The Zacks Analyst Blog Highlights:Staples, ResMed, Covidien, Stryker and SurModics

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Mar 12, 2014, 09:30 ET

CHICAGO, March 12, 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 Staples, Inc. (Nasdaq:SPLS-Free Report), ResMed, Inc. (NYSE:RMD-Free Report), Covidien plc (NYSE:COV-Free Report), Stryker Corp. (NYSE:SYK-Free Report) and SurModics, Inc. (Nasdaq:SRDX-Free Report).

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

Here are highlights from Tuesday's Analyst Blog:

Staples Down to Strong Sell

On Mar 11, 2014, Zacks Investment Research downgraded Staples, Inc. (Nasdaq:SPLS-Free Report) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Staples has witnessed sharp downward estimate revisions over the last 7 days. The primary reason behind this was the company's lackluster fourth-quarter fiscal 2013 performance. Notably, over the past few quarters, this office supplier retailer has continuously posted disappointing results. The company missed the Zacks Consensus Estimate in the trailing four quarters by an average of 8.2%.

Lower sales due to store closures and stiff competition from online retailers weighed on Staples' performance. Fueling further concern, the company announced the closure of 225 stores across North America through 2015.

On Mar 6, Staples posted fourth-quarter fiscal 2013 earnings per share of 33 cents, which was below the Zacks Consensus Estimate of earnings of 39 cents and down 28.3% year over year. Total sales decreased 10.6% year over year to $5,873.0 million and fell short of the Zacks Consensus Estimate of $5,973 million.

Given the near-term challenges, the company expects lower sales for the first quarter of fiscal 2014 as compared with the prior-year quarter. Staples expects earnings per share in the range of 17–22 cents.

To boost its performance, Staples declared that it would initiate a cost reduction program to achieve pre-tax cost savings of about $500 million annually by 2015.

Owing to the headwinds with which the company is grappling at present, analysts remain highly apprehensive, as evident from the downward estimate revisions. Over the last 7 days, the Zacks Consensus Estimate fell 8.4% to $1.20 per share for fiscal 2014 while for fiscal 2015, it declined 11.4% to $1.17 per share.

Coverage Initiated on Buy-Ranked ResMed

On Mar 10, 2014, we initiated coverage on ResMed, Inc. (NYSE:RMD-Free Report). ResMed delivered a weak second-quarter fiscal 2014 with both the top and the bottom line lagging the respective Zacks Consensus Estimate. However, the still-untapped obstructive sleep apnea (OSA) market should catalyze growth in the near term.

In the quarter under review, the company's adjusted earnings per share of 60 cents missed the Zacks Consensus Estimate by 3 cents. Results, however, surpassed the prior-year quarter's earnings of 53 cents per share, registering an increase of 13.2% year over year. Revenues also grew 2.1% year over year to $384.3 million but remained well below the Zacks Consensus Estimate of $396 million.

The CMS decision on competitive bidding was a major letdown for the company. In the last reported quarter, net revenue in North and Latin America declined 2% primarily due to increased competitor activity and market restructuring on account of competitive bidding. Moreover, the ongoing headwind related to reimbursement issues across the world along with the recent healthcare reform in the U.S. is taking a toll on the company's business.

However, ResMed continues to gain from a solid foothold in the huge sleep-disordered breathing (SDB) market. According to the company, several initiatives are now being taken to increase awareness regarding OSA. This has led to improved understanding of the role of SDB treatment in the management of cardiac, neurologic, metabolic and related disorders, and has driven an increase in home-based diagnosis, which in turn, promises a growing SDB market for the company in the near future.

Continuous solid overseas growth amid several macroeconomic uncertainties is also encouraging. Robust pipeline development also bolsters confidence. Meanwhile, ResMed has been rewarding its shareholders with attractive share repurchases and dividends.

The stock currently carries a Zacks Rank #2 (Buy).

Key Picks from the Sector

Other stocks like Covidien plc (NYSE:COV-Free Report), Stryker Corp. (NYSE:SYK-Free Report) and SurModics, Inc. (Nasdaq:SRDX-Free Report) are also expected to do well. All the three stocks hold the same Zacks Rank as ResMed.

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

About Zacks Equity Research

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