Zacks Bull and Bear of the Day Highlights: DFC Global, NRG Energy, Bank of America, Goldman Sachs and Coke
CHICAGO, Oct. 19, 2011 /PRNewswire/ -- Zacks Equity Research highlights: DFC Global Corp. (Nasdaq: DLLR) as the Bull of the Day and NRG Energy, Inc. (NYSE: NRG), as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Bank of America (NYSE: BAC), Goldman Sachs (NYSE: GS) and Coke (NYSE: KO).
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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 are upgrading our recommendation on DFC Global Corp. (Nasdaq: DLLR) to Outperform from Neutral, as we believe that the recent sell-off in the stock has made DFC's valuation more compelling. We think the recent pullback gives investors an opportunity to buy the shares at a more reasonable multiple.
DFC Global's return on equity of 23.6% is substantially higher than that of industry average of negative 87.9%. The company expects to release first quarter earnings on October 27. The Zacks Consensus Estimate for EPS is $0.49, which would translate into earnings growth of 36% year over year.
We expect the company to post strong results based on solid performance at its core business units, successful implementation of business diversification strategy and strategic investments. The company also has a healthy liquidity position. Going ahead, the company is also expected to grab the opportunities through acquisitions and deploy the available funds in a manner that will further enhance future earnings.
We are downgrading our recommendation on NRG Energy, Inc. (NYSE: NRG) to Underperform based on lower results from Reliant and NRG's Texas gas-fired assets. Furthermore, the company remains exposed to the risk of increased operational costs from future environmental legislations as the company's domestic revenues come in large part from its coal-fired baseload power plants.
There also is a risk of potential earnings downside based on unfavorable movements in natural gas prices. Though we like the company for its diverse generation assets, competitive business, robust hedging strategy and ability to generate substantial free cash flow, the above mentioned negatives affect our positive view for the time being.
Recent losses due to the Texas heat wave and natural gas-fired plant outages have led us to downgrade our Neutral recommendation on the stock to Underperform. Our $19 target price is based on 5.2x 2011 EPS.
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Market with Plenty to Chew On
The market has plenty to chew on today, ranging from an orderly and controlled economic slowdown in China to a potential credit rating downgrade for France. The French news adds to Europe's woes and comes a day after German leaders tried to dial back expectations for a comprehensive plan out of the weekend EU summit.
If all of this wasn't enough, the market has to size up a slew of earnings reports and the September wholesale inflation (PPI) reading. On the earnings front, I must say that the picture emerging this morning is less than stellar.
The September PPI report this morning was tad hotter than expected on the headline basis, though the 'core' measure that strips out food and energy costs was broadly inline with expectations. Inflation readings, like today's PPI and Wednesday's CPI, have been elevated lately and account for part of the disagreement within the Fed policy makers on how to respond to the economic weakness. But the current pricing pressures are considered to be of a transitory nature at this stage. Given the broad pullback in commodity prices over the last few months, inflationary pressures are expected to ease going forward.
Compared to the U.S. economy, China has a very serious inflation problem and they have been working hard lately to bring it down. Today's GDP report appears to show that they are making progress.
The Chinese economy expanded at a 9.1% pace in the third quarter, a shade lower than expected and below the 9.5% growth rate of the second quarter. This growth pace, the lowest in two years, is consistent with the 'soft landing' scenario and improves the odds that the policy makers' efforts to bring down inflationary pressures through fiscal and monetary measures is bearing fruit. Separately, other data showed renewed momentum in September, with Industrial Production reaccelerating from the prior month's pace. This makes it difficult to handicap whether Chinese policy makers will stay on hold or start easing in the coming months, as some have been expecting.
Among the major earnings reports this morning, we have Bank of America (NYSE: BAC) handily coming ahead of earnings and revenue expectations. The bank's credit-loss provisions were below the year-earlier level, but increased from the prior quarter's level, while net charge-offs were below both the prior and year-earlier quarters. Goldman Sachs (NYSE: GS) appears to have lost its golden touch, as the Wall Street titan swung to a quarterly loss and missed expectations. In other earnings reports, Coke (NYSE: KO) came ahead of earnings and revenue expectations, though its EPS beat was by only a penny.
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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