The Zacks Analyst Blog Highlights:Alcoa, Wells Fargo, Monsanto, Ryland Group and MDC Holdings
CHICAGO, Jan. 8, 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 includeAlcoa (NYSE: AA), Wells Fargo (NYSE: WFC), Monsanto (NYSE: MON), Ryland Group, Inc. (NYSE: RYL) and MDC Holdings Inc. (NYSE: MDC).
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Here are highlights from Monday's Analyst Blog:
Earnings Season Starts This Week
With nothing much on the economic calendar this week, the market's attention will likely shift to the fourth quarter earnings season which gets under way with Alcoa's (NYSE: AA) report after the close on Tuesday. The reporting season gets into high gear next week as the big banks report results, but a number of major companies, including Wells Fargo (NYSE: WFC) and Monsanto (NYSE: MON), will come out with fourth quarter results this week.
All indicators are pointing towards another underwhelming earnings season, not much different from what we saw in the third-quarter reporting cycle. But while expectations for fourth quarter earnings have been steadily coming down in recent weeks, investors appear unwilling to bring down estimates for 2013 as they hold on to hopes of a ramp in corporate profitability in the coming quarters. Guidance from management teams on earnings calls is always very important, but it is particularly important this reporting season given the lofty-looking earnings expectations for 2013.
Total earnings in the fourth quarter are expected to be up +0.4% from the same period last year. This is a sharp drop from the +7% earnings growth rate that consensus expected just three months ago.
Overall, ten of the 16 Zacks sectors will have negative earnings growth, with even the Tech sector experiencing earnings decline of -3.5% (Tech sector earnings were barely in the positive column in the preceding quarter). The Construction sector has the best earnings growth profile off all sectors, a function of the positive momentum in the housing sector. Total earnings in the Construction sector are expected to up +33.3% in the fourth quarter. The only other sector with double-digit earnings growth this quarter is Business Services.
The key question at this stage is whether the stock market momentum can be sustained in the face of negative momentum on the estimate revisions front. The bulls point towards the attractiveness of equities relative to other asset classes and pin their hopes on an expanding market multiple and declining risk premiums. Maybe the bulls have a point, but it will still pay to stay focused on the evolving earnings picture in the coming days.
Ryder Upgraded to Strong Buy
On January 5, 2013, Zacks Investment Research upgraded Ryland Group, Inc. (NYSE: RYL) to a Zacks #1 Rank (Strong Buy).
Why the Upgrade?
Ryland Group, Inc has been witnessing rising earnings estimates on the back of strong fiscal third-quarter 2012 results and recent acquisitions. Moreover, this well-known homebuilding and mortgage-finance company delivered positive earnings surprises in 2 of the last 3 quarters. The long-term expected earnings growth rate for this stock is 10.0%.
Ryland Group reported fiscal third-quarter (ended September 30) results on October 24. Non-GAAP earnings per share came in at 21 cents, surpassing the Zacks Consensus Estimate of 17 cents by 23.5%. Earnings grew significantly from a loss of 9 cents in the prior-year quarter.
Double-digit growth in homebuilding revenues, expanded margins and the company's cost control initiatives led to the strong earnings performance in the quarter. The company's strong top-line growth was driven by over 35% growth in homebuilding revenue, number of homes closed and backlog. The company also witnessed 11.4% year-over-year growth in the number of active communities.
The Ryland Group believes in acquisitions to drive growth. The company recently acquired the Phoenix, Arizona operations and assets of Trend Homes. Previously, the company had acquired the assets of Timberstone Homes in Charlotte and Raleigh in July 2012.
The demand for new homes is increasing owing to expensive home rental market, affordable prices of homes, cost saving energy-efficient features of the new homes and low mortgage rates. More companies are investing in building new homes in order to meet the growing housing demand, which is resulting in declining inventory levels and growing prices.
The Zacks Consensus Estimate for fiscal 2012 increased 30% to 78 cents per share as most of the estimates were revised higher over the last 90 days. For fiscal 2013, the Zacks Consensus Estimate increased by 18% to $2.03 per share over the last 90 days.
Other Stocks to Consider Other homebuilders with a favorable Zacks Rank and worth considering include MDC Holdings Inc. (NYSE: MDC) with a Zacks #1 Rank (Strong Buy)
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