Zacks Bull and Bear of the Day Highlights: DENTSPLY International, Citi Trends, Freeport McMoRan, Joy Global and Cliffs Natural Resources
CHICAGO, Sept. 27, 2011 /PRNewswire/ -- Zacks Equity Research highlights DENTSPLY International (Nasdaq: XRAY) as the Bull of the Day and Citi Trends, Inc. (Nasdaq: CTRN) as the Bear of the Day. In addition, Zacks Equity Research provides analysis Freeport McMoRan (NYSE: FCX), Joy Global (Nasdaq: JOYG) and Cliffs Natural Resources (NYSE: CLF).
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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:
We upgrade our recommendation on DENTSPLY International (Nasdaq: XRAY) to Outperform based on our improved visibility on the stock. Its second-quarter fiscal 2011 revenues and earnings topped the Zacks Consensus Estimates. Revenues and profit were boosted by internal growth and a foreign exchange tailwind.
The company beefed up its earnings guidance for fiscal 2011 based on a stable-to-improving market conditions. DENTSPLY should benefit from the gradual recovery in the global dental market. The company's diversified product range and significant investment in product innovation should help it expand its share of the dental implant market.
Moreover, the acquisition of Astra Tech has reinforced its foothold in the global dental market and provided opportunities for attractive synergies. We also feel that the stock offers attractive upside potential at the current level.
Citi Trends, Inc. (Nasdaq: CTRN) falling comparable store sales, coupled with rising input costs and operating expenses battered the second-quarter 2011 results. The company witnessed a quarterly loss of $0.69 per share that broadened 17 folds from the prior-period loss of $0.04. The Zacks Consensus Estimate for the quarter was a loss of $0.64 per share.
Further, due to uncertainty hovering around sales given the global economic unrest, the company rolled back its earnings guidance range of $1.25 to $1.35 per share for fiscal 2011. The company decided not to provide any guidelines unless it finds any near- term catalysts to drive sales.
Intense competition from other retailers, seasonal nature of business, and risks associated with sourcing merchandise from developing countries may further undermine the company's future growth prospects. Currently, we are maintaining a long-term Underperform recommendation on the stock.
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The Economy "Twisting" in the Wind
The big news of last week was the Fed coming out with "Operation Twist." It will sell $400 billion of short-term t-bills and notes and buy an equivalent amount of longer-term paper. This is sort of like the Kim Kardashian of monetary policy actions -- it is inexplicably popular, does not do much and is all about the back-end.
At the margin it could lower long-term interest rates a little bit, possibly at the expense of higher short-term rates, but given the pledge to keep very short rates under 0.25% through 2013, there will probably be very little effect (even less than on the long end) on short rates. The downside of this is that it flattens the yield curve, which hurts bank net interest margins.
It is not like the real problem in the economy is that interest rates anywhere on the yield curve are too high. Even the 30-year T-bond is yielding only 2.90%, and the 10-year is at 1.83%. Right off the bat it looks like the policy has been very successful in bringing down long-term rates, as long-term treasuries tumbled to even lower historic lows.
So what will bringing them down by another handful of basis points accomplish? Next to nothing.
At these levels, it is clear to me that the market is pricing in not just slower growth, but an outright recession -- either underway or just about to get underway. If it turns out that we avoid an outright recession, and the decline in profits that usually comes with one, then the market should rally from here.
As I noted above, the expectations are starting to come down, particularly for 2012, but the vast majority of stocks, and every economic sector is expected to earn more in 2012 than in 2011. The decline in the revisions ratio is mostly driven right now by the drying up of new estimate increases, rather than a flood of new estimate cuts. It is entirely normal at this point seasonally for overall revisions activity to slow down dramatically.
Not only were stocks down hard, commodities got hit even harder -- including gold and silver. More importantly, oil prices fell sharply, which acts as a tax cut for the developed world (not just the U.S. but also Europe and Japan as well). That should help to offset some, but certainly not even close to all, of the current economic headwinds.
In the Great Recession oil prices plunged from almost $150 per barrel to the mid $30's. That helped cushion the blow, but far from prevented the Great Recession from happening. The cliff that commodities fell off of this week makes it even clearer that inflation is not a big problem. If anything, deflation is a bigger risk right now (another reason for more monetary easing by the Fed).
I found the decline in copper prices particularly alarming. Copper is sometimes referred to as the metal with a Ph.D. in economics. It tumbled to just $3.28 per pound, down an incredible 16% on the week, and off from a record high of $4.55 back in February. The good doctor is shouting about a coming economic slowdown. Commodity related stocks such as Freeport McMoRan (NYSE: FCX), Joy Global (Nasdaq: JOYG) and Cliffs Natural Resources (NYSE: CLF) were among the hardest-hit last week.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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