CHICAGO, March 30, 2012 /PRNewswire/ -- Zacks Equity Research highlights ICICI Bank, Ltd. (NYSE: IBN) as the Bull of the Day and Peabody Energy (NYSE: BTU) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Best Buy (NYSE: BBY),Amazon (Nasdaq: AMZN) and Wal-Mart (NYSE: WMT).
We are upgrading our recommendation on ICICI Bank, Ltd. (NYSE: IBN) to Outperform based on strong fiscal third quarter (ended December 31) results. Net earnings for the quarter surged 20% year over year, primarily on higher net interest income and fee income. The company's enhanced asset quality and strong capital ratios were the other positives.
We expect continued synergies from the company's increased dependence on domestic loans, an almost stable fund base and market leadership in the insurance business. Our main concerns are about the company's highly competitive operating environment and below-average credit quality.
Our six-month target price of $40.00 per ADS equates to about 19.1x our earnings estimate for fiscal 2012. This target price implies an expected total return of 13.9% over that period. This is consistent with our Outperform recommendation on the ADSs.
We have downgraded our rating on Peabody Energy (NYSE: BTU) to Underperform from Neutral as the fourth-quarter results missed our projection by quite a margin. The future growth of Peabody is tied up with the timely yet uncertain completion of many projects that are lined up in the U.S. and Australia.
This uncertainty, along with increasing completion from natural gas producers and an increase in operating costs, have prompted us to downgrade our outlook on the stock. In addition, weather and transportation challenges have impacted demand and profitability for the company.
Over the last five years, shares of Peabody Energy have traded in a range of 6.2x to 49.6x trailing 12-month earnings. Our target price of $28.00 reflects a P/E multiple of 9.3 based on 2012 EPS.
There is nothing in this morning's data to bring the market out of its somber mood of recent days. In fact, both of this morning's economic readings – the final GDP read on the fourth quarter of 2011 and the weekly initial Jobless Claims – came in weaker than expected. The soft earnings report from Best Buy (NYSE: BBY) and murmurs of concerns about Spain will not help sentiment, either.
The Commerce department's final read on the fourth quarter 2011 GDP turned to be non-event, as the growth rate was left unchanged at 3%. The internals of the report remained largely unchanged as well, with personal consumption expenditures (or consumer spending) remaining at 2.1%.
With the first quarter of 2012 coming to an end, this morning's final read on the last quarter of 2011 may seem like inconsequential record keeping. But there were good reasons to expect an upward revision in the growth rate given strong retail sales data in December. The hope was that an upward revision to the GDP growth rate would have a bearing on current quarter growth expectations.
It will be interesting to see the February consumer spending numbers coming out in Friday's Personal Income & Outlays reading. Given the recent improvement in the labor market, one could reasonably expect favorable momentum on the household spending front. We will get more confirmation of the labor market momentum in next week's March non-farm payrolls numbers coming out next week, but today's Jobless Claims report will keep the hopes alive.
This morning's initial Jobless Claims reading came in a tad weaker than expected, but the overall level remained in favorable vicinity. There was a drop of 5K in initial claims last week to 359K, though the drop was from a upwardly revised 364K level. This means that last week's initial claims were actually 16K higher than the originally reported 348K level.
The four-week average, which smoothes out the week-to-week fluctuation, dropped by 3.5K to 365K. The rise above the psychologically significant 350K level notwithstanding, the overall trend in initial claims remains favorable and at its lowest level in four years. Historically, Initial Jobless Claims at these levels have been associated with strong gains in the monthly government non-farm payroll report. We have confirmatory evidence of that over the last three months and will be getting the March reading next Friday.
In corporate news, Best Buy came ahead of earnings expectations, but missed on the top line and comp sales. The company indicated what appears to be a significant shift in its strategic direction. The electronics retailer has been struggling to come out with a winning strategy in the current web-centric consumer environment. They are announcing store closings and greater emphasis on the small format stand-alone locations. Best Buy has been struggling to effectively compete against Amazon (Nasdaq: AMZN) and Wal-Mart (NYSE: WMT) in the increasingly competitive space and it is unclear if these steps will be more effective.
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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