Zacks Bull and Bear of the Day Highlights: Agilent Technologies, AmSurg Corp, Apartment Investment, Avalon Bay and Equity Residential
Apr 07, 2011, 09:30 ET
CHICAGO, April 7, 2011 /PRNewswire/ -- Zacks Equity Research highlights Agilent Technologies (NYSE: A) as the Bull of the Day and AmSurg Corp (Nasdaq: AMSG) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Apartment Investment (NYSE: AIV), Avalon Bay (NYSE: AVB) and Equity Residential (NYSE: EQR).
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Here is a synopsis of all five stocks:
Agilent Technologies (NYSE: A) is a broad-based OEM of test and measurement equipment. The company's January quarter earnings beat the Zacks Consensus Estimate, helped by revenue growth, operating margin expansion and a lower tax rate.
Agilent's leadership position, history of innovation, stable gross margins and steadily improving operating margins, turnaround in the EM segment, acquisition strategy and position in China are the chief elements of our positive thesis. In contrast, the stabilization in the EM segment, impact of Varian and high debt position are not that much of a concern.
We believe Agilent shares are undervalued at these levels. We are therefore reiterating our Outperform recommendation and raising the price target to $54.00 (20.5X 2011 EPS).
AmSurg Corp's (Nasdaq: AMSG) fourth quarter EPS of $0.43 surpassed the Zacks Consensus Estimate by a penny and $0.41 in the year-ago period. The company is witnessing several challenges in the near-term, which are reflected in the 2011 outlook.
Moreover, the prevailing economic uncertainty is impacting AmSurg by deferring elective procedures, which in turn mounts pressure on the same center revenues. Additional challenges include higher interest and tax expenses as well as the impact of reimbursement rate.
Although the industry dynamics remain strong, viewing these challenges, we have lowered our revenue and earnings estimates for 2011 and downgraded the stock to Underperform.
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A Ray of Hope for Housing
There is a ray of hope in the otherwise dismal housing market. This morning, REIS Inc., a real estate data firm, announced that the apartment vacancy rate had fallen to 6.2% in the first quarter of 2011, down from 6.6% in the fourth quarter and 8.0% in the first quarter of 2010.
That is the lowest apartment vacancy rate since the second quarter of 2008. Over 44,000 net apartments found tenants in the quarter, almost double the number of a year ago.
Meanwhile, there were only 6,000 new units coming on line in the quarter, the lowest number since REIS started keeping track. The number of new apartments being started has been very low over the last two years. Recently they seemed to have picked up (blue line), but have been extremely erratic, as is shown in the graph below.
It takes about a year for an apartment project to move from the start of digging until people start to move in. The pipeline of projects under construction is very empty (red line). This means it is likely that the vacancy rate will continue to fall.
That is very good news for the Apartment REITs like Apartment Investment (NYSE: AIV), Avalon Bay (NYSE: AVB) and Equity Residential (NYSE: EQR). An apartment unit is mostly a fixed cost, and so one sitting empty is a big drag on the profitability of an apartment complex.
Not only that, but rents are starting to creep up. The average effective rent rose in 75 of the 82 markets that REIS tracks. Nationwide the average rose to $991 per month from $986 in the fourth quarter and $967 a year ago. That's not exactly a return to 1970's style inflation -- the year-over-year increase is just 2.5%, and the annualized increase in the first quarter is just 2.0%. Some of that has come in the form of lower concessions, such as a month of free rent when you sign a lease.
Average stated rents rose to $1,047 from $1,043 in the fourth quarter and $1,027 a year ago, or annualized increases of 1.5% for the quarter and 1.9% year over year. Still, housing has a very large weighting in the CPI, particularly Owner's Equivalent Rent (OER). Regular rent makes up 5.93% while OER is 24.91%.
Over time, OER tracks regular rent pretty closely. The rents, with a combined weighting of 30.84% of the total CPI, and over 40% of the core CPI have been a major factor in keeping the overall rate of inflation down.
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