Zacks Bull and Bear of the Day Highlights: Cardinal Health, Koninklijke Philips Electronics, Agrium, CF Industries and Potash of Saskatchewan
CHICAGO, Oct. 7, 2011 /PRNewswire/ -- Zacks Equity Research highlights Cardinal Health, Inc. (NYSE: CAH) as the Bull of the Day and Koninklijke Philips Electronics (NYSE: PHG) as the Bear of the Day. In addition, Zacks Equity Research provides analysis Agrium (NYSE: AGU), CF Industries (NYSE: CF) and Potash of Saskatchewan (NYSE: POT).
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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 recently upgraded our rating on Cardinal Health, Inc. (NYSE: CAH) to Outperform. Earnings for the fourth quarter narrowly beat the Zacks Consensus Estimate. Cardinal's size and diversity partly insulate it from economic cycles, and its generics business continues to grow at a healthy pace.
Moreover, Cardinal's Pharmaceutical and Medical segments have revamped operations. The company continues to nurture its specialty platforms and engage in periodic tuck-in acquisitions. Although client and supplier concentration and reliance on group purchasing organizations remain areas of concern, the same is partly mitigated through long-term contracts.
While margins are thin in the bulk Pharma business, the business mix is evolving in favor of the non-bulk segment. Robust cash flow, high cash balance and revolving credit facility bestow liquidity for share repurchase and acquisitions.
We are downgrading our recommendation on Koninklijke Philips Electronics (NYSE: PHG) to Underperform with a $16 target price. The company had a weak second quarter with revenues declining 3.4% primarily due to lower license revenues and a decline at the Lifestyle Entertainment segment.
Furthermore, the company posted a net loss of $1.9 billion during the recently concluded quarter due to a goodwill impairment charge of $2.0 billion. The net cash flow also declined significantly compared to the prior year, attributable to higher working capital outflow related to higher vendor payments.
Our long-term Underperform recommendation on the ADRs indicates that they will perform below the broader U.S. equity market over the next six to twelve months. Our target price is $16.00 or 14.5X 2011 EPS, which is well within the historical range.
Latest Posts on the Zacks Analyst Blog:
Fertilizer Stocks a Growth & Value Harvest
Companies that provide vital soil nutrients will be key investments in the global agricultural megatrend now underway. And now is an especially good time to look at some of the top names as their share prices have come down so hard recently and created some real values.
Doing some stock screening this morning, I found two fertilizers companies that kept popping up. Agrium (NYSE: AGU) made it through the Zacks #1 Rank Growth Stocks Screen, which requires more than the top earnings momentum rating reserved for only 220 stocks in a universe of 4,400.
This screen also demands the following growth metrics: a minimum 20% historical growth rate and a minimum 20% projected growth rate.
And AGU joined CF Industries (NYSE: CF), also a #1 Rank stock, on the Zacks Growth & Value Screen because both names have very compelling valuations of around 7 times forward earnings.
It should not surprise you that AGU also shows up on the Undervalued Zacks #1 Ranks Stocks Screen.
Won't Recession Plow Ag Stock Estimates?
This is an important question to address before buying any cyclical stock as the valuations on industrial, materials, and energy companies can look really attractive as their prices drop.
But when a recession, or even just a slowdown, is getting priced-in, stock prices get hit bad long before the estimates come down. And so what looks "cheap" today may be about to get more expensive as the earnings estimate revisions roll in.
This is a theme I have been writing about since the first week of August. I said the downward earnings revisions would come in September and October. So far, they haven't been that bad.
Before I address the global-macro perspective that might help you decide if estimates could hold, or still come down further, let me show you the current consensus estimates that make these two stocks so attractive, along with their price history and recent moves...
AGU: 52wk Low - High 60.15 - 99.14 The stock has been in a slow sideways channel downtrend since the high, but traded back up to $90 in early September and then hit $60 on Tuesday's market sell-off. Now trading above $71 on this recovery rally. The company is scheduled to report earnings on November 2.
With about 16 analysts covering AGU, 2 have raised their estimates for the current quarter and for next year within the past 30 days, and 1 analyst upped their targets in the past week. This is one part of the "intel" that goes into the Zacks Rank along with the magnitude of the revision and accuracy of the analyst.
CF: 52wk Low - High 97.79 - 192.68 Made its surge from $150 to $190 in August when the rest of the market was melting down. Dropped below $120 this week and now trading $140. Earnings are expected Nov 1.
CF also has a couple of recent upward revisions. But you may also notice that next year's consensus reflects a drop in EPS. If the high estimates near $24 are correct, this stock could indeed be an extreme value here. Time and further revisions will tell.
Where's the Big Guy?
You didn't think I was going to write about fertilizer stocks and leave out Potash of Saskatchewan (NYSE: POT)? The behemoth of the essential soil nutrient it is named for has also had some recent earnings estimate revisions which basically balance out as the current quarter was taken down and next quarter raised.
Based on consensus estimates, POT looks poised to grow EPS at 16% next year after hitting 85% growth this year. 2011 and 2012 projected earnings of $3.79 and $4.42, respectively, combine to create a forward P/E multiple of 12 times for this Zacks #2 Rank (buy) stock. POT is due to report on October 27.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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