The Zacks Analyst Blog Highlights: Tractor Supply, The Home Depot, Lowe's Companies, Lockheed Martin and Northrop Grumman

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Feb 10, 2012, 09:30 ET

CHICAGO, Feb. 10, 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 Tractor Supply Co. (Nasdaq: TSCO), The Home Depot Inc. (NYSE: HD), Lowe's Companies Inc. (NYSE: LOW), Lockheed Martin Corporation (NYSE: LMT) and Northrop Grumman Corporation (NYSE: NOC).

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Here are highlights from Thursday's Analyst Blog:

Earnings Scorecard: Tractor Supply Co.

Tractor Supply Co. (Nasdaq: TSCO) ended fiscal 2011 keeping pace with its trend of consistently outperforming the Zacks Consensus Estimate. For the straight four quarters of 2011, including the recently reported fourth quarter, the company on an ongoing basis posted earnings surprises, resulting in an average surprise of 17.10%. Earnings surprise for the most recent quarter was 4.35%, beating the Zacks Consensus Estimate by 4 cents per share.

Agreement – Estimate Revisions

The agreement of estimate revisions, following the close of fiscal 2011, displayed mixed sentiments among the analysts. However, overall, the revisions indicated increasing sentiments for all mentioned periods expect the second quarter of 2012. For the upcoming quarter, 4 out of 18 analysts, made upward estimate revisions while 2 analysts pulled down estimates in the last 7 days. Over the past month, 6 analysts moved up their estimates for the first quarter of 2012 while 2 analysts moved down the same.

Estimates for the second quarter of 2012, in the last 7 days, witnessed only downward movements with 10 out of 17 analysts lowering estimates while none raised the same. In the 30-day period, 1 analyst raised estimates for the second quarter while 9 analysts lowered estimates.

For full-year 2012, estimate revisions in the last 7 days were positive with 3 out of 18 analysts raising estimates and none of them lowering estimates. The last 30 days saw 17 analysts increasing estimates for 2011 and 1 analyst decreasing estimates. For 2013, 2 out of 18 analysts upped their estimates with only 1 analyst slashing them in the last 7 days. In the last 30 days, estimates for 2013 moved in a single direction with 5 analysts raising estimates.

Magnitude – Consensus Estimate Trend

The estimate revisions in the last 7 and 30 days clearly reflect an upward trend in the Zacks Consensus Estimate for the upcoming quarter and fiscal years 2012 and 2013. However, the revisions point to a downside in the Zacks numbers for the second quarter of 2012.

Following the estimate changes, the Zacks Consensus Estimate for the first quarter of 2012 moved up by a penny to 31 cents per share in the last 30 days, while it remained stable over the last 7 days. Reflecting negative revisions, the Zacks Consensus Estimate for second-quarter 2012 moved down 4 cents to $1.43 per share over the past month, while the downside was 5 cents in the last 7 days.

Positivity also surrounded the fiscal year estimates with the Zacks Consensus Estimate for fiscal 2011 moving up 10 cents to $3.48 per share in the 30-day period and up 3 cents in the last 7 days. For fiscal 2012, the Zacks Consensus Estimate increased 17 cents to $4.09 per share in the past month and was down 2 cents in the 7-day period.

Conclusion

On the back of perked-up results and brighter sales trends witnessed in 2011, the Tennessee-based retail farm and ranch store chain is expecting earnings of $3.38 to $3.46 per share for fiscal 2012, a growth of 12% - 15% from fiscal 2011 earnings of $3.01. Moreover, the company has set a long-term target of generating 25% of sales from private label brands and 13% from strategic direct sourcing.

Further, in an effort to boost margins, Tractor Supply is expanding its portfolio of private label brands and is also focusing on direct sourcing.

Besides, the economy is showing signs of stability in the housing market as consumer spending on small projects are witnessing considerable growth.

Tractor Supply is the largest operator of farm and ranch stores in the U.S., a unique market niche that serves the lifestyle needs of recreational farmers and ranchers. The company's stores are strategically located in small towns, close to its target customers, which provide a competitive edge over its rivals, such as The Home Depot Inc. (NYSE: HD) and Lowe's Companies Inc. (NYSE: LOW).

Tractor Supply's shares have a Zacks #2 Rank, which translates into a short-term 'Buy' rating. Our long-term recommendation on the stock remains Outperform.

Earnings Scorecard: Lockheed Martin

Lockheed Martin Corporation (NYSE: LMT), the defense industry goliath, exited fiscal 2011 on a mixed note. Lockheed Martin reported strong bottom line beating past the market apprehension but missed the top line. The company posted fourth-quarter 2011 operating earnings of $2.53 per share, beating the Zacks Consensus Estimate of $1.94 and the year-ago quarterly earnings of $2.28.

Lockheed Martin also affirmed its fiscal 2012 earnings to be in the range of $7.70 – $7.90, on revenues in the range of $45 billion to $46 billion. The market reaction was mostly positive as judged from the response of analysts covering Lockheed Martin.

Agreement – Estimate Revisions

Estimates for Lockheed Martin saw no activity over the past week with no movement in either direction for both the first quarter and fiscal 2012. Over the past month, estimates have tilted towards the positive side with 12 (out of 17 analysts) having raised their forecasts for fiscal 2012 coupled with 2 downward revisions. Lockheed Martin's better-than-expected results and its status as the largest U.S. defense contractor seem to be the driving factor for the positive estimate revisions.

However, for the first quarter, estimates manifest no bias with 4 (out of 19 analysts) upward and negative revisions each over the past month. Such a mixed sentiment clearly depicts the analysts' worry about a shrinking order backlog base.

Magnitude – Consensus Estimate Trend

Lockheed Martin's fourth-quarter, bottom-line beat, however, failed to allay market trepidations about potential cutbacks for its large programs like the C-130J and Joint Strike Fighter. Any future concerns about the U.S. federal deficit may have an adverse affect on defense spending, especially on Lockheed Martin's high-cost platform programs. Also, Lockheed carries a sizeable pension liability. The company's operating earnings and future cash flows can be affected by higher pension costs in lower interest rate environments. This has influenced estimate revisions for the near term. Looking at estimate revisions for the ongoing quarter, the consensus has inched up by a penny each over the past week and the past month. Currently, the quarterly Zacks Estimate stands at $1.69.

However, strong earnings in the fourth quarter stemmed the tide for the current quarterly estimate. The major beneficiary has been the fiscal 2012 Zacks Consensus Estimate which climbed from $7.79 to $7.86 over the last 30 days. The long-term bullishness stands from market expectations riding on Lockheed programs like the THAAD, Pac-3, and F-35 to name a few.

Price Stats

Since its last earnings release on January 26, 2012, Lockheed Martin's market price increased 6.3% to $87.64 as of February 8, 2012. During trading hours on February 8, the stock reached the day low of $86.14 and the day high of $87.71. The stock price attained the 52-week high of $87.71 on February 8, 2012. In contrast is the 52-week low of $66.36 in the first half of August 2011.

Reiterate Neutral

We currently remain on the sidelines on Lockheed Martin due to U.S. economic fundamentals being kept on a leash as the Euro-crisis continues. This keeps the risk high for further cutbacks in defense budgets. However, we believe market pessimism is fully accounted for in the current valuation of the defense behemoth, which is priced at a discount to both industry peers and the overall market. Over the longer run, we expect the company to register a stable performance thanks to a leveraged presence in the Army, Air Force, Navy and IT programs. Also, shareholder return will continue to be shored up by the company's focus on debt repayment, its ongoing share repurchase program and the incremental dividend.

However we believe all the above-mentioned positives have already been taken into account in the current share price. This justifies the Zacks #3 Rank, which translates into a short-term Hold recommendation.

Considering the company's business model and fundamentals, we have a long-term Neutral recommendation on the stock. This is in sync with its peers like Northrop Grumman Corporation (NYSE: NOC).

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