Zacks Bull and Bear of the Day Highlights: Brinker International, Tellabs, Automatic Data Processing, Time Warner and Mattel

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Feb 03, 2011, 09:30 ET

CHICAGO, Feb. 3, 2011 /PRNewswire/ -- Zacks Equity Research highlights: Brinker International (NYSE: EAT) as the Bull of the Day and Tellabs Inc. (Nasdaq: TLAB) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Automatic Data Processing (NYSE: ADP), Time Warner Inc. (NYSE: TWX) and Mattel Inc. (NYSE: MAT).

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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:

Brinker International (NYSE: EAT) reported second quarter 2011 earnings above the Zacks Consensus Estimate. The upside in earnings was driven by continued margin expansion at Chili's and top-line growth at Maggiano's.

The company is repositioning its Chili's brand and is undertaking several initiatives to offset its declining sales momentum and record more sustainable and stable growth. Brinker also reiterated its goal to achieve 400 bps of net operating margin growth at Chili's and double its EPS by the next five years.

The cash flow position at Brinker is strong. Hence, we are upgrading the stock from Neutral to Outperform.

Bear of the Day:

We downgrade our recommendation for Tellabs Inc. (Nasdaq: TLAB) to Underperform, following its poor financial results of the fourth quarter of 2010, well below the Zacks Consensus Estimates. The company is facing serious problems with its key customer AT&T, which accounts for 35% of total revenue in 2010.

We believe Tellabs will continue to lose businesses from AT&T as depicted by its extremely weak revenue outlook for the first quarter of 2011. More disastrous is that, Tellabs' highly reputed high-margin digital cross-connect products are also showing a downtrend. For that, gross-margin took a huge pressure in the reported quarter and will remain at that low-level in the near-term.

Tellabs is finding it increasingly hard to market its core growth products. Although, the telecom gear manufacturing industry is growing through a growth phase, Tellabs is facing severe competitive pressure from large rivals such as Cisco and Alcatel-Lucent.

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ADP Sees Gain of 187,000 Jobs

The Automatic Data Processing (NYSE: ADP) employment survey was better than expected in January. It shows that private sector employment rose by 187,000 in January, well above consensus expectations for a 145,000 increase. Of course, last month, ADP was way off the mark and reported a gain of 297,000 private sector jobs and the BLS only reported a gain of 113,000 from the private sector (and 103,000 total).

The December numbers were revised lower to a gain of 247,000 jobs, but that is still way above the BLS figure (unless the BLS numbers are revised sharply higher for December when the January numbers are reported on Friday. I think some upward revision is likely, but nothing close to that sort of magnitude).

ADP, as the largest payroll processing firm in the country, is in a very good position to look at the state of the job market. This is evidence of an economy that is not only growing, but accelerating very nicely. For most of 2010, the ADP report has consistently been more pessimistic than the BLS report, although that was not the case in November or December. If the ADP numbers were to be confirmed by the BLS, it is the sort of the level we need to make a dent in the vast army of the unemployed.

Time Warner Beats, Enhances Return

Time Warner Inc. (NYSE: TWX), the diversified media conglomerate, posted better-than-expected fourth-quarter 2010 results on the heels of an increase in advertising and subscription revenues. The company also hiked its quarterly dividend and boosted its share repurchase program.

The shares of Time Warner rose 2.6% or 84 cents to $33.15 in pre-market trading.

The quarterly earnings of 67 cents a share outdid the Zacks Consensus Estimate of 62 cents, and rose 22% from 55 cents earned in the prior-year quarter. On a reported basis, including one-time items, earnings came in at 68 cents a share, up 28% from 53 cents delivered in the year-ago quarter.

Buoyed by the strong quarterly performance, Time Warner now expects fiscal 2011 earnings to increase in the low teens. Following this, a positive sentiment may be palpable among the analysts covering the stock, and we could witness a rise in the Zacks Consensus Estimates in the coming days. The current Zacks Consensus Estimate for fiscal 2011 is $2.62.

Time Warner's total revenue in the quarter grew 8% to $7,812 million from the previous year-quarter, and handily beat the Zacks Consensus Estimate of $7,477 million. Adjusted operating income during the quarter logged a growth of 14% to reach $1,425 million.

Time Warner also raised its quarterly dividend by 11% to 23.5 cents and increased its share repurchase authorization to $5 billion from the $1 billion remaining at its disposal as of December 31, 2010. The increased dividend will be paid on March 15, 2011 to shareholders of record as of February 28, 2011.

Mattel Beats on Strong Sales

Mattel Inc. (NYSE: MAT) reported fourth quarter 2010 earnings of 89 cents per share, which surpassed the Zacks Consensus Estimate of 86 cents and was in line with the prior-year quarter earnings. The better-than-expected results were primarily driven by strong sales from its core brands such as Barbie and Fisher-Price, partly offset by declines in Hot Wheels sales as well as cost escalation.

The company's full-year earnings per share were $1.86, above the Zacks Consensus Estimate of $1.83 and up 28% from the prior year.

Quarter Highlights

Worldwide gross sales were $2,327.4 million, ahead of $2,146.2 million recorded in the prior-year period as well as the Zacks Consensus Estimate of $2,074 million. Including the negative impact of foreign currency fluctuations, net sales reported were $2,124.6 million, up 9% year over year. U.S. gross sales improved 11% year over year and international gross sales increased 6% year over year.

Worldwide gross sales for the Mattel Girls & Boys Brands business unit were up 9% year over year to $1,265.2 million. Worldwide gross sales for Barbie spiked 8% over the last year while Hot Wheels was down 4%. Fisher-Price Brands sales jumped 6% to $775.8 million while the American Girl line grew 8% to $273.2 million.

Gross profit rose 5% from the prior-year quarter to $1,096.0 million and operating income was up 3% to $428.6 million. The year-over-year improvement was attributed to higher sales.

However, gross margin dropped 180 basis points year over year to 51.6% and operating margin contracted 110 bps to 20.2% due to higher advertising expenses (up 50 bps), partially offset by lower SG&A expenses (down 10 basis points) as a percentage of sales.

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

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