Zacks Bull and Bear of the Day Highlights: J.C. Penney, Everest Re Group, Charles Schwab Corporation, optionsXpress Holdings and E*TRADE Financial Corporation
Apr 18, 2011, 09:30 ET
CHICAGO, April 18, 2011 /PRNewswire/ -- Zacks Equity Research highlights J.C. Penney (NYSE: JCP) as the Bull of the Day and Everest Re Group (NYSE: RE) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Charles Schwab Corporation (NYSE: SCHW), optionsXpress Holdings Inc. (Nasdas: OXPS) and E*TRADE Financial Corporation (Nasdaq: ETFC).
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Here is a synopsis of all five stocks:
J.C. Penney's (NYSE: JCP) well diversified supplier base, compelling merchandise, marketing campaigns, technological initiatives as well as effective cost and inventory management should drive sales and improve margin trends over the long term. The company delivered better-than-expected fourth-quarter 2010 results.
We observe that J.C. Penney's sales grew 2.8%, whereas comps rose 4.5% during the quarter. The company remains on track to deliver comps growth and boost market share. Comparable-store sales are expected to grow between 3% and 5% for first-quarter 2011.
The Sephora concept also inspires confidence and is expected to be a significant revenue driver. Management guided total sales growth in the low-single digit range and earnings between $2.00 and $2.10 for fiscal 2011.
We are downgrading our recommendation on the shares of Everest Re Group (NYSE: RE) as we believe that its top line growth will remain somewhat restricted due to the expected decline in the casualty line as a result of tough market conditions. Additionally, the potential for future reserve additions remains a challenge.
The company's fourth quarter 2010 earnings were significantly higher than the Zacks Consensus Estimate Results were aided by higher investment income, partially offset by lower premiums written. Everest Re Group guided preliminary losses from earthquake and tsunami in Japan at $320 million, pre-tax and net of reinstatement premiums and taxes.
Our six-month target price of $83.00 equates to 44.9x our earnings estimate for 2011. With an annual dividend of $1.92 per share, this price target implies an expected negative total return of 8.7% over that period. This is consistent with our Underperform recommendation on the shares.
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Charles Schwab Outpaces
Charles Schwab Corporation's (NYSE: SCHW) first quarter 2011 earnings came in at 20 cents per share, a penny ahead of the Zacks Consensus Estimate of 19 cents. This also compares favorably with the year-ago quarter's earnings of 11 cents.
Charles Schwab's net income for the reported quarter stood at $243 million, up 84% compared with $132 million in the prior-year quarter. However, if one time charges are taken into consideration for the first quarter of 2010, net income for the reported quarter saw an enormous jump from $6 million in the prior-year quarter.
Charles Schwab's results benefited from improved revenue and increase in interest-earning assets. Additionally, fall in non-interest expenses was also a positive for the company.
On March 21, Charles Schwab had announced an all-stock deal to acquire optionsXpress Holdings Inc. (Nasdas: OXPS) for $1.0 billion. Under the agreement, the company will give 1.02 shares for each share of optionsXpress. The deal is valued at $17.91 per share or 17% premium to the closing price of optionsXpress' stock as of March 18. The company anticipates the deal to be modestly accretive and expect synergies worth $80 million in the first full year of combined operations.
Details
Net revenue for the reported quarter was $1,207 million, up 7.1% from $1,127 million in the prior quarter and 23% from $978 million in the prior-year quarter. This also compares favorably with the Zacks Consensus Estimate of $1,180 million. The substantial rise in net revenue for the quarter was primarily attributable to growth in net interest revenue, asset management and administration fees and trading revenue.
Charles Schwab's average interest-earning assets for the reported quarter surged 24.7% year over year to $90.13 billion.
For the reported quarter, total non-interest expenses fell 9.5% sequentially and 15.8% year-over-year to $813 million. Charles Schwab's expenses mainly dropped as a result of absence of class action litigation and regulatory reserve charges and money market mutual fund charges that had inflated the expenses in the prior quarters.
Charles Schwab's pre-tax profit margin in the fourth quarter improved significantly to 32.6% from a low of 1.3% in the prior-year quarter.
As of March 31, 2011, Charles Schwab had total client assets of $1.65 trillion (up 10% year-over-year). New client assets were $23.0 billion compared with $26.2 billion at the end of the prior quarter and $23.3 billion at the end of the prior-year quarter. New brokerage accounts were 224,000, down 3% from the year-ago quarter.
As of March 31, 2011, Charles Schwab had a total of 8.1 million total brokerage accounts, 719,000 banking accounts and 1.44 million corporate retirement plan participants.
Annualized return on equity (ROE) as of March 31, 2011, came in at 15%, up from 8% in the prior year quarter.
Our Take
While focus on lower-cost capital structure will sustain better results in the upcoming quarters, Charles Schwab's financials will continue to be impacted by lower trading activity and volatile interest rates. However, after the completion the optionsXpress, the company's top line will benefit from increased trading in derivatives.
Charles Schwab's close competitor E*TRADE Financial Corporation (Nasdaq: ETFC) is scheduled to release its first quarter 2011 earnings on April 20.
Charles Schwab currently retains a Zacks #3 Rank, which translates into a short-term 'Hold' rating. Also, considering the fundamentals, we are maintaining our long-term 'Neutral' recommendation on the shares.
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