CME Group, Coach, Union Pacific, CSX and Norfolk Southern highlighted as Zacks Bull and Bear of the Day
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CHICAGO, Aug. 5, 2013 /PRNewswire/ -- Zacks Equity Research highlights CME Group (Nasdaq:CME-Free Report) as the Bull of the Day and Coach (NYSE:COH-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis ontheUnion Pacific Corp. (NYSE:UNP-Free Report), CSX Corp. (NYSE:CSX-Free Report) and Norfolk Southern Corp. (NYSE:NSC-Free Report).
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Here is a synopsis of all five stocks:
Looking for another way to play rising interest rates besides buying banks? How about the world's largest futures exchange which handles over $3 trillion worth of interest rate derivatives contracts every day.
CME Group (Nasdaq:CME-Free Report) created the world's largest market place for yield curve hedging by institutions and corporations when it bought the Chicago Board of Trade a few years ago. This brought 30-year Treasury bond and 10-year Treasury note futures under the same roof as CME's flagship interest rate product, Eurodollar futures.
Eurodollar futures are a vehicle designed to allow banks, companies, and other financial entities with lending or borrowing risk exposure to hedge short-term rates on US dollars on deposit overseas. London is the home of the cash market for trading dollars in foreign banks and thus Eurodollar interest rates are closely related to the London Interbank Offered Rate (LIBOR).
At CME, quarterly futures contracts are available going out ten years so that institutions can create complex hedging programs that cover many types of interest rate risk, from corporate loans that may not commence for many quarters to large bank mortgage portfolios with sophisticated duration exposures.
Because each Eurodollar contract represents $1 million in exposure, when CME trades 2.35 million futures and over 600,000 options on futures in this product in a given day (2Q average daily volumes), this combined with Treasury futures volume creates the $3 trillion in notional value that represents the exchange's importance to the world's banking and derivatives markets.
Remember when Coach (NYSE:COH-Free Report) was the fashion growth stock you had to own a few years ago as their international growth accelerated and China's upper middle class citizenry was buying their designer handbags like they were going out of style?
That growth story paid off handsomely if you invested in it. From the March 2009 lows near $11.50, Coach shares returned nearly 7 times in the three years to March 2012. But the story started to go south a year ago and it hasn't gotten much better lately.
Ahead of Coach's FY fourth-quarter report last week, analysts were already taking earnings estimates down and this forced COH shares to earn a Zacks #4 Rank (Sell) on July 16.
Then following Coach's report on July 30 which took the stock down over 8% from $58 to $53, more analyst downward revisions to the earnings outlook handed the company a Zacks #5 Rank (Strong Sell) on August 1.
North American Sales, which account for 63% of Coach's total sales, were the major factor behind this setback. Same-store sales declined by 1.7% in the latest quarter.
Additional content:
Union Pacific Hikes Dividend
Following the trend of dividend hikes, Union Pacific Corp. (NYSE:UNP-Free Report) will increase its shareholders' wealth by raising quarterly dividend. The board of directors of this largest class 1 freight railroad operator in the U.S. has voted to increase the company's quarterly dividend rate by 14.5% to 79 cents per share from the existing 69 cents. The new dividend will be paid on Oct 1, 2013 to stockholders of record as of Aug 30.
The dividend hike reflects the company's strong free cash flow and confidence in generating solid reinvestable returns for its shareholders. The regular dividend of 79 cents equates into an annual dividend of $3.16, which translates into a dividend yield of 1.94% based on the current market price.
This is the second dividend hike by Union Pacific in the last one year after the railroad operator raised its quarterly dividend by 15% in Nov 2012 from 60 to 69 cents. The company has paid dividends on its common stock for 114 consecutive years. The recent hike dividend reflects an almost 150% increase in the last 3 years.
Investor confidence in Union Pacific was also solidified with its recent earnings beat. For the second quarter of 2013, the company reported adjusted earnings of $2.37, surpassing the Zacks Consensus Estimate of $2.35 and year-ago earnings of $2.10.
Better-than-expected earnings were aided by higher pricing and an improvement in operating ratio. However, quarterly revenue of 5,470 missed the Zacks Consensus Estimate of 5,497 million.
Most of Union Pacific's segments reported steady performance in the second quarter of 2013. The company exited the quarter with free cash flow of 833 million reporting 161% annualized growth. We believe such strong segmental and cash flow growth has allowed Union Pacific to raise its dividend, which in turn will help the company to attain its target pay-out ratio of 30–35%.
Union Pacific's rival CSX Corp. (NYSE:CSX-Free Report) recently hiked its dividend by 7.1% from 14 cents to 15 cents per share, while Norfolk Southern Corp. (NYSE:NSC-Free Report) raised its dividend by 4% from 50 cents to 52 cents per share.
Union Pacific currently carries a Zacks Rank #3 (Hold).
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