Zacks Bull and Bear of the Day Highlights: Hilltop Holdings, AGL Resources, Alcoa, Rio Tinto and BHP Billiton
CHICAGO, Jan. 9, 2012 /PRNewswire/ -- Zacks Equity Research highlights: Hilltop Holdings Inc. (NYSE: HTH) as the Bull of the Day and AGL Resources Inc. (NYSE: GAS) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Alcoa Inc. (NYSE: AA), Rio Tinto Plc. (NYSE: RIO) and BHP Billiton Ltd. (NYSE: BHP).
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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 Hilltop Holdings Inc. (NYSE: HTH) to Outperform based on its sound capital position along with a risk-free balance sheet, which also paved way for resumption of share buybacks, assisting shareholders' confidence in the stock.
The company broke even in the third quarter but surpassed the Zacks Consensus Estimate of a loss and beat the year-ago results. The stability was driven by a higher-than-expected top line that benefited from improved premiums, investment income and net realized gains. However, expenses escalated on higher loss adjusted and underwriting expenses that even deteriorated the combined ratio and resulted in operating cash outflow.
Overall, Hilltop should continue to tread ahead with its strategic approach in order to capitalize on the opportunities that the markets provide on stabilization. Our six-month price target is $10.00 per share, reflecting about 0.8x our book value estimate of $12.34 per share. This is consistent with our Outperform recommendation.
We are initiating coverage on AGL Resources Inc. (NYSE: GAS) with an Underperform recommendation and a target price of $39. We expect shareholder sentiment towards the company to remain lukewarm, considering its investment in higher-risk unregulated operations, ongoing regulatory uncertainties and the challenging economic environment.
AGL had warned that its earnings will suffer in 2011 due to lower results at the wholesale segment. Additionally, the inclusion of the shipping operations (post Nicor acquisition) has left AGL with a weak business, thereby heightening its risk profile.
Considering these factors, we see little reason for investors to own the stock and, therefore, we initiate the company with an Underperform recommendation. Our $39 price objective reflects a 2012 P/E multiple of 12.5x.
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Earnings Preview: Alcoa
Alcoa Inc. (NYSE: AA), the largest U.S. aluminum producer, announced that it would release its results for the fourth quarter of 2011 after the market closes on January 9, 2012.
Alcoa Inc. reported adjusted earnings per share of 15 cents per share, missing the Zacks Consensus Estimate of 22 cents per share. Adjusted earnings more than doubled from 6 cents per share reported in the year-ago quarter, but were down 46.4% than the sequential quarter earnings of 28 cents per share due to lower metal prices, seasonal factors and weakness in Europe.
With respect to earnings surprises, the company was behind the Zacks Consensus Estimate in the trailing two quarters. Moreover, Alcoa was ahead of the Zacks Consensus Estimate in the first quarter of 2011 and fourth quarter of 2010. This is reflected in the average earnings surprise of -7.00%, with negative surprises in two quarters and positive in two.
Agreement of Estimate Revisions
For the fourth quarter of 2011, five out of 11 analysts covering the stock have made a downward revision in the last 30 days and 2 amongst them have made a downward revision in the last 7 days. None of the analysts have made any upward revision in the last 30 days.
Magnitude of Estimate Revisions
The fourth quarter 2011 estimate was 17 cents per share in the last 30 days and inched down 2 cents to 15 cents per share in the last 7 days. Recently, it dropped again by 1 cent to 14 cents per share. The Zacks Consensus Estimate for the fourth quarter is 83.33%, down from the year-ago quarter.
Alcoa Cuts Smelting Capacity
Just a few days before its earnings release, Alcoa announced its plans to slash its global smelting capacity by 12%. Therefore, the company became the first producer to take instant action to slash costs amid a steep drop in metal prices. The move will result in a restructuring charge in the fourth quarter and will push the U.S. producer into its first loss in nine quarters. The reduction in costs is likely to boost prices.
The company will permanently close its smelter in Alcoa, Tennessee, which was curtailed in 2009, along with two of the six idled potlines at its Rockdale, Texas smelter.
The curtailments, to be announced in the near future, will reduce Alcoa's global smelting capacity by an additional 240,000 metric tons, or about 5%.
The curtailments are expected to be complete by the first half of 2012. Alcoa's alumina production will be reduced across the global refining system to reflect the final curtailments in smelting as well as prevailing market conditions. The curtailments will contribute to the company's long-term goal of lowering Alcoa's position on the world aluminum production cost curve by 10 percentage points.
Total restructuring-related charges for the fourth quarter of 2011 are expected to be between $155 million and $165 million after-tax, or $0.15 to $0.16 per share, of which approximately 60% is non-cash.
Our Take
Growing demand for aluminum beverage cans in China, Europe, and the Middle East will offset flat to declining markets in the United States and will drive overall packaging market in the range of 2% to 3% in 2011 compared to 2010. The recovery in the industrial gas turbine market continues to support a brighter long-term outlook and a 2011 growth projection of 5% to 10%.
The building and construction market continues to struggle in North America and Europe, leading to a growth projection of 1% to 3%, primarily due to continued strength in non-residential construction in China.
The outlook for commercial transportation is mixed, with a weaker second half of 2011, driven primarily by lower sales in Europe and China, offset by strong first-half results and continued gains in the North American market. Alcoa projects heavy truck and trailer sales to range from flat to 2% growth over 2010.
Currently, Alcoa has a short-term (1 to 3 months) Zacks #3 Rank (Hold rating) and a long-term (6 months) Neutral recommendation.
Alcoa faces stiff competition from Rio Tinto Plc. (NYSE: RIO) and BHP Billiton Ltd. (NYSE: BHP).
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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