The Zacks Analyst Blog Highlights:Iconix Brand Group, Nike, Brown Shoe, Rocky Brands and Kraft Foods Group

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Jul 31, 2013, 09:30 ET

CHICAGO, July 31, 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 Iconix Brand Group, Inc (Nasdaq:ICON-Free Report), Nike, Inc. (NYSE:NKE-Free Report), Brown Shoe Inc (NYSE:BWS-Free Report), Rocky Brands Inc (Nasdaq:RCKY-Free Report) and Kraft Foods Group, Inc, (Nasdaq:KRFT-Free Report).

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Here are highlights from Tuesday's Analyst Blog:

Iconix Upgraded to Strong Buy

Zacks Investment Research upgraded Iconix Brand Group, Inc (Nasdaq:ICON-Free Report) to a Zacks Rank #1 (Strong Buy) on Jul 27 on the back of impressive second quarter 2013 results and an enhanced guidance for the year.

Why the Upgrade?

Iconix reported solid second quarter 2013 results on Jul 24. Earnings of 72 cents increased 60% from the year-ago earnings, bolstered by top-line growth, strategic acquisitions and lower share count owing to buybacks.

Total revenue surged 23% year over year to $115.1 million backed by the company's strong brand portfolio, recent acquisitions and continued focus on international expansion, which includes the new joint venture in Canada. The formation of this new joint venture in Canada contributed approximately $9.8 million to current quarter revenues.

Both earnings and revenues surpassed the Zacks Consensus Estimate. In fact, Iconix has beaten the Zacks Consensus Estimate in the past four quarters with an average earnings surprise of 11.21%.

Iconix also bought back 5.2 million shares in the second quarter. During the quarter, Iconix's board authorized a new share repurchase program to repurchase up to $300 million shares over a three-year period.

Following solid second quarter 2013 results, Iconix raised its 2013 adjusted earnings guidance to $2.20–$2.30 per share from the previously announced range of $2.10–$2.20 per share. The company has raised its earnings guidance in its last two quarters to include the impact of acquisitions made in the recent past. Moreover, Iconix expects to deliver over 20% revenue and earnings per share growth for 2013.

Estimates have mostly increased after the strong second quarter results and upbeat outlook for the year. The Zacks Consensus Estimate increased 6.0% to $2.30 per share for 2013, while it grew 2.5% to $2.43 per share for 2014 over the past 7 days.

Iconix's overall growth story looks compelling. This clothing brand licensing company has been aggressively acquiring brands and entering into joint ventures to expand its portfolio, having added the rest of Ecko and Marc Ecko Cut & Sew under its banner in May 2013.

In late Feb 2013, Iconix acquired the renowned lifestyle brand Lee Cooper and earlier in the same month, formed a joint venture with Buffalo International ULC to acquire a 51% interest in the latter's Buffalo David Bitton brand. The acquisition of the renowned football brand Umbro from Nike, Inc. (NYSE:NKE-Free Report) in early-Dec 2012 added another iconic brand to its portfolio.

Other Stocks to Consider

Other stocks in the consumer discretionary industry that are worth considering are Brown Shoe Inc (NYSE:BWS-Free Report) and Rocky Brands Inc (Nasdaq:RCKY-Free Report), both of which carry a Zacks Rank #1.

Will Kraft Foods (KRFT) Beat Earnings This Quarter?

We expect the food company, Kraft Foods Group, Inc, (Nasdaq:KRFT-Free Report), to beat expectations when it reports second-quarter 2013 results after market closes on Aug 1.

Why a Likely Positive Surprise?

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

Positive Zacks ESP: 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 at 10.45%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks #3 Rank (Hold): Kraft carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks of #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Kraft's Zacks Rank #3 (Hold) and 10.45% ESP makes us very confident about a positive earnings beat on Aug 1.

What is Driving the Better-Than-Expected Earnings?

Volume growth on the back of solid innovation and stepped-up advertising spend behind its biggest brands is expected to boost revenues in the fourth quarter for this packaged food/beverage company. This combined with aggressive cost reduction and improved efficiency is expected to lead to a positive earnings surprise in the upcoming quarter.

The positive trend is seen in the trailing three-quarter average surprise of 41.0%, including a 16.9% surprise in the last-reported quarter. This was possible because of the better-than-expected top-line performance. Kraft's cost savings outpaced brand reinvestments playing an important role in driving results.

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