The Zacks Analyst Blog Highlights: Carnival, Home Depot, Wal-Mart Stores, and Lowe's

Dec 13, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Dec. 13, 2013 /PRNewswire/ -- 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 Carnival Corporation (NYSE: CCL-Free Report), Home Depot Inc. (NYSE: HD-Free Report), Wal-Mart Stores Inc. (NYSE: WMT-Free Report), Inc. (Nasdaq: AMZN-Free Report) and Lowe's Companies Inc. (NYSE: LOW-Free Report).


Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Thursday's Analyst Blog:

Carnival Brings Dr. Seuss Aboard

Carnival Cruise Lines, a unit of Carnival Corporation (NYSE: CCL-Free Report) has entered into a partnership with Dr. Seuss Enterprises to provide a variety of exciting and immersive dining and entertainment experiences on its fleet of 24 "Fun Ships." The Carnival 'Seuss at Sea' program will bring in the amazing world of Dr. Seuss and its constituent characters to Carnival's fleet. Dr. Seuss Enterprises produces a variety of toys based on characters from Dr. Seuss books such as The Cat in the Hat, Horton Hears a Who!, Green Eggs and Ham and How the Grinch Stole Christmas!.

Apart from The Green Eggs and Ham Breakfast, the guests on the ship will begin their day with other exciting breakfast foods like moose juice and goose juice, colorful fruit and pancake stacks, funky French toast and more. Moreover, Dr. Seuss characters such as the Cat in the Hat, Thing One and Thing Two, and Sam will accompany the guests at breakfast to entertain them. Every Fun Ship will have a selection of classic Dr. Seuss books, toys and themed activities.

The company will first begin incorporating these facilities on its ship Carnival Splendor in Feb 2014, followed by rest of the fleet in 2015 and Carnival Vista which is expected to sail in early 2016.

Additionally, the company intends to incorporate a Dr. Seuss Bookville facility, a Seuss-themed play space featuring iconic decor, colors, shapes and funky furniture. This feature will exclusively be for the company's fun ship "Carnival Freedom" that is under renovation and Carnival Vista, when it enters service in early 2016.

Carnival is the largest and historically the most profitable cruise operator in the world. The company's fleet carries approximately half of the total number of kids carried by the entire North American cruise industry. This Seuss at Sea initiative will strengthen the company's position. Moreover, the company's several brand-building efforts and other marketing promotions are expected to be beneficial, going forward.

However, a sluggish European economy and lower consumer confidence in both North America and Europe threaten bookings. Moreover, higher operating costs owing to increased marketing spend remain a major threat to margin expansion.  Carnival Corporation presently has a Zacks Rank #3 (Hold).

Home Depot Declares Long-Term Targets

At an Investor and Analyst Conference meet this week, Home Depot Inc. (NYSE: HD-Free Report) – the leading home improvement store chain retailer – declared its key strategies to boost sales, operating profit as well as shareholder value over the next few years.

In the meeting, Home Depot discussed certain strategic priorities which include customer service, product authority, productivity and efficiency, driven by disciplined capital allocation. These are elaborated below:

Customer Service: Taking care of associates, putting customers first, and simplifying the business.

Product Authority: This will emphasize on re-establishing a merchandise-driven business, providing products that meets customer needs and building tools for effective implementation.

Productivity and Efficiency: Disciplined capital allocation focused on the existing core retail business, transforming the supply chain and improving information technology.

The growth of home improvement companies is sensitive to the health of the economy. Hence, it comes as no surprise that companies operating in this sector are striving to add diverse revenue streams to hedge against economic cycles.

Building on this strategy, Home Depot is planning to invest a significant amount in fiscal 2014 toward improvising supply chain, technology, e-Commerce platform and the revamping of its warehouse technology system. Apart from this, the company intends to build three new fulfillment centers in California, Atlanta and Ohio over the next two years.

Looking at these initiatives, we believe that Home Depot intends to boost its online sales. For this, the company is also working on a same-day delivery service system for customers and professional contractors who might want products within a few hours while their homes are undergoing renovation.

Other retailers who provide this service include Wal-Mart Stores Inc. (NYSE: WMT-Free Report) and Inc. (Nasdaq: AMZN-Free Report). However, the same-day delivery service of these companies is limited to some areas.

Home Depot believes that its strategic priorities, along with a significant rebound in the home improvement market, will help it to achieve its long-term profitability goal a year earlier than expected. The company now hopes to achieve its fiscal 2015 target of reaching an operating margin of approximately 12% and a return on invested capital (ROIC) of approximately 15% will in fiscal 2014. Therefore, the company has set a new goal for fiscal 2015 of achieving approximately 13% of operating margin and a ROIC of about 17%.

Further, Home Depot, which competes with Lowe's Companies Inc. (NYSE: LOW-Free Report), has reaffirmed its outlook for fiscal 2013 which was earlier announced in November. The company continues to expect sales growth of approximately 5.6% and believes that comparable-store sales will increase nearly 7%.

Further, earnings are anticipated to come in at $3.72 per share, up about 24% from the previous fiscal. Currently, the Zacks Consensus Estimate for fiscal 2013 stands at $3.75 per share which is well above the company's guidance.

For fiscal 2014, Home Depot projects its sales and earnings per share to grow by 5% and 17%, respectively, on a year-over-year basis. Furthermore, operating margin is anticipated to expand roughly by 70 basis points and reach over 12%. During the fiscal, Home Depot expects to generate solid cash flow, which it intends to include in the capital expenditure of $1.5 billion, share repurchases of worth $5 billion and dividend payments of 2.6 billion.

However, despite an impressive outlook, the news did not provide much impetus to the company's share price. Yesterday, the stock closed trading $79.00, up 0.5% from the previous day's closing price.

Home Depot is a leading player in the highly fragmented home improvement industry. The company has enhanced itself, with shift in focus from new square footage growth to maximization of productivity through its existing store base.

In addition, the company has implemented significant changes in its store operations to make them simpler and more customer-friendly. We believe these initiatives will induce more customer traffic to its stores, while boosting top-line growth. Currently, Home Depot holds a Zacks Rank #2 (Buy).

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