Zacks Bull and Bear of the Day Highlights: Citrix Systems, Staples, McDonald, Abercrombie & Fitch and Wal-Mart
CHICAGO, June 7, 2011 /PRNewswire/ -- Zacks Equity Research highlights: Cummins Inc. (NYSE: CMI) as the Bull of the Day and Enzon Pharma (Nasdaq: ENZN), as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Wal-Mart (NYSE: WMT), KB Home (NYSE: KBH), and Bank of America (NYSE: BAC).
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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:
Cummins Inc. (NYSE: CMI) is set to benefit from fuel economy improvements, new emission standards and increased prices. The company's results improved significantly in the most recent quarter, driven by the truck market recovery in North America and continued strength in non-U.S. markets.
Earnings exceeded the Zacks Consensus Estimate by $0.31 per share during the quarter. Furthermore, Cummins raised its EBIT guidance for 2011 based on higher profits in the first quarter of 2011.
These factors have led us to maintain our Outperform recommendation. Shares of Cummins are currently trading at 13.1X our 2011 EPS estimate of $7.87. Our $132 target price, 16.8X 2011 EPS, reflects this recommendation.
Enzon Pharma's (Nasdaq: ENZN) first quarter 2011 net loss of $0.07 per share was narrower than the year-ago loss of $0.20 due to substantial cost cutting by management. The discontinuation of the development of PEG-SN38 for mCRC was a major blow to Enzon, leaving it with just one clinical program in mid-stage development and all other programs in early stages of development.
Moreover, royalties from the sales of PegIntron, comprising a substantial part of revenues, have been declining. Recent FDA approval of Incivek and Victrelis can pose strong competition to PegIntron, which could further decline royalties from PegIntron sales.
We have, therefore, downgraded our rating on the stock from Neutral to Underperform. At the end of the first quarter, P/B multiple of the stock was approximately 2.1. Our price target of $9.50 corresponds to a P/B multiple of approximately 1.9.
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Bernanke Pitching a Perfect Game?
Let's get biases out of the way first. I'm a big Bernanke fan and have been since the financial crisis of 2008. But I'm open-minded enough to absorb new facts and modify that opinion at any time. It's just that he hasn't given me any reason to do so yet.
That said, we can now go over an imperfect timeline where he had the opportunity to screw up, and didn't:
Fall 2008 through Winter 2009: American banking system and economy on the brink of implosion. Ben, along with Hank Paulson at the Treasury, engineer extraordinary financial rescue plans to shore up banks and hemorrhaging industries.
Summer and Fall 2009: Financial media and politicians fiercely criticize Bernanke Fed for setting the stage for massive inflation, devaluation of the dollar, a threat to the US triple-AAA credit rating, and not having an "exit strategy" clearly outlined "before it's too late!" Ben doesn't flinch and stays the course -- for another year.
Fall of 2010: After US equity markets survive the second and third quarter rout, on the heels of Deepwater Horizon and the "flash crash," stock averages are back on the upswing and even housing looks like it's recovering nicely, implying all is well and the Fed should start raising interest rates soon. Instead, the Fed rolls out what comes to be known as "QE2," an open market Treasury bond purchase program along the middle part of the curve.
Through it all -- we'll call that 2.5 years about six innings of this historic game -- the critics railed about monetizing debt, debasing the currency, and being too chummy with Wall Street.
It's Still Housing
None of any of this surprised me. In the first quarter of 2010, I wrote a piece titled "Bernanke's Eye on Real Estate" for The Options News Network to address all the noise about whether he actually knew how to raise interest rates, or if he was still stuck in his Depression-scholarship ivory tower. I said it was as simple as housing, with a dash of commercial real estate thrown in.
Sustainable economic recoveries rarely happen without a coincident housing recovery. Trying to think of a good metaphor for the structural importance of housing to our economy, I'll go with a ship's ballast, a weight system used for stability. And it's directly tied to many other important things, not the least of which are consumers and interest rates.
Clearly, many other areas of the economy such as manufacturing and Wall Street could be called the ballast. But housing seems more critical. Look what happened when the ballast was corrupted by irresponsible lending practices and contaminated leverage a few years ago. And look how the after-effects of that crisis still haunt consumers shopping at Wal-Mart (NYSE: WMT), homebuilders like KB Home (NYSE: KBH), and giant mortgage lenders such as Bank of America (NYSE: BAC).
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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