The Zacks Analyst Blog Highlights: Costco Wholesale, Target, Wal-Mart Stores, Dow Chemical and EI DuPont de Nemours

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May 07, 2012, 09:30 ET

CHICAGO, May 7, 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 Costco Wholesale Corporation (Nasdaq: COST), Target Corporation (NYSE: TGT), Wal-Mart Stores Inc. (NYSE: WMT), Dow Chemical (NYSE: DOW) and EI DuPont de Nemours & Co. (NYSE: DD).

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Here are highlights from Friday's Analyst Blog:

Costco Sales Rise

Costco Wholesale Corporation (Nasdaq: COST), one of the leading U.S. warehouse club operators, recently posted sales data for the four-week period ended April 29, 2012.

Sales climbed on the back of higher gasoline prices but fell short of analysts expectations as unfavorable foreign currencies fluctuation remained a drag.

After a 6% increase in March, Costco's comparable-store sales for the month of April climbed 4%, reflecting comparable sales growth of 4% at its U.S. locations and 3% at its international divisions. In the prior-year period, the company delivered comparable-store sales growth of 11%.

For the 35-week period ended April 29, 2012, the company registered comparable-store sales growth of 8%, with U.S. and international sales also rising by the same percentage.

Excluding the effects of higher gasoline prices and foreign currencies fluctuation, Costco's comparable-store sales for April climbed 5%, with U.S. and international comparable sales increasing 4% and 7%, respectively. For the 35-week period, the company registered comparable-store sales growth of 7%, with U.S. sales rising 6% and international sales climbing 9%.

Total net sales for April jumped 7% to $7.25 billion from $6.80 billion in the same month last year. For the 35-week period, sales increased 10% to $63.59 billion from $57.59 billion in the same period last year.

Costco continues to be a dominant retail wholesaler based on the breadth and quality of merchandises it offers. The company's strategy to sell products at heavily discounted prices has helped it to sustain growth amidst beleaguered economic conditions, as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities. Having delivered consistent comparable-store sales growth, Costco is strongly positioned in the warehouse club industry.

However, Costco faces stiff competition from Target Corporation (NYSE: TGT) and Sam's Club, a division of Wal-Mart Stores Inc. (NYSE: WMT), which follows a similar business model that pushes through high volumes of merchandise at low prices in membership-only warehouse clubs. Thus, aggressive pricing to gain market share and drive traffic amid stiff competition may depress sales and margins.

Costco currently operates 602 warehouses, which include 435 in the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, 13 in Japan, 8 in Taiwan, 7 in Korea and 3 in Australia. The company plans to open 7 more new warehouses during the remainder of fiscal 2012.

Going by the pulse of the economy, we believe that budget-constrained consumers will remain watchful on their spending and look for discounts. Consequently, the company could see more competitive pricing, compelling products and innovative ways to attract shoppers.

Given the pros and cons, we maintain our long-term Neutral recommendation on the stock. However, Costco holds a Zacks #4 Rank that translates into a short-term Sell rating.

Earnings Scorecard: Dow Chemical

Chemical major Dow Chemical (NYSE: DOW) started 2012 with mixed results in the first quarter, beating the Zacks Consensus Estimate on earnings while lagging behind on the revenue front.

Highlights from the Quarter

The Michigan-based company logged adjusted (excluding one-time charges) earnings of 61 cents a share in first-quarter 2012, which topped the Zacks Consensus Estimate 59 cents while falling below the year-ago adjusted earnings of 82 cents.

Profit (as reported) slid 34% year over year to $412 million (or 35 cents a share), hit by restructuring charges of roughly $357 million associated with plant closures and downsizing.

Revenues fell narrowly year over year to $14,719 million, missing the Zacks Consensus Estimate of $15,342 billion. Healthy growth across agricultural and feedstock/energy businesses were neutralized by declines in performance materials and performance plastics franchises.

Volumes declined 1% year over year, but were up 3% barring the impact of divestitures. On an adjusted basis, the company saw gains across Europe, Middle East and Africa (EMEA) and North America and declines in Latin America and Asia Pacific.

We have discussed the quarterly results at length here: Dow's Profit Sags on Charges.

Agreement – Estimate Revisions

Estimates for Dow for the second quarter and current fiscal have been weighted on the negative side following the first quarter results. Out of 12 analysts covering the stock, 8 have lowered their estimates for the second quarter over the past 7 days with just 1 moving in the reverse direction. Likewise, over the past month, 8 analysts have lowered their forecast for the quarter with 2 raising their estimates.

Estimates for fiscal 2012 reflect a somewhat similar trend with 8 (out of 16 analysts) chopping their estimates over the past 7 days with a couple of upward revisions. Over the last 30 days, there were 8 downward revisions coupled with 4 reverse movements.

The bearishness appears to partly reflect the concerns surrounding the U.S. and European economies and the impact of the company's planned turnaround costs, which it expects to increase by $100 million sequentially in the second quarter.

Magnitude – Consensus Estimate Trend

Given the downside pressure from the negative revisions, estimate for the second quarter has gone down by 8 cents and 6 cents over the last week and month, respectively. For fiscal 2012, there has been a decrease of 5 cents and 3 cents in the estimate over the past 7 and 30 days, respectively.

Our Take

Dow is witnessing softness in the electronics and construction end-markets, which may weigh on its second-quarter 2012 results. The construction market in Europe remains soft. Moreover, the company will continue facing challenges in Western Europe due to weak demand and the sovereign debt crisis.

We currently have a long-term Neutral recommendation on Dow Chemical. The company, which competes with EI DuPont de Nemours & Co. (NYSE: DD), currently holds a short-term Zacks #3 Rank (Hold).

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