Zacks Bull and Bear of the Day Highlights: Avis Budget, Gerdau S.A., D.R. Horton, Berkshire Hathaway and Masco
CHICAGO, Sept. 28, 2011 /PRNewswire/ -- Zacks Equity Research highlights Avis Budget Group (Nasdaq: CAR) as the Bull of the Day and Gerdau S.A. (NYSE: GGB) as the Bear of the Day. In addition, Zacks Equity Research provides analysis D.R. Horton (NYSE: DHI), Berkshire Hathaway (NYSE: BRK.B) and Masco (NYSE: MAS).
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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:
Continued focus on productivity and cost containment initiatives coupled with better travel trends and lower fleet costs drove Avis Budget Group (Nasdaq: CAR) to post better-than-expected financial results for second-quarter 2011. The quarterly earnings of $0.63 per share surpassed the Zacks Consensus Estimate of $0.31 and surged more than 2.5 times from the prior-period earnings.
We believe Avis Budget's strong focus on cost reductions will help the company achieve its goal of higher operating margins. Moreover, the new sales force in the European region is expected to further augment its fiscal 2011 revenue.
Further, with continued improvement in travel volume, the combination of better pricing and effective cost management will likely boost the company's performance. Currently, we are maintaining a long-term Outperform recommendation on the stock.
Brazilian steelmaker Gerdau S.A.'s (NYSE: GGB) second quarter results were rather disappointing as the company's EPS of $0.18 plummeted 38% year over year and lagged behind the Zacks Consensus by 14 cents. Results were plagued by higher raw material costs that have been persistently affecting the company's financial health.
To add to the peril, Gerdau's positive momentum gets restricted by the headwinds arising from foreign currency fluctuation, cyclicality of the industry and stiff competition. Thus, we have downgraded our recommendation on the stock from Neutral to Underperform.
Gerdau's current trailing 12-month earnings multiple is 11.6X, compared with 27.4X for the peer group and 15.9X for the S&P 500. Our $7.75 target price is based on 9.6X 2011 earnings per ADR.
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Used Home Prices Stabilize in July
In July, home prices were mixed on a seasonally adjusted basis. The Case-Schiller Composite 10 City index (C-10) fell a slight 0.12% on a seasonally adjusted basis, and is down 3.77% from a year ago. The broader Composite 20 City index (which includes the cities in the C-10) edged up by 0.05% on the month and is down 4.16% from a year ago.
Prices for both indexes rose by 0.9% for the month on a not-seasonally-adjusted basis (which is how you will probably see most of the reports presented). Of the 20 cities, nine were up on the month-to-month basis (seasonally adjusted), and eleven were down. Year over year, though, 18 were down, and only Detroit and Washington DC made it into the plus column.
The overall indexes are down 31.99% (C-10) and 31.75% (C-20) from the (April 2006) bubble peaks. They set an interim low in May 2009 and rallied into the summer of 2010 before turning down again. The bounce has mostly faded.
The C-20 index set a new post-bubble low in June, and is just 0.03% above the May 2009 level. The C-10 has only a little bit more breathing space before setting a new low, up just 1.35% since that interim bottom. The earlier bounce was due to extraordinary government support in the form of an $8,000 tax credit to home buyers.
With existing homes, not the volume of turnover that is important, it is prices. The level of existing home sales is only significant relative to the level of inventories, since that provides a clue as to the future direction of home prices. If there is an excess inventory of existing homes, then it makes very little sense to build a lot of new homes.
It is the building of new houses that generates economic activity. It is not just about the profits of D.R. Horton (NYSE: DHI). A used house being sold does not generate more sales of any of the building products produced by Berkshire Hathaway (NYSE: BRK.B) or Masco (NYSE: MAS).
Turnover of used homes does not put carpenters and roofers to work -- new homes do. When new home construction picks up, it could do so in a very big way (at least percentage wise) from the current extremely depressed levels, and the national homebuilders will probably pick up market share as hundreds of small mom and pop home builders have gone out of business in this downturn. A doubling in new home construction would still put the level of construction at historically very low levels, and many of the national builders could see their revenues triple or more.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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