Zacks Bull and Bear of the Day Highlights: j2 Global Communications, Plexus, Exxon, Procter & Gamble and Lockheed Martin
CHICAGO, Oct. 28, 2011 /PRNewswire/ -- Zacks Equity Research highlights j2 Global Communications (Nasdaq: JCOM) as the Bull of the Day and Plexus Corporation (Nasdaq: PLXS) as the Bear of the Day. In addition, Zacks Equity Research provides analysis Exxon (NYSE: XOM), Procter & Gamble (NYSE: PG) and Visa (NYSE: V).
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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 j2 Global Communications (Nasdaq: JCOM) to Outperform based on its excellent financial results for the second quarter of 2011, which significantly beat the Zacks Consensus Estimates. We believe the company's strong financial position and diversified product pipeline, coupled with the long-term growth prospects of outsourced value-added messaging services, will drive its earnings higher in the near future.
Subscriber Usage revenue continues to beat market expectations. This is an important parameter as credit-sensitive customers constitute a majority of j2 Global's sales. Exploration of new opportunities for both digital facsimile and voice services, through new acquisitions, facilitated the company to solidify its market position.
Ongoing macro-economic headwinds may actually help j2 Global since business enterprises are more inclined to use digital facsimile in order to reduce cost structure. Our target price of $36 is based on a 15.3x our fiscal 2011 earnings estimate, approaching the industry average. This is in-line with our Outperform recommendation.
Plexus Corporation (Nasdaq: PLXS) reported mixed fourth quarter 2011 financial results. The company beat the Zacks Consensus Estimate of $0.50 per share but fell shy of the revenue expectation of $540.0 million. Plexus continues to face cut-throat competition in the EMS market, where component shortages and supply chain constraints are increasing operational complexities.
Moreover, Plexus continues to invest in new sites and increasing headcount that may affect profitability in the near term. We maintain our Underperform rating and set a target price of $25.00.
Further, investment in Plexus is expected to generate just 10% over the next 5 years, compared to the peer group average of 11.5%. We therefore believe that downside potential exists.
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Basking in a Positive News Flow
This is one of those days when the news flow all around us is favorable. European leaders have finally come out with a credible enough plan to tackle the issues plaguing the common market. On the home front, we got the best news on the economic growth front with the third quarter GDP report. And we continue to get reassuring earnings reports.
We will discuss the Euro-zone deal a bit later, but let us provide a quick take on this morning's third quarter GDP report. Real GDP growth accelerated to 2.5% rate in third quarter, broadly in-line with expectations, but up from the previous quarter's 1.3% pace. The positive headline number aside, the report's internals are very favorable as well.
Driving the acceleration was consumer spending, with continued momentum in business investments and a positive contribution from international trade. Inventory investment was a modest drag on growth, which is positive for the coming quarters. Government spending was flat, with federal up and state/local down.
Consumer spending increased at a better-than-expected 2.4% rate in the quarter, up from 0.7% in the second quarter. Business spending also increased at a nice clip, with non-residential fixed investment increasing by 16.3% after gaining by 10.3% in the preceding quarter. With inventory investments modestly down, real final sales -- which is GDP less inventories -- increased at 3.6% compared to a 1.6% gain in the second quarter.
Today's GDP report confirms the favorable economic readings of the last few weeks that had helped bring down some of the more exaggerated recessionary fears. This is not a great report, but it nevertheless represents a significant improvement from where expectations were just a few weeks back. With the European story expected to become less of a drag going forward following last night's deal, we have the makings of a nice market rally into the final months of the year.
The Euro-zone Agreement
The agreement provides for a 50% 'voluntary' haircut for private-sector holders of Greek government bonds, requires euro106 billion in additional bank capital, and increasing the buying power of the rescue fund to about euro1 trillion. The plan provides for forestalling the spread of contagion to other at-risk nations such as Spain and Italy by strengthening the Euro-zone rescue fund (EFSF) through two parallel methods.
In the first method, the fund will provide for indirect guarantees by covering initial losses on Spanish and Italian government bonds. The other method provides for the setting up of a separate fund that will be seeded with capital from the EFSF, but will also have participation from other non-EU nations, such as China. The head of EFSF is visiting China today specifically for that purpose, with active lobbying from Euro-zone leaders, particularly France's President Sarkozy.
These are all good big-picture goals, but the agreement does not provide for a number of key details, at least not at this stage. For example, we don't know where the additional bank capital is going to come from. We also don't know at this stage the extent of private sector participation in the plan, given the heavy haircut, though an influential bank lobby group negotiated on the banks' behalf and agreed to the haircut provision.
Notwithstanding the lack of details, the plan does provide for a viable-enough roadmap to address the issues plaguing the common currency. Importantly, by addressing all the outstanding issues simultaneously, the plan helps bring down the global contagion risk that had been weighing on the markets for awhile now.
On the earnings front, Exxon (NYSE: XOM) modestly came ahead of expectations, while Procter & Gamble (NYSE: PG) met EPS expectations on better-than-expected revenue numbers. Visa (NYSE: V) came out with an EPS beat after the close on Wednesday, but it missed revenue expectations.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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