The Zacks Analyst Blog Highlights:SanDisk, Micron, Western Digital, Seagate Technology and Yum! Brands
CHICAGO, Jan. 15, 2014 /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 SanDisk Corp. (Nasdaq:SNDK-Free Report), Micron (Nasdaq:MU-Free Report), Western Digital Corp. (Nasdaq:WDC-Free Report), Seagate Technology plc (Nasdaq:STX-Free Report) and Yum! Brands Inc. (NYSE:YUM-Free Report).
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Here are highlights from Tuesday's Analyst Blog:
SanDisk Downgraded to Neutral
We have downgraded our recommendation on SanDisk Corp. (Nasdaq:SNDK-Free Report) to Neutral due to the continued declines in PC sales and the anticipated increase in expenses that are expected to impact the near-term results.
Why the Downgrade?
Despite reporting better-than-expected third-quarter results and forecasting a favorable solid state drive (SSD) revenue growth, favorable product mix and better supply/demand metrics in fiscal 2013, SanDisk expects its expenses to increase in the fourth quarter primarily due to expenditure related to the SMART Storage Systems acquisition, seasonal marketing, and increase in R&D costs. These factors are expected to have an impact on the company's bottom line.
Though SanDisk did not provide any earnings forecast, it is worth noting that the Zacks Consensus Estimate for the fourth quarter is pegged at $1.47. Incidentally, SanDisk delivered earnings per share of $1.51 in the previous quarter (third-quarter 2013).
Although we believe the SMART Storage Systems acquisition is expected to expand SanDisk's offering in the Enterprise SSD segment and its 19-nm technology is already gaining traction, we remain concerned due to the competitive pressures in the NAND and SSD space. It is noteworthy that Micron's (Nasdaq:MU-Free Report) share in the NAND memory market has increased with the acquisition of the Japanese chip-maker, Elpida.
Apart from Micron, SanDisk is expected to face stiff competition from two new entrants in the SSD market, namely Western Digital Corp. (Nasdaq:WDC-Free Report) and Seagate Technology plc (Nasdaq:STX-Free Report). Moreover, continued microeconomic sluggishness, tepid IT spending and dismal PC sales are the headwinds that can mar the company's results in the near term. Per the data provided by IDC, PC shipments contracted 5.6% on a year-over-year basis to 82.2 million units in the fourth quarter of 2013.
Currently, SanDisk has a Zacks Rank #3 (Hold). Investors can also consider better-ranked stocks such as Western Digital and Broadridge Financial Solutions which boast a Zacks Rank #1 (Strong Buy).
YUM's China Sales Surge in December
Leading Kentucky-based restaurateur, Yum! Brands Inc. (NYSE:YUM-Free Report) has recently reported a 2% rise in its China same-store sales (comps) for the month of Dec 2013, better than the November comps growth of 1%.
The comps growth was driven by a 5% sales increase at KFC, offsetting a 3% decline in sales for the Pizza Hut Casual Dining brand.
The company has witnessed positive comps growth for its Chinese Division in both October and November against a decline in most of the prior months. The China Division accounts for more than double of the U.S. revenues.
The negative publicity regarding the quality of chicken supplied to KFC China in Dec 2012 and the outbreak of avian flu in mid-April have been hurting the company's top line since fourth-quarter 2012.
Additionally, Yum! declared China Division's sales expectation for fourth-quarter 2013 (comprises of September, October, November and December) which is estimated to decrease by 4%. The decline is expected to be due to a 4% fall in KFC comps, offset by a 5% rise in the same at Pizza Hut. This is, however, in line with management's expectation of lower sales results for the fourth quarter.
Poor sales at KFC China in Sep & Oct 2013 compelled Yum! Brands to admit that comps in the region will continue to be down in the fourth quarter as well. However, management expects its business to improve from 2014 onwards driven by new sales-driving initiatives.
In an attempt to improve brand recognition and concentrate on high-potential geographical markets, especially China and India, the company has recently reorganized and merged its Yum! Restaurants International (YRI) and the U.S. divisions for each of its three brands — KFC, Pizza Hut and Taco Bell.
Given its persistent efforts, the company expects operating profit at its China division to grow 40.0% in 2014. However, it expects foreign currency translation to have a slightly negative impact on 2014 results.
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