Zacks Bull and Bear of the Day Highlights: Eaton, Avery Dennison, Duke Energy, Westar Energy and Progress Energy
Apr 30, 2012, 09:30 ET
CHICAGO, April 30, 2012 /PRNewswire/ -- Zacks Equity Research highlights Eaton Corporation (NYSE: ETN) as the Bull of the Day and Avery Dennison Corp. (NYSE: AVY) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Duke Energy (NYSE: DUK),Westar Energy, Inc. (NYSE: WR) and Progress Energy Inc. (NYSE: PGN).
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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:
Eaton Corporation (NYSE: ETN) had a good first quarter, with all its operating segments improving upon the year-ago performance, except for Electrical rest of world. Eaton expects its operating segments to continue to do well in 2012 with its global sales forecast to increase by 5% from the previous-year level.
Eaton has revised its earnings guidance for 2012 twice this year taking into account its leading positions in the core electrical, hydraulic and aerospace market segments. However, its Electrical rest of world segment is expected to be a marginal drag, as demand from Europe and the Chinese market is expected to pick up only toward the end of the year.
We are maintaining our Outperform rating on Eaton with a target price of $59. This is based on a P/E multiple of 13.1 based on 2012 EPS, given the expectations of robust end-market growth in 2012.
We are reiterating our Underperform recommendation on Avery Dennison Corp. (NYSE: AVY) with a target price of $29. The company reported first-quarter 2012 adjusted earnings of $0.45 per share in the first quarter of fiscal 2012. Total revenues dipped 3% to $1.48 billion.
The company is struggling with high raw material costs and low volume. It expects to complete the sale of its Office Product business and instead focus on the more profitable pressure sensitive materials business, Retail Branding and Information Solutions.
Our Underperform recommendation indicates that we expect the stock to perform below the broader market. Our $29 target price or 14.7x our 2012 EPS estimate, reflects this view.
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Duke Energy, Sumitomo Cut a Deal
Duke Energy's (NYSE: DUK) commercial arm Duke Energy Renewables has entered into an agreement with Sumitomo Corp.'s U.S. subsidiary, Sumitomo Corp. of America.
Per the agreement, Sumitomo will have equal ownership rights over Duke's two Kansas wind projects, the 131-megawatt ("MW") Cimarron II Windpower Project and the 168-MW Ironwood Windpower Project. Sumitomo has already invested approximately $353 million to meet construction and operating expenses.
Once the project comes online, Duke will be in charge of operations and maintenance of the wind farms, while Sumitomo will focus on project management.
Duke had already signed two 20-year contracts with Kansas City Power & Light and Westar Energy, Inc. (NYSE: WR) to sell all of the electricity and allied renewable energy credits ("RECs") produced by Cimarron II and Ironwood projects. Both the companies are expected to complete the construction work later this year.
We view Duke Energy as a well positioned organization with accelerating investment in power plants and transmission, and ongoing cost containment efforts. Besides, the company has also planned a strategic merger with another utility holding company, Progress Energy Inc. (NYSE: PGN). This initiative bodes well for the company's future growth.
We believe this contract with Sumitomo will be incremental to Duke's future revenue and earnings. Green power generated from these projects will enable Duke to meet the guidelines of the Kansas Renewables Portfolio Standard Program. Per the guidance, utilities are required to produce or acquire 20% of their power from renewable sources by 2020.
But, at the same time, we are concerned about an unfavorable macro backdrop, predominantly fossil-fuel based generation assets, commodity risk at the company's Commercial Power segment, foreign currency exchange volatility and pending regulatory approval for the merger. However, we currently retain a Zacks #3 Rank on Duke Energy, which translates into a short-term Hold rating.
Duke Energy is slated to release its first-quarter 2012 numbers on May 4, 2012. The Zacks Consensus Estimate for the first quarter 2012 is currently pegged at 36 cents per share.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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