Zacks Bull and Bear of the Day Highlights: Garmin, Hartford Financial Services, Hewlett-Packard, eBay and Boeing
CHICAGO, Nov. 22, 2011 /PRNewswire/ -- Zacks Equity Research highlights Garmin Ltd. (Nasdaq: GRMN) as the Bull of the Day and Hartford Financial Services Group (NYSE: HIG) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Hewlett-Packard (NYSE: HPQ), eBay (Nasdaq: EBAY) and Boeing (NYSE: BA).
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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:
Garmin Ltd. (Nasdaq: GRMN) is an OEM of GPS-based equipment. September quarter earnings thrashed the Zacks Consensus Estimate and 2011 guidance was raised. Garmin s market share, brand equity, compelling new products across segments, significant diversification of revenue, strategic alliances and financial position may be expected to offset the negative impact of a secular decline in its core PND business.
We are buyers of the shares at the current valuation, since we believe that Garmin has the position and financial muscle to overcome the fierce competition, pricing pressure and PND cannibalization by smartphones. Garmin's current trailing 12-month earnings multiple is 14.0X, compared to the 16.2X average for the peer group and 17.0X for the S&P 500.
We note that Garmin's expected earnings growth rate of 15.0% over the next 5 years is similar to the 15.5% growth expected of its peers, but significantly higher than the S&P 500, which indicates upside. We therefore have an Outperform rating on Garmin shares and raise our target price to $42 (17.1X 2011 EPS).
We are downgrading our recommendation on Hartford Financial Services Group (NYSE: HIG) to Underperform based on its weak third quarter results. The results surpassed the Zacks Consensus Estimate but declined from the year-ago quarter, primarily due to poor operating performance, with most segments reporting net losses or reduced income.
Moreover, higher catastrophe losses coupled with decline in net investment income also contributed to the dismal performance. We remain concerned with the company's variable annuities and rate declines amid the volatile economy.
Our six-month target price of $16.00 per share equates to about 7.4x our earnings estimate for 2011. Combined with the $0.40 per share annual dividend, this target price implies an expected negative total return of 5.9% over that period. This is consistent with our Underperform recommendation on the shares.
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Hewlett-Packard Clears Low Q4 Hurdle
Considering that PC giant Hewlett-Packard (NYSE: HPQ) wallowed through a shake-up in its front office, replacing CEO Leo Apotheker -- after he announced H-P would be getting out of its core PC business -- with former eBay (Nasdaq: EBAY) CEO Meg Whitman -- who almost immediately announced H-P would retain the business after all -- the company's modest beat on both top and bottom lines look pretty good for the company's fiscal 4th quarter 2011 (ended October). Earnings per share (EPS) of $1.17 beat the Zacks Consensus Estimate of $1.13 per share.
Revenues also modestly surprised to the upside at $32.1 billion in the quarter. As a result, H-P was able to make back more than half of its 4% loss in regular Monday trading (a fairly bloody Monday, with the Dow down over 300 points before rallying back to -248 by the close) in the after-market.
For the 4th quarter, analyst following H-P had been holding pat ahead of the report. There has been literally no movement in the consensus EPS estimate over the last 90 days. For Q1 2012 and fiscal 2012, however, several downgrades were cited -- 7 of the 23 analyst estimates had gone lower for the January quarter, and 6 had been downwardly revised for next fiscal year.
That said, H-P has guided even lower for next quarter. Consensus had been $1.11 including the lowered revisions, but H-P's outlook now expects only 83-86 cents per share in its Q1.
Clearly, CEO Whitman has her work cut out for her. Adding to the company's potential woes -- and more articulation is being sought in the ongoing conference call for Hewlett-Packard -- are the recent floods in Thailand and an expected severe shortage in the company's hard disk drive market. Also, a potential price war in the printing space may be forthcoming.
Perhaps these issues are baked into the cake for H-P's Q1 guidance. But for right now, Hewlett-Packard not falling on its face during its transitional phase is bringing out the bull sentiment in after-hours traders.
Turkey with a Side of Data
We get the second look at the GDP data for the third quarter on Tuesday. While there is not expected to be a change in the overall growth rate of 2.5%, the composition of the growth will probably shift, and shift for the better, with more coming from net exports and consumer spending, offset by an even bigger drag from inventory investment. The minutes of the November 2nd Fed meeting also come out on Tuesday, which could provide some insight into why the Fed decided against doing anything at their last meeting.
On Wednesday we get the Personal Income and Personal Spending report. Both are expected to rise by 0.3%, meaning that the savings rate will stabilize at the very low level of just 3.6%. A falling savings rate gooses the economy in the short term, but is not healthy over the long term, and in recent months has fallen significantly.
Eventually spending growth has to be supported by income growth. In September income rose just 0.1% and spending was up 0.6%. The sources of income are almost as important as the total growth of income, and of late the sources have not been great. What meager income growth there is has been flowing to the top of the income distribution, and is not widely dispersed.
We also get New Orders for Durable Goods, which are expected to decline by 1.0% on top of a 0.6% decline in September, but mostly due to the very volatile transportation equipment sector. Excluding transportation, orders are expected to be unchanged after surging 1.8% last month. Next month, though, it is likely that the transportation equipment segment will surge as Boeing (NYSE: BA) just got some very large orders from the Middle East.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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