The Zacks Analyst Blog Highlights: Google,, Netflix, Moody's and City National

Jan 31, 2014, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Jan. 31, 2014 /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 Google (Nasdaq: GOOG-Free Report), Inc. (Nasdaq: AMZN-Free Report), Netflix (Nasdaq: NFLX-Free Report), Moody's Corporation (NYSE: MCO-Free Report) and City National Corporation (NYSE: CYN-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:

Google Posts Miss, Shows Wisdom of Sell-off

Following the big news yesterday that Google (Nasdaq: GOOG-Free Report) had jettisoned off the remainder of its Motorola business to Lenovo for $2.9 billion, the first word in Search posted earnings for its fiscal 4th quarter of 2013. The results were less than stellar: EPS of $9.02 (minus stock-based compensation, etc.) missed the Zacks Consensus Estimate of $10.34; revenues of $13.55 billion (ex-traffic acquisition costs, or TAC) were a tad lower than the $13.59 billion we had expected.

Not that this is likely to create a wall of worry in regards to Google's well-being. In fact, the company showed its wisdom by dumping the money-sucking Motorola Mobility business after two straight quarters of big losses for Google: $384 million in the Q4 just reported and $248 million in Q3. In the quarter before that, Google's Motorola business had actually made $1 billion, and many thought Google-made phones were likely to be a mainstay business.

Also, the sell-off for roughly $3 billion will almost be enough to cover the nut for Google's latest acquisition, Nest Labs -- a technology company that runs thermostats, home security and the like. In other words, Google, with its gigantic market cap and revenue stream, is beginning to operate more like a traditional industrial conglomerate -- acquiring this big chunk, selling off that one.

In core Google business, paid clicks were up 31% in Q4, better than analysts had expected. But cost-per-click (CPC) was down 11%, which is worse than predicted. Further, while revenues had ascended over the $14 billion line ex-TAC (reminiscent of those 14K-foot white-caps in the Rocky Mountains -- hmm, could this be the reason the company's located in a place called "Mountain View"?) a few quarters in 2012 and 2013, Google drifted lower in Q4. Probably a good time to make a headline-making change, like they did.

Finally, the long-awaited stock split is now purported to be on April 2, 2014 (pushed back an extra day so they wouldn't schedule it on April Fool's Day -- yoink! [kidding, of course]). This may see an influx of new investors as GOOG shares remain in the general vicinity of all-time highs, even as the stock trades down a hair in the after-market.

Record-Setting Holiday Can't Save Amazon's Earnings Inc. (Nasdaq: AMZN-Free Report), reported earnings after the bell today.  EPS was $0.51, significantly below the Zacks Consensus Estimate of $0.71; while Revenues came in at $25.59 billion, below the Zacks Revenue Estimate of $26.05 billion.

During the day, AMZN's stock rose over 5% on heavy volume in anticipation of a strong earnings announcement.  But, both North American sales (accounting for $15.3 billion), and International sales (accounting for $10.2 billion) were down from the previous year.  Moreover, the Media division posted decreased revenue both domestically, and internationally. 

A strong growth area was Amazon Prime, which boasted over a million new subscribers during the holiday season.  Furthermore, it is estimated that the company will add another 5 million new subscribers each year over the next several years.  But with the weaker than expected Media numbers, it appears as though the holiday subscribers were only interested in the shipping discount.  More importantly, it now seems as though Amazon has lost ground to Netflix (Nasdaq: NFLX-Free Report) in the streaming media category.  Finally, management gave revenue guidance between $18.2 billion and $19.9 billion for Q1 2014, which is slightly below previous expectations.

In afterhours trading, Amazon has dropped over 10% on increased volume.

City National Downgraded by Moody's

Concluding the review started in Oct 2013, Moody's Investors Service, the credit rating wing of Moody's Corporation (NYSE: MCO-Free Report), has slashed the long-term ratings of City National Corporation (NYSE: CYN-Free Report) and its operating subsidiary, City National Bank.

The credit rating agency downgraded the long-term senior unsecured and issuer ratings of City National to "A3" from "A2." Concurrently, the bank financial strength rating (BFSR)/baseline credit assessment (BCA) rating and the long-term deposit rating of City National Bank was downgraded to "C+/a2" from "B-/a1" and "A2" from "A1," respectively. All the ratings carried a stable outlook.

The downgrade was led by mounting pressure on the company's profitability due to a low interest rate environment. Being highly reliant on net interest income, lower net interest margin and fee revenue pressures are likely to weigh on City National's pre-tax, pre-provision profits. Also, the company is restricted by its low cost deposit base and low levels of market funding.

As a result, City National has limited ability to counter the revenue pressures. Moody's expects the company to witness more pressure on revenue generation going forward as a result of lower interest income from the divestiture of the FDIC-covered loan portfolio. Expense reduction is not expected to favor up margins.

Moreover, a moderate capital position also accounts for the ratings demotion. Nevertheless, Moody's recognized that the capital position of the company positions it favorably to counter credit losses in an adverse economic condition.

Additionally, Moody's is of the opinion that although the ratings are downgraded, they still remain above the ratings of other U.S. banks owing to balance sheet maintenance, high core deposit funding and above-average asset quality that is driven by its residential mortgage and home equity portfolio (representing one-third of the total loans).

Nevertheless, ratings downgrade from credit rating agencies dampens the creditworthiness of a company in the market and affects investor confidence in the stock.

City national currently carries a Zacks Rank #3 (Hold).

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

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