Zacks Analyst Blog Highlights: Johnson and Johnson, Vivus, Dick's Sporting Goods, Foot Locker and Wal-Mart Stores

CHICAGO, March 10, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Johnson and Johnson (NYSE: JNJ), Vivus Inc. (Nasdaq: VVUS), Dick's Sporting Goods Inc. (NYSE: DKS), Foot Locker Inc. (NYSE: FL) and Wal-Mart Stores Inc. (NYSE: WMT).

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Here are highlights from Wednesday's Analyst Blog:

Topamax Linked to Birth Defects

The US Food and Drug Administration (FDA) recently issued a warning to pregnant women or women of child-bearing age who were being treated either with epilepsy drug Topamax (topiramate) or its generic equivalent. The regulatory body said that there was a risk of oral clefts among babies born to women who were on the drug during their pregnancy. Oral clefts can lead to problems of eating or talking and to ear infections in new born.

The FDA intends to implement a stronger warning on the label of topiramate in order to caution patients about the risks associated with the drug.

Johnson and Johnson (NYSE: JNJ) markets Topamax for the treatment of certain types of seizures in epilepsy patients. The drug is also used to prevent migraine headaches. However, Topamax cannot be used to relieve the pain of migraines. The drug lost patent protection in 2009 and has been facing severe generic competition since then.

Vivus Inc. (Nasdaq: VVUS) was affected by the news as the company's lead pipeline candidate, Qnexa, is a combination drug of topiramate and phentermine.

The warning by the FDA about birth defects among pregnant women being treated with topiramate is an additional setback for Qnexa, which has already received a complete response letter (CRL) in October 2010. The regulatory body had asked for clinical and safety update, labeling change and a Risk Evaluation and Mitigation Strategy for Qnexa. Vivus has submitted a briefing document to the FDA in response.

Vivus is also studying Qnexa as a treatment for obstructive sleep apnea and diabetes. For both the indications, the candidate has completed mid-stage trials.

Apart from Qnexa, the company has one more drug in its pipeline – avanafil – which recently reported positive late-stage trial results on erectile dysfunction (ED). Vivus plans to complete the new drug application (NDA) filing for avanafil for ED in the second quarter of 2011.

Neutral on Vivus

We currently have a Neutral recommendation on Vivus, which is supported by a Zacks #3 Rank (short-term Hold rating). We expect investor focus to remain on Vivus' future course of action for avanafil and the approval of Qnexa.

Dick's Upbeat Quarter Tops Estimates

Dick's Sporting Goods Inc. (NYSE: DKS), an authentic full-line sporting goods retailer, posted strong fourth quarter 2010 results, ended January 29, 2011, on the heels of higher sales and improved margins. Quarterly earnings climbed to 76 cents a share from the year-ago level of 56 cents and comfortably outpaced its earnings guidance in the range of 69 to 71 cents. Dick's also surpassed the Zacks Consensus Estimate of 72 cents.  On a GAAP basis, the company reported earnings per share of 71 cents.

In fiscal 2010, the company reported earnings per share of $1.63 compared with $1.20 in fiscal 2009 and beat the Zacks Consensus Estimate of $1.59.

A 9.4% increase in consolidated comparable-store sales (comps) and opening of new stores aided the 13.6% year-over-year increase in total revenue, which climbed to $1,518.9 million. Total revenues beat the Zacks Consensus Estimate of $1,450.0 million.

The comps growth was driven by an 8.6% rise in Dick's Sporting Goods store sales, a 2.2% increase in Golf Galaxy store sales, coupled with a 36.3% growth in e-commerce.

Gross profit came in at $479.6 million, up 23.0% year over year. Gross margin improved 240 basis points to 31.6%. Operating profit increased 29.1% year over year to $145.9 million, resulting from higher gross profit.

Financial Aspects

Dick's ended the year with cash and cash equivalents of $546.1 million and long-term debt of $139.8 million.

Store Update

In the reported quarter, Dick's opened 8, remodeled 1, relocated 1 and closed 1 Dick's Sporting Goods Store, bringing the total to 444 stores in 42 states. The company also opened 2 new Golf Galaxy stores. The Golf Galaxy store count in 30 states came in at 81.

Dick's plans to open 3 new Dick's Sporting Goods stores in the first quarter of 2011.

In fiscal 2011, the company expects to open 34 and remodel 13 Dick's Sporting Goods stores. Dick's also has plans to open 3 new Golf Galaxy stores.

Guidance

For first quarter 2011, Dick's expects earnings per share to be between 26 cents and 28 cents and comps to rise between 4% and 5%. The Zacks Consensus Estimate for the quarter is pegged at 27 cents a share.

For full year 2011, management expects earnings in the range of $1.89 to $1.91 per share, while comps are expected to increase 3.0%. The Zacks Consensus Estimate for fiscal 2011 earnings stands at $1.59.

Our Recommendation

Pittsburgh-based Dick's Sporting Goods is a full-line sporting goods retailer offering a broad assortment of brand name sporting goods equipment, apparel and footwear in a specialty store environment.

Dick's remains the dominant player in the industry with significant store expansion and potential share gain opportunities in the U.S. We remain optimistic about the company's competitive position, quality of management and consistency of earnings growth.

However, the sporting goods market is highly competitive in nature and Dick's failure to compete effectively in terms of price, quality or product will hamper its growth potential. The company faces competition from Foot Locker Inc. (NYSE: FL) and Wal-Mart Stores Inc. (NYSE: WMT). Moreover, a weak economy will likely continue to weigh on the company's profitability in the long term.

Dick's Sporting Goods currently has a short-term Zacks #2 Rank ('Buy') rating. We maintain our long-term Neutral recommendation on the company.

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