Zacks Bull and Bear of the Day Highlights: CBS, Dril-Quip, Netflix, Amazon.com and Verizon Communications
CHICAGO, April 23, 2012 /PRNewswire/ -- Zacks Equity Research highlights CBS Corporation (NYSE: CBS) as the Bull of the Day and Dril-Quip, Inc. (NYSE: DRQ) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Netflix Inc. (Nasdaq: NFLX),Amazon.com Inc. (Nasdaq: AMZN) and Verizon Communications (NYSE: VZ).
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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:
CBS Corporation's (NYSE: CBS) fourth-quarter 2011 earnings of $0.57 per share surpassed the Zacks Consensus Estimate of $0.53 and surged 23.9% from $0.46 earned in the year-ago quarter buoyed by growth in high margin operations and cost-containment efforts. The quarter saw a step up in both the advertising marketplace as well as profitable content deals.
Management remains confident about continued growth momentum in fiscal 2012. However, the significant potential risk is CBS's high dependence on advertising revenue, which is driven by the health of the economy. To mitigate this, the company is striving to add diverse revenue streams to hedge against economic cycles, which include retransmission, affiliate and online distribution fees.
Further, CBS's substantial liquidity, positions it to drive future growth and enhance shareholders return. Currently, we maintain our Outperform recommendation on the stock.
We are downgrading our recommendation on Dril-Quip, Inc. (NYSE: DRQ) to Underperform from Neutral. The company remains exposed to the highly volatile oil and gas sector fundamentals.
We remain concerned about company-specific risks, which include new product growth challenges and potential backlog losses. Additionally, delays in deepwater infrastructure awards may also hinder the growth prospect of Dril-Quip.
The company has also exhibited restricted growth in the past few quarters and we remain cautious going forward. However, increased deepwater activity over the near term, recent capacity additions in Brazil and Singapore, as well as ongoing capacity expansions could prove beneficial over time.
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Earnings Preview: Netflix
Netflix Inc. (Nasdaq: NFLX) is scheduled to release its fiscal first-quarter 2012 results after the closing bell on Monday, April 23, 2012. In the run up to the earnings results, no substantial movement in analysts' estimates for the quarter was noticed.
For the current quarter, management expects loss per share to be in the range of 49 cents to 16 cents. The Zacks Consensus EPS Estimate is pegged at a loss of 27 cents per share. Net loss is expected to be in the range of $27.0 million to $9.0 million.
Domestic and International revenue is expected to be in the range of $496.0 million to $511.0 million and $38.0 million to $44.0 million, respectively. Domestic DVD revenue is expected to be in the range of $308.0 million to $322.0 million for the first quarter of 2012. For the quarter, the Zacks Consensus Estimate projects Netflix to earn revenues of $867 million.
Management expects subscribers in the consolidated domestic market and in the international market to range from 22.8 million to 23.6 million and from 2.5 million to 3.1 million, respectively. The U.S. DVD subscriber base is expected to be in the range of 9.4 million to 10.0 million.
Management expects the subscriber growth to be negatively impacted by increasing attrition rate in the DVD segment. However, management expects strong growth in streaming customer base in both US and International in 2012.
Estimates Trend Revision
Over the past 30 days, none of the 28 analysts covering the stock revised their estimates for the quarter. Thus, the Zacks Consensus Estimate for the first quarter is been pinned at a loss of 27 cents per share.
Analysts covering the stock expect the video streaming market to be competitive for Netflix with some of the bellwethers like Amazon.com Inc. (Nasdaq: AMZN), HBO and Verizon Communications (NYSE: VZ) entering the arena. Moreover, content costs are on the rise with the company going for new agreements with production houses to enhance its content library. Additionally, analysts opine that the international expansions (UK and Latin America) could take time to be profitable.
However, analysts also believe that continued subscriber additions could somewhat offset the lower profitability in the near term.
Our Take
We note that Netflix has performed consistently during the last 4 quarters with its average earnings surprise being 18.02%. For the to-be-reported quarter we expect the company to beat the Zacks Consensus by the same magnitude.
Netflix's offering of new and exclusive content to its subscribers are its biggest USP compared to some of its closest peers. Apart from recent movies and documentaries, Netflix is also boosting its original content portfolio to entice new subscribers in the US market and international market.
However, higher capital expenditure due to international expansion will hurt earnings growth in the near term, in our view. Moreover, when compared to some of its cable and communications peers that have diversified revenue and cash flow streams, Netflix relies solely on streaming for future growth, as its DVD rental business continues to lose subscribers.
We believe that the streaming market is getting overcrowded and this will hurt Netflix's margins going forward. We provide a word of caution to investors in this respect.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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