The Zacks Analyst Blog Highlights:Capella Education, Smithfield Foods, Pilgrim's Pride, Tyson Foods and Dole Food

Sep 05, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Sept. 5, 2013 /PRNewswire/ -- 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 Capella Education Company (Nasdaq: CPLA-Free Report), Smithfield Foods Inc (NYSE: SFD-Free Report), Pilgrim's Pride Corp (Nasdaq: PPC-Free Report), Tyson Foods Inc (NYSE: TSN-Free Report) and Dole Food Co Inc (NYSE: DOLE-Free Report).


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

Here are highlights from Wednesday's Analyst Blog:

Capella Education Upgraded to Outperform

On Sep 3, Zacks Investment Research upgraded Capella Education Company (Nasdaq: CPLA-Free Report) to Outperform following solid second quarter 2013 results released on Jul 23.

Why the Upgrade?

A provider of online post-secondary education services, Capella surpassed the Zacks Consensus Estimate for both revenue and earnings in the second quarter of 2013. Though the company's earnings of 83 cents declined 2.4% year over year, it surpassed the Zacks Consensus Estimate of 66 cents by 25.8% on the back of better-than-expected enrollment growth in the quarter.

Revenues of $103.7 million beat the Zacks Consensus Estimate of $102.0 million by 1.7% in second quarter 2013. Year over year revenue decline of 2.3% was better than management's expectation of a 3.0% to 4.0% decline, given better-than-expected enrollment growth.

Total active enrollment decline of 0.9% from the prior-year quarter was significantly lower than management's guidance of a decline of 2.0% to 3.0% due to improving persistent rates and solid increase in new enrollments.

New enrollments grew 12.7%, far exceeding management's expectation of sequentially flat results. We believe that Capella's relationship and brand-driven marketing strategy and initiatives to improve learner success rates have begun to bear fruitful results. Margins also exceeded management expectations in the quarter driven by top line growth and cost savings. Further, continuous innovation and efforts to update courses are boosting enrollments.

Following the solid second-quarter results 2013, the Zacks Consensus Estimate mostly moved upwards. The Zacks Consensus Estimate for 2013 increased 5.9% and that for 2014 went up 4.0% over the last 60 days.

Shuangui Gets Funds for Smithfield Deal

Hongkong-based Shuanghui International Holdings Limited has entered into a debt financing agreement with various banks in order to fund its pending merger with U.S. meat producer Smithfield Foods Inc (NYSE: SFD-Free Report). Shuanghui has tied up with Bank of China Limited, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Credit Agricole Corporate and Investment Bank, DBS Bank Ltd., Natixis, The Royal Bank of Scotland plc, Standard Chartered Bank (Hong Kong) Limited and Industrial & Commercial Bank of China (Asia) Limited to secure finance of approximately $4.0 billion. However, the closure of the merger is subject to approval by Smithfield shareholders and fulfillment of certain other customary closing conditions.

Per the deal signed on May 30, Shuanghui will acquire all of the outstanding shares of Smithfield for $34.00 per share, totaling $7.1 billion, including Smithfield's debt. The deal will open the doors for Smithfield to expand its footprint in China taking advantage of Shuanghui's solid distribution network.

As far as Shuanghui is concerned, it will be able to meet the growing demand for pork in its domestic market by gaining control of Smithfield's brands such as Smithfield, Armour and Farmland.

The deal is expected to close in the second half of 2013 and enjoys the support of local, state and national elected officials, industry labor unions, U.S. hog farmers, leading economic and international affairs academics and even U.S. based food industry peers. However, the transaction is yet to receive shareholder and related federal regulatory approvals.

Smithfield's shareholders are scheduled to vote on the transaction at a special shareholders meeting to be held on Sep 24, 2013. However, one of the largest shareholders of Smithfield, Starboard Value LP with beneficial ownership of approximately 5.7% is planning to vote against the acquisition deal as it is seeking other offers that would provide greater shareholder value to Smithfield's shareholders.

Starboard has sent a letter to Smithfield's board stating that it has received written interest from other parties to buy Smithfield's assets at a higher value than being offered under the current proposal. Starboard had also sent a letter to Smithfield's board of directors in June stating that it will be in the best interest of the shareholders if Smithfield sells off its various divisions like pork, hog production and international business individually rather than divesting the whole business all at once. Starboard also stated that the estimated value of the company is $9 billion$10.8 billion or $44$55 per share, which is much higher than the deal price of $34 per share.

Prior to this buyout offer, Continental Grain Co., another major shareholder, had sent a letter to the company in March urging a split, in order to improve its underperforming business and shareholder returns. After the deal with Shuanghui, Continental Grain sold its entire stake in the company.

Not only this, some U.S. regulators have also voiced concerns that a takeover of Smithfield by a Chinese firm could hurt U.S. food safety and raise prices for American consumers. They are apprehensive of food safety practices in China.

Smithfield holds a Zacks Rank #3 (Hold). Meat producers like Pilgrim's Pride Corp (Nasdaq: PPC-Free Report) with a Zacks Rank #1 (Strong Buy) and Tyson Foods Inc (NYSE: TSN-Free Report) with a Zacks Rank #2 (Buy) are better placed and are worth considering. Another food company Dole Food Co Inc (NYSE: DOLE-Free Report) holds a Zacks Rank #2 (Buy).

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

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