Zacks Bull and Bear of the Day Highlights: Caterpillar, CNO Financial Group, Whole Foods Market, Yum! Brands and McDonald's
CHICAGO, Feb. 8, 2012 /PRNewswire/ -- Zacks Equity Research highlights Caterpillar Inc. (NYSE: CAT) as the Bull of the Day and CNO Financial Group (NYSE: CNO) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Whole Foods Market Inc. (Nasdaq: WFM),Yum! Brands Inc. (NYSE: YUM) and McDonald's Corp. (NYSE: MCD).
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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:
Caterpillar Inc.'s (NYSE: CAT) fourth quarter EPS increased 53% to $2.25 and revenues surged 35% to a record $17.2 billion, driven by increased machine demand. Results were way ahead of Zacks Consensus Estimates.
With the Bucyrus acquisition, the company is positioned to be the #1 mining equipment manufacturer in the U.S. with a strong footing in the major mining markets of China and India. Caterpillar's strong brand name, pricing power and global dealer network put it in a position to capitalize on the growing need for infrastructure development worldwide.
We maintain our Outperform recommendation, which indicates that it will perform better than the market. Our $134.00 target price, 14.5x our 2012 EPS estimate, reflects this view.
We have downgraded our recommendation on CNO Financial Group (NYSE: CNO) to Underperform based on the continuous deterioration in the premium revenue of its Bankers Life segment, coupled with the significant underwriting and pricing risks. The company's third-quarter earnings results were driven by poor top-line performance in most business segments.
The current interest rate environment, which is generating spread compression, will continue to put pressure on the bottom line. We do not expect any significant improvement on that front in the forthcoming quarters as the pricing pressure is expected to persist for awhile.
Our six-month target price of $5.75 equates to 7.9x our earnings estimate for 2011. This price target implies an expected negative total return of 10.9% over that period. This is consistent with our Underperform recommendation on the shares.
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Earnings Preview: Whole Foods
Whole Foods Market Inc. (Nasdaq: WFM), one of the leading natural and organic foods supermarkets and an S&P 500 company, will release its first-quarter 2012 financial results after the closing bell on Wednesday, February 8, 2012.
The current Zacks Consensus Estimate for the quarter is 60 cents a share that reflects a growth of 17.6% from the prior-year quarter's earnings. The estimates in the current Zacks Consensus range between a low of 57 cents and a high of 62 cents a share. The Zacks Consensus Revenue Estimate is pegged at $3,383 million for the quarter.
Neutral on Whole Foods
Being one of the leading natural and organic foods supermarkets, Whole Foods Market with a strong brand image, and marketing and merchandising expertise, offers investors one of the strongest growth profiles in the industry. The stock is poised to surge once the economy revives and demand for healthier and natural food improves.
The stringent cost-control measures, effective inventory management, and improved store-level performance are driving earnings growth. Whole Foods also has been revamping its pricing strategy and concentrating more on value offerings, while maintaining healthy margins. In the last five fiscal years, gross margin has been in the range of 34% to 34.9%.
Whole Foods has been spurring its sales through new store openings, acquisitions and comparable store sales growth. Given the fragmented food retailing industry, the company has a track record of successfully integrating regional acquisitions. The company has been gaining market share compared with other supermarket chains.
Whole Foods has been also actively managing its cash flows, by generating healthy free cash and making prudent capital investments. The company's strong liquidity, positions it to drive future growth. The company has also been utilizing its cash flows in the opening of stores, paying down debt and returning cash to shareholders through dividends.
However, the company's customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their disposable income triggering a shift in focus from higher priced organic products to cheaper private label brands. This may adversely affect Whole Foods top line growth.
Currently, we maintain our long-term "Neutral" recommendation on the stock.
Yum! Beats as China Outperforms
Yum! Brands Inc. (NYSE: YUM) reported fourth quarter 2011 adjusted earnings of 75 cents per share, which beat the Zacks Consensus Estimate by a penny. Earnings increased 20% year over year, mainly on the back of outperformance at its China division and other emerging markets as well as the fifty third business week in the U.S. and YRI divisions. On a reported basis also, Yum! Brands' quarterly earnings were 75 cents per share, up 33% year over year.
In full-fiscal 2011, Yum! Brands' adjusted earnings were $2.87 per share, up 14% year over year. On a reported basis, earnings per share grew 15% to $2.74.
The company reported a 15% year-over-year increase in total revenue to $4,111 million, which surpassed the Zacks Consensus Estimate of $4,040 million. System Sales growth was a respective 33%, 10% and 6% in China, Yum! Restaurants International (YRI) division (excluding foreign currency translation) and the U.S division. In full-fiscal 2011, total revenue increased 11% year over year to $12,626 million.
Our Take
We still see China as playing the major role in Yum! Brands' growth story. The company remains bullish on emerging markets which contributed nearly 50% of operating profit at the YRI division. The company has also been trying various sales layers like breakfast and expanded beverages.
However, commodity inflation could continue to play foul worldwide. Stiff competition from other quick-service restaurant operators also remained an overhang. Yum! Brands, which competes with McDonald's Corp. (NYSE: MCD), currently retains a Zacks #2 Rank (short-term Buy recommendation). We reiterate our long-term Neutral rating.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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