Zacks Bull and Bear of the Day Highlights: Brightpoint, Bank of New York-Mellon, Tiffany, J.C. Penney and Wynn Resorts

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Oct 25, 2011, 09:30 ET

CHICAGO, Oct. 25, 2011 /PRNewswire/ -- Zacks Equity Research highlights Brightpoint, Inc. (Nasdaq: CELL) as the Bull of the Day and The Bank of New York-Mellon's (NYSE: BK) as the Bear of the Day. In addition, Zacks Equity Research provides analysis of Tiffany (NYSE: TIF), J.C. Penney (NYSE: JCP)and Wynn Resorts (Nasdaq: WYNN).

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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:

Bull of the Day:

We upgrade our recommendation on Brightpoint, Inc. (Nasdaq: CELL) to Outperform based on our view that galloping demand for high-end smartphones and tablets throughout the world will drive the company's valuation level higher in the near future. We believe the long-term business prospect of Brightpoint remains intriguing buoyed by the growing demand for high-end pocket digital assistances globally.

Newly acquired devices distribution agreements coupled with effective cost-control strategies will pave the way for the company's future earnings growth. Brightpoint reported strong financial results in the last quarter. Management further reaffirmed a rosy picture for the rest of 2011.

We also believe the negative consequences of the proposed merger between AT&T and T-Mobile USA are already reflected in the current valuation, which is at present trading at an attractive multiple compared with its peers and the S&P 500 average. Our price target of $12 is based on 14.3x our fiscal 2011 earnings estimate, approaching its peers.

Bear:

The Bank of New York-Mellon's (NYSE: BK) third-quarter 2011 earnings were in line with the Zacks Consensus Estimate. However, reduction in fee revenue and lower net interest margin were the headwinds. A low interest rate environment and various lawsuits filed against the company are expected to dent its profitability and lead to higher expenses over the medium term.

BNY Mellon shares currently trade at 8.9x our earnings estimate for 2011, 14% discount to the 10.3x for the industry average. On a price-to-book basis, the shares trade at 0.6x, 25% discount to the industry average.

Our six-month target price of $18.00 per share equates to about 8.2x our earnings estimate for 2011. Combined with a quarterly dividend of $0.13 per share, this target price implies an expected negative total return of 6.6% over that period, which is consistent with our Underperform recommendation on the shares.

Additional content:

A Guide to Econ Reports This Week

This week we will get the first look at GDP growth in the third quarter. Despite earlier fears that we were falling back into a double dip, it now looks like growth will come in much better than the very anemic 1.3% rate of the second quarter. The consensus is looking for 2.3%. I suspect that we might well do even better than that, perhaps north of 2.5%.

That's OK if we were already operating the economy near its potential, but we are nowhere close to doing so. The population grows at close to 1% per year, and trend level growth in productivity is more than 1.5%, so that sort of growth does not really close the gap. Then again, at least it keeps the actual level of the economy from falling further below its potential.

Most of the numbers we have gotten so far are for September, and thus there is not a lot of hard data yet on how the fourth quarter is shaping up, but my sense is that the fourth quarter will look a lot like the third quarter.

Durable Goods from September

We get two more important September reports this week. Durable goods orders are expected to decline by 1.0% after edging down by 0.1% in August. However, the headline number is often whipsawed by orders for civilian aircraft. Just a handful of orders for 787's can swamp the news from the rest of the economy, since the price of each one is so high, and the orders tend to be very lumpy.

Thus it makes sense to pay attention to the orders excluding transportation equipment. Those are expected to accelerate to growth of 0.4% from an unchanged reading in August.

Personal Income & Spending

Finally we get the data on personal income and spending. Since consumer spending makes up 71% of the economy, it is a very important indicator. Looking forward, though, personal income is even more important, since that provides the fuel for future spending. Both are expected to do better in September than in August, although given the other data that we have received, I would not be surprised to see the August numbers revised up somewhat, especially on the spending side.

Personal income in September is expected to have risen by 0.3% after declining by 0.1% in August (the first actual decline in over two years). Personal spending is expected to have risen by 0.6%, up from 0.2% in August. Obviously, if spending is rising faster than income, the savings rate is going to fall.

On the income side it is important to look at the sources of income growth. That will give clues as to who is going to have more money to spend, and who is going to have less. For the last three years or so, the most important source of income -- wages and salaries -- has been very weak. For awhile we were seeing large increases in government transfer payment income, but in recent months those have reversed and are falling.

The most robust source of income growth has been dividend income. Since stock ownership is highly concentrated (the top 1% own 42% of all financial assets like stocks and bonds) that indicates income inequality. That is good news for high-end retailers like Tiffany's (NYSE: TIF), not so good news for the mid-range like J.C. Penney's (NYSE: JCP).

WYNN Broken or a Buy?

Are the casinos with Macau operations at the top of their game, with nowhere to go but down? That's a question gaming investors are asking after the reaction to Wynn Resorts (Nasdaq: WYNN) earnings miss last week where the stock took a $20 (15%) dive.

Despite posting net revenues up over 29% and a dramatic 170% surge in profits from the year ago quarter, the company missed adjusted estimates of $1.17 EPS with a $1.05 showing. Macau was still the source of growth for Wynn -- vs. Las Vegas -- but there are concerns that growth could be leveling off, especially as the Chinese economy slows down.

I thought the stock was a buy last week on the overreaction, and I look right today with the bounce off of $117 last Thursday getting us up above $127 today. But, a deeper exploration of what drives the profits of Macau gaming tables is worth a look before jumping all in.

Here's the deal: We all know that rich Chinese mainlanders love to gamble and that Macau is their only legal "homeland" place to go. But monetary tightening in China will hurt the lending liquidity of Macau's "junket" operators, the middle-men who advance credit to these gamblers. And this in turn could dry up the casinos' growth trajectory.

What overall impact this will have is still being absorbed. You can see from the earnings estimate tables below that many analysts have been busy bringing their projections back down to earth since the miss last week, and even before that. But there's still a handful who have raised recently.

As this consensus battle gets sorted out over the next two months until they report again in January, let's say that WYNN 2012 EPS projections drop significantly to only $6. At a share price of $130, that's a sub 22 forward P/E multiple.

For a dominant high-end, luxury player in the Macau gaming scene, this is an attractive price to pay for solid double-digit earnings growth. And though the Chinese economy is the giant wild card here, growth is still on the horizon for WYNN as the new Cotai strip development is expected to add strength to its already solid balance sheet.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.

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