Zacks Bull and Bear of the Day Highlights: Moody's, ProAssurance, O'Reilly Automotive, Peet's Coffee & Tea and Bob Evans Farms

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Feb 18, 2011, 09:30 ET

CHICAGO, Feb. 18, 2011 /PRNewswire/ -- Zacks Equity Research highlights: Moody's Corp. (NYSE: MCO) as the Bull of the Day and ProAssurance Corp. (NYSE: PRA) as the Bear of the Day. In addition, Zacks Equity Research provides analysis O'Reilly Automotive Inc. (Nasdaq: ORLY), Peet's Coffee & Tea Inc. (Nasdaq: PEET) and Bob Evans Farms Inc. (Nasdaq: BOBE).

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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:

Moody's Corp.'s (NYSE: MCO) fourth quarter 2010 earnings beat the Zacks Consensus Estimate based on higher revenues that also exceeded expectations. The results reflect strong activity in corporate and financial institution debt markets, largely driven by a high-yield bond and higher bank loan issuance.

Given the company's strong revenue and earnings trends and moderating regulatory concerns, we have raised our revenue and earnings estimates for 2011. However, weak Structured Finance business and increased expenses remains areas of concern. We believe Moody's, with its diversified credit research business model and international growth, remains a solid franchise in rating debt instruments.

Over the long term, Moody's expects to deliver double-digit revenue growth and over 40.0% in operating margin on the back of growing Investor Service and Analytics business. Hence, we upgrade Moody's to Outperform.

Bear of the Day:

We are downgrading our recommendation on ProAssurance Corp. (NYSE: PRA) from Neutral to Underperform, owing to the decline in net premiums and increased total expenses, which also resulted in the deterioration of the top line and the combined ratio.

In addition, third quarter earnings declined year over year, though in line with the Zacks Consensus Estimate. Though the company has significantly expanded its footprint with the recent acquisition of American Physicians Service Group, and deployed sufficient capital through share repurchases, we believe price competition, loss cost trends and regulatory challenges limit the desired upside in the sector.

While the benefits of geographic diversity and strong financial position are likely to impact over time, we believe the inherent threats of the company will weigh on the performance in the near term.

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O'Reilly Really Firm

O'Reilly Automotive Inc. (Nasdaq: ORLY) posted a 37% rise in profit to $98.5 million or 69 cents per share in the fourth quarter of 2010 from $71.9 million or 52 cents per share in the same quarter of 2009 (all excluding net gain on settlement of note receivable). With this, the auto parts retailer topped the Zacks Consensus Estimate by 5 cents per share and its own earnings per share guidance of 56 cents–60 cents per share.

The company's results were attributable to an impressive consolidated comparable store sales growth led by its dual market strategy and strong distribution network. Its conversion of the remaining CSK stores and Phoenix distribution center during the quarter also boosted sales.

Sales in the quarter appreciated 12% to $1.31 billion, up from the Zacks Consensus Estimate of $1.29 billion. Consolidated comparable store sales for stores open at least one-year rose 9.2% compared with an increase of 2.7% in the fourth quarter of 2009. Operating income soared 31% to $164 million (12.5% of sales) from $125 million (10.7%) for the comparable period a year ago.

Peet's Reports In-Line

Peet's Coffee & Tea Inc. (Nasdaq: PEET) reported fourth quarter 2010 non-GAAP net income per diluted share of 48 cents in line with the Zacks Consensus Estimate. EPS increased 71.4% sequentially and 33.3% from prior year quarter.

Full year 2010 diluted earnings per share was also in line with the Zacks Consensus Estimate and increased 28% from last year to $1.33 per share.

Replay of the Quarter & Year

The reported year and quarter comprised 52 weeks and 13 weeks respectively as against 53 weeks and 14 weeks in the year ended January 3, 2010.

Management stated that the year marked impressive operating margin improvement, strong earnings per share, and increased sales in line with company's target, that was led by 24% growth in consumer packaged grocery business.

On a comparable 13-week and 52-week basis, net revenue for the quarter increased 6.4% year-over-year to $91.6 million and for full year net revenue increased 9.2% from last year to $333.8 million.

However, both the quarter and full year revenues failed to beat the Zacks Consensus Revenue Estimate of $96 million and $338 million, respectively.

Bob Evans Let Down by Higher Costs

Bob Evans Farms Inc. (Nasdaq: BOBE) announced third quarter 2011 earnings of 51 cents per share, which missed the Zacks Consensus Estimate of 63 cents and were also 12.1% below the year-ago quarter's 58 cents.

The lower-than-expected third quarter results were due to higher cost and challenges in the restaurant segment.

The company posted a 0.3% year-over-year drop in net sales to $428.6 million, as combined same store-sales fell 1.3%, resulting from a 0.5% same store-sales decrease at Bob Evans restaurants and a 3.2% slip at Mimi's Cafe. However, the company's net sales were slightly higher than the Zacks Consensus Estimate of $428.0 million.

By segments, restaurant net sales declined 1.6% to $337.7 million due to sluggish comparable sales and food products net sales jumped 4.7% to $90.9 million, driven by price increase and less discount provided to retailers.

Cost of sales escalated 30 basis points (bps) from the year-ago quarter to 31.5%, selling and general administrative expense was up 120 bps to 8.7% and other operating expenses spiked 30 bps to 16.1%. However, operating wages fell 100 bps to 33.0%. Interest expense plunged $0.4 million year over year to $2.1 million due to lower average borrowings.

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

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