Zacks Bull and Bear of the Day Highlights: Polycom, Tower Group, Cisco Systems, Macy's and Buffalo Wild Wings
CHICAGO, May 12, 2011 /PRNewswire/ -- Zacks Equity Research highlights: Polycom Inc. (Nasdaq: PLCM) as the Bull of the Day and Tower Group Inc. (Nasdaq: TWGP), as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Cisco Systems (Nasdaq: CSCO), Macy's Inc. (NYSE: M) and Buffalo Wild Wings Inc. (Nasdaq: BWLD).
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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:
Polycom Inc. (Nasdaq: PLCM) declared record-high first-quarter 2011 financial results, surpassing the Zacks Consensus Estimates. Despite facing competitive pressure from Cisco, which acquired Tandberg TV, Polycom's high-margin Network Infrastructure Systems businesses grew 25% year over year in the previous quarter.
Strong momentum in the Network Infrastructure division is a significant positive for Polycom since this division drives overall margins of the company. We believe long-term fundamentals of the videoconferencing industry are compelling. Moreover, the global economy has just started to recover. Business enterprises are restricting their respective travel budgets as a cost control measure.
This makes Polycom's HD telepresence solutions a cost-induced alternative in an increasingly interactive world. Polycom has solid liquidity to deal with its future ventures. We upgrade our recommendation on Polycom to Outperform.
Weaker investment yield continues to be a concern for Tower Group Inc. (Nasdaq: TWGP). In response to this environment, management had implemented a strategy to purchase dividend paying common stocks during the fourth quarter to enhance investment income.
The company is also evaluating alternative investment classes to further enhance the investment income. Though management is trying ways to offset pressure from low interest rate, we are not sure as to whether the company will be successful with this strategy.
Our six-month target price of $22.00 equates to about 8.4x our earnings estimate for 2011. We view the $0.50 per share annual dividend as secure, implying a total negative return of about 7.4% over that period, which is consistent with our Underperform recommendation on the shares.
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Cisco Posts Modest Earnings Beat
Cisco Systems (Nasdaq: CSCO), the world's largest computer network equipment maker, reported a modest positive earnings surprise when it posted fiscal 3rd quarter earnings results after the bell today. The Dow component brought in 42 cents per share on revenues of $10.87 billion for the quarter.
Shares are trading up 4% in after-hours following the earnings report, following a penny drop on a down day for regular trading today. Many concerns investors have about Cisco's direction are perhaps baked into the current share price; even with the bump after-hours, CSCO is trading around its lowest price since early 2009.
Much ink has been spilled on Cisco's problems of late, including shrinking gross margins which have led to the company taking steps to sell off consumer products such as its Flip video business, which was discontinued in the quarter. Also, competition in the switches market have driven down Cisco's premiums. This has resulted in gross margin compression, which fell again in the quarter to 61% (it was 64% in the year-ago quarter).
There was one less week in the 3Q of fiscal 2011 than in the year-ago quarter, which adds another positive glint to the earnings report. And while its products segment was down (as expected, with the Flip product getting the axe), services were up in the quarter. That said, net income is down $400 million year over year -- was this all from an extra week in the quarter a year ago?
Minor positive earnings surprises are nothing new for Cisco. Over the previous 4 quarters, the average earnings beat was 5.86%. Analysts had been bringing down estimates slightly over the past month, but with a 35% sequential gain in EPS for fiscal 3Q, perhaps some upward revisions will be in the offing.
What Cisco plans to do regarding new products and its recent re-focus on its bread and butter of routing, switching and services will go a long way in determining Cisco's future. But it may be awhile until it is clear how successful the company's new strategy becomes.
Macy's Beats, Boosts – Up Big
Macy's Inc. (NYSE: M), one of the leading department store retailers in the United States, recently posted first-quarter 2011 results that beat Zacks' expectations on the heels of healthy sales, improved operating margin and effective cost management, thereby sending shares up $2.32 or 8.8% to $28.65 in pre-market trading. Consequently, the company doubled its dividend pay-out and raised its full year outlook.
The quarterly earnings of 30 cents a share outperformed the Zacks Consensus Estimate of 18 cents, and jumped 6 times from 5 cents earned in the prior-year quarter. The Zacks Consensus Estimate rose by 3 cents prior to the earnings release, with 7 out of 14 analysts covering the stock raising their estimates in the last 30 days.
Macy's now expects fiscal 2011 earnings in the range of $2.40 to $2.45 per share, up from $2.25 to $2.30 forecast earlier, which lies ahead of the current Zacks Consensus Estimate of $2.32. Following an improved outlook, a positive sentiment may be palpable among the analysts, and we could witness a rise in the Zacks Consensus Estimates in the coming days.
The company has been taking prudent steps to increase sales, profitability and cash flows, which include integration of operations, consolidation of divisions and customer-centric localization initiatives. To help drive traffic, Macy's continues to focus on price optimization, inventory management and merchandise planning.
Buffalo Wild Wings Upped to Outperform
We are upgrading our rating on Buffalo Wild Wings Inc. (Nasdaq: BWLD) to Outperform from Neutral.
The rating upgrade is based on solid first quarter 2011 results, which outpaced the Zacks Consensus Estimate, primarily driven by double-digit growth in the top line and lower traditional wing prices. The company is also on track to achieve 13% unit and 18% net earnings growth in fiscal 2011, based on improved comparable store sales and favorable wing costs.
During the first quarter, cost of traditional wings declined 36% year over year to $1.22 per pound. For the first two months of second quarter 2011, the company expects traditional wings cost to be $1.02 per pound, lower than any quarterly price since 2003. Buffalo Wild Wings has also contracted for the price of boneless wings, a higher margin product, till March 2012 at a cost similar to fiscal 2010.
Buffalo Wild Wings is witnessing an improvement in comps with company-operated and franchised restaurants growing 3.9% and 1.6%, respectively, during the quarter. Additionally, the comps are expected to be up 5.3% at company-owned restaurants and 1.6% at franchise locations for the first four week of the second quarter of 2011.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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