The Zacks Analyst Blog Highlights: JA Solar Holdings, China Sunergy, Coach, Baxter and Becton, Dickinson and Co.

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Jan 03, 2012, 09:30 ET

CHICAGO, Jan. 3, 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 JA Solar Holdings Co. Ltd (Nasdaq: JASO), China Sunergy Co. Ltd. (Nasdaq: CSUND), Coach Inc. (NYSE: COH), Baxter International (NYSE: BAX) and Becton, Dickinson and Co. (NYSE: BDX).

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Here are highlights from Friday's Analyst Blog:

JA Solar in German Supply Contract

Leading manufacturer of high-performance solar power products, JA Solar Holdings Co. Ltd (Nasdaq: JASO) announced that it would supply solar modules to Solarhybrid AG. Solarhybrid AG is a Germany-based project developer and general contractor for turn-key utility-scale solar power projects.

Per the contract JA Solar would supply 19 MW of solar modules to Solarhybrid's Allstedt I solar power plant in Halle, Germany. JA Solar is the exclusive solar module supplier to the project. Located on a former military airfield in Germany, the Allstedt I solar power plant is expected to generate 19,030,000 kWh of electricity annually and reduce carbon dioxide emissions by 266,381 tons over a service period of 20 years.

Going forward JA Solar anticipates total module shipments to Solarhybrid to reach nearly 40 MW in 2011, including 19 MW of modules for the Allstedt I project.

JA Solar is one of the most cost-efficient solar producers in the world, with a geographically diverse customer base as well as silicon wafer supply agreements in place to feed its production. Positive factors include ongoing expansion programs, improving operating efficiencies, rising margins and higher conversion efficiency.

JA Solar is steadily expanding its customer base worldwide. It is experiencing strong growth in several geographic end markets including U.S., Canada, Italy, Japan, Australia, China and India.

Looking forward, JA Solar expects third quarterly solar cell and module shipments in the range of approximately 310 MW–330 MW. However, faced with subsidy cutbacks in key markets like Germany and Italy, the company trimmed its fiscal 2011 shipment outlook to 1.6 GW from the earlier forecast of 1.8 GW.

Thus, we currently have a long-term 'Underperform' recommendation on JA Solar. In the near term, apprehensions over tepid module demand in Europe, rising competition, wafer dependency, questionable financial stability of its customers and an oversupply of solar cells in the market will restrain the valuation of the company. The stock, in consort with its peer China Sunergy Co. Ltd. (Nasdaq: CSUND), retains a Zacks #5 Rank (Strong Sell rating).

Coach Walks the Tightrope

Being a leading American marketer of fine accessories and gifts, Coach Inc. (NYSE: COH) boasts a proven strategy of investing in stores to enhance sales productivity through product innovation, compelling pricing strategy, new merchandise assortments and a cost-effective global sourcing model. This strategy should drive comparable-store sales and operating margins in the long term.

Management remains confident of sustaining a double-digit growth momentum in both the top and bottom lines, after posting better-than-expected first-quarter 2012 results on the back of healthy sales in North America and China.

The quarterly earnings of 73 cents per share beat the Zacks Consensus Estimate of 70 cents and jumped 15.9% from 63 cents in the prior-year quarter, buoyed by strong top-line growth. Coach said that total net sales for the quarter came in at $1,050.4 million, up 15.2% from the year-ago quarter and above the Zacks Consensus Estimate of $1,023 million.

The company's long-term growth drivers include the expansion of its global distribution model and its movement into under-penetrated markets. After North America and Asia, Coach also extended its global footprint in Europe. It is also investing in rapidly-growing emerging markets, such as China, Brazil and Vietnam to increase its brand awareness. The company continues to open new dedicated men's stores and gain market share in North America.

Coach maintains a healthy balance sheet with significant cash balance and negligible debt load. The company also has been proactively managing its cash flows by making prudent capital investments and enhancing shareholders' return. The company's strong liquidity positions it well to drive future growth.

The company ended the first quarter with cash, cash equivalents and short-term investments of $848 million and total long-term debt of $24.1 million with shareholders' equity of $1,816.5 million. Coach generated a free cash flow of $194 million during the quarter, and incurred capital expenditures of $31 million.

Coach also bought back approximately 1.1 million shares at a cost of $55.30 per share, aggregating $59 million during the quarter. The company still has $900 million at its disposal under its share repurchase authorization.

Coach sells products that are discretionary in nature. Its customers remain sensitive to macroeconomic factors including interest rate hikes, increases in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn the company's growth and profitability. Therefore, we remain concerned about erratic consumer behavior and sluggish recovery in the economy.

Fashion obsolescence remains the main concern for Coach's business model, which requires sustained focus on product and design innovation. The company's pioneering position may be compromised by delays in its product launches.

Given the pros and cons, we prefer to have a long-term 'Neutral' recommendation on the stock with a price target of $64.00. However, it holds a Zacks #2 Rank that translates into a short-term 'Buy' rating, and reflects the company's optimistic attitude of accomplishing double-digit growth in both top and bottom lines going forward.

Baxter Collaborates with Momenta

Baxter International (NYSE: BAX) recently announced a worldwide collaboration with Momenta Pharmaceuticals to create and launch biosimilars. Biosimilars copy pre-existing, branded biologics utilized in the treatment of many illnesses such as auto-immune disorders and cancer. The deal is expected to be fulfilled in the first quarter of 2012 subject to standard closing clauses including passage of waiting period as per Hart-Scott-Rodino Antitrust Improvements Act.

Following this agreement, Momenta will utilize its experience in areas such as process and product development. Baxter will harness its expertise in fields like sterile injectables.

Per the agreement, Baxter will pay $33 million upfront to Momenta for working together on as many as six follow-on biologic compounds. The company may incur more payments in future in order to develop the compounds, subject to the fulfillment of regulatory, technical and other milestones with regards to all six offerings.

Baxter believes that its agreement with Momenta provides synergy to its early-stage pipeline and permits it to enhance its leadership in biologics. Momenta stated that it was keen to have Baxter as a working partner.

The news regarding Baxter still remains mixed. On the positive side, Baxter's focus on life-sustaining products, which are not commoditized, partly insulates it from an economic downturn. The company is able to generate recurring revenues, and consistent cash flow, due to its focus on chronic diseases.

On the flip side, despite recent stability in Plasma Proteins and Antibody Therapy sub-segments, we are concerned about sluggishness in sales, a slightly somber outlook for some hospital spending and tightening of reimbursement.

Improved execution has lifted sentiment somewhat toward Baxter. The company is a good bet for value investors willing to wait as fundamentals improve further. Among others, it competes with Becton, Dickinson and Co. (NYSE: BDX) in certain niches. We are currently Neutral on the stock, backed by a short-term Zacks #3 Rank (Hold).

We maintain our 'Neutral' recommendation on Equity Residential, which currently has a Zacks #3 Rank that translates into a short-term 'Hold' rating.

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