a sharp decline in compressor demand.

Sales in the Network Power segment declined 10 percent, primarily attributable to weakness in telecommunications and information technology end markets. Underlying sales also decreased 10%, with the U.S. contracting 17%, Asia declining 6% and Europe down 10%.

Demand in the embedded computing and power business also declined substantially, as global customers were significantly affected by Thailand flooding, telecommunications and information technology end markets reflected broad weakness, and the product line rationalization also continued.

Revenue in the Process Management segment was also significantly affected by supply chain disruption caused by flooding in Thailand and it restricted the availability of electronics components. However, the supply has been restored to a large extent and the overall impact to 2012 results are expected to me marginal as the company intends to focus on reducing its record level of backlog over the next three quarters.

Total and underlying sales decreased 1%, with the U.S. flat, Asia down 8% and Europe up 6%, while total orders in the quarter increased 15% year over year.

Climate Technologies sales declined 9% during the quarter, due to broad weakness across the segment. Underlying sales also decreased 9%, with the U.S. down 5%, Europe down 11% and Asia declining 21%. U.S. and China residential air conditioning end market weakness was due to channel inventory reductions, while European markets were a challenge because of the economic headwind in the region.

China residential and light commercial construction has weakened in the last five months as the government curtailed investments to restrain inflation.

Balance Sheet

Operating cash flow of $334 million in the quarter increased 4%, as lower investment in working capital compared with the prior year quarter more than offset the earnings decline. The company had a long-term debt of $4.3 billion with a debt-to-capitalization ratio of 30%.

Outlook

Although, the company had a tough start to the year, Emerson is optimistic about its outlook for 2012. The positive outlook is based on the company’s strong fundamentals in the industrial businesses and management expectations for improvement in telecommunications and HVAC end markets and recovery from the Thailand flooding disruptions.

However, these partially offset by the impact of deterioration in the European economy and mixed global economic indicators.

Therefore, the company has revised its outlook for fiscal 2012. Emerson now expects Underlying sales and orders growth 4% to 6% and sales growth of 2% to 4%. The operating profit margin is expected at approximately 18% while pretax margin is expected at approximately 15.5%.

For fiscal 2012, earnings are expected to be in the range of $3.45 to $3.60 a share. Operating cash flow for 2012 is expected to be at approximately $3.5 billion while capital expenditures are expected at $700 million.

Founded in St. Louis in 1890, Emerson is the largest publicly traded company in Missouri. The major competitors of Emerson are ABB Ltd. (ABB), General Electric Co. (GE) and Hitachi Ltd. (HIT).

The company has a Zacks #4 Rank which implies a short-term ‘Sell’ recommendation.

The current Zacks Consensus Estimate for the quarter is 34 cents a share that reflects a growth of 17.2% from the prior-year quarter’s earnings. The estimates in the current Zacks Consensus range between 31 cents and 36 cents a share. The Zacks Consensus estimates revenue to be $8,927 million for the quarter under discussion.

Recap of First-Quarter 2012

News Corporation’s first-quarter 2012 financial results toppled the Zacks’ expectations on both the counters, i.e., earnings and revenues. The quarterly earnings of 32 cents a share came ahead of the Zacks Consensus Estimate of 29 cents, and rose 23% from 26 cents earned in the year-ago quarter.

News Corporation reported that total revenue jumped 7% year over year to $7,959 million, reflecting growth across Cable Network Programming (up 13%), Filmed Entertainment (up 18%), Television (up 8%), Direct Broadcast Satellite Television (up 8%) and Publishing (up 1%). However, the Other segment’s revenue plunged 51%. Total revenue also handily beat the Zacks Consensus Estimate of $7,645 million.

Zacks Agreement & Magnitude

Of the 20 analysts following the stock, three analysts revised their estimates up and one analyst lowered the same in the last 30 days. In the last 7 days, none of the analysts changed their estimates. However, no movement was witnessed in the Zacks Consensus Estimate in the last 7 or 30 days, and remained constant at 34 cents.

Mixed Earnings Surprise History

With respect to earnings surprises, News Corporation has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 3.7% to positive 20.7%. The average remained at positive 7.7%. This suggests that News Corporation has beaten the Zacks Consensus Estimate by an average of positive 7.7% in the previous four quarters.

Price Stats

Since its last earnings release on November 2, 2011, News Corporation’s market price has increased 15.7% to $19.56 as of February 6, 2012. During trading hours on February 6, the stock price reached an intra-daylow of $19.22 and an intra-dayhigh of $19.57. Currently, the stock price is within its 52-week low-high range of $13.38 (attained on August 9, 2011) and $19.79 (achieved on January 20, 2012). Over the period from November 2, 2011 to February 6, 2012, the stock dropped to a low of $15.93 on November 25, 2011 and rose to a high of $19.79 on January 20, 2012.

Neutral on News Corporation

Despite economic turbulence and losing sheen in the stock market on account of the phone hacking scandal that resulted in the closure of the publication of The News of the World and abstinence from acquiring the remaining 61% stake in the British Sky Broadcasting Group, News Corporation posted first-quarter 2012 financial results that beat the Zacks expectations. The quarter also highlights the growing worldwide channel business on the back of a widening subscriber base and an improved advertising market place. Notably, News Corporation is striving to add diverse revenue streams to hedge against economic cycles. These include retransmission and affiliate fees as well as online subscription-based model for news content.

News Corporation has also taken a leap towards an online subscription-based model for general news content. News International, a subsidiary of News Corporation, has started charging readers for online content for The Times of London and Sunday Times of London with effect from June 2010.

Another media conglomerate, The New York Times Company (NYT) launched a pricing system for NYTimes.com on March 28, 2011.

The publishing industry has long been grappling with sinking advertising revenue. This comes in the wake of a longer-term secular decline as more readers choose free online news, thereby making the print-advertising model increasingly irrelevant. To curb shrinking advertising revenue and seeking new revenue avenues, the publishing companies contemplated charging readers for online content.

Currently, we have a long-term ‘Neutral’ rating on News Corporation. Moreover, the stock holds a Zacks #3 Rank that translates into a short-term ‘Hold’ recommendation.

Company Description

W.R. Grace supplies catalysts and other products for petroleum refiners to make plastics, silica- based materials and other industrial applications. Uses range from goods and beverage packaging to building materials.

Three Big Earnings Reports

GRA has reported seven straight positive earnings surprises, but three reports stand out more than the others. The September 2010 quarter saw the company report earnings 15% ahead of the Zacks Consensus Estimate. The March 2011 quarter saw a 44% beat and the June 2011 quarter caught a 24% beat.

The December quarter in 2010 and 2011 both saw positive earnings surprises, but of only $0.01 or a little over 1% each time.

Estimates Move Higher

Following the recent earnings announcement, analysts have moved future expectations higher. The March 2012 quarter is now expected to come in at $0.81 per share, up from the previous estimate of $0.77. Similarly, the June 2012 quarter also saw positive earnings revisions with the estimate moving from $1.14 in December 2011 to the current level of $1.20.

Valuations

GRA trades at a discount to the industry average in terms of trailing PE, but is basically in line with the industry average for forward PE. The company trades at a slight premium in terms of price to sales and a very large premium in terms of price to book. We tend to focus more on earnings as the main driver of valuations.

The Chart

Like most stocks, GRA had a challenging summer but has seen a strong run over the last 6 months. If the company continues to post positive earnings surprises expect some solid performance from GRA. W. R. Grace is a Zacks #1 Rank (Strong Buy).

Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service

 
GRACE (WR) NEW (GRA): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Tue, 07 Feb 2012 00:00:01 EST OUTLOOK

Crude Oil

Signs of progress in resolving Europe's long-running sovereign debt crisis and a tightening global supply picture in view of the geopolitical fallout over Iran's alleged nuclear ambitions have been keeping oil prices at elevated levels. Partly offsetting this favorable view has been high U.S. crude stocks and worries about China’s growth outlook.

As such, crude oil’s near-term fundamentals remain mixed, to say the least. The long-term outlook for oil, however, remains favorable given the commodity’s constrained supply picture. In particular, while the Western economies exhibit sluggish growth prospects, global oil consumption is expected to get a boost from continued strength in the major emerging powers like India, China and Brazil that continue to grow at a healthy rate.

According to the Energy Information Administration (EIA), which provides official energy statistics from the U.S. Government, world crude consumption grew by more than 1 million barrel per day in 2011 to a record-high level of 88.1 million barrels per day. In 2010, oil demand increased by over 2 million barrels per day to 87.1 million barrels per day, which more than made up for the losses of the previous 2 years and surpassed the 2007 level of 86.3 million barrels per day (reached prior to the economic downturn). One might note that global demand for 2009 was below the 2008 level, which itself was below the 2007 level -- the first time since the early 1980’s of two back-to-back negative growth years.

The agency, in its most recent Short-Term Energy Outlook, said that it expects global oil demand growth of 1.3 million barrels per day in 2012 and 1.5 million barrels per day in 2013. EIA’s latest forecasts assumes that demand will be essentially flat in North America and Europe but this will be more than made up by impressive consumption surge coming from China, the Middle East and Brazil.

Separately, the Organization of the Petroleum Exporting Countries (OPEC) -- which supplies around 40% of the world's crude -- predicts that global oil demand would increase by 1.1 million barrels per day annually, reaching 88.9 million barrels a day in 2012 from last year’s 87.8 million barrels a day.

Lastly, the third major energy consultative body, the Paris-based International Energy Agency (IEA), the energy-monitoring body of 28 industrialized countries, said that it expects world oil consumption to grow by 1.1 million barrels per day in 2012 to 90.0 million barrels per day.

In our view, crude oil prices in 2012 are likely to witness significant upside -- rather than downside -- given the considerable supply tightness in the market. While domestic demand is relatively soft and the global economy still showing signs of weakness, the fact that demand is outpacing supply appears to be palpably evident.

As long as growth from the developing nations continues and the global output is unable to keep up with that, we are likely to experience a surge in the price of a barrel of oil. With a seven-billion-strong world population and all the easy oil being already discovered and expended, we assume that crude will trade in the $95-$105 per barrel range in the near future.

Natural Gas

Over the last few years, a quiet revolution has been reshaping the energy business in the U.S. Known as ‘shale gas’ -- natural gas trapped within dense sedimentary rock formations or shale formations -- it is being seen as a game-changer, set to usher in an era of energy independence for the country. The success of this unconventional fuel source has transformed domestic energy supply, with a potentially inexpensive and abundant new source of fuel for the world’s largest energy consumer.

With the advent of hydraulic fracturing (or fracking) -- a method used to extract natural gas by blasting underground rock formations with a mixture of water, sand and chemicals -- shale gas production is now booming in the U.S. Coupled with sophisticated horizontal drilling equipment that can drill and extract gas from shale formations, the new technology is being hailed as a breakthrough in U.S. energy supplies, playing a key role in boosting domestic natural gas reserves.

As a result, once faced with a looming deficit, natural gas is now available in abundance. In fact, gas stocks -- currently 25.4% above the 5-year average and 24.6% higher than the same period last year -- are at their highest level for this time of the year, reflecting low demand amid robust onshore output.

Looking ahead, EIA expects average total production to rise by 2.2% in 2012 (to an all-time high 67.3 billion cubic feet per day, easily eclipsing 2011's record high estimate of 65.9 billion cubic feet per day), while total natural gas consumption is anticipated to grow by just 2.0% next year. We believe these supply/demand dynamics -- the projected lower consumption growth compared to production -- will weigh on natural gas prices, translating into limited upside for natural gas-weighted companies and related support plays.

In the absence of major production cuts or a stronger economy to boost industrial demand, which is responsible for almost a third of the gas consumption, we do not expect much upside in gas prices in the near term. In other words, there appears no reason to believe that the supply overhang will subside and natural gas will be out of the dumpster in 2012.

In the past, winter weather has played a factor in boosting prices with demand for domestic natural gas exceeding available supply. But with no dearth of new supply, even this association is becoming more and more obsolete.

OPPORTUNITIES

In this current turbulent market environment, we advocate the relatively low-risk energy conglomerate business structures of the large-cap integrateds, with their fortress-like balance sheets, ample free cash flows even in a low oil price environment and growing dividends. Our preferred name in this group remains Chevron Corp. (CVX).

Its current oil and gas development project pipeline is among the best in the industry, boasting large, multiyear projects. Additionally, Chevron possesses one of the healthiest balance sheets among peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.

The current oil price environment should also benefit producers, particularly those international players having attractive growth opportunities in their home markets. One such standout name is PetroChina Company Limited (PTR), which remains well-placed to benefit from the country’s growing appetite for energy and the turnaround in commodity prices. PetroChina -- one of two Chinese integrated oil companies -- is poised to capitalize from the country’s impressive economic growth that has significantly increased its demand for oil, natural gas and chemicals.

Within the oilfield services group, we like Halliburton Company (HAL). We are a fan of the Houston, Texas-based player’s leading position in the global oilfield services market, its broad and technologically-complex product/service offerings, and its robust financial profile. The company has been benefiting from increased activity in the unconventional shale plays in North America, which has more than made up for the drop in deepwater Gulf of Mexico activity and disruptions in North Africa.

Denbury Resources Inc. (DNR), a leading CO2 ‘Enhanced Oil Recovery’ (EOR)-focused company targeting a large attractive market, is also a top pick. With its unique profile, compelling economics and an unmatched infrastructure, Denbury is nicely positioned to deliver long-term sustainable growth. Additional positives for Denbury include a strong financial position, low-risk investments and an active divestment policy.

Further, we remain optimistic on the near-term prospects of South African petrochemicals group Sasol Ltd. (SSL). We like Sasol for its diverse portfolio of assets that produce a wide array of chemical and liquid fuels. The company specializes in gas-to-liquids (GTL) and coal-to-liquids (CTL) technologies, which convert natural gas and coal to diesel and other liquid fuels.

Recently, these technologies have been attracting attention because they provide an alternative to traditional oil. Additionally, Sasol’s deleveraged balance sheet and strong cash position keeps the group well-equipped to weather the global economic storm and fund its growth program in tough credit markets.

Canada's biggest energy firm and the largest oil sands outfit Suncor Energy Inc. (SU) is also worth a look. We like the company’s impressive portfolio of growth opportunities, unique asset base and high return potential in the long run. Suncor has significant oil sands and conventional production platform, huge long-lived oil-sands reserves and a robust downstream portfolio.

The company's asset base includes substantial conventional reserves and production at offshore Eastern Canada and in the North Sea, which generate strong margins and should provide free cash flow to fund future oil sands expansion.

Finally, despite the depressing natural gas fundamentals and the understandable reluctance on the investors’ part to dip their feet into these stocks, we would advocate to opt for EOG Resources Inc. (EOG), a former natural gas exploration and production (E&P) company that has made significant headway into the more profitable oil space with the introduction of the commercial viability of shale oil.

WEAKNESSES

We are bearish on Italian energy company Eni SpA (E). The integrated player -- with a large presence in Libya -- has seen its total production drop by 13% during the most recent quarter, primarily due to operational disturbances at several fields in the North African nation.

Additionally, Eni's upstream portfolio carries greater political risk than its peers, since it has the highest exposure to the OPEC countries. Given these concerns, we expect Eni to perform below its peers and industry levels in the coming months. As such, we see little reason for investors to own the stock.

Calgary, Alberta-based oil and gas outfit Talisman Energy Inc. (TLM) is another company we would like to avoid for the time being. With core operations in the North Sea, Talisman has been adversely affected by last year’s tax hike in the region, along with maintenance/production issues that have created investor concerns about the company’s sustainable operational efficiency and execution abilities.

We are also skeptical on independent energy exploration firm Cabot Oil and Gas Corp. (COG). Cabot was the best performing S&P stock for 2011, gaining almost 100% during the period. The natural gas producer defied weak commodity prices to set a scorching pace in a year that saw the overall index decline 0.6%.

Most of the gain was driven by its exposure to the high-return Marcellus and Eagle Ford Shale plays, as well as its above-average production growth. But given natural gas’ weak fundamentals and Cabot’s high exposure to the commodity, we do not believe that the stock will be able to sustain the momentum in the near future. Cabot’s steep valuation and miniscule payout also keep us worried.

Further, we remain cautious about natural gas-focused energy firm Questar Corporation (STR). The expected bearish natural gas fundamentals over the next few quarters and excessive domestic gas supplies is likely to restrict near-term growth prospects at Questar Pipeline. We also believe that upside potential will remain limited until the company has fully reaped the benefits of the spin-off of its unregulated E&P business.

We recommend avoiding names like Sunoco Inc. (SUN), whose East Coast-based downstream units have been performing poorly during the last few years, hampered by higher crude prices, while their Mid-Continent competitors continue to benefit from the lower oil prices caused by the crude glut in Cushing. Though the company is planning to exit its refining business on or before July 2012, we believe the realignment of Sunoco will take some time to bear results.

Lastly, we expect shares of offshore driller Noble Corp. (NE) to be under pressure in the near future. In particular, the company’s old and less efficient fleet in a cutthroat environment could prove detrimental.

On the arrival of newbuild rigs into the market, many of the company's older rigs, floaters as well as scores of jackups, will face the threat of departure, resulting in a risk of earnings dilution from the retirement of older specification rigs. Additionally, with core operations in the Gulf of Mexico, Noble has been adversely affected by continued delays in normalized activity in the region following the oil spill, along with the introduction of new and more stringent regulations.
 
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ENI SPA-ADR (E): Free Stock Analysis Report
 
EOG RES INC (EOG): Free Stock Analysis Report
 
HALLIBURTON CO (HAL): Free Stock Analysis Report
 
NOBLE CORP (NE): Free Stock Analysis Report
 
PETROCHINA ADR (PTR): Free Stock Analysis Report
 
SASOL LTD -ADR (SSL): Free Stock Analysis Report
 
QUESTAR (STR): Free Stock Analysis Report
 
SUNCOR ENERGY (SU): Free Stock Analysis Report
 
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TALISMAN ENERGY (TLM): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Tue, 07 Feb 2012 00:00:01 EST  
ASHLAND INC (ASH): Free Stock Analysis Report
 
EASTMAN CHEM CO (EMN): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Tue, 07 Feb 2012 00:00:01 EST  
CELESTICA INC (CLS): Free Stock Analysis Report
 
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To read this article on Zacks.com click here. ]]> Tue, 07 Feb 2012 00:00:01 EST My logic was part of the behavioral analysis I use to describe the nature of equity markets and what institutional investors are most likely to do in different economic scenarios.

This particular scenario was the highly-probable end of the credit crisis-driven recession and a dramatic trough in earnings -- especially with the Fed backstopping the banking system and fueling liquidity with its first round of quantitative easing (QE). This meant that earnings would accelerate faster than P/E multiples expanded.

And this in turn meant that portfolio managers (PMs) had to buy stocks, or face getting left behind by a train that wouldn't come back to get them.

I also coined a phrase to describe what was happening between the economy, earnings, and PMs crafting valuations for companies: the V-recovery spread. The "spread" was the one between trough earnings and elevated P/E multiples at the recession bottom.

This was meant to imply that the markets could foresee a rapid recovery in corporate profits that would outpace the rise in valuations. PMs had to buy this spread. In other words, they had to put their money on the spread closing or risk underperforming the market and their peers.

And all this in turn would fuel optimism and economic activity in a virtuous, upward cycle, a "bootstrap" recovery if you will (which is what I started calling it on TV appearances in June of 2009).

If I had to draw you a simple picture of the phenomenon, below is what it might look like...

I'm sure you could build a more fundamentally accurate graph with actual data fed from a spreadsheet over some time series, or go to FRED (St. Louis Federal Reserve Economic Data website) and conjure lots of different data sets to display the theory.

Since I am a trader and a macro strategist, not an economist, I just look at the big picture to get an idea of the forces at work. And this is not a quantifiable "spread" as much as it is a "gap" that tends to close and make equity fund managers buyers of stocks.

While it might be conventional wisdom to think of recessions and bear markets as having low market multiples, actually in a great earnings contraction (or the "Great-est" ever as we saw three years ago) the P/E on the S&P could creep higher than the expansion peak.

Different measures of P/E (e.g., the Schiller "P/E 10") and different time windows would produce various results. But you get the basic idea with this broad stroke. While many were still very skeptical of the possibility of a V-recovery in the economy and earnings, I told them it was happening right before their eyes and that it was sustainable because of three things:

1) Emerging Markets were not derailed by our credit crisis and China was still a super engine of growth. Caterpillar (CAT) was my go to example and my barometer here.

2) The Fed's QE policies were a floor under the economy because Bernanke was not about to see us turn into Japan.

3) Fund managers had to buy stocks.

Have we exhausted this self-reinforcing feedback loop now that the global economy is dealing with Europe in crisis and China slowing down? Not according to the market and recent economic data.

Will the virtuous cycle slow down? It already has, especially after the dismal 2011 first-half GDP and the second half meltdown. And since China has reversed course back to over-stimulating, Europe is stable in the ICU, other Emerging Markets are recovering, and the Fed is indefinitely on hold, the growth is likely to surprise those who believe a painful debt cleansing is the preferred path to prosperity.

Prepare for Upside Surprises

I've been saying here since November that I think the market and economy are poised for upside surprises. I still believe that. While most economists and PMs have put a GDP growth rate of sub-2% into their earnings models, the market sits patiently above S&P 1,300 "waiting to go higher." That's why I think this pause, which everyone doubts is an opportunity, is "the bull train we can still buy." And that doubt will feed the next surge as much as anything.

Oh, that last paragraph is what I wrote last Thursday to Tactical Trader subscribers before we got a huge surprise in the BLS jobs data with an addition of 243,000 to non-farm payrolls. Just one of the many surprises that await us in this economy.

So when a bull like me says I'd love a 5-10% pullback to "buy with both hands," know that I am not alone. Which means it won't come until we least suspect it. Remember, markets are just rational enough to fool the most people.

A highly likely scenario then for the next few weeks is that a push above S&P 1,350 will suck lots of investors in, and then turn around and wash them out in a fear-driven dip to 1,275. It should take several tries over the next few months for the market to get convincingly through S&P 1,350. We can only hope...

Here's a video I made Wednesday on my use of technical and behavioral analysis in markets. It's a little long (I should have done it in two parts) but the first 5 minutes will show you a handful of assumptions and very simple rules & tools I have used successfully for years to time swings in the broad market -- and they proved very profitable recently when I sold the S&P at 1,350 in May and bought it back in September at 1,100, and then in October through December when I said "buy cause we're going to 1,350!"

S&P Chart Reading 101

Kevin Cook is a Senior Stock Strategist with Zacks.com
 
To read this article on Zacks.com click here. ]]> Tue, 07 Feb 2012 00:00:01 EST Thor Industries, Inc. (THO), a maker of RVs, which recently reported preliminary second quarter sales that rose 13% from last year. This Zacks #1 Rank (Strong Buy) is a value stock with a price-to-sales ratio of just 0.6.

Thor is the largest manufacturer of recreational vehicles in the United States. It makes both motor homes and towables including the well-known Airstream.

The company also makes commercial buses and ambulances.

Second Quarter Sales Rise 13%

On Feb 2, Thor released its second quarter preliminary sales results which showed a gain of 13% to $596.4 million from $526.2 million a year ago.

RV sales, the largest segment, jumped 15% to $500.7 million. Bus sales also rose, gaining 7% to $95.7 million.

The backlog actually fell to $647 million as of Jan 31, 2012 from $689 million a year ago due to a fall in the RV backlog.

Outlook Is Strong

The worst of it seems to be over for the RV industry. This is a good sign for the rest of the economy because obviously RV's are a discretionary purchase. If those sales are increasing, then the consumer is clearly relaxing his hand on his wallet.

"Results from January retail RV shows have been positive, with good attendance and retail sales activity reported at most shows, reflecting rebounding consumer confidence, access to credit, and low interest rates," said Peter B. Orthwein, Thor Chairman, CEO & President.

"Internal tracking of Thor's recent retail RV sales activity has also been encouraging," he added.

Full Year Zacks Consensus Estimates Climb After Prelim Sales Report

The analysts are adjusting fiscal 2012 estimates after getting the preliminary sales data.

1 estimate moved higher pushing the 2012 Zacks Consensus up to $2.23 from $2.18 per share.

That is earnings growth of 23.1% as the company only made $1.81 last year.

Fiscal 2013 is also expected to also bring double digit sales growth of 18% as the Zacks Consensus rose to $2.63 from $2.57 in the last week.

Still a Value Stock

Shares were a deeper value last summer, after the big stock sell off.

But there is still value in the shares.

Thor has a forward P/E of 14.5, which is just under the cut-off I use for value stocks.

But it's other value metrics are very competitive. It has a price-to-book ratio of 2.1. A P/B ratio under 3.0 usually means a company is a value.

The company also pays a dividend with a yield of 1.9%.

Thor is turning it around in an industry that was battered by the Great Recession. With double digit earnings growth expected and a P/E under 15, Thor is a rare value play that also fits in the growth category.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.

 
THOR INDS INC (THO): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Tue, 07 Feb 2012 00:00:01 EST Baytex Energy Corp. (BTE) offers investors solid growth and strong income.

Based on consensus estimates, analysts expect 17% EPS growth this year and 8% growth next year. On top of this, the company pays a dividend that yields a juicy 4.6%.

Estimates have been rising after the company delivered better than expected results for the third quarter. It is a Zacks #1 Rank (Strong Buy) stock.

Company Description

Baytex Energy Corp. is a conventional oil and gas company engaged in the acquisition, development and production of oil and natural gas in Western Canada and North Dakota.

It is headquartered in Calgary, Alberta, Canada and has a market cap of $6.7 billion.

Third Quarter Results

Baytex reported better than expected results for the third quarter of 2011 on November 15. Earnings per share came in at 43 cents, beating the Zacks Consensus Estimate of 33 cents.

Funds from operation per share, which adds back certain non cash charges like depreciation, increased 27% year-over-year to $1.22.

Petroleum and natural gas sales rose 32% over the same period to $313.8 million. This was driven in large part by record quarterly production of 52,625 barrels of oil equivalent per day, up 17% year-over-year.

Growth & Income

Analysts raised their estimates for both 2011 and 2012 following the company's strong third quarter. This sent the stock to a Zacks #1 Rank (Strong Buy).

The Zacks Consensus Estimate for 2011 is now $1.84, representing 17% growth over 2010 EPS. The 2012 consensus estimate is currently $1.98, corresponding with 8% growth.

On top of strong earnings growth, the company pays a monthly dividend that yields a stellar 4.6%.

Valuation

Shares of BTE have risen more than 40% since October 3, and valuations have risen along with it. The stock's enterprise value to EBITDA multiple of 12x is above its historical median of 8.2x.

And its price to sales ratio of 6.9 is also a premium to its historical median of 4.4.

But as long as the global economy manages to avoid a significant slowdown and oil prices move higher, expect the company's strong financial results - and rising stock price - to continue.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

 
BAYTEX ENERGY (BTE): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Tue, 07 Feb 2012 00:00:01 EST

GeoResources  (GEOI)

The harsh reality is that our nation cannot survive without oil and natural gas.  Alternatives such as wind, solar and geothermal are all potential sources of energy, but for the moment they are not viable, cost effective or scalable enough to replace king oil.  For the time being, our dependence on black gold is growing and even though natural gas prices are at lows, prices are getting some support here and should rise over the long term.
President Obama also vowed to open a good part of our soil to oil and gas drilling operations which is where GeoResources may stand to profit.

Company Description & Developments
GeoResources is an independent oil and gas company that is in the business of acquiring and developing land through different programs; from purchasing existing reserves to re-engineering, development and even good ole’ fashioned exploration.  This mix allows stability in their low risk inventory, while exploring upside in and around existing fields and new formations.

Their business is focused in the Southwest and Gulf Coast along with the Williston Basin.  They also have growing leaseholds and operations in the Bakken and Eagle Ford formations.

60% of their reserves (and revenue) are currently in oil and the balance in natural gas. 

The key to their success will be the strong margins they are enjoying with elevated oil prices, which are expected to stay around the $100 mark or greater, especially if  US economic health is indeed improving. 

On the natural gas side, they can improve profitability if natural gas prices rebound here.  But even with depressed natural gas prices, their overall profit margins look good.

• Over the past five years, gross margin peaked at 77.1% and averaged 70.6%.  Operating margin peaked at 35.1% and averaged 24.1%.  Net margin peaked at 29.8% and averaged 18.2%.
• TTM gross margin is 73.7%, 310 basis points better than the five-year average.  TTM operating margin is 39.6%, 1,550 basis points better than the five-year average.  TTM net margin is 25.5%, 730 basis points better than the five-year average.

Recently, GeoResources successfully completed drilling its fourth Eagle Ford well at a cost of 3 million.  They noted that they were able to significantly reduce drilling costs and time on this well and indicated this to be the trend moving forward on average.

They expect to spud (start) between 21 and 24 gross wells at Eagle Ford alone in 2012, which should net about 9 producing wells.  All of which contributing to profitability if they can be drilled efficiently and if oil prices remain stable.  Obviously, GEOI intends to spark more growth outside Eagle Ford as well. 

Financial Profile
GeoResources is a small-cap (822 billion) company that is trading at about 26 times trailing earnings (P/E).  Looking forward, Zacks Consensus Estimates are calling for that number to drop closer to 16 with no change in price over the next year.  

GeoResources jumped from a Zacks Rank 3 to Rank 1 on the 10th of January and has been between a 1 and 2 before its recent upgrade to a strong buy on Jan 31st. 

The oil and gas company reported a quarterly sales increase of 20% at their last earnings report.  Annual sales were up 38% compared to 2010 with total sales of roughly 107 million in FY2010.  GEOI earnings declined about 5% year over year when they reported Q32011 a couple months ago.  GeoResources is expected to earn $1.33 in FY2011 according to the Zacks Consensus Estimate. 

Earnings Estimates
Analysts have been all over the board with their revisions over the past 30 days, but the majority are moving estimates higher for the coming quarters as well as FY2011 and FY2012.  Predicting oil prices and producing wells can be a daunting task for any analyst and these mixed revisions are common on smaller drillers like GEOI.  GeoResources will report Q42011 results on March 13th.

Expectations are for GeoResources to generate $0.37 in income this quarter.  Of the 14 analysts who cover GEOI, the consensus is for the company to grow earnings by 6% in the current year (FY2011) and roughly 49% in FY2012. 

In terms of the magnitude of analyst estimate trends, we are seeing most of the consensus estimates higher than they were 90 days ago for Q22012 out to FY2012.  The consensus for Q42011 earnings is flat compared to estimates 90 days ago. 

GeoResources beat estimates last quarter by 9.09% and by almost 7% in the quarter before.  The stock did miss by 21% in final quarter of 2010.

Market Performance & Technicals
Before we look at performance, it’s important to note the lower volume of GEOI.  This lack of heavy trading can cause slippage in the shares when you are buying or selling, so use caution.

Aside from the volume, GEOI has more than doubled in value since mid-October when it hit a low of almost $14.   GeoResources’ meteoric rise from that level certainly makes it a momentum stock. Recently, we have seen some consolidation and a breakout from the $31 mark, which I would look to for support and a buy level.

The stock remains above its 50 and 200 day moving averages of $28.88 and $24.75 respectively. 

While the trend remains bullish, there might be a short term pullback in the cards as the stock is a bit overbought there.   GEOI has exceeded the S&P 500’s performance by over 9% in the past year and over 6% in the past month.  All in all it was a very volatile year for GEOI.

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

We find Chatter a key driver of Salesforce.com's enterprise license agreements. We, however, caution investors about strong competition in CRM application and cloud-computing areas. Google and Microsoft are worthy of special mention, since they have been fighting to win government clients at local, state and federal levels to use their online e-mail and other applications that fit into the cloud-computing space.

Currently, we have an Underperform rating on the stock and set a six-month target price of $108.00. This implies a downside risk of 8.7% from the current level.
 
SALESFORCE.COM (CRM): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Tue, 07 Feb 2012 00:00:01 EST Sunoco Logistics Partners (SXL). Recent results for Sunoco Logistics have been driven by strength in its crude pipeline system and terminals facilities.

Importantly, the partnership has grown its cash distribution for twenty-seven consecutive quarters. With its stable fee-based revenue, geographically-diverse assets and strong business fundamentals, Sunoco Logistics offers investors an opportunity to capture income growth through steadily-rising cash distributions and capital appreciation.

Therefore, we are confident of the partnership's total return potential. As such, we rate units of Sunoco Logistics as an attractive investment and maintain its Outperform recommendation. Our $45 price objective reflects a 2012 P/E multiple of 17.9x.
 
SUNOCO LOGISTIC (SXL): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research ]]> Mon, 06 Feb 2012 00:00:01 EST Recent data suggests that a recovery in the housing sector is underway. Prices of homes may have only a little more to fall, interest rates are at record lows and falling unemployment all point to a resurgence in housing.

A sustained recovery housing hould help more names the just the home builders. The concerns over high inventory and the shadow inventory may actually serve to limit the gains home builders may make in the coming months. So investors may need to look elsewhere…

How else can investors participate in the expected recovery?  Here are a few other plays for investors looking to capitalize on the recovery in the housing sector.

Pier 1 (PIR) is specialty retailer of imported decorative home furnishings and is a Zacks #1 Rank (Strong Buy). As new homes are purchased, retailers like Pier 1 imports stand to benefit from new furnishings such as lamps, tables, décor or other accessories.
Analysts have highly accurate in predicting the earnings from PIR with the company meeting the Zacks Consensus Estimate in each of the last four quarters. What has driven the stock price of late has been the higher earnings estimates. 

 In the same way, Bed Bath & Beyond (BBBY) a Zacks #2 Rank (Buy) can be expected to participate in the recovery. BBBY stock has gained 30% over the last year and a string of positive earnings surprises over the past year.

Another way to play the expected recovery are the companies that will benefit from people trying to prepare their homes for a sale in the coming year. Along with regular maintenance, last minute repairs ( to homes for sale are likely to help companies like Beacon Roofing Supply (BECN).  Beacon Roofing supply is a Zanks #1 Rank (Strong Buy) stock and has seen two straight positive earnings surprises. BECN is reporting earnings this week and has not seen a change to this quarters Zacks Consensus Estimate in the last 90 days. This bodes well for a positive earnings surprise. It’s also not the center of publicity like a Lowes or Home Depot, which can give early investors an edge on the herd.

Finally there is the information angle that can be played. As people look for the homes they want to buy, they will likely try to find a mortgage or at least a gage what their mortgage rate should be. For this information, consumers could go to Zacks #2 Rank (Buy) Bankrate (RATE).  Bankrate provides interest rate information to consumers that are looking for mortgages, CD's and credit cards. Mortgage providers will advertise on this site in hopes of converting an interest rate shopper into a customer.  Bankrate has only two earnings reports since its recent IPO, but has notched one positive earnings surprise. With a 29x forward PE multiple, its clear the market is expecting more beats in the future. Future surprises are likely to drive the stock price higher.

On the more speculative side of the information play on the housing recovery is Zillow (Z). As a Zack #3 Rank (Hold) this is a more cautious pick, and it too hasn't been public that long.  Zillow operates an online real estate information marketplace. The Zillow database holds information on 100 million homes and offers a "Zestimate" or estimated price for residential properties. The company earns revenue via advertising and subscriptions by realtors who wish to be associated with specific zip codes.  Of late, Zillow has moved significantly higher, gaining more than 38% since the beginning of the year. The company reports earning after the close on Febrauary 15, 2012 and guided investors on its last conference call to expect more investment and revenue to be below last quarters levels.

As consumers search for their homes on Zillow, they may then turn to Bankrate to see if they have a good interest rate. Sellers will likely be fixing up their roofs before any sales are made this spring. Finally, new home purchases are likely to be followed up by new furnishings from Bed Bay & Beyond and Pier 1.

Company Description

Beacon Roofing Supply, Inc. distributes residential and non-residential roofing materials. The company's residential roofing products include asphalt shingles, synthetic slates and tiles, clay and concrete tiles, slates, nail base insulation, metal roofing, felt, wood shingles and shakes, nails and fasteners, metal edgings and flashings, prefabricated flashings, ridges and soffit vents, gutters and downspouts, and other accessories.

A little hit or miss on earnings

BECN is 50/50 on its last six earnings reports, with 3 positive surprises and three earnings misses. Surprisingly, the stock has moved 10% as result of this record only one time. We would expect to see some larger moves on the stock given this track record.

Even more interesting is that the stock moved up by 9% following the September 2010 release in late November. The company reported earnings $0.04 lower than the Zacks Consensus Estimate. A miss of 9% on the bottom line somehow translated into price appreciation of 9% for the stock, an interesting move to say the least.

BECN Earnings This Week

On February 9, 2012 the company is expected to report earnings per share of $0.29 and sales of $475 million. Those numbers are higher than the year ago actual levels of $0.22 in earnings per share and $405 million in sales. Given the lack of reliability of the reports, a wait and see policy may be best.

Valuations

BECN trades at both a discount to the industry for PE on a trailing twelve month basis, but trades at a slight premium on a forward PE. The price to book multiple of 2X is a little less than the industry average of 2.7x. And the price to sales level of 0.6x is close, but still below the industry average of 0.8x. A strong increase in sales would serve to close the gap between the industry average price to sales metric and BECN's multiple.

The Chart

The six month chart for BECN shows just what an aggressive growth investor is looking for. The stock is trading well above the 200 day moving average and has not even attempted to retrace back to that important technical indicator. BECN is a Zacks #1 Rank (Strong Buy).

Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service

 
BEACON ROOFING (BECN): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Mon, 06 Feb 2012 00:00:01 EST Aetna Inc.'s (AET) fourth quarter 2011 results came in line with the Zacks Consensus Estimate. Earnings were, however, up 54% year over year. The quarter primarily benefited from low medical utilization and a decline in operating expense.

Overall, Aetna performed well in 2011, beating earnings estimates every quarter, on the back of low medical utilization, pricing discipline, medical cost management strategies and cost controls. The year saw the company making strategic investments in acquisitions and technologies, with an intention to extend Aetna's core health business and also to capitalize on exciting new consumer and provider opportunities emerging in the marketplace. Aetna's strong operating results and significant capital generation will allow it to continue investing for the future.

We expect the company to continue performing well in 2012. We expect Aetna to continue to benefit from gains in the Medicaid and Medicare segments, fast growing health services segment and a strong balance sheet.
 
AETNA INC-NEW (AET): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Mon, 06 Feb 2012 00:00:01 EST JAKKS Pacific (JAKK) badly, which consequently made the company cut its fiscal 2011 guidance. The labor shortage in Asia and an increase in input costs also remained a drag on the stock.

An underperformance in the third quarter's top and bottom line makes us cautious on the stock. Hence, we downgrade the stock from Neutral to Underperform recommendation.

Our six-month target price of $13.00 equates to about 13.0x our estimate for 2012. The target price implies an expected total return of negative 10.1% over that period.
 
JAKKS PACIFIC (JAKK): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Mon, 06 Feb 2012 00:00:01 EST Invesco Ltd. (IVZ) after the company reported better than expected results for the fourth quarter of 2011. It is a Zacks #2 Rank (Buy).

Analysts believe that Invesco is well-positioned to benefit from retail investors shifting back into equity products, especially given the low interest rate environment over the new few years.

In addition to strong earnings growth potential, the company pays a dividend that yields 2.1%. Valuation is attractive too with shares trading at just 1.0x book value.

Company Description

Invesco is a global investment management firm with over $625 billion in assets under management and offices in more than 20 countries. It is headquartered in Atlanta, Georgia and has a market of $10.4 billion.

Fourth Quarter Results

Invesco reported better than expected results for the fourth quarter of 2011 on January 26. Earnings per share came in at 42 cents, beating the Zacks Consensus Estimate by a penny.

Net revenues rose 2% from the previous quarter to $717 million due to increases in performance fees. Assets under management at the end of the period increased 4.5% to $625.3 billion.

Adjusted operating income was essentially flat from the prior quarter due in part to higher employee compensation.

Outlook

The majority of analysts raised their estimates for both 2012 and 2013 following solid Q4 results. This sent the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2012 is now $1.83, representing 9% growth over 2011 EPS. The 2013 consensus estimate is currently $2.16, corresponding with 18% EPS growth.

Analysts expect the company to benefit from retail investors shifting back into equities given the lack of return in alternatives, such as cash or bonds.

Dividend

In addition to strong earnings growth, Invesco pays a dividend that yields a solid 2.1%.

Its dividend has been a bit lumpy over the last decade, but it has risen overall at a compound annual rate of 4%:

Valuation

The valuation picture looks attractive for IVZ with shares trading at just 1.0x book value, below the industry median of 1.3x, and below its 10-year median of 1.5x.

It also trades at just 12.9x 2012 earnings, below its 10-year median of 14.6x. It sports a PEG ratio of 1.1 based on a 5-year EPS growth rate of 11.7%.

The Bottom Line

With rising estimates, strong EPS growth potential, a 2.1% dividend and reasonable valuation, Invesco offers attractive total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

 
INVESCO LTD (IVZ): Free Stock Analysis Report
 
To read this article on Zacks.com click here. ]]> Mon, 06 Feb 2012 00:00:01 EST

MarkWest Energy Partners LP (MWE)

Master Limited Partnerships have been all the rage in the past year or so.  The key is knowing exactly what you are investing in, as not all MLPs are gold.  MarkWest Energy is in the business of gathering, processing and transporting natural gas as well as the transportation, fractionation, storage and marketing of NGLs (natural gas liquids).  They also gather and transport crude oil.

Natural gas prices are at all time lows, while crude remains elevated in price.  There is no doubt that our country is working to become both self reliant and smarter when it comes to our energy needs.  But people like T. Boone Pickens and many others are pushing for us to exploit our huge natural gas resources, which will benefit MWE and many MLPs.

Company Description & Developments
MarkWest in an MLP formed in 2002 and is a leading provider of midstream (pipeline) natural gas and energy services.  The MLP structure gives investors liquidity and certain tax advantages.

They have a strong presence in the Marcellus Shale, Huron/Berea Shale, Woodford Shale, Granite Wash, and Haynesville Shale, which are all emerging resource plays that are expected to be a significant source of domestic natural gas production.

The company recently announced expansion plans for the Marcellus and Utica shales that include more than 600 million cubic feet per day (MMcf/d) of additional processing capacity and 140,000 barrels per day (Bbl/d) of incremental fractionation capacity. Once complete, MarkWest will operate approximately 2.3 billion cubic feet per day (Bcf/d) of processing capacity and nearly 300,000 Bbl/d of fractionation capacity serving the Northeast shales, including the Huron, Marcellus, and Utica.

MarkWest is probably not a company that you are familiar with, but they are a premier player in the space and will continue to have upside if the price of natural gas rebounds and our consumption of it and other energy resources increases.  Both of which are likely.

Financial Profile
MarkWest Energy is a mid-cap (5.52 billion) company that is trading at about 63 times trailing earnings (P/E).  Looking forward, Zacks Consensus Estimates are calling for that number to drop closer to 21 with no change in price from these levels 12 months from today.  Keep in mind that MLPs like MarkWest generally return profits in the form of quarterly dividends paid out to LP unit holders (shareholders)

MarkWest jumped from a Zacks Rank 3 to Rank 1 back on the 10th of November.  Since then it has floated between a rank of 1 and 2 until hitting number 1 again on the 10th of January. 

The pipeline company reported a quarterly sales increase of 27% at their last earnings report.  It was a strong Q3 report; annual sales leapt 99% compared to 2010. Total sales were roughly 1.18 billion in FY2010.  MWE saw earnings growth of 700% in the same year over year period.  MarkWest is expected to earn $2.26 in FY2011 according to the Zacks Consensus Estimate. 

Earnings Estimates
We only saw two upward revisions in the past 90 days.  The two analysts increased their estimates for the current quarter and FY2012.  MarkWest will report Q4 (2012) results on February 29th.

Expectations are for MarkWest to generate $0.52 in income this quarter.  Of the 8 analysts who cover MWE, the consensus is for the company to grow earnings by 246.92% in FY2011 and roughly 28% in FY2012. The percentage gains look excessive because MWE started from a very small annual EPS number.  In terms of the magnitude of analyst estimate trends, we are seeing mixed consensus estimates depending on the quarter.  Natural gas pricing and discovery variables can cause this. 

MarkWest beat estimates last quarter by 72% and has managed to exceed consensus estimates for the past year by an average of about 48%.  In the past 12 months, the stock has responded well after earnings releases. 

Market Performance & Technicals
MWE’s chart looks like a stairway to heaven. Since its October lows the stock has been moving steadily higher, making new 52 week highs since mid-November.   

MWE has maintained its price above the 50 and 200 day moving averages since mid-October and has not dropped below either.  The 50 day currently stands at $55.25 and the 200 at $49.31.  You can look to both those levels for support.  There is also some consolidation around the $54 level that should be a “sticky” point for MWE if is pulls back from here, which I would expect.

MarkWest is no doubt a momentum stock and the trend remains bullish.  It has also been a banner year for MWE being that it has exceeded the S&P 500 by over 33% over the past 12 months.   Watch for continued strength in this energy company.   

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

WestAmerica Bancorp. (WABC) announced fourth-quarter profit of 77 cents per share on January 19 that missed analysts? expectations by 2.53%. The Zacks Consensus Estimate for the current year slid to $3.07 per share from $3.21 per share in the last 60 days as next year?s estimate dipped 23 cents per share to $3.20 per share in that time span.

Cellcom Israel Ltd. (CEL) posted a third-quarter profit of 54 cents per share on November 15, which came in 18 cents wider than the average forecast. The Zacks Consensus Estimate for the full year fell to $2.58 per share from $2.77 per share over the past month. For 2012, analysts expect a profit of $2.48 per share, compared to last month?s projection for a profit of $2.91 per share.

Here is a synopsis of why RDK and NEOG have a Zacks Rank of 4 (Sell) and should also most likely be sold or avoided for the next one to three months. Note that a #4 Sell rating is applied to 15% of all the stocks ranked by Zacks;

Ruddick Corporation (RDK) first-quarter profit of 50 cents per share, posted on February 2, lagged analysts? projections by 23.08%. Estimate for current year slid 1 cent per share to $2.42 per share over a month as next year?s estimate dipped 2 cents per share to $2.78 per share in that time span.

Neogen Corporation (NEOG) reported a second-quarter profit of 22 cents per share on December 22 that fell 18.52% short of the Zacks Consensus Estimate. The full-year average forecast is currently 95 cents per share, compared with last two month?s projection of $1.08 per share. Next year?s forecast dropped to $1.10 per share from $1.27 per share in the same period.
 
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WESTAMER BANCP (WABC): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research ]]> Thu, 02 Feb 2012 00:00:01 EST Here is a synopsis of why JCI and AVX have a Zacks Rank of #5 (Strong Sell) and should most likely be sold or avoided for the next one to three months. Note that a #5 Strong Sell rating is applied to 5% of all the stocks in the Zacks Rank universe:

Johnson Controls, Inc. (JCI) announced first-quarter profit of 60 cents per share on January 19 that missed analysts? expectations by 3.23%. The Zacks Consensus Estimate for the current year slid to $2.75 per share from $2.99 per share in the last 30 days as next year?s estimate dipped 25 cents per share to $3.35 per share in that time span.

AVX Corporation (AVX) posted a third-quarter profit of 22 cents per share on January 25, which came in 5 cents wider than the average forecast. The Zacks Consensus Estimate for the full year fell to $1.19 per share from $1.27 per share over the past month. For 2013, analysts expect a profit of $1.06 per share, compared to last month?s projection for a profit of $1.18 per share.

Here is a synopsis of why DOLE and AHONY have a Zacks Rank of 4 (Sell) and should also most likely be sold or avoided for the next one to three months. Note that a #4 Sell rating is applied to 15% of all the stocks ranked by Zacks;

Dole Food Company, Inc. (DOLE) third-quarter loss of 17 cents per share, posted on November 17, lagged analysts? projections by 70%. Estimate for current year slid 4 cents per share to $1.24 per share over a month as next year?s estimate dipped 2 cents per share to $1.43 per share in that time span.

Koninklijke Ahold N.V. (AHONY) reported a third-quarter profit of 29 cents per share on November 17 that fell 3.33% short of the Zacks Consensus Estimate. The full-year average forecast is currently $1.13 per share, compared with last month?s projection of $1.17 cents per share. Next year?s forecast dropped to $1.28 per share from $1.32 per share in the same period.
 
AHOLD N V ADR (AHONY): Free Stock Analysis Report
 
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JOHNSON CONTROL (JCI): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research ]]> Tue, 24 Jan 2012 00:00:01 EST Here is a synopsis of why GEF and DRI have a Zacks Rank of #5 (Strong Sell) and should most likely be sold or avoided for the next one to three months. Note that a #5 Strong Sell rating is applied to 5% of all the stocks in the Zacks Rank universe:

Greif, Inc. (GEF) announced fourth-quarter profit of 64 cents per share on December 7 that missed analysts? expectations by 8.57%. The Zacks Consensus Estimate for the current year slid to $3.69 per share from $3.70 per share in the last 30 days as next year?s estimate dipped 1 cent per share to $4.28 per share in that time span.

Darden Restaurants, Inc. (DRI) posted a second-quarter profit of 41 cents per share on December 16, which came in 1 cent wider than the average forecast. The Zacks Consensus Estimate for the full year fell to $3.54 per share from $3.55 per share over the past month. For 2013, analysts expect a profit of $4.01 per share, compared to last month?s projection for a profit of $4.02 per share.

Here is a synopsis of why GMCR and CHS have a Zacks Rank of 4 (Sell) and should also most likely be sold or avoided for the next one to three months. Note that a #4 Sell rating is applied to 15% of all the stocks ranked by Zacks;

Green Mountain Coffee Roasters Inc. (GMCR) fourth-quarter profit of 47 cents per share, posted on November 9, lagged analysts? projections by 2.08%. Estimate for current year slid 1 cent per share to $2.56 per share over a month as next year?s estimate dipped 3 cents per share to $3.57 per share in that time span.

Chico's FAS, Inc. (CHS) reported a third-quarter profit of 18 cents per share on November 22 that fell 10% short of the Zacks Consensus Estimate. The full-year average forecast is currently 80 cents per share, compared with last two month?s projection of 88 cents per share. Next year?s forecast dropped to 98 cents per share from $1.06 per share in the same period.
 
CHICOS FAS INC (CHS): Free Stock Analysis Report
 
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GREEN MTN COFFE (GMCR): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research ]]> Mon, 23 Jan 2012 00:00:01 EST Here is a synopsis of why KW and RIG have a Zacks Rank of #5 (Strong Sell) and should most likely be sold or avoided for the next one to three months. Note that a #5 Strong Sell rating is applied to 5% of all the stocks in the Zacks Rank universe:

Kennedy-Wilson Holdings, Inc. (KW) announced third-quarter loss of 16 cents per share on November 8 that missed analysts? expectations by 220%. The Zacks Consensus Estimate for the current year decreased to a loss of 14 cents per share from a profit of 11 cents per share in the last 60 days while next year?s estimate increased from a loss of 19 cents per share to 29 cents per share in the same time span.

Transocean LTD (RIG) posted a third-quarter profit of 3 cents per share on November 2, which came in 72 cents wider than the average forecast. The Zacks Consensus Estimate for the full year fell to $1.48 per share from $1.54 per share over the past month. For 2012, analysts expect a profit of $2.97 per share, compared to last month?s projection for a profit of $3.20 per share.

Here is a synopsis of why TRW and WST have a Zacks Rank of 4 (Sell) and should also most likely be sold or avoided for the next one to three months. Note that a #4 Sell rating is applied to 15% of all the stocks ranked by Zacks;

TRW Automotive Holdings Corp. (TRW) third-quarter profit of $1.37 per share, posted on November 2, lagged analysts? projections by 2.14%. Estimate for current year slid 6 cents per share to $7.08 per share over two months as next year?s estimate dipped 16 cents per share to $6.16 per share in that time span.

West Pharmaceutical Services Inc. (WST) reported a third-quarter profit of 53 cents per share on November 1 that fell 3.64% short of the Zacks Consensus Estimate. The full-year average forecast is currently $2.32 per share, compared with last two month?s projection of $2.33 per share. Next year?s forecast dropped to $2.58 per share from $2.60 per share in the same period.
 
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Zacks Investment Research ]]> Fri, 20 Jan 2012 00:00:01 EST Here is a synopsis of why AM and CECO have a Zacks Rank of #5 (Strong Sell) and should most likely be sold or avoided for the next one to three months. Note that a #5 Strong Sell rating is applied to 5% of all the stocks in the Zacks Rank universe:

American Greetings Corporation (AM) announced third-quarter profit of 50 cents per share on December 22 that missed analysts? expectations by 38.27%. The Zacks Consensus Estimate for the current year slid to $2 per share from $2.65 per share in the last 30 days as next year?s estimate dipped 80 cents per share to $2.10 per share in that time span.

Career Education Corp. (CECO) posted a third-quarter profit of 31 cents per share on November 9, which came in 3 cents wider than the average forecast. The Zacks Consensus Estimate for the full year fell to $2.15 per share from $2.18 per share over the past month. For 2012, analysts expect a profit of 97 cents per share, compared to last month?s projection for a profit of $1.04 per share.

Here is a synopsis of why GES and WDFC have a Zacks Rank of 4 (Sell) and should also most likely be sold or avoided for the next one to three months. Note that a #4 Sell rating is applied to 15% of all the stocks ranked by Zacks;

Guess?, Inc. (GES) third-quarter profit of 71 cents per share, posted on November 30, lagged analysts? projections by 2.74%. Estimate for current year slid 1 cent per share to $3.07 per share over a month as next year?s estimate dipped 9 cents per share to $3.39 per share in that time span.

WD-40 Company (WDFC) reported a first-quarter profit of 42 cents per share on January 9 that fell 22.22% short of the Zacks Consensus Estimate. The full-year average forecast is currently $2.31 per share, compared with last month?s projection of $2.35 per share. Next year?s forecast dropped to $2.53 per share from $2.56 per share in the same period.
 
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GUESS INC (GES): Free Stock Analysis Report
 
WD 40 CO (WDFC): Free Stock Analysis Report
 
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Zacks Investment Research ]]>