Zacks Bull and Bear of the Day Highlights: Berkshire Hathaway, Nabors Industries Ltd., Bank of America Corporation, Skechers U.S.A., Inc., Nike Inc. and Deckers Outdoor Corporation
CHICAGO, Sept. 18, 2012 /PRNewswire/ -- Zacks Equity Research highlights Berkshire Hathaway B-shares (BRK.B) as the Bull of the Day and Nabors Industries Ltd. (NBR) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Bank of America Corporation (BAC), Skechers U.S.A., Inc. (SKX), Nike Inc. (NKE) and Deckers Outdoor Corporation (DECK).
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Full analysis of all these stocks is available at http://at.zacks.com/?id=10485.
Here is a synopsis of all five stocks:
We are upgrading our recommendation on Berkshire Hathaway B-shares (BRK.B) to Outperform from Neutral following the strong second-quarter results. The quarter reflected strong performances across all business segments: Insurance, Railroad, Utilities and Energy, Manufacturing, Service and retailing as well as Finance and Financial products.
Though the company has witnessed fluctuating earnings between the quarters due to heavy exposure to stock option derivatives, most of these gains/losses are unrealized. Moreover, we expect its Finance and Financial products segment to continue improving, given the gradually recovering economy.
A solid balance sheet, adequate liquidity and continuing trend of growing book value are the other positives. Though a lack of clarity regarding CEO Warren Buffet's succession prevails, our six-month target price of $106.00 per share equates to about 18.7X our earnings estimate for 2012. This target price implies an expected total return of 20.0% over that period.
Based on the number of near-term challenges, we are lowering our recommendation for Nabors Industries Ltd. (NBR) to Underperform from Neutral. The land drilling contractor is facing headwinds in the pressure pumping market on the back of collapsing prices and lower utilization.
The recent weakness in the North American onshore rig count has also been a negative. As usual, we remain concerned about weak natural gas fundamentals, which are likely to limit the company's ability to generate positive earnings surprises. Nabors fairly debt-heavy balance sheet also remains an issue.
Considering these factors, we see Nabors as a risky bet from which ordinary investors should exit. This is corroborated by our new Underperform recommendation and the $13 price objective, which is based on 2012 P/E multiple of 7.0X.
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BofA Settling Discrimination Claims
Bank of America Corporation (BAC) has decided to settle the discrimination allegations brought by the government against it. The bank was accused of being prejudiced against disabled mortgage loan applicants.
As per the government, BofA dishonored the Fair Housing Act and the Equal Credit Opportunity Act by asking the disabled loan applicants to furnish invasive medical information from a medical practitioner. The company accepted its folly and is now looking to settle the matter.
BofA will engage an administrator to sort out 25,000 loan applications involving income from the Social Security Disabled Insurance (SSDI) to identify the victims. The company is willing to shell out $1,000, $2,500 or $5,000 to entitled mortgage loan applicants who were asked to present a letter from their doctor to document the income they got from SSDI.
This is not the first time that BofA is facing allegations pertaining to the violation of Fair Housing Act and the Equal Credit Opportunity Act. In December 2011, the bank paid out $335 million to the Department of Justice (DoJ) to settle civil charges against its Countrywide Financial unit.
The lawsuit against Countrywide stated that the company had used discriminating lending practices against qualified African-American and Hispanic borrowers on home loans. The Attorney General affirmed that these minority borrowers, who qualified for traditional mortgage rates, were pushed into subprime loans with higher interest rates.
Skechers Downgraded to Neutral
We have downgraded our long-term recommendation on California-based footwear manufacturer and retailer Skechers U.S.A., Inc. (SKX) to 'Neutral' from 'Outperform', based on its continuously declining total net sales in fiscal 2012. As a result, we prefer to remain on the sidelines until we witness a top-line growth.
Skechers' total net sales tumbled 26.2% and 11.6% in the first and second quarters of 2012, respectively, reflecting lower sales across all divisions except domestic retail in the first quarter, whereas the sales dropped in the second quarter due to lower sales across domestic and international wholesale channel.
Moreover, Skechers, which competes with Nike Inc. (NKE) and Deckers Outdoor Corporation (DECK), does not have a long-term contract with any independent contract manufacturers. Therefore, the fall in production, poor quality, failure to meet production deadlines or increased manufacturing costs could result in cancellation of orders or demand for reduction in prices, which in turn, could adversely affect Skechers' revenue and earnings.
On the flip side, Skechers is now showing some signs of stability as evident from its better-than-expected second-quarter 2012 results. The company delivered a quarterly loss of 4 cents per share that fared far better than the Zacks Consensus Estimate of a loss of 12 cents, and showed a substantial improvement from a loss of 31 cents incurred in the prior-year quarter. Skechers anticipates returning to profitability in the second half of fiscal 2012, sustaining the momentum in 2013 and thereafter.
Further, management remains committed to focus on new lines of products, opening of additional stores and increasing distribution channels with the development of international distribution agreements, to improve its sales and profitability. Therefore, Skechers, through its subsidiaries and joint ventures, is poised to enhance its global reach in the footwear market.
Another major element, which could prove accretive to the company's growth and profitability, is its intention of lowering operating expenses relative to total revenue in the rest of 2012. Further, Skechers expects to double its company-owned subsidiary business in Japan in the next 3 to 5 years.
Considering these factors, we think that the current valuation is fair and adequately reflects Skechers' future growth prospects. Our new long-term Neutral recommendation is supported by a Zacks #3 Rank (short-term Hold rating).
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=10485.
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