Zacks Bull and Bear of the Day Highlights: Pool, Avnet, Activision Blizzard, Electronic Arts and Take-Two Interactive Software

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Nov 06, 2012, 09:30 ET

CHICAGO, Nov. 6, 2012 /PRNewswire/ -- Zacks Equity Research highlights Pool Corporation (Nasdaq:POOL) as the Bull of the Day and Avnet, Inc. (NYSE:AVT) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Activision Blizzard Inc. (Nasdaq:ATVI), Electronic Arts Inc. (Nasdaq:EA) and Take-Two Interactive Software Inc. (Nasdaq:TTWO).

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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:

Pool Corporation (Nasdaq:POOL) is a recognized leader in the swimming pools industry. The potential for market share gain is significant, and cost-containment initiatives augur well for the business. Pool's results reflect continued growth in its once struggling Green business.

Amid a tough business environment in terms of weak growth in new pool constructions and faltering consumer confidence, Pool's revenue has been growing in addition to the strength in earnings. The company expects the market condition to improve beyond 2012 as well. The company also raised its full-year guidance due to the return of activity to normal levels despite some pull-forward demand in the firsthalf of 2012, and bears an optimistic view for the near future.

Pool hopes to grow earnings per share over 20% this year which, if achieved, will be for the third year in a row. Hence, we upgrade the recommendation from Neutral to Outperform.

Bear of the Day:

We are downgrading our recommendation on Avnet, Inc. (NYSE:AVT) from Neutral to Underperform. Earnings estimates for the company have declined significantly, as the weakened economy and currency fluctuation continues to hurt its businesses.

Moreover, the competitive strides in the industry may have a detrimental impact on the company. However, Avnet's diversified product ranges and notable acquisition strategy should have a positive impact on its businesses.

Mounting competition in the industry and negative foreign currency are also likely to be causes of concern moving forward. We have set a target price of $25.00 based on a P/E multiple of 8.9x to our 2013 EPS estimate.

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Earnings Preview: Activision

Activision Blizzard Inc. (Nasdaq:ATVI) is scheduled to release its fiscal third quarter 2012 results after the closing bell on November 7, 2012.

Prior Quarter Highlights

Activision reported robust second quarter 2012 results. Revenues on non-GAAP basis surged 50.8% year over year to $1.05 billion in the quarter and comfortably exceeded the company's guidance of $805.0 million. The quarterly revenues also surpassed the Zacks Consensus Estimate of $893.0 million. The significant year-over-year growth was driven by strong performances from Diablo III, Skylanders, World of Warcraft and Call of Duty franchises.

Activision's bottom line also doubled to 20 cents in the reported quarter boosted by higher revenue and solid margin expansions. Including stock based compensation, earnings came at 18 cents.

For the third quarter, Activision expects non-GAAP earnings of 7 cents per share on revenues of $690 million. The Zacks Consensus Estimate for revenue was $707 million.

For further details please read: Activision's 2Q Profits Double Y/Y

Estimate Revision Trend

In the last 30 days, none out of the 5 analysts covering the stock revised their estimates for the third quarter. The Zacks Consensus Estimate for the quarter remained at 7 cents per share for the same period of time.

Analysts expect Activision's top line to exceed estimates banking on higher sales of World of Warcraft: Mists of Pandaria. Moreover, the bottom line is expected to get a boost from higher digital sales and share repurchase activity. However, analysts remain concerned regarding the uncertain macroeconomic conditions coupled with subscription losses in the World of Warcraft game and weaker-than-expected sales from Call of Duty: Black Ops II.

Recommendation

We note that Activision has a staggering average earnings surprise of 217.7% over the past four quarters. We don't expect a major change in the earnings trend pattern for the current quarter. We believe that Activision is focusing on expanding its product portfolio that will boost top-line growth over the long term.

Meanwhile, Activision continues to strengthen its World of Warcraft, Call of Duty and Skylanders franchises through the launch of new versions and content packs, which are expected to boost top-line growth in the near term. Moreover, with video game sales slowing down in the major western markets, Activision has been focusing on boosting its presence in the emerging markets of China and South East Asia.

However, softness in the video game industry and significant competition from Electronic Arts Inc. (Nasdaq:EA) and Take-Two Interactive Software Inc. (Nasdaq:TTWO) are the major headwinds going forward. Moreover, increasing investment related to new product developments may hurt profitability in the near term.

We prefer to remain on the sidelines due to these concerns and maintain our Neutral recommendation over the long term (6-12 months). Currently, Activision Blizzard has a Zacks #3 Rank, which implies a 'Hold' rating in the short term.

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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