Zacks Analyst Blog Highlights: Target Corporation, Priceline.com, Expedia Inc, Kohl's Corp. and Transocean

News provided by

Feb 25, 2011, 09:30 ET

CHICAGO, Feb. 25, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Target Corporation (NYSE: TGT), Priceline.com Inc (Nasdaq: PCLN), Expedia Inc (Nasdaq: EXPE), Kohl's Corp. (NYSE: KSS) and Transocean Inc. (NYSE: RIG).

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579

Here are highlights from Thursday's Analyst Blog:

Target's Earnings Soar

Target Corporation (NYSE: TGT), the operator of general merchandise and food discount stores in the United States, recently posted fourth-quarter 2010 results. The quarterly earnings of $1.45 per share beat the Zacks Consensus Estimate of $1.40, and rose 17% from $1.24 earned in the prior-year quarter.

The Zacks Consensus Estimate for the quarter was stable prior to the earnings release, despite 3 out of 26 analysts covering the stock lowering their projections in the last 30 days.

The increase in quarterly earnings was driven by effective cost management and improved profitability at retail and credit card segments that overshadowed lower-than-expected sales. Moreover, lower-than-expected effective tax rate boosted the quarterly earnings by 7 cents a share.

Behind the Headline

Total revenue for the quarter climbed 2.4% to $20,661 million from the prior-year quarter but fell short of the Zacks Consensus Estimate of $20,839 million. Retail sales grew 2.8% to $20,277 million as shoppers are gradually opening up their wallets.

Minneapolis, Minnesota-based company, Target, said that comparable-store sales for the quarter grew 2.4%, reflecting a sharp rise over an increase of 0.6% registered in the prior-year quarter. The number of transactions rose to 1.6%, whereas the average transaction amount climbed marginally by 0.8% in the quarter.

Despite a 3.4% increase in cost of sales, gross profit at the Retail segment climbed 1.4% to $5,819 million, aided by sales growth witnessed across the segment; however, gross margin contracted slightly by 40 basis points to 28.7%. Segment operating income jumped 3.1% to $1,608 million, whereas operating margin remained flat at 7.9%.

The company said that revenue from the Credit Card segment tumbled 17% to $384 million. However, Target was quick to indicate that segment profit rose to $151 million in the quarter under review from $39 million delivered in the prior-year quarter helped by a decline in bad debt expenses.

Target's Strategic Initiatives

Management indicated that Target's store remodel program, 5% REDcard Rewards program and the new Target.com platform will help sustain sales momentum, continue to drive traffic and enhanced customer shopping experience in fiscal 2011.

Earlier, Target had hinted about its plans to remodel nearly 380 stores in fiscal 2011, which include an expanded grocery offering, improved store layout and enhancement of in-store shopping experience across departments, such as beauty, home, electronics and video games.

Moreover, by the end of 2011, Target plans to introduce P-fresh in-store food and grocery sections in approximately 850 discount stores. The company expects P-fresh to boost 2011 comparable-store sales by 1% to 2%.

Another opportunity, which Target is eyeing, is the opening of stores in international markets, such as Canada and Latin America. The company plans to open 100 to 150 stores in Canada by 2013 and 2014. We believe the opening of stores outside the United States will definitely boost the company's top and bottom lines and improve its cash flow generation capability.

Other Financial Details

During the quarter, Target repurchased about 7.6 million shares at a price of $54.60 per share, aggregating $414 million. In fiscal 2010, the company bought back 47.8 million shares at a price of $52.44 per share, aggregating $2.5 billion.

The company ended the quarter with cash and cash equivalents of $1,712 million, total unsecured debt and other borrowings of $11,653 million and shareholders' equity of $15,487 million.

Target currently, operates 1,750 stores in 49 states, of which 1,037 are general merchandise stores, 462 are expanded grocery assortment and 251 are SuperTarget stores.

Our View

Target's efficient marketing, multi-channel strategy, product innovation, compelling pricing strategy and new merchandise assortments, should help drive comparable-store sales and operating margins in the long term. We expect the company to gain market share, and believe that more focus on consumable items should boost sales and earnings in a sluggish consumer environment.

Target now tends to focus more on store renovations and enhancing store sales productivity, introducing smaller format stores, and eyeing opportunities to open stores in the international markets.

PriceLine Up on Report, Guidance

Priceline.com Inc (Nasdaq: PCLN) reported strong numbers in the seasonally down fourth quarter. The company's earnings including stock based compensation and excluding other items beat the Zacks Consensus by 16 cents, or 5.7%.

Shares dropped 1.8% during the day since expectations were low given the fact that competitor Expedia Inc (Nasdaq: EXPE) missed expectations. However, after Priceline's positive surprise and solid guidance, shares jumped 4.67% in after-hours trading.

Revenue

Priceline reported revenue of $731.3 million in the quarter, representing a sequential decline of 27.0% and a year-over-year increase of 35.0%. This was in-line with the Zacks Consensus estimate, although at the high end of management's expectations of a 31-36% increase from last year.

On a sequential basis, Priceline saw double-digit seasonal volume declines across all product lines. Specifically, hotel room nights dropped 20.0%, rental car days growing 23.5% and airline tickets 13.3%.

The year-over-year revenue increase was attributable to both hotel room nights and rental car days, which were up 50.8% and 64.6%, respectively. Priceline's average daily rates (ADRs) compared favorably with the year-ago quarter, increasing around 3% for the international business and over 5% for the domestic business. Airline tickets (down 2.8%) was the only product line that disappointed.

Guidance

For the first quarter, Priceline expects total gross bookings to grow 45-50% year over year, with international growing 64-69% (up 66-71% on local currency basis) and domestic growing 7-12%. This is expected to yield a year-over-year revenue increase of 29-34% ($768.5 million at the mid-point), much better than our expectations of $746 million. Priceline also expects a gross profit dollar increase of 47-52%.

Total advertising spend is expected to be $185-190 million, of which roughly $12 million will be spent on offline advertising. Sales and marketing expense is expected to be $32-36 million, personnel expenses (excluding stock based compensation) of $65-69 million, general and administrative expenses $23-26 million, information technology expenses $7 million and depreciation and amortization charges $5 million. The pro forma EBITDA is expected to be $147-157 million.

Priceline expects the pro forma EPS to come in at $2.34-$2.44, with the GAAP EPS at $1.66 to $1.76. Analysts were expecting pro forma earnings of $2.03, well below the guided range.

Conclusion

Analysts have been lowering estimates over the past 7 days, which has had a negative impact on the Zacks rank (currently #4, signifying a short-term Sell recommendation). However, we think that estimates will go up in the next few days. We would caution investors about rising costs however, which are likely to lower margins in 2011.

Kohl's Reports Strong Q4

Kohl's Corp. (NYSE: KSS) registered fourth-quarter 2010 earnings of $1.66 per share, which was in line with the Zacks Consensus Estimate. However, earnings were up 18.6% year-over-year from $1.40.

For the full year, earnings came in at $3.65 a share which was up 13% compared to $3.23 in fiscal 2009. However, annual earnings were below the Zacks Consensus Estimate of $3.73.

The year-over-year profits were primarily driven by improved merchandise margins, strong inventory management and successful brand strategies.

Driven by strong profits in fiscal 2010, the company provided guidance for earnings for the first quarter and full fiscal 2011. For the first quarter, the company expects earnings to be in the range of 68 cents to 73 cents, whereas for the full year earnings are projected in the rage of $4.05 to $4.25 a share.

Transocean Lags, Down Annually

Global offshore drilling contractor Transocean Inc. (NYSE: RIG) reported weak fourth quarter and full-year 2010 results, affected by reduced utilization rates and lower average daily revenue along with higher operating costs.

Earnings per share, excluding one-time expenses, came in at 76 cents, below the Zacks Consensus Estimate of 87 cents. In the year-ago period, the company had earned $2.21 (on an adjusted basis).

Full-year 2010 earnings, excluding one-time costs, were $6.00 per share, down 52.7% year over year and 9.5% below our projection.

Total quarterly revenue came in at $2,160 million, down 21.0% from the year-ago level of $2,733 million and lagging the Zacks Consensus Estimate of $2,299 million. The quarter performance was bruised by lower utilization resulting from idle rigs, legal charges and reduced revenue.

Transocean generated total revenue of $9,576 million in 2010 as compared with $11,556 million in 2009. The full-year revenue also failed to meet our expectation of $9,704 million.

During the quarter, Transocean's high-spec floaters accounted for the lion's share of total revenue with approximately 57.1%, while mid-water floaters and jackup rigs contributed about 22.1% and 14.6%, respectively. The remaining revenue came from other rig activities and integrated services.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5514.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5516

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.