CHICAGO, March 15, 2011 /PRNewswire/ -- Zacks Equity Research highlights: Discover Financial Services (NYSE: DFS) as the Bull of the Day and Central Garden & Pet Company (Nasdaq: CENT) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Gannett Co. Inc. (NYSE: GCI), News Corporation (Nasdaq: NWSA) and The New York Times Company (NYSE: NYT).
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 Discover Financial Services (NYSE: DFS) from Neutral to Outperform based on the acquisition of Student Loan Corp. that would enhance its already strong student loan portfolio. Additionally, Discover's fourth quarter earnings were substantially ahead of the Zacks Consensus Estimate.
The growth in the loan loss reserve release as well as gains from the payments business drove the credit card sales volumes. In addition, higher consumer spending and merchant acceptance also contributed to the increase. However, the CARD Act and the proposed limit on debit interchange fees by the Fed, along with higher-than-expected expenses is expected to hurt the profits of the company in the future.
Nevertheless, the company's extensive network, sound capital position and cost containment initiatives will help accentuate growth over the long term. Our six-month target price of $26.00 equates to 12.9x our earnings estimate for 2011. Given the expected annual cash dividend of $0.08, this price target implies an expected total return of 20.0% over that period.
Central Garden & Pet Company (Nasdaq: CENT) continued its loss momentum during the first quarter of 2011. Despite a 4.6% increase in the top-line, the company delivered a quarterly loss of $0.16 per share, which was broader than the Zacks Consensus Estimate loss of $0.10 and the prior-year quarter's loss of $0.04.
It is to be noted that the company has historically reported losses in its first quarter due to the cyclic nature of the lawn and garden category. The company also witnessed a 5.4% drop in the gross profit with gross margin contracting 310 basis points primarily due to rising commodity prices along with the change in the product mix.
Central Garden & Pet is trading at a discount to its peer group, based on forward earnings estimates. We have a long-term Underperform recommendation on the stock. Our target price of $8.25, 9.5X 2011 EPS, reflects this view.
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Risk-Reward Balances for Gannett
With an improvement in the economic environment, the buzz about advertisers returning to the market is gaining ground. Gannett Co. Inc. (NYSE: GCI), the diversified media conglomerate, is expected to benefit from positive trends that are emerging in both print and digital advertising with advertisers' spending gaining momentum.
Gannett's fourth-quarter 2010 total revenue grew marginally by 0.4% to $1,461.6 million from the prior-year quarter, aided by strengthening economies and advertising gains across Broadcasting and Digital segments.
Although the quarter's revenue fell short of the Zacks Consensus Estimate of $1,473 million, it showed an improvement over previously reported quarters. Revenue remained flat in the third quarter, and had registered a decline of 1.6% and 4.1% in the second and first quarters, respectively.
Publishing advertising revenue fell 5.9% to $722.3 million from the year-ago quarter but increased sequentially by a sharp 11.7%. Encouragingly, the broadcasting division is strong and benefits from significant political advertising. Gannett, the publisher of 82 U.S. dailies, said that total broadcasting revenue surged 27.1% to $232.8 million during the fourth quarter.
The significant potential risk is the company's high dependence on advertising revenue, which is influenced by the health of the economy. To mitigate this, Gannett is adding diverse revenue streams to hedge against economic cycles.
The company is also adapting to the changing face of the multiplatform media universe, which currently includes Internet, mobile, social media networks and outdoor video advertising in its fold.
To curb shrinking advertising revenue and seek new revenue avenues, the publishing companies contemplated charging readers for online content. News International, the subsidiary of News Corporation (Nasdaq: NWSA) started charging readers for the online content of The Times of London and Sunday Times of London from June 2010.
The New York Times Company (NYSE: NYT), another diversified media conglomerate, is transmuting its business model by adding diverse revenue streams, which include a pay-and-read model for NYTimes.com. It also plans to launch a paid subscription website, BostonGlobe.com in 2011.
The NYTimes.com subscription based model is slated for launch in the first quarter of 2011. It also specified that subscribers to the New York Times' print version will be able to access online content or articles without shelling out additional charges.
However, given slow economic resurgence and soft advertising spending environment, we maintain our long-term Neutral rating on Gannett with a price target of $16.00. Moreover, the Zacks #3 Rank, which translates into a short-term Hold recommendation, correlates with our long-term view.
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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