The Zacks Analyst Blog Highlights:Tesla Motors, Boeing,ITT, IDEX and Nordson
CHICAGO, Aug. 28, 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 Tesla Motors, Inc. (Nasdaq:TSLA-Free Report), Boeing Company (NYSE:BA-Free Report), ITT Corporation (NYSE:ITT-Free Report), IDEX Corporation (NYSE:IEX-Free Report) and Nordson Corporation (Nasdaq:NDSN-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:
Tesla Gigafactory & the Budget Watchdogs
Tesla Motors, Inc.'s (Nasdaq:TSLA-Free Report) $5 billion gigafactory, the construction of which is being contended by five states, has seen a new development. Recently, budget watchdogs from the five states, led by Good Jobs First, have written an open letter to the states regarding the incentives and tax breaks being offered to lure the electric carmaker.
They compared the competition between the states to offer higher sops to Tesla to a public auction with an opening bid of $500 million in subsidies. Good Jobs First is a Washington, D.C.-based organization that monitors company-specific subsidy deals.
According to the budget watchdogs, including the California Budget Project, the Progressive Leadership Alliance of Nevada and Texans for Public Justice, the states should refrain from doling out excessive tax breaks and incentives to companies. The concerned states are trying to attract Tesla as the gigafactory will not only lead to a $5 billion investment, but will also create around 6,500 manufacturing jobs, which provide better wages and benefits compared to service sector jobs.
While Tesla had broken ground for the potential construction of the Gigafactory near Reno, NV in June, it said that the final location of the factory has not been decided. Tesla is planning to hold a ground-breaking ceremony for the factory at three sites to avoid any delay in construction. Construction work will begin at one of the three sites by the end of the year and will be wrapped up by 2017.
Consequently, Arizona, California, New Mexico and Texas are still in contention for the deal and are trying to offer incentives to attract Tesla. The automaker expects the state to cover about 10% of the cost of the gigafactory. According to market speculation, only California and Texas have adequate tax bases and budget to cover the cost.
However, the high taxes and environmental regulations in California may prove to be a deterrent. In fact, the state was initially not considered for the gigafactory due to these factors. However, it is expected that California will offer a California Competes tax credit, a local property tax credit and an accelerated, streamlined process for meeting the requirements of the California Environmental Quality Act to lure Tesla.
Nevertheless, budget watchdogs believe that while the project is lucrative, the level of incentives being offered might prove to be disadvantageous for the state in which the gigafactory is constructed.
Currently, Tesla sports a Zacks Rank #1 (Strong Buy).
Capital Goods Orders Impress: 3 Stock Picks
Durable orders posted impressive gains in July, lifted by large orders for aircraft. The metric increased 22.6% in July, following an upward revision for gains in June to 2.7%. The sole jarring note in the report was the decline in orders for non-military capital goods. These orders dipped 0.5% in July.
Aircraft, Auto Orders Shine
The major driver of growth in July was transportation orders, which moved up 74.2%, the largest-ever increase. This in turn was lifted by a 318% increase in civilian aircraft bookings. This is the highest increase in orders since Jan 2011. The Boeing Company (NYSE:BA-Free Report) said that it received orders for 324 aircraft in July, another record number, making a significant contribution to this upsurge.
At the same time, orders for the auto sector increased the highest in five years. Motor vehicles and auto parts orders increased 10.2%, following a 1.3% decline in June.
Decline in Non-Defense Orders
The decline in orders for non-defense capital goods orders was the sole blot in the durable orders report. Orders for business equipment dipped 0.5% in July, contrary to most estimates which predicted a marginal increase.
However, the decline in orders was accompanied by a revision to the June numbers. The increase in non-defense capital goods orders for June was revised upward to 5.4%. This is the largest upward revision since Jan 2011.
Moreover, capital goods orders increased at an annualized rate of 14.9% over the last six months. This is the fastest pace of increase since Jun 2013. During the same period, shipments increased 10.8%. This is the largest advance experienced since 2011 end.
Capital Goods Orders Revision Crucial
There are several reasons why revisions in capital goods orders are more significant than the more noticeable gains being reported. Firstly, the primary growth driver of durable orders is aircraft bookings. These orders will take a considerable amount of time to execute and may be cancelled during this period. In the long term, this is certainly good news. However, these orders may not result in higher production right now.
Additionally, sales surveys are better indicators of the automotive sector. This is particularly significant because this is an advance report, which may be revised significantly later.
This is why the revisions in business equipment orders are important. Firstly, they are firmer indicators for an earlier period. Further, companies must be reasonably confident that they can sell the goods they produce using such equipment. This bodes well for the economy as a whole.
Our Choices
Overall, data for capital goods orders looks promising. Analysts believe that the second half of the current year will witness a higher level of capital expenditure. Below we present three stocks which will gain from this trend, each of which also has a good Zacks Rank.
ITT Corporation (NYSE:ITT-Free Report) is a global multi-industry leader in high-technology engineering and manufacturing. It is engaged in the design, manufacture and sale of a wide-range of engineered products and the provision of services.
The company is headquartered in New York City and employs approximately 8,500 people worldwide. ITT continues to benefit from ongoing restructuring initiatives. In 2013, the company posted sales and revenues of $2.5 billion. ITT reported strong first-quarter 2014 results with growth across both top and bottom lines.
ITT holds a Zacks Rank #2 (Buy) and has expected earnings growth of 21%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 19.82.
IDEX Corporation (NYSE:IEX-Free Report) is an applied solutions company that specializes in a diverse range of applications such as fluid and metering technologies; health and science technologies; and fire, safety and other products built to customer specifications.
Serving high-growth niche markets, the company operates under three business segments. These are Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products. IDEX sells its products to original equipment manufacturers (OEMs), as well as to direct end-use customers across the globe.
The company currently holds a Zacks Rank #2 (Buy) and has expected earnings growth of 14.6%. It has a P/E (F1) of 21.93.
Nordson Corporation (Nasdaq:NDSN-Free Report) is one of the world's leading producers of precision dispensing equipment that applies adhesives, sealants and coatings to a broad range of consumer and industrial products during manufacturing operations.
The company also manufactures technology-based systems for curing and surface treatment processes. Headquartered in Westlake, Ohio, Nordson markets its products via a direct operations network spread across 30 countries. The company purchased Avalon Laboratories Holding Corp. earlier this month.
Apart from a Zacks Rank #2 (Buy), Nordson has expected earnings growth of 14.1%. It has a P/E (F1) of 21.09.
The uptrend in orders for commercial capital goods is a welcome sign for the economy. The spurt in aircraft orders is primarily due to foreign purchases while the capital goods metric is an indicator of strong domestic demand. In such a business environment, these stocks would make good additions to your portfolio.
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