The Zacks Analyst Blog Highlights: Emerson Electric, Microsoft, Apple, Google and Amazon

Feb 04, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Feb. 4, 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 Emerson Electric Company (NYSE: EMR), Microsoft Corp. (Nasdaq:MSFT), Apple (Nasdaq:AAPL), Google (Nasdaq:GOOG) and Amazon (Nasdaq:AMZN).


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Here are highlights from Friday's Analyst Blog:

Another Beat for Emerson?

We expect diversified technology company Emerson Electric Company (NYSE: EMR) to beat expectations when it reports first quarter 2013 financial results on Feb 5, 2013.

Why a Likely Positive Surprise?

Our proven model shows that Emerson is likely to beat earnings because it has the right combination of two key ingredients, namely a positive earnings Expected Surprise Prediction (ESP) and a Zacks Rank of #1, 2 or 3.

Positive ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +3.23%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks #3 Rank (Neutral): Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Emerson's Zacks Rank #3 (Hold) and +3.23% ESP makes us very confident of a positive earnings beat on Feb 5.

What is Driving the Better Than Expected Earnings?

Continued strength in Process Management, increased investments in energy projects, strong backlog and deferred recovery of sales from the Thailand flooding are expected to lead to a positive earnings surprise in the upcoming quarter.

The positive trend is seen in the trailing four-quarter average surprise of 0.36%, which was greatly helped by the 5.71% surprise in the last reported quarter. This was possible because Emerson did a good job of controlling expenses leveraging sales volume. Strong end markets of the Process Management division also helped.

Microsoft to Open Two More Stores

Microsoft Corp. (Nasdaq:MSFT) is set to open its first Microsoft Store in Honolulu, Hawaii and in Detroit, MI. The Honolulu store will be the company's first outside the U.S. Hiring has started for several positions, from product advisors to retail store teachers.

Microsoft plans to expand its presence and add more retail outlets from where products like its tablet Microsoft Surface could be sold. The stores can also be used to educate people about Windows operating systems.  Microsoft is transforming several holiday stores into permanent Microsoft retail outlets, which should further boost product sales and educate people about its new operating system (OS).

Microsoft Surface was launched worldwide on Oct 26, 2012, with a price tag of $499.0, which makes it comparatively expensive. However, it combines both the functionality of a tablet and laptop.

Microsoft is very bullish about its tablet and is rapidly strengthening its global retail presence. Microsoft is a late entrant into the tablet market and beating the competition at this point will be an uphill task. Other successful tablets such as Apple's (Nasdaq:AAPL) iPads, Google's (Nasdaq:GOOG) Nexus 7, Samsung's Galaxy tablets and Amazon's (Nasdaq:AMZN) Kindle Fire already have a strong presence in the market.

According to IDC, 27.8 million tablets were shipped worldwide in the third quarter of fiscal 2012. Apple led the race as it shipped 14.0 million units and captured 50.4% market share. Samsung and Amazon had 18.4% and 9.0% share of the tablet market, respectively.

As per IDC's forecast, tablets may see an uptrend and sales may touch 282.7 million units by 2016 and Windows-based tablets may capture 10.0% of the market within the same time period.

Further, as per IDC, PC shipments were 89.8 million units in the fourth quarter of 2012, down 6.4% from the year-ago quarter. The PC market has stagnated to some extent owing to the rising popularity of the smart devices. The launch of a new OS by Microsoft and the holiday season could not boost the sales of PCs.

Microsoft is still battling the slump in the PC market, which is showing no signs of recovery yet. Although it has been sluggish in the tablet space, there is still time to create its own niche. Combining the functionality of tablet and laptop, Surface can create interest and attract new tablet users. Hence, expansion of its retail base makes sense. Further, Microsoft's foray into tablets may ease the pressure it is seeing in its core PC business.

Microsoft reported revenue, excluding deferrals, of $21.46 billion in the second quarter of fiscal 2013, which was up 34.0% sequentially and 2.7% from last year, in line with our estimates. All except the Entertainment & Devices segment grew both sequentially and from the year-ago quarter. Entertainment & Devices were down year over year.

Microsoft has a Zacks Rank #3 (Hold).

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