Zacks Bull and Bear of the Day Highlights: Allstate, JAKKS Pacific, Target, JPMorgan and Costco Wholesale
CHICAGO, Oct. 29, 2012 /PRNewswire/ -- Zacks Equity Research highlights Allstate Corp. (NYSE:ALL) as the Bull of the Day and JAKKS Pacific, Inc. (Nasdaq:JAKK) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Target Corporation (NYSE:TGT), JPMorgan Chase & Co. (NYSE:JPM) and Costco Wholesale Corporation (Nasdaq:COST).
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Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
We have upgraded our recommendation on Allstate Corp. (NYSE:ALL) to Outperform based on significant reduction in catastrophe losses, claims and operating expenses coupled with enhanced premiums that improved the combined ratio, ROE and book value per share so far in 2012. Also, these factors aided the company's second quarter earnings upbeat, substantially outpacing the Zacks Consensus Estimate.
An appreciated investment portfolio boosted the operating cash flow and liquidity. The agency expansions, ratings affirmation, dividend increment, product restructuring and acquisitions validate Allstate's long-term stability. However, initiatives to improve auto and homeowners margins are yet to show effective results, whereas interest volatility poses risks to Allstate Financial's margins.
Though the current volatile economy will continue to impact results, continued synergies are expected from Allstate's industry-leading position, diversification and pricing discipline. All these should augur growth once the markets regain momentum.
With product launches, possible acquisitions, strategic partnerships, resolution of litigation and a strong financial condition, JAKKS Pacific, Inc. (Nasdaq:JAKK) is well poised for long-term growth. However, a tough retail environment leading to lower domestic product sales and a decline in product orders before the crucial holiday season compel the company to cut its fiscal guidance.
Additionally, decelerating margins, a top- and bottom-line miss in the third quarter of 2012, unfavorable product mix and wage inflation in China add further worry. The uncertainty around the upcoming presidential election and the fiscal cliff in the U.S., along with global economic turmoil due to the Eurozone crisis will likely keep consumers preoccupied and less inclined toward entertainment activities.
Hence, we maintain our Underperform recommendation on the stock. Our six-month target price of $12.00 equates to about 24.5x our estimate for 2012. The target price implies an expected negative total return of 5.6% over that period.
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Target to Shelve Credit Card
Target Corporation (NYSE:TGT) recently reached an agreement with TD Bank Group to sell its credit card portfolio for the amount which equates the gross value of the total outstanding receivables at the time of the closure of the deal. The current gross value of the portfolio stands at $5.9 billion.
Moreover, the company entered into a 7-year agreement with TD Bank Group under which the latter will underwrite, fund and own the future Target Credit Card and Target Visa receivables in the United States. The company expects to close the deal in the first half of calendar 2013 and stated that its 5% REDcard Rewards program will not be a part of the deal.
As per the deal, TD will look after the policies related to risk management and would comply with the regulatory issues. On the other hand, Target will manage account servicing functions.
Target, the operator of general merchandise and food discount stores in the United States, announced its decision to sell its credit card receivables portfolio almost a couple of years ago. However, nothing materialized for the company as its desires to sell the receivables portfolio on appropriate terms appeared high on valuation to the buyers.
Later in early 2012, Target promised to pay down $2.8 billion to Chase Card Services – a subsidiary of JPMorgan Chase & Co. (NYSE:JPM) – to retire the receivables financing received in 2008. By doing so, the company expected to market the portfolio better, thus gaining a high-quality buyer on favorable terms.
Getting back to the agreement, the company expects to use the proceeds from the sale to reduce its debt burden and for share buybacks. Additionally, the company is expected to earn sizeable profits from the Target Credit Card and Target Visa portfolios, under the profit sharing arrangement.
Our Take
During the last reported quarter, the company's revenue from the Credit Card segment tumbled 5.1% to $328 million. Target also said that segment profit dropped to $140 million in the quarter from $171 million in the prior-year period.
The segment has long been grappling with declining revenues and sustaining the business might prove to be detrimental for the company's financials as the requirement for bad debt provisions would be higher, which implies reduced growth capital for future expansions.
Currently, we have a long-term Neutral recommendation on the stock. Moreover, the company, which competes with
Costco Wholesale Corporation(Nasdaq: COST), holds a Zacks #2 Rank, which translates into a short-term Buy rating.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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