Zacks Bull and Bear of the Day Highlights: DaVita, Hhgregg, Mylan, Teva Pharmaceutical and Novartis

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Jan 25, 2012, 09:30 ET

CHICAGO, Jan. 25, 2012 /PRNewswire/ -- Zacks Equity Research highlights DaVita, Inc. (NYSE: DVA) as the Bull of the Day and Hhgregg, Inc. (NYSE: HGG) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Mylan, Inc. (NASDAQ: MYL),Teva Pharmaceutical (NASDAQ: TEVA) and Novartis (NYSE: NVS).

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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:

We are upgrading our recommendation on DaVita, Inc. (NYSE: DVA) to Outperform based on the company's strong cash flows and strategic acquisitions. The new bundled ESRD payment system is also expected to be a long-term positive. The company's third-quarter earnings slightly exceeded the Zacks Consensus Estimate on the back of strong top-line growth, partially offset by higher operating expenses.

Moreover, a strong cash position expands the potential for meaningful M&A. While the acquisition of DSI should bring in new opportunities in most states, the company has to divest some of its centers as a condition. Nevertheless, we believe downside from current levels is likely limited.

Our six-month target price of $96.00 equates to 19.0x our earnings estimate for 2011. This price target implies an expected total return of 20.3% over that period. This is consistent with our Outperform recommendation on the shares.

Bear of the Day:

Hhgregg, Inc. (NYSE: HGG) has recently expressed its apprehension with regard to its third-quarter 2012 earnings to decline to approximately $0.60 per share, from the prior-year quarter of $0.66. The estimate slid on the back of lower than expected margins in the video category owing to the promotional activities across all screen sizes.

Hhgregg also expects advertising expenses to escalate due to the recent initiatives taken up to increase its market share in the appliance and home office categories. In addition, Hhgregg has also launched a mobile product offering to enhance its customers shopping experience. The preliminary third quarter 2012 results also led to a downward revision in fiscal 2012 earnings in the range of $1.05 to $1.15, compared with the previous guidance of $1.26 to $1.41.

Going forward, we expect net sales and operating margins to remain muted owing to the seasonal shopping patterns, rising costs and competitive pressures. Moreover, weakness across the consumer electronics and appliances industry may turn out to be serious headwinds to the top-line. We thus maintain our Underperform rating on the stock.

Latest Posts on the Zacks Analyst Blog:

Mylan Outperforms as Generics Rule

We recently upgraded our recommendation on Mylan, Inc. (NASDAQ: MYL) from Neutral to Outperform with a target price of $26.00.

Mylan is one of the leading players in the US generics market. We are encouraged by Mylan's geographic reach and product depth along with a robust generic product pipeline. A large number of high-value branded pharmaceuticals have begun to go off-patent and many more will lose patent exclusivity in the next few years.

Mylan has a robust pipeline and it hopes to exploit the patent cliff overhanging the pharma industry. We believe the generic segment will post strong sales in the US in 2012 with more than 500 new product launches expected to generate $800 million in revenue. In 2012, Mylan hopes to make 13 date-certain launches, 4 being first-to-file opportunities of generic versions of Teva Pharmaceutical's (NASDAQ: TEVA) Provigil (April 2012), Takeda's Actos (August 2012) and Actoplus Met (December 2012) and Novartis' (NYSE: NVS) Diovan HCT (September 2012). Other key launches include the generic versions of Zyprexa (April 2012), Plavix (May 2012), Viramune (May 2012) Clarinex (July 2012) Singulair and Singulair Chew (August 2012), Avapro and Avalide (September 2012) and Atacand (December 2012).

In Europe, Mylan expects to launch about 350 products in 2012. These new product launches in combination with easing pricing comparisons could lead to improved growth trends in Europe. In the Asia-Pacific region, Mylan's growth is driven by its Indian subsidiary Mylan Laboratories, which is one of the fastest growing active pharmaceuticals ingredient (API) manufacturers in India.

Mylan conducts its specialty business through Dey Pharma, which markets branded specialty injectable, nebulized and transdermal products for life-threatening conditions. The segment's main products are the EpiPen Auto-Injector (severe allergies) and Perforomist Inhalation Solution (a formoterol fumarate inhalation solution for the treatment of chronic obstructive pulmonary disorder). These products not only offer Mylan the necessary diversification from generics but contribute to revenue growth. Management expects Dey to deliver substantially going forward, as the EpiPen and Perforomist franchises surpass expectations.

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

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

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