Zacks Bull and Bear of the Day Highlights: Plum Creek Timber, Conmed, Alcoa, Aluminum Corporation of China and Rio Tinto
CHICAGO, Oct. 9, 2012 /PRNewswire/ -- Zacks Equity Research highlights Plum Creek Timber Co. (NYSE:PCL) as the Bull of the Day and Conmed Corporation (Nasdaq:CNMD) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Alcoa Inc. (NYSE:AA), Aluminum Corporation of China Limited (NYSE:ACH) and Rio Tinto plc. (NYSE:RIO).
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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:
We are changing our recommendation for Plum Creek Timber Co. (NYSE:PCL) from Neutral to Outperform. Plum Creek is the largest publicly-held timber REIT, with a diversified timber and land base that enables it to benefit from large economies of scale.
Plum Creek reported strong second quarter 2012 results with earnings beating the Zacks Consensus Estimate by $0.04. In addition, the upsurge in demographic trends driving housing markets and demand for real estate properties across the country provides a strong economic backdrop for the company to demonstrate solid financial performance in the future.
Our long-term Outperform recommendation on the stock indicates that it would perform well above the broader market. Our target price of $51.00, 45.9X 2012 EPS, reflects this view.
We downgrade our recommendation on Conmed Corporation (Nasdaq:CNMD) to Underperform. Its earnings and revenues for the second quarter missed the Zacks Consensus Estimates. All business segments, except the Arthroscopy business, hampered growth and sales. Conmed has lowered its guidance for 2012.
The company competes in the orthopedic surgery market against much larger, more technically-competent companies with deeper pockets. It continues to face a weak capital purchasing environment. We are also keeping an eye on Conmed's multiple given the current headwinds.
Thus, we downgrade our recommendation on Conmed to Underperform with a price target of $27 based on 15.3x our fiscal 2012 earnings estimate. Over the last five years, the company's shares have traded in a range of 8.9x to 22.6x, trailing 12-month earnings.
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Earnings Preview: Alcoa
Alcoa Inc. (NYSE:AA) is scheduled to report its third-quarter 2012 results after the market closes on Tuesday, October 9. Analysts polled by Zacks are currently expecting the company to break even on a per share basis on revenues of $5.62 billion.
With respect to earnings surprises, the company has posted two negative surprises in the preceding four quarters while it beat and met the Zacks Consensus Estimate on the other two occasions. Alcoa has delivered an average negative earnings surprise of 28.79% over the trailing four quarters, implying that it has missed the Zacks Consensus Estimate by that measure.
Second Quarter Flashback
Alcoa reported loss in the second quarter of 2012, hurt by lower aluminum prices. The company posted a loss of $2 million (break even on a per share basis) in the quarter compared with a profit of $322 million (or 28 cents a share) in the year-ago quarter.
Excluding one-time special items (including restructuring and other charges, litigation expenses and tax-related items), Alcoa earned 6 cents a share, in line with the Zacks Consensus Estimate but below the year-ago earnings of 32 cents.
Revenues decreased 9.4% year over year and 0.7% sequentially to $5,963 million, but were ahead of the Zacks Consensus Estimate of $5,828 million. While weak aluminum prices dragged down revenues, the company saw increased demand across aerospace and automotive markets in the quarter. Alcoa stated that aluminum prices dropped 18% year over year and 4% sequentially in the second quarter.
Company's Outlook
For 2012, Alcoa reiterated its aluminum growth forecast of 7% globally. The company also continues to expect a deficit in global aluminum supply in 2012.
Estimate Revisions Trend
AgreementIn the past 30 days, 7 analysts (out of 15) have made downward revisions while 1 analyst has raised his/her estimate for the third quarter. Over the last 7 days, there has been one upward revision coupled with a sole reverse movement.
Magnitude
Given the relative lack of movements, estimate for the third quarter has been static (at break even per share) over the past week. However, the directional pressure from a number of downward revisions has resulted in a decline of 3 cents in the estimate for the quarter over the past month.
Our View
We believe that Alcoa's outlook depends on the uncertainties in the aluminum market. In addition, we remain concerned about the volatile aluminum pricing and rising raw material costs. We expect rising energy and raw material (especially caustic soda) costs to continue constrain margin.
The company is pursuing strategies to move down its cost curves in its upstream businesses, and record profitability in its midstream and downstream businesses. In conjunction with the revenue targets, management is committed to improving margins that will exceed historical levels in the midstream and downstream operations. The company aims to achieve these goals by optimizing its portfolio and restructuring its high-cost assets.
Alcoa is aggressively slashing costs. The company curtailed 390,000 metric tons of its system smelting capacity to improve its competitive position. Alcoa, in January 2012, announced the temporarily idling of a portion of the smelters in Aviles and La Coruna, both of which will be operating at roughly 50% of capacity.
However, we are optimistic about Alcoa's long-term growth projects in China, Russia, Brazil and Saudi Arabia. Demand from these countries is expected to increase its alumina and aluminum production while lowering its operating costs. The company has established itself already as a key domestic supplier in some of the markets like packaging, aerospace, and commercial and transportation in Russia.
Alcoa faces stiff competition from Aluminum Corporation of China Limited (NYSE:ACH) and Rio Tinto plc. (NYSE:RIO). The company retains a Zacks #3 Rank, indicating a short-term (1 to 3 months) "Hold" rating. Currently, we have a long-term (more than 6 months) "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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