CHICAGO, April 10, 2012 /PRNewswire/ -- Zacks Equity Research highlights Aetna Inc. (NYSE: AET) as the Bull of the Day and Citi Trends, Inc. (Nasdaq: CTRN) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Alcoa (NYSE: AA),AOL (NYSE: AOL) and Microsoft (Nasdaq: MSFT).
We reiterate our outperform rating on Aetna Inc. (NYSE: AET) prior to the release of its first-quarter earnings scheduled on April 25, 2012, to reflect its better-than-average operating fundamentals and expected strong performance in 2012.
The company ended the year 2011 with better performances, demonstrating growth in membership, revenues, operating margins and cash flow on the back of low medical utilization, pricing discipline, medical cost management strategies and cost controls. In 2011, the company made strategic investments in acquisitions and technologies, with the intent to extend its core health business and also to capitalize on exciting new consumer as well as provider opportunities emerging in the marketplace.
Aetna's strong operating results and significant capital generation will allow it to continue investing for the future. We expect the company to keep performing better in 2012. The Zacks Consensus estimates earnings of $1.39 per share for first quarter 2012, which translates into an expected earnings growth of 10.5% year over year.
Citi Trends, Inc.'s (Nasdaq: CTRN) falling comparable store sales, coupled with rising cost of goods sold and operating expenses, battered fourth-quarter 2011 results. The company incurred a quarterly loss of $0.18 per share, falling drastically from the year-ago quarter earnings of $0.64 per share. The results, however, bettered the Zacks Consensus Estimate of a loss of $0.20 per share.
Further, due to uncertainty hovering around sales, given the global economic unrest, the company decided not to provide any guidelines unless it finds any near-term catalysts to drive sales. Intense competition from other retailers, seasonal nature of business and risks associated with sourcing merchandise from developing countries may further undermine the company's future growth prospects.
Currently, we are maintaining a long-term Underperform recommendation on the stock. Our target price of $10.00 is based on P/CF (price-to-cash flow) multiple of 8.27x.
In the run-up to the March jobs report, a number of economic forecasters had started wondering about the extent of temporary contribution from this year's unusually warm winter. Even Ben Bernanke found the labor market strength of the last few months difficult to reconcile with the relatively slow pace of underlying economic improvement. We will know for sure only after we get the April jobs numbers in about three week, but weather seems to be the most plausible explanation for March's unexpected under-200K labor market reading.
The government's monthly household survey (the unemployment rate comes out of this report) lists the number of people not at work because of weather. The non-seasonally adjusted March reading showed an 82K drop on this count, significantly below the historical level for this month. The same number for the preceding three months was above trend compared to history, meaning that the weather gains of the pre-March months likely got reversed in March. The persistent downtrend in weekly jobless claims and other labor market indicators over the last many months would argue against a fundamental weakness in underlying momentum.
In corporate news, the first quarter earnings season gets underway unofficially on Tuesday with Alcoa's (NYSE: AA) report, with aggregate earnings growth expectations at their lowest level since the start of earnings recovery in 2009. Barring unusual negative surprises, I would expect this earnings season to be largely uneventful. Given the low hurdle rates as a result of subdued expectations, the focus will be management guidance for the coming quarter, particularly with how they see the Chinese and European situation impacting their profitability.
In other news, shares of AOL (NYSE: AOL) will be in the spotlight today after the company announced the sale of over 800 patents to Microsoft (Nasdaq: MSFT) for $1.06 billion in cash.
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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