Zacks Bull and Bear of the Day Highlights: Cell Therapeutics, Bank of New York-Mellon, Safeway, SUPERVALU and The Kroger

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Oct 13, 2011, 09:30 ET

CHICAGO, Oct. 13, 2011 /PRNewswire/ -- Zacks Equity Research highlights Cell Therapeutics (Nasdaq: CTIC) as the Bull of the Day and Bank of New York-Mellon (NYSE: BK) as the Bear of the Day. In addition, Zacks Equity Research provides analysis Safeway (NYSE: SWY), SUPERVALU Inc. (NYSE: SVU) and The Kroger Co. (NYSE: KR).

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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:

In late September, Cell Therapeutics (Nasdaq: CTIC) announced that a second independent radiologic review of data from the pivotal trial PIX301 of lead drug pixantrone for aggressive NHL confirmed the statistical significance of response and progression endpoints. With this positive development, we believe pixantrone is getting closer to approval.

We are encouraged by the FDA's decision to allow Cell Therapeutics to re-submit the NDA for pixantrone for review without the need for an additional trial. We are therefore upgrading our rating on the stock from Neutral to Outperform.

Cell Therapeutics second most advanced pipeline candidate, Opaxio, is being studied as a potential maintenance therapy for women with advanced ovarian cancer who achieve complete remission following first-line therapy with paclitaxel and carboplatin. The phase III study, GOG0212, has already enrolled more than 800 of the planned 1,100 patients targeted.

Bear of the Day:

We are downgrading our recommendation on Bank of New York-Mellon (NYSE: BK) to Underperform as 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.

Although the company is well positioned to benefit from favorable long-term wealth management trends and secular growth in global capital markets, we expect interest-bearing deposit costs to rise faster than asset yields, thereby adversely affecting net interest margin and net interest income.

Our six-month target price of $17.00 per share equates to about 7.7x 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 8.4% over that period, which is consistent with our Underperform recommendation on the shares.

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Earnings Preview: Safeway

Safeway (NYSE: SWY), a leading food and drug retailer in North America, is scheduled to report its third quarter 2011 results on Thursday, October 13. The current Zacks Consensus Estimate for revenues and earnings per share the quarter are $9.8 billion and 35 cents, respectively.

Safeway has exceeded the expectations in all the past four quarters. The company has delivered an average positive earnings surprise of 7.13% over the past four quarters, implying that it has beaten the Zacks Consensus Estimate by that measure.

Estimate Revision Trends

Agreement

Estimate revision trends for the third quarter depict a negative sentiment among the analysts. Out of the 14 analysts covering the stock, one analyst has reduced his/her estimate over the past 7 days with none moving in the opposite direction. A somewhat similar trend is observed over the past 30 days with 2 analysts lowering their estimates with no reverse movements.

Similarly, for fiscal 2011, 2 out the 15 analysts covering the stock reduced their estimates over the last 7 and 30 days while none revised their estimates upward during these periods.

The bearish sentiment clearly reflects the prevailing weak macro conditions and the impact on the company's Lifestyle strategy. The macro environment of U.S. and Canada is taking a toll on consumers. Wealth destruction from the equity markets, uncertainties and the decline in the housing market and falling consumer confidence are forcing consumers to opt for cheaper substitutes or cut back on overall spending.

The present economic scenario has made consumers more price-sensitive. The magnitude of retail pricing continues to be the deciding factor for Safeway. Food inflation, combined with weakening employment scenario is expected to lower consumer spending and lead to a deteriorating gross margin in the second half of 2011.

Consumers are now choosing less expensive products and this has impacted Safeway. Retail inflation is rapidly taking place and Safeway may find it difficult to pass on increased prices to its customers owing to the tough competition. We expect further clarity from the company on this front, as declining margins remain one of the key challenges for the company.

Magnitude

The Zacks Consensus Estimate for the third quarter has not changed over the last 7 days. However, estimate for the quarter has reduced by a cent to 35 cents a share over the last 30 days. For fiscal 2011, estimate has moved down by a penny and a couple of cents over the past week and month, respectively, to $1.69 a share.

Our Recommendation

Safeway witnessed sluggish revenue growth primarily due to unemployment, deflation and price competition, which makes budget-conscious shoppers more alert.

However, the company expects the scenario to improve going forward, aided by better volume and pricing. We are also encouraged by the company's cost-saving activities, which is likely to improve margins further. Moreover, Safeway intends to strengthen its presence in the international markets. The company is expanding its international business, especially in Canada, Australia and the UK.

However, increased competition and tough industry conditions are major headwinds for the company. The company confronts a wide spectrum of competitive threats, especially from SUPERVALU Inc. (NYSE: SVU) and The Kroger Co. (NYSE: KR).

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

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