Zacks Bull and Bear of the Day Highlights: Perrigo Company, Rite Aid, Deere, Potash and Wal-Mart

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Feb 01, 2011, 09:34 ET

CHICAGO, Feb. 1, 2011 /PRNewswire/ -- Zacks Equity Research highlights: Perrigo Company (Nasdaq: PRGO) as the Bull of the Day and Rite Aid Corp. (NYSE: RAD) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Deere (NYSE: DE), Potash (NYSE: POT) and Wal-Mart (NYSE: WMT).

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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:

Perrigo Company (Nasdaq: PRGO) reported first quarter fiscal 2011 EPS of $0.87, well above the Zacks Consensus Estimate of $0.77. We believe that Perrigo's strong position in the brand OTC pharmaceutical market and growing generics and API businesses will help it deliver solid top- and bottom-line growth in the coming years.

We also expect the company to benefit from OTC switches from branded products in the next five years. Moreover, management's policy of pursuing on smart strategic deals will continue to drive growth for the company.

Perrigo also has a very strong and impressive pipeline. We, therefore, initiate coverage on the stock with an Outperform rating.

Bear of the Day:

Rite Aid Corp. (NYSE: RAD) posted a quarterly loss of $0.09 a share for the third quarter of fiscal 2011, which was an improvement over Zacks Consensus Estimate of a loss of $0.13.

Wal-Mart's foray into the retail generic drug market is putting pressure on Rite Aid's pharmacy margin. Moreover, an increased debt burden and interest expenses due to the acquisition of Brooks Eckerd has limited the scope of additional finance.

The company has lowered its sales guidance for fiscal 2011 in the range of $25.0 billion to $25.2 billion. Thus, we maintain our Underperform recommendation over the stock.

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Income, Spending Up; Savings Down

In December, Personal Income rose 0.4%, matching the 0.4% rise in November, and just below the 0.5% increase in October. However, both November and October were revised up by a tick, so relative to where we thought personal income was, this is actually an acceleration. It was, on the other hand, slightly below consensus expectations of a 0.5% increase.

Meanwhile, Personal Consumption Expenditures (PCE) rose by 0.7%, higher than the consensus expectation of a 0.6% rise. That is an acceleration from the 0.3% rise in November but matched the rise of 0.7% in October. Of course, if spending is rising faster than income, it means that the savings rate is falling. It fell to 5.3% from 5.5%.

The savings rate, while still well above the dangerously low levels that prevailed from 2004 to 2008, has declined every month since June when it hit 6.3%. The graph below shows the long-term history of the savings rate.

"High Quality" Personal Income Growth

The increase in Personal Income, while lower than expected, was of high quality. In total, personal income rose by $54.5 billion, a nice increase from the rise of $44.9 billion in November (seasonally adjusted annual rates, as are all the subsequent numbers on the components of personal income).

In December, private sector wages rose by $15.5 billion, up from a $5.9 billion increase in November. Wages in the goods producing sector increased by $1.5 billion in December, partially reversing a $2.5 billion decline in November. Wages in the private service sector were up $14.0 billion versus an increase of $8.4 billion in November.

Overall government wages rose by $1.6 billion after rising $1.3 billion in November. Private wages and salaries are the most important, and highest quality, form of personal income. Government wages have to be paid out of either taxes or government deficits. Government workers do, however, spend their money in the private sector, just like private sector workers do.

Proprietors' Income

Another important source of personal income is proprietors' income. In other words, what the self-employed and small businesses were earning. That increased by $8.1 billion in December, on top of a $7.9 billion increase in November. Farm proprietors incomes rose by $2.8 billion, on top of a $2.7 billion increase in November.

Farm vs. Non-Farm

Strong commodities prices have led to a stunning increase in farm incomes. Farm proprietors incomes have risen every month since May, and over that period they are up 56.6%. The overall strength down on the farm helps explain why the Great Plains states like the Dakotas and Nebraska are weathering the downturn so much better than the rest of the country.

It is also a good sign for firms that are tied to the farm economy, such as Deere (NYSE: DE) and Potash (NYSE: POT). It further suggests that perhaps Willie Nelson may need to find a different recipient for his charity concerts.

Non-farm proprietors income rose by $5.2 billion, matching the $5.2 billion rise in November. In other words, what we normally think of as small business income is showing signs of getting back on track, but is hardly booming the way farm income is. Farm proprietors income is tiny relative to non-farm at just $60.9 billion versus $1.0303 trillion. Since June, non-farm proprietors income is up a nice, but hardly exciting 2.4%.

Government Transfer Payments

The final big component of personal income is government transfer payments. Like government salaries, this source of income has to come from either taxes or increased deficits and so it is a less desirable source of personal income from the point of view of the economy as a whole.

However, it is still income that gets spent in the economy. Wal-Mart (NYSE: WMT) really doesn't care if the money spent in its stores is from the elderly using their Social Security checks or the dividends they get from their investments, or really if it is retirees shopping there or people still in their working years spending their wages there, or their unemployment benefits.

Transfer payments were up again this month, rising $3.8 billion in December, after rising $8.7 billion in November. Since August, though, this has not really been a major force in the total increase in personal income -- up just a total of $5.9 billion, or less than 0.03%.

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

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