Sep 08, 2011, 09:30 ET
CHICAGO, Sept. 8, 2011 /PRNewswire/ -- Zacks Equity Research highlights Motorola Solutions, Inc. (NYSE: MSI) as the Bull of the Day and China Life Insurance (NYSE: LFC) as the Bear of the Day. In addition, Zacks Equity Research provides analysis Yahoo (Nasdaq: YHOO), LinkedIn (NYSE: LNKD) and Zillow (Nasdaq: Z).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
We upgrade our recommendation on Motorola Solutions, Inc. (NYSE: MSI) to Outperform. The company reported excellent financial results for the second quarter of 2011. The company is a market leader in the lucrative U.S. Public Safety market. While the federal budgetary pressures are anticipated to continue, the state and local level agencies have become a major growth driver for Motorola Solutions.
The company's business model remains compelling and we believe the company will be able to maintain its current top-line growth in the future primarily due to the critical nature of the public safety network in the U.S. and massive growth potential in the Middle East. Furthermore, Motorola Solutions boasts a healthy cash flow.
The company has also enhanced its shareholders value through a regular dividend policy and the initiation of a major share buyback program. We therefore, have upgraded our rating to Outperform with a target price of $49, based on 22x our fiscal 2011 earnings estimate, approaching the industry average.
We are initiating coverage on China Life Insurance (NYSE: LFC) with an Underperform recommendation. The company's semi-annual earnings witnessed a steep decline from the comparable period of the prior year. Increases in revenue and premiums were offset by increased benefits, claims and expenses, which led to a decline in the net income.
Even the capital position remains sluggish driven by reduced operating cash flows in the semi-annual period. The company needs to improve premium earned from the short-term insurance business as well as cash from operations. Overall, we expect some downside in the near-term due to lack of any significant growth catalyst.
Our six-month target price of $32.00 equates to 15.2x our earnings estimate for 2011. Combined with the $0.81 per ADR annual dividend, this target price implies an expected negative total return of 7.4% over that period.
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Can Washington Deliver?
With the economic calendar relatively on the thin side in this holiday-shortened week, the market is keenly waiting for the two speeches from Washington this Thursday -- the first by Fed Chair Ben Bernanke and the second by the President Obama, focused on the labor market. Given the relatively low expectations, particularly from the president, there is room for positive surprise.
Reports in the media indicate that the president plans to announce a roughly $300 billion program that will include a mix of tax incentives and spending through an infrastructure bank. On the tax front, the president will likely ask for an extension of the payroll-tax holiday that expires at the end of this year. Another tax measure could be a job-centric tax credit for employers. Another idea floating around is to offer a temporary holiday for repatriation of corporate cash parked overseas at present. Given the anti-spending mood in Congress, the president is expected to suggest paying for these upfront outlays with cuts in the outer years.
There is a lot less ambiguity about what the Fed could or should do in response to the recent run of soft economic reports. The minutes of the last FOMC meeting provides plenty of evidence that the committee has considered further easing as a viable policy option. However, given dissensions within the FOMC, the Fed is unlikely to announce a new bond purchase program along the lines of the last quantitative easing program.
A more viable alternative appears to be the repositioning of the Fed's bond portfolio towards longer-maturity bonds. This would involve using proceeds from maturing bonds, obviating the need for increasing the size of the Fed balance sheet. The goal will be to trigger a mortgage refinancing cycle by bringing down long-term interest rates.
With yields on 10-year Treasuries at the under-2% record level and a big chunk of current mortgages under water, it is far from certain that this move will have the desired effect. But given the pressure 'to do something,' Bernanke may tip his hand on this front in his Thursday speech.
In corporate news, Yahoo (Nasdaq: YHOO) announced that its board had removed CEO Carol Bartz and replaced her with the current CFO Tim Morse as the interim CEO. Given the lack of leadership from the departing CEO, investors are likely to cheer her departure. In other news, Groupon Inc., the daily deals site, is reportedly rethinking the timing of its IPO. The company had originally planned to go public after Labor Day, with a road show planned for next week.
Internet IPOs have been all the rage this year, though enthusiasm appears to be ebbing lately following the recent market turmoil. LinkedIn (NYSE: LNKD), the social and professional networking site, and Zillow (Nasdaq: Z), the real estate site, had earlier completed very successful IPOs.
The policy response from Washington may help on the margin, but there are no silver bullets here. The problems facing the U.S. economy are more structural and long-term in nature and generally outside the purview of the Fed. In the absence of cooperative and creative leadership from the executive and legislative branches, it is difficult to envision anything substantial at this stage. This is particularly so after what we saw in the debt-ceiling debate.
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
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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