Zacks Bull and Bear of the Day Highlights: Medicines Company, DeVry, Guess?, Abercrombie & Fitch and Gap

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Aug 24, 2012, 09:36 ET

CHICAGO, Aug. 24, 2012 /PRNewswire/ -- Zacks Equity Research highlights Medicines Company (Nasdaq:MDCO) as the Bull of the Day and DeVry (NYSE:DV) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Guess? Inc. (NYSE:GES), like Abercrombie & Fitch Co. (NYSE:ANF) and Gap Inc. (NYSE:GPS).

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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:
Medicines Company (Nasdaq:MDCO) was upgraded from Neutral to Outperform following a solid earnings report and positive earnings surprise. The beat was positive but we are also excited by the progress in the pipeline for the second half of the year.

We expect Angiomax to continue performing well. The resolution of the Angiomax patent extension case was a major boost for the company. The company s settlement agreements with Teva and APP regarding Angiomax are also positive events.

MDCO reported second quarter earnings of $0.38 per share. Second quarter earnings were well above year ago earnings of $0.18 per share. The Zacks Consensus Estimate for the second quarter earnings was $0.17 per share. Earnings were boosted by strong revenues.

The stock is currently trading at 22.2x our 2012 earnings estimate. Our $30 target price is based on 26.8x multiple of our 2012 earnings estimate.

Bear of the Day:
DeVry (NYSE:DV) was recently downgraded from Neutral to Underperform. The downgrade comes as the company reported dismal fourth quarter results.

Both top and bottom lines declined on a sequential as well as year over year basis. DeVry's fourth quarter 2012 earnings of $0.47 per share declined 56% from the year ago levels due to lower revenues and high operating costs. Net sales fell 7.5%, once again due to a decline in enrollment.

In July, DeVry had preannounced its guidance for the quarter, which was largely disappointing. The final reported results were mostly in line with the preannounced figures. DeVry's share price has gone down by more than 25% since the pre-announcement.

We have a long term Underperform recommendation on the stock. Our target price of $18.00 is based on approximately 9.5x our 2013 earnings estimate.

Latest Posts on the Zacks Analyst Blog:

Guess Misses in the Second Quarter
Guess? Inc.'s (NYSE:GES) second quarter of fiscal 2013 adjusted earnings per share (EPS) of 49 cents missed the Zacks Consensus Estimate of 50 cents and declined 41.7% from last year's 84 cents. The earnings declined due to lower traffic in North American stores.

Revenues and Margins

Revenues in the quarter dropped 6.2% to $635.4 million from $677.2 million in the prior-year quarter.

Operating margin shrank 770 basis points year over year to 9.0%, reflecting higher investment in advertising & marketing along with negative same-store sales and higher occupancy & selling costs in Europe.

As of July 28, 2012, the company operated operated 511 retail stores in the United States and Canada and 300 retail stores in Europe, Asia and Latin America.

Segment Results

Retail stores in the North American generated revenues of $253.0 million in the second quarter, down 3.1% from $261.1 million in the same period last year. The decline was due to the ongoing macroeconomic headwinds, which resulted in lower store traffic. \Comparable store sales shrank 8.5% (7.5% in local currency) from the year-ago quarter. Operating income decreased 49% to $16.8 million from $32.9 million.

The European segment's revenue slipped 15.0% to $246.9 million from $288.8 million in the year-ago quarter, due to weakness in Southern Europe. Currency headwinds also hurt revenues significantly. Operating earnings slipped 61.0% to $24.6 million from $63.7 million in the year-ago quarter.

The Asian segment's revenue increased 21.0% to $66.8 million from $55.3 million in the year-ago quarter. Operating income slipped 17% to $4.0 million compared with $4.8 million.

Net revenue in the North American Wholesale segment slipped 5.0% to $41.6 million in the quarter from $43.8 million last year. Operating income plunged 27% to $7.7 million from $10.5 million.

Other Financial Update

As on July 28, 2012, Guess? had $271.9 million of cash and cash equivalents compared with $430.2 million in the prior-year quarter.

Operating activities provided $44.6 million of cash, compared with $88.4 million a year ago. During the second quarter, the company spent $140.1 million to repurchase 5.0 million shares of its common stock.

The Way Forward

Management is planning measures to generate stronger results in North America.

Net revenue is expected to be in the range of $620 million and $630 million in the third quarter and between $2.62 billion and $2.65 billion for fiscal 2013.

The company expects third quarter fiscal 2013 earnings at 42 cents to 46 cents. For fiscal 2013, the company expects EPS in the range of $2.15 to $2.30. The guidance was much lower than the Zacks Consensus estimate of 64 cents for the third quarter and at $2.59 for fiscal 2013.

While operating margin is expected to be between 9.0% and 9.5% for the third quarter, it is expected to between 10.5% and 11.0% for fiscal 2013.

Conclusion

Currently, Guess? which competes with companies like Abercrombie & Fitch Co. (NYSE:ANF) and Gap Inc. (NYSE:GPS) holds a Zacks #3 Rank, implying a short-term Hold rating. On a long-term basis, we maintain a 'Neutral' recommendation on the stock

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

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