The Zacks Analyst Blog Highlights: Costco Wholesale, Target, Wal-Mart Stores, Virgin Media and TiVo

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Nov 07, 2011, 09:30 ET

CHICAGO, Nov. 7, 2011 /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), Virgin Media Inc. (Nasdaq: VMED) and TiVo Inc. (Nasdaq: TIVO).

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Here are highlights from Friday's Analyst Blog:

Costco Sustains Sales Momentum

Costco Wholesale Corporation (Nasdaq: COST), one of the leading U.S. warehouse club operators, recently posted healthy sales data for the four-week period ended October 30, 2011.

The company has been able to maintain its sales momentum. After a 12% increase in September 2011, Costco's comparable-store sales for October rose 9%, reflecting a comparable sales growth of 9% at its U.S. locations and 8% at its international divisions. For the nine-week period ended October 30, 2011, the company registered a comparable-store sales growth of 10%, with U.S. and international sales increased 10% and 11%, respectively.

Excluding the effects of higher gasoline prices and a slightly adverse impact from foreign currencies, Costco's comparable-store sales for October climbed 7%, with U.S. and international comparable sales increasing 6% and 9%, respectively. For the nine-week period, the company registered a comparable-store sales growth of 7%, with U.S. sales rising 7% and international sales climbing 9%.

Total net sales for October jumped 11% to $7.01 billion from $6.30 billion in the same month last year. For the nine-week period, sales increased 13% to $15.62 billion from $13.81 billion in the same period last year.

Costco currently operates 595 warehouses, which include 432 in the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, 9 in Japan, 8 in Taiwan, 7 in Korea and 3 in Australia.

Costco continues to be a dominant retail wholesaler based on the breadth and quality of merchandise it offers. The company's strategy to sell products at heavily discounted prices has helped it to sustain growth in 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.

Based on the pulse of the economy, we believe that consumers will remain watchful on their spending in the upcoming holiday season, and thereby we could see more competitive pricing and new products to attract shoppers.

We believe that retailing companies will move heaven and earth to win the hearts of bargain hunters and it definitely remains a wait-and-watch story as to who emerges successful in wooing consumers in this distressed economy.

Given the pros and cons we maintain our long-term Neutral recommendation on the stock. Moreover, Costco holds a Zacks #3 Rank that translates into a short-term Hold rating, and correlates with our long-term view.

Virgin Media Underperforms

Virgin Media Inc. (Nasdaq: VMED) reported weak financial results for the third quarter of 2011, which fell below the Zacks Consensus Estimates. In the previous quarter, average monthly churn rate was 1.7% compared with 1.6% in the prior-year quarter. However, those who still subscribes to Virgin Media's services have shown their preference for the company's high-margin bundled services.

Till now, Virgin Media installed TiVo Inc. (Nasdaq: TIVO) developed next-generation Internet-connected TV platform for about 220,000 customers. In the third quarter, the company added net 127,200 Internet TV customers. The company is gradually rolling out 100 Mbps broadband services. Furthermore, in April 2011, Virgin Media conducted trial runs for 1.5 Gbps broadband speed, the fastest broadband transmission rate in the world.

Net loss from continuing operations, in the third quarter of 2011, was approximately $118.9 million or a loss of 39 cents per share compared with a net income of $67.4 million or 13 cents per share in the prior-year quarter.

However, quarterly adjusted EPS of a loss of 27 cents was significantly below the Zacks Consensus Estimate of an income of 15 cents. Quarterly total revenue of approximately $1,611.4 million was up 2.2% year over year, but fell below the Zacks Consensus Estimate of $1,647 million.

Quarterly cost of sales was $647.3 million, up 1.5% year over year. Selling, General, and Administrative expense was $322.3 million, up 2.3% year over year. Quarterly operating expense was $1,404.5 million, down 0.6% year over year. Quarterly operating income was $206.9 million, up 26.3% year over year.

During the first nine months of 2011, Virgin Media generated approximately $1,377.3 million of cash from operations, up 10.7% year over year. Free cash flow (cash flow from operations less capital expenditures) in the reported period was around $604.9 million, up 27.6% year over year.

At the end of the third quarter of 2011, Virgin Media had approximately $706.3 million of cash and cash equivalents compared with $758.1 million at the end of fiscal 2010. Total outstanding debt, at the end of the reported quarter, was around $9,393.5 million compared with $9,518.9 million at the end of fiscal 2010. At the end of the third quarter of 2011, debt-to-capitalization ratio was 0.87 compared with 0.82 at the end of 2010.

Recommendation

We maintain our long-term Neutral recommendation on Virgin Media. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.

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