Zacks Bull and Bear of the Day Highlights: Marathon Petroleum, Vale, E. I. du Pont de Nemours, Dow Chemical and BASF

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Nov 08, 2012, 09:30 ET

CHICAGO, Nov. 8, 2012 /PRNewswire/ -- Zacks Equity Research highlights Marathon Petroleum Corp. (NYSE:MPC) as the Bull of the Day and Vale S.A (NYSE:VALE) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on E. I. du Pont de Nemours and Company (NYSE:DD), The Dow Chemical Company (NYSE:DOW) and BASF SE (OTC:BASFY).

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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:

Bull of the Day:

We are maintaining our Outperform recommendation on Marathon Petroleum Corp. (NYSE:MPC). Spun out of parent Marathon Oil Co. in 2011, the company is a leading refiner and marketer of petroleum products in the U.S.

Our bullish investment theme stems from Marathon Petroleum's scale advantage, impressive asset quality, and an extensive midstream/retail network that diversifies its portfolio and provides more stable revenue streams. We believe management's recently commenced $2 billion share repurchase program and the proposed acquisition of BP's Texas City refinery could further boost shareholder value.

Marathon Petroleum's low debt ratio and hefty cash balance add to the positive sentiment. All in all, we believe the company is well positioned going forward and view it as an attractive investment.

Bear of the Day:

We are maintaining an Underperform recommendation on Vale S.A (NYSE:VALE) based on the rising cost of raw materials, increasing price volatility and demand slowdown, especially in China. Also, rising cost of delivery of materials and the competition in the industry leaves the company in a pressure to maintain prices as well as earn profits to sustain.

In the third quarter of 2012, earnings of the company fell by 66% year over year and stood at $0.32 per ADR. The revenue was also reported 34.5% lower year over year at $10,963 million due to weak macro conditions.

We are maintaining our Underperform recommendation on Vale based on demand degradation for metals and minerals, especially in the company's main region of operation, China. We expect Vale ADR to trade at a P/E of 7.1x EPADR 2012, to arrive at the target price of $17.00.

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Earnings Scorecard: DuPont

Earnings estimates for E. I. du Pont de Nemours and Company (NYSE:DD) are on the downswing following its lackluster third-quarter 2012 results. The Delaware-based chemical and industrial products behemoth missed estimates in the quarter and its profit tumbled due to lower demand across titanium dioxide and photovoltaic markets. DuPont reduced its earnings forecast for 2012 and announced a restructuring plan that includes headcount haircuts.

Third Quarter Revisited 44 cents 69 cents 48 cents

Adjusted earnings from continuing operations (excluding the divestiture of Performance Coatings business) were 32 cents per share. The results missed the Zacks Consensus Estimate of 46 cents.

Revenues from continuing operations declined 9% year over year to $7.4 billion, due to lower sales volumes, negative currency impact and reduction from portfolio changes, partly offset by higher pricing. Sales missed the Zacks Consensus Estimate of $8.08 billion. The company saw lower sales volumes from its Electronics and Communications and Performance Chemicals businesses, especially in Asia Pacific.

DuPont slashed its earnings forecast for 2012 and now expects earnings from continuing operations (excluding significant items) to be in the band of $3.25 to $3.30 per share. Earlier, it expected earnings to be at the lower end of its guidance range of $4.20 to $4.40 a share.

We have discussed the quarterly results at length here: DuPont Profit Skids, Slashing Jobs.

Agreement – Estimate Revisions

Estimates for DuPont manifest an absolute downward drift, reflecting its dismal third quarter results and reduced outlook. Out of 14 analysts covering the stock, 12 have chopped their estimates for the fourth quarter over the past 30 days while none moving in the opposite direction. No movement was witnessed over the past 7 days.

Estimates for 2012 also elicit bearish sentiment with 6 analysts (out of 11) lowering their forecasts over the past month with no reverse movements. No activity was witnessed over the last week.

Magnitude – Consensus Estimate Trend 33 cents 9 cents 67 cents $3.34 Our View

DuPont is witnessing significant momentum in the agriculture business, boosted by higher volume and market share gains in seed genetics and crop protection. Moreover, the acquisition of Danisco has strengthened its presence in the food ingredient and enzyme markets while expanding its foothold in industrial biotechnology and biofuels.

The company is focused on an aggressive cost-cutting strategy which involves headcount reductions, restructuring of work schedules and improvement of working capital productivity. As part of its newly announced restructuring program, it plans to lay off 1,500 workers across the globe over the next 12 to 18 months and expects to save about $450 million from the move.

However, barring agriculture and nutrition, DuPont witnessed weakness across a number of businesses in the third quarter. Lower demand for photovoltaic materials led to a sharp decline in sales in its Electronics and Communications segment.

Moreover, the demand of titanium dioxide, which is used to give paint and other coatings a white hue, remained weak due to the challenging economic conditions in Europe and softness in some parts of Asia, leading to lower volumes in the Performance Chemicals segment. The company's downward guidance revision for the full year reflects the sustained weakness across these two businesses and expected sequential lower profits from these units in the fourth quarter.

DuPont also remains exposed to raw material cost inflation, which is expected to constrict its margins in the fourth quarter. Moreover, currency headwinds weighed on the performance of a number of segments in the third quarter and are expected to reduce its earnings for 2012 by 27 cents a share.

DuPont, which competes with The Dow Chemical Company (NYSE:DOW) and BASF SE (OTC:BASFY), holds a short-term Zacks #4 Rank (Sell). We currently have a long-term (more than 6 months) Underpeform recommendation on its shares.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.

About the Bull and Bear of the Day

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