The Zacks Analyst Blog Highlights: Kirkland's, McGraw-Hill Financial, Carrizo Oil & Gas, Exxon Mobil and Southwestern Energy

CHICAGO, Aug. 27, 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 Kirkland's Inc. (Nasdaq:KIRK-Free Report), McGraw-Hill Financial Inc. (NYSE:MHFI-Free Report), Carrizo Oil & Gas Inc. (Nasdaq:CRZO-Free Report), Exxon Mobil Corp. (NYSE:XOM-Free Report) and Southwestern Energy Co. (NYSE:SWN-Free Report).

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

Here are highlights from Monday's Analyst Blog:

Kirkland's Upgraded to Strong Buy

On Aug 24, 2013, Zacks Investment Research upped Kirkland's Inc. (Nasdaq:KIRK-Free Report) to Zacks Rank #1 (Strong Buy) following solid second-quarter results announced last week.

Why the Upgrade?

Kirkland's posted a solid second quarter fiscal 2013 results backed by strong comps and margin expansion.

Kirkland's' impressive second-quarter 2013 results followed by a enhanced guidance for fiscal 2013 primarily drove the rating upgrade.

On Aug 23, 2013, Kirkland's reported a loss of 3 cents, narrower than the year-ago loss of 11 cents as well as the Zacks Consensus Estimate of a loss of 10 cents per share. The second-quarter 2013 results were better than management's expected net loss range of 8 cents to 11 cents on the back of sales gain and margin expansion.

Net sales climbed 6.7% year over year driven by strength in the e-commerce business which grew 27% in the quarter. Kirkland's' comps declined a mere 0.2% compared to a decline of 3.6% in the prior year, thanks to the strong sales gain.

Kirkland's' total transactions decreased 6% but the average ticket price was up 5%. Further, the company stated that though store traffic was down 7%, conversion rates were up 1%. Thus, it can be inferred that although KIRK lost some price-sensitive customers, the ones who visited the shops spent more on every visit. Kirkland's is focusing on a more stable, high-priced, high-margin customer base.

On a year-over-year basis, gross profit climbed 18.8% to $35.6 million, while gross margin inflated 374 basis points (bps) to 36.7% of sales from 33% in the prior year due to the improvement in merchandise margin.

Moreover, management has increased its fiscal 2013 earnings guidance range and now expects earnings per share between 80 cents and 90 cents instead of the previous guidance range of 75 cents–85 cents. Kirkland's expects fiscal 2013 total sales to increase approximately 3% to 4% year over year, instead of the previous expectation of 3% to 5%. The guidance reflects the improved sales and marketing efforts taken up by the company.

Natural Gas Demand Picks Up

The U.S. Energy Department's weekly inventory release showed a smaller-than-expected rise in natural gas supplies due to the commodity's brisk use for power generation in the face of warmer weather. However, on a bearish note, the storage build was bigger than the benchmark 5-year average gain for the week.    

About the Weekly Natural Gas Storage Report

The Weekly Natural Gas Storage Report – brought out by the Energy Information Administration (EIA) every Thursday since 2002 – includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas. It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays.

Analysis of the Data

Stockpiles held in underground storage in the lower 48 states rose by 57 billion cubic feet (Bcf) for the week ended Aug 16, 2013, below the guided range (of 67–71 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. (NYSE:MHFI-Free Report). However, the increase – the nineteenth injection of 2013 – exceeded both last year's build of 47 Bcf and the 5-year (2008–2012) average addition of 56 Bcf for the reported week.

Following past week's build, the current storage level – at 3.063 trillion cubic feet (Tcf) – is now 44 Bcf (1.5%) above the 5-year average. However, supplies are still down 238 Bcf (7.2%) from the last year's level.

Natural gas stocks hit an all-time high of 3.929 Tcf in 2012, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remained robust. In fact, the oversupply of natural gas pushed down prices to a 10-year low of $1.82 per million Btu (MMBtu) during late Apr 2012 (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana).

However, things started to look up in 2013. This year, cold winter weather across most parts of the country boosted natural gas demand for space heating by residential/commercial consumers. This, coupled with flat production volumes, meant that the inventory overhang was gone, thereby driving commodity prices to around $4.40 per MMBtu in Apr – the highest in 21 months.

Outlook

During the last few weeks, though, natural gas demand has gone through a relatively lean period, as mild weather – from July through mid-August – prevailed over the country, leading to tepid electricity draws to run air conditioners. This has led to a slide in the commodity's price. In fact, healthy injections over last few weeks, plus strong production have meant that supplies have overturned the deficit over the five-year average for the first time since late March.

But with hotter-than-normal weather expected  during the next few weeks, leading to strong electricity draws to run air conditioners, natural gas price may experience another upward curve.

This, in turn, is expected to buoy natural gas producers, particularly small ones like Carrizo Oil & Gas Inc. (Nasdaq:CRZO-Free Report). While big players like Exxon Mobil Corp. (NYSE:XOM-Free Report) and Southwestern Energy Co. (NYSE:SWN-Free Report) – both Zacks Rank #3 (Hold) stocks  – would also benefit from the improved fundamentals, they are large-cap, low-beta entities with slow price action.  

As such, we advise investors to accumulate Carrizo shares, which sports a Zacks Rank #1 (Strong Buy). With the financial incentive to produce the commodity and the subsequent improvement in the company's ability to generate positive earnings surprises, it has the potential to rise significantly from current levels.

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

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