The Zacks Analyst Blog Highlights: Abercrombie & Fitch, Hanesbrands, Quiksilver, Michael Kors Holdings and Jacobs Engineering Group

CHICAGO, Dec. 2, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Abercrombie & Fitch Co. (NYSE: ANF-Free Report), Hanesbrands Inc. (NYSE: HBI-Free Report), Quiksilver Inc. (NYSE: ZQK-Free Report), Michael Kors Holdings Limited (NYSE: KORS-Free Report) and Jacobs Engineering Group Inc. (NYSE: JEC-Free Report).

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Here are highlights from Friday's Analyst Blog:

Abercrombie Still at Underperform

We retain Abercrombie & Fitch Co. (NYSE: ANF-Free Report) on our Underperform list, given the company's continued weak sales and comps performance in the third quarter of 2013. The stock currently carries a Zacks Rank #5 (Strong Sell)

Why Underperform?

Abercrombie & Fitch posted disappointing sales results in third-quarter 2013, marking lower-than-expected top-line results for the fourth consecutive quarter. The company's sales for the quarter declined 11.3% year over year to $1,033.3 million, while it missed the Zacks Consensus Estimate of $1,035.0 million. Weak third-quarter sales resulted mainly from poor performance in the domestic market as well as continued weakness in the overall spending among youngsters.

Moreover, Abercrombie's comps performance depicts a downward trend, with negative comps results for the trailing 7 quarters. Further, the company is expecting comps to fall in the low double-digit range for the upcoming quarter.

Though the company is aggressively implementing strategies to overcome the downward sales trend, we do not see any meaningful improvement in the near term, as evident from the company's negative comps guidance for the fourth quarter.

A significant portion of the company's merchandise is manufactured overseas, in countries like Asia, and Central and South America. Further, international operations account for over one-fourth of the company's revenue, thus, exposing the company to the political, social and economic risks of operating beyond national borders. This, along with foreign currency fluctuations, may adversely affect the company's results.

Alongside, we believe that the company's over-dependence on outside suppliers, intense competition from discount retailers as well as the seasonality of its business may undermine growth prospects.

Other Stocks That Warrant a Look

While we prefer to avoid Abercrombie & Fitch until we see signs of improvement in the company's performance, other retailers worth a look are Hanesbrands Inc. (NYSE: HBI-Free Report), Quiksilver Inc. (NYSE: ZQK-Free Report) and Michael Kors Holdings Limited (NYSE: KORS-Free Report). Of these, Hanesbrands has a Zacks Rank #1 (Strong Buy), while Quicksilver and Michael Kors carry a Zacks Rank #2 (Buy).

Jacobs Upgraded to Outperform

On Nov 25, 2013, we upgraded our recommendation on Jacobs Engineering Group Inc. (NYSE: JEC-Free Report) to Outperform from Neutral, based on the company's strong growth potential.

Why the Upgrade?

Jacobs has been expanding its contracts pipeline, resulting in healthy organic growth. In the recent past, the company won contracts in different parts of the world. Jacobs has expertise in several sectors including oil and gas, petrochemical, mining, IT services and power. The growth in the National Government end-market has been noteworthy, with the company receiving eight contracts in the fiscal fourth quarter of 2013.

Additionally, the company's inorganic growth has been impressive over the years with scope for future growth. In fiscal fourth-quarter 2013, management announced many acquisitions, including Guimar Engenharia, Ilitha and Sinclair Knight Merz, to name a few. These acquisitions are either complete or awaiting closures, subject to regulatory approvals. With cash and cash equivalents of $1.3 billion, exiting fiscal 2013, the company sees scope for further acquisitions in coming quarters.

Our belief on continued long-term growth for the company is strengthened by its solid backlog. Exiting the fourth quarter of fiscal 2013, Jacobs' backlog was $17.2 billion, an 8.2% year-over-year increase. The Field Services segment accounted for 35.5% of the backlog and the Technical Professional Services segment the remaining 64.5%.

Another important fact about the company is its strong relationship-based model, which leads to repeat business. On an average around 65% of its business is obtained through long-term relationship with customers, reflected in the 94.1% repeat business done in the fiscal fourth quarter of 2013.  

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