The Zacks Analyst Blog Highlights: Hewlett-Packard, Intel, Microsoft, Apple and Molina Healthcare

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Dec 05, 2013, 09:30 ET

CHICAGO, Dec. 5, 2013 /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 the Hewlett-Packard (NYSE:HPQ-Free Report), Intel (Nasdaq:INTC-Free Report), Microsoft (Nasdaq:MSFT-Free Report), Apple (Nasdaq:AAPL-Free Report) and Molina Healthcare Inc. (NYSE:MOH-Free Report).

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Here are highlights from Wednesday's Analyst Blog:

PC Shipments to Drop Further in 2013

According to the latest report from IDC, PC shipments are expected to decline 10.1% to 314.2 million units in 2013. The current annual projection deteriorated from the research firm's earlier forecast of a 9.7% decline. The decline in global PC shipments is largely due to a shift in consumer preference toward tablets and mobile devices in both mature and emerging markets.

What's worse, IDC traces the slump to softness in emerging markets, which has for some time supported growth and is considered to be the key growth driver. PC shipments in emerging markets are expected to be down 11.3% to 182.1 million units in 2013, steeper than the 8.4% year-over-year decline in mature markets. In May, IDC forecast a decline of 7.8% in emerging markets.

China appears to be the main reason for the lowered forecast, due to the continued shift in customer preference toward tablets and smartphones.

Despite the disappointing 2013 projections, IDC expects the rate of decline to moderate in 2014, aided by system refreshes and enterprise system migrations beyond Windows 7. PC shipments are forecast to increase 0.4% in 2017, primarily due to growth in emerging markets that will likely offset the lower PC shipments in the mature markets. However, the lack of new and enhanced applications could pose challenges.

Moreover, according to IDC, commercial PC shipments will hold up better than consumer PCs this year. Consumer PC shipments are likely to be down 15.0% on a year over basis, steeper than the 5.0% year-over-year decline in commercial markets. The lower rate of decline in commercial markets could be attributed to relatively steady PC investment planning because of the need to upgrade from the Windows XP OS.

The top three global PC vendors – Lenovo, Hewlett-Packard (NYSE:HPQ-Free Report) and Dell – have recorded a decrease in shipments. To counter the current scenario, these PC vendors are initiating plans to attract consumers with 2-in-1 devices, which incorporate features of both tablets and notebooks. Moreover, chipmaker Intel (Nasdaq:INTC-Free Report) and software giant Microsoft (Nasdaq:MSFT-Free Report) has also lent their support to the market for these convertibles.

It is worth mentioning that the emergence and continued adoption of handheld computing devices from Apple (Nasdaq:AAPL-Free Report), Samsung and other Asian companies are cannibalizing PC sales. According to IDC, in 2013, tablet shipments will increase 53.5% on a year-over-year basis to 221.3 million units. Additionally, IDC predicts that tablet shipments will grow 22.2% in 2014. However, tablet shipments are expected to decline year over year and by 2017 growth will slow down to a single-digit rate.

We believe that the ability to migrate to mobile platforms and/or data centers may be the only possible solution for these players.

Currently, Hewlett-Packard, Microsoft, Apple and Intel all carry a Zacks Rank #3 (Hold).

Molina Downgraded to Underperform

On Dec 3, 2013 we downgraded managed care organization, Molina Healthcare Inc. (NYSE:MOH-Free Report) to Underperform, due to lack of significant growth catalyst and higher expenses that impel reduced earnings guidance. Molina carries a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Molina's third quarter revenues of $1.69 billion as well as EPS of 31 cents missed the Zacks Consensus Estimates of $1.71 billion and 32 cents, respectively. Full year 2013 earnings guidance (lowered to $1.15 per share from $1.55, guided earlier) was also disappointing. Meanwhile Molina expects to break even in the fourth quarter. The company also posted negative earnings surprise in the third quarter.

Molina has been incurring rising medical care costs which are adversely affecting margins. The first nine months of 2013 was also no exception. As a result operating expenses ascended, leading to a margin contraction. The reduced 2013 earnings guidance also takes into account higher costs that are expected to be incurred for the continuous infrastructure build out costs, costs to implement enhanced care coordination and medical management, and increased advertising and marketing costs.

Also, upcoming changes like a ban on annual and lifetime coverage caps, annual fees on health insurance companies and excise tax on high premium insurance policies, will likely increase expenses further. Moreover the low interest rate environment has been dragging down investment income of the company and thus Molina needs to hedge its investment portfolio from market fluctuations to prevent further decline.

Moreover, Molina is exposed to losses related to delays in enrollment and delays in implementation of programs that are expected to increase administrative costs significantly. Delay in the commencement of the revenue streams that will finance the rising G&A expense is also taken into account in the reduced guidance.

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