CHICAGO, June 22, 2012 /PRNewswire/ -- Zacks Equity Research highlights Discover Financial Services (NYSE:DFS) as the Bull of the Day and POSCO (NYSE:PKX) as the Bear of the Day. In addition, Zacks Equity Research provides analysis AstraZeneca plc (NYSE:AZN), Bayer (OTC:BAYRY) and Takeda Pharmaceutical (OTC:TKPYY).
Discover Financial Services' (NYSE:DFS) higher transaction and credit card sales volumes as well record-low delinquency and chargeoff rates were the positives in the company's most recent earnings report. Dividend increments and share buybacks also injected optimism.
The company has a strong inorganic growth policy, which apart from boosting earnings also fosters portfolio diversification. However, regulatory restrictions and higher expenses could weigh on the margins.
Nevertheless, the company's extensive network, sound capital position, rapidly expanding acceptances and cost-containment initiatives will help accentuate growth over the long term. Hence, we retain our Outperform recommendation.
POSCO (NYSE:PKX) reported disappointing financial results in the first quarter 2012 with the company's net earnings falling roughly 41% year over year. Revenue growth was flat while weak margins due to higher raw material costs led to the downfall. Moreover, global uncertainity leading to soft steel demand remains a major growth impediment.
To add to the peril, competition is also increasing in the industry. Thus anticipating a lack of growth catalysts, we maintain an underperform recommendation on the stock. Despite the negatives, benefits arising from wide regional diversifications, higher proportion of value-added products in the product mix and new facility additions cannot be overlooked.
POSCO's current trailing 12-month earnings multiple is 9.6x, compared with the 12.1x for the peer group and 13.1x for the S&P 500. Our $73.00 target price, 9.6x 2012 EPADR, reflects our Underperform recommendation.
AstraZeneca plc (NYSE:AZN) recently announced that it has completed the acquisition of Ardea Biosciences, Inc. for approximately $1.26 billion or $32 per share. Both AstraZeneca and Ardea's boards unanimously supported the merger. Ardea's stockholders also approved the deal.
This acquisition added lesinurad, which is being developed as a chronic treatment of gout, to AstraZeneca's pipeline. The US and EU regulatory filings for lesinurad are planned for the first half of 2014. AstraZeneca also gained oncology candidate, BAY 86-9766 and another gout candidate, RDEA3170 through the acquisition. We note that the erstwhile Ardea Biosciences co-developed BAY 86-9766 with the HealthCare unit of Bayer (OTC:BAYRY).
On approval, the gout candidates will target a highly lucrative market. We note that the incidence and severity of gout is increasing in the US. The market has a huge unmet need with Takeda Pharmaceutical's (OTC:TKPYY) Uloric (febuxostat) and allopurinol being two widely-prescribed therapies (xanthine oxidase inhibitors) for the treatment of gout patients. The inhibitors reduce the production of uric acid in the body.
However, the effectiveness of xanthine oxidase inhibitors is limited since only approximately 10% of patients affected by gout are over-excretors of uric acid. Many gout patients fail to respond favorably to these therapies. This should provide lesinurad, which is being evaluated both as an add-on and monotherapy, and RDEA3170 the opportunity to capture the gout market share.
Neutral on AstraZeneca
We are encouraged by AstraZeneca's focus on high-potential emerging markets and are pleased with its effort to drive the bottom line through cost-cutting initiatives and share buybacks.
However, we remain concerned about the generic competition faced by the company's key products. In 2011, the company lost revenues worth almost $2 billion to generic competition. The weak late-stage pipeline coupled with the slow Brilinta uptake also bothers us. We currently have a Neutral recommendation on AstraZeneca. The stock carries a Zacks #3 Rank (Hold rating) in the short run.
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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