Southwest Airlines, Embraer S.A., Louisiana-Pacific Corporation, Potlatch Corporation and Weyerhaeuser Co. highlighted as Zacks Bull and Bear of the Day

Jan 17, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Jan. 17, 2013 /PRNewswire/ -- Zacks Equity Research highlights Southwest America (NYSE: LUV) as the Bull of the Day and Embraer S.A. (NYSE: ERJ) as the Bear of the Day. In addition, Zacks Equity Research provides analysis ontheLouisiana-Pacific Corporation (LPX), Potlatch Corporation (PCH) and Weyerhaeuser Co. (WY).


Here is a synopsis of all five stocks:

Bull of the Day:

We upgrade our recommendation on Southwest Airlines (LUV) to Outperform from Neutral based on a number of constructive actions adopted by management. We believe that the company remains committed to sustain its brand and operational excellence via its cost-cutting measures, fleet rightsizing, addition of new and attractive destinations.

The company's Evolve retrofit program, steady capacity growth, All-New Rapid Rewards and several steps to enhance ancillary revenues will position it advantageously in the coming days. Apart from the AirTran merger which can provide additional synergies, Southwest has set a number of initiatives to boost its profitability level in 2013.

We also appreciate Southwest s focus on uplifting its financial prosperity and capital efficiency. The company has a target price of $13, based on 13.3x our earnings estimate for 2013.

Bear of the Day:

While Embraer S.A. (ERJ) looks forward to its American and Continental regional jets order, the loss of the Delta Airlines contract in the current quarter has been detrimental to the future revenues of the company. This has led to downward estimate revisions by most analysts covering the company.

Moreover, the highly competitive industry in which the company operates is forcing Embraer to incur high costs with an increase in the prices of fuel along with the possibility of order cancellations. Embraer reported a significant increase in EPADS from a year-ago, but the results also reflected a heavier tax burden, rising wages in Brazil, overt dependence on a few customers and a drop in demand for business jets.

Based on the above factors, we downgrade our recommendation on the stock from Neutral to Underperform. Our $25.00 target price, 9.0x 2013 EPADS, reflects this view.

Additional content:

Louisiana-Pacific Now a Strong Buy

On January 15, Zacks Investment Research upgraded the premier supplier of building materials, Louisiana-Pacific Corporation (LPX)  to Zacks Rank #1 (Strong Buy), driven by a steadily improving housing market,  which is increasing the demand of its products.

Why the Upgrade?   Louisiana-Pacific Corporation has been witnessing increasing earnings estimates, reflecting expectations for significantly higher year-over-year earnings growth rates in fiscal 2013 and 2014.  The long-term expected earnings growth rate for this stock is 5.0%. 

The upward movements of the estimates are driven by solid performance of the Oriental Strand Board (OSB) and Siding segments in third quarter of 2012 and its recent Peace Valley acquisition.

On November 6, 2012, Louisiana-Pacific Corporation's third quarter 2012 adjusted earnings per share (EPS) of 20 cents missed the Zacks Consensus Estimate by 20%. Results, however, improved significantly from the prior-year quarter loss of 19 cents, owing to improved pricing in the OSB segment.

Though net sales in the quarter improved 33%, it lagged the Zacks Consensus Estimate by 1.5%.  Top line improvement was driven by higher volumes at OSB and Siding segments and price increases at the OSB segment.

Following the results of third quarter of 2012, Zacks Consensus Estimate for fiscal 2012 increased 22.2% per share.

The upward movements of the estimates have also been encouraged by  the recent agreement with Canfor Corporation (CFP.TO) to acquire the latter's 50% share in the Peace Valley Oriented Strand Board (OSB) mill, which was until now owned by both the companies.

Louisiana will thereby become the sole owner. The Peace Valley acquisition will strengthen Louisiana's OSB segment, which reported sales growth of 63% in the third quarter of 2012 owing to an increase in housing activity. This acquisition strengthens the company's position further to capitalize on the rising housing momentum.

With housing market recovery gaining momentum, there has been a drop in inventory levels and an increase in home prices. As such, most home building companies are gearing up to introduce a number of new homes in order to meet the increase in demand, which implies that demand for building materials has also improved. Particularly, OSB segments and Siding segments are responding well to the market impetus.  

Other Stocks to Consider Other companies with a favorable Zacks Rank and worth considering include Potlatch Corporation (PCH) carrying a Zacks Rank #1 (Strong Buy), and Weyerhaeuser Co. (WY) carrying a Zacks Rank #2 (Buy).

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