The Zacks Analyst Blog Highlights: St. Jude Medical, Fred's, Dollar General, Costco Wholesale and Dollar Tree

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Aug 29, 2013, 09:30 ET

CHICAGO, Aug. 29, 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 St. Jude Medical (NYSE:STJ-Free Report), Fred's Inc (Nasdaq:FRED-Free Report), Dollar General Corp (NYSE:DG-Free Report), Costco Wholesale Corp (Nasdaq:COST-Free Report) and Dollar Tree Inc. (Nasdaq:DLTR-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 Wednesday's Analyst Blog:

St. Jude Upgraded to Buy

On Aug 28, Zacks Investment Research upgraded St. Jude Medical (NYSE:STJ-Free Report) to a Zacks Rank #2 (Buy).

Why the Upgrade?

St. Jude's second-quarter adjusted earnings per share of 96 cents beat the Zacks Consensus Estimate of 94 cents and transcended the year-ago earnings by 9.1%. Revenues grew 2% in constant currency to $1,403 million, comfortably exceeding the Zacks Consensus Estimate of $1,364 million.

Based on its progress, STJ raised the bottom end of its adjusted earnings for the year to the band of $3.70–$3.73 from the earlier band of $3.68–$3.73. Following the announcement of the second quarter results on Jul 17, share price increased 11.9% to $50.45 on Aug 27. Moreover, the company's share price surged 39.4% on a year-to-date basis.

Moving ahead, in Aug 2013, the company's AF division received the U.S. Food and Drug Administration (FDA) approval for its latest MediGuide Enabled Ablation Catheters. St. Jude considers the MediGuide technology to be the most important growth driver for its AF products portfolio under its Cardiovascular and Ablation Technologies Division (CATD).

Further, the AF division acquired Geneva, Switzerland-based Endosense to expand its product base in both the international and U.S. markets. Endosense is the first to develop a force-sensing technology — TactiCath ablation catheter — to measure the amount of force applied to the heart wall during a catheter ablation procedure.

The Zacks Consensus Estimate for 2013 increased 0.8% to $3.72 per share over the last 60 days. The Zacks Consensus Estimate for 2014 also increased 1.3% to $3.97 in the same period.

Will Fred's Beat Estimates This Quarter?

Fred's Inc (Nasdaq:FRED-Free Report) is set to report second quarter fiscal 2013 results on Aug 29. Last quarter, it posted a 10.7% positive surprise. Let's see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Fred's is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: The expected surprise prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +11.11%. This is meaningful and a leading indicator of a likely positive earnings surprise for the shares.

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

The combination of Fred's Zacks Rank #3 (Hold) and a positive ESP of +11.11% makes us confident of an earnings beat on Aug 29.

What is Driving the Better-than-Expected Earnings?

We believe that the company's strategic turnaround initiatives to improve its same-store sales will be the driving factor in the second quarter.

After suffering from declining same-store sales for several months, Fred's embarked on a 3-year reconfiguration plan in early June.

As part of this plan, Fred's shifted its focus to higher margin categories from lower-margin consumable categories. Fred's is remodeling and refreshing its store layouts and allocating space for the key revenue-generating categories. Moreover, keeping in view the substantial contribution of the pharmacy department in its operating income, Fred's is expanding the department in all its stores. The initiatives are already bearing fruit as the company posted decent total and comparable sales for the months of Jun and Jul 2013. We believe the initiatives will continue to deliver solid comps growth in the second quarter.

Other Stocks to Consider

Here are some other companies in the retail sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Dollar General Corp (NYSE:DG-Free Report), Earnings ESP of +1.35% and a Zacks Rank #2 (Buy).

Costco Wholesale Corp (Nasdaq:COST-Free Report), Earnings ESP of +0.69% and a Zacks Rank #3 (Hold).

Dollar Tree Inc. (Nasdaq:DLTR-Free Report), Earnings ESP of +1.70% and 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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