CHICAGO, May 2, 2011 /PRNewswire/ -- Zacks Equity Research highlights AAR Corporation (NYSE: AIR) as the Bull of the Day and Montpelier Re Holdings (NYSE: MRH) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Pilgrim's Pride (NYSE: PPC), Merck (NYSE: MRK) and Microsoft (Nasdaq: MSFT).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
AAR Corporation (NYSE: AIR) posted encouraging results for the third quarter 2011 with earnings per share of $0.45; up 61% year over year and surpassed the Zacks Consensus Estimate of $0.42. Improvements in all business segments, except for Structures and Systems, roughly doubled the revenue in the quarter.
Moreover, the company derives enormous benefits from its Aviation Worldwide Services (AWS) acquisition. This strategic step will not only be accretive to earnings and margins but also contribute largely to the company's fleet expansion.
Recovery in global economy is favorably impacting the airline industry as passenger demand is on the rise, a positive indication to the stock. Thus, we maintain an Outperform recommendation on the stock.
Montpelier Re Holdings (NYSE: MRH) reported operating loss, less than the Zacks Consensus Estimate loss but wider than the year-ago loss. The quarter suffered largely due to huge catastrophe losses coupled with significant increase in expense as well as lower investment income.
The current pricing environment in the primary insurance market and the stressed economy is expected to restrict top-line growth. Additionally, there exists execution risk with the newer platforms and we expect investment yields to remain under pressure in the near term.
Our six-month target price is $17.00. This price target along with the annual dividend of $0.40 implies an expected total return of negative 5.8% over that period.
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Earnings Power the Market
Stocks have not been showing a lot of concern for the loss of momentum in the economy as indicated by Thursday's GDP report. Driving the market's optimism is this view that the first-quarter slowdown was due to temporary factors that will reverse in the coming quarters.
In fact, 'transitory' has emerged as key phrase lately in market discourse, used all over, including by the Fed, to describe everything that is not going our way. The rise in commodity prices, tell-tale signs of inflation, and the first quarter GDP slowdown are all due to 'transitory' forces. I am completely on board with this emerging 'transitory' narrative. But I must admit that its overuse is making me a little nervous.
The GDP slowdown and reversal in Jobless Claims notwithstanding, stocks have other good reasons to feel cheery. And the biggest of those reasons is the first quarter earnings reports.
With about half of the reports out, earnings have been better than pre-season expectations. Contrary to expectations, growth rates and positive surprises have generally been inline with the preceding quarters. Importantly, concerns about margin squeeze and the impact of Japan have not materialized, at least not yet. It is this strength in corporate profitability, with some support from the 'transitory' narrative, that has been helping the stock market momentum.
Some have not been so lucky in shielding their margins from commodity-price inflation, as we saw with Pilgrim's Pride (NYSE: PPC) having weaker than expected results this morning. Among today's other major earnings reports, we got a solid earnings beats Merck (NYSE: MRK).
We had soft results from Microsoft (Nasdaq: MSFT) after the close yesterday. Microsoft's absence from the hot tablet category appears to have started showing up in its results, with sales of the company's flagship Windows operating system dropping by a greater than expected 4% rate. They beat on revenue and came inline on earnings, but the cannibalization of consumer PCs by tablets is emerging as a major threat for Microsoft.
Earnings will remain the driver for now till we get the April non-farm payroll report next week. I don't think that the 'transitory' narrative will work if we get a negative surprise next Friday.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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