The Zacks Analyst Blog Highlights:Life Technologies, Bristol-Myers Squibb, Hot Topic, Abercrombie & Fitch and Aeropostale
CHICAGO, Oct. 25, 2012 /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 Life Technologies (Nasdaq: LIFE), Bristol-Myers Squibb (NYSE: BMY), Hot Topic Inc. (Nasdaq: HOTT), Abercrombie & Fitch Co. (NYSE: ANF) and Aeropostale Inc. (NYSE: ARO).
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Here are highlights from Wednesday's Analyst Blog:
LIFE Working on Diagnostics Biz
Over the recent past, Life Technologies (Nasdaq: LIFE) has been focusing on developing its diagnostics franchise. Earlier this month, the company entered into a license and supply agreement with Singapore based VelaDx. The latter will develop next generation sequencing-based, in vitro diagnostic tests that will run on Life Technologies' Ion Personal Genome Machine platform. Semiconductor sequencing, being a transformative technology, can make diagnostic tests faster, thereby helping doctors globally to take better treatment decisions.
Life Technologies has also resorted to the acquisition route targeted toward building its diagnostics franchise. The company acquired Compendia Bioscience, a cancer bioinformatics player, which identifies gene targets for drug discovery and development. These services are widely used by the pharmaceutical industry. Based on the oncology data provided by Compendia, Life Technologies should be able to develop its own tests as well as collaborate with pharmaceutical companies in companion diagnostic development.
However, the financial terms of the deal were not disclosed. The acquisition of Compendia is expected to be neutral to 2012 earnings and accretive to the company's overall ROIC by 2015.
In July, the company went for two tuck-in acquisitions – Navigenics and Pinpoint Genomics. The acquisition of Pinpoint Genomics provided Life Technologies with a 14-gene panel test, Pervenio Lung RS, a risk stratification test for early stage lung cancer. This test, launched in September, will provide immense help to a huge patient base by identifying lung cancer patients, who are at high risk of mortality following surgery, in the early stages. In addition, the test will also aid prevention and disease management.
On the other hand, the Navigenics deal brings in an established, CLIA-certified laboratory licensed throughout the U.S. This facility will be employed for design and validation of new diagnostics assays.
Life Technologies also has a Master Development Agreement with Bristol-Myers Squibb (NYSE: BMY) for companion diagnostic projects. The collaboration with Bristol-Myers is in line with the company's strategy to build partnerships with pharmaceutical majors for companion diagnostic development including participation in early-phase clinical trials.
Life Technologies enjoys a strong position in the life sciences market. We are optimistic about the company's focus on its diagnostics franchise, which holds potential. However, economic uncertainties in Europe and unfavorable currency were major headwinds for the company during the last reported quarter.
We have a Neutral recommendation on Life Technologies.
Hot Topic Downgraded
We have recently downgraded our recommendation on Hot Topic Inc. (Nasdaq: HOTT) to Neutral based on its declining comparable-store sales transactions. Moreover, the stock is trading at a premium pertaining to our forward earnings estimates that limit its further upside.
We observe that comparable-store sales transactions at Hot Topic's namesake stores have been falling year over year since the last four quarters. In the second quarter of fiscal 2012, number of transactions dropped by 8%, whereas in the first quarter it dipped 6%. During the fourth and third quarters of fiscal 2011, it decreased 7% and 8%, respectively.
Further, Hot Topic's business is seasonal in nature and generates high proportion of sales during fiscal third and fourth quarters, which are characterized by the back-to-school, Halloween and holiday seasons. As a result, the company is exposed to significant risks if the seasons fail to deliver expected operating performance.
The company faces intense competition from other teenage-focused retailers in the industry such as Abercrombie & Fitch Co. (NYSE: ANF) and Aeropostale Inc. (NYSE: ARO) on the basis of brand recognition, fashion, price, service, store location, and quality. Consequently, this may hamper Hot Topic's top and bottom-line performances.
On the reverse side of the story, Hot Topic recently posted strong second quarter of fiscal 2012, which was in line with the Zacks Consensus Estimate. The company posted a loss of 2 cents that fared better than the prior-year loss of 8 cents. Moreover, net sales grew 4.6% during the quarter.
Looking ahead, Hot Topic is quite bullish for the remaining period of fiscal 2012. The company now expects earnings in the range of 8–10 cents per share and 23–27 cents for the third and fourth quarters, respectively.
Another positive point for Hot Topic is that the company regularly monitors store sales and takes prudent steps to align merchandise mix in accordance with the rapidly changing preferences of its target customers. Furthermore, the company periodically evaluates its stores and remodels or relocates them in compliance with the latest trends. Hot Topic intends to open 18 new stores, remodel 16 and close 3 stores, during third quarter.
Based on the above analysis, we believe that the investors should seek for better visibility for Hot Topic's prospective in the long term, before investing their money on this stock.
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