CHICAGO, Aug. 31, 2012 /PRNewswire/ -- Zacks Equity Research highlights Portfolio Recovery, Inc. (Nasdaq:PRAA) as the Bull of the Day and Johnson Controls Inc. (NYSE:JCI) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onSuncor Energy Inc (NYSE:SU), Encana Corp. (NYSE:ECA) and Canadian Natural Resources Ltd. (NYSE:CNQ).
We are upgrading our recommendation on Portfolio Recovery, Inc. (Nasdaq:PRAA) to Outperform from Neutral based on its strong cash collections and strategic acquisitions. The company's second quarter earnings surpassed the Zacks Consensus Estimate and the year-ago earnings on account of strong top-line growth attributable to continuous improvement in cash collections.
Call center, legal and purchased bankruptcy collections drove the topline growth. Even the performance of the fee-for-service business showed improvement after posting weak results in the past few quarters. The balance sheet also strengthened with higher cash and shareholder equity.
Long-term investments are benefiting the core portfolio, while strategic acquisitions are accelerating earnings growth. The credit facility will further enhance the company's liquidity, auguring well for Portfolio Recovery's long-term expansion plans. Our six-month target price of $120.00 per share equates to about 16.8x our earnings estimate for 2012. This target price implies an expected total return of 20% over that period.
Johnson Controls Inc. (NYSE:JCI) is a leading supplier of automotive interiors, batteries and other control equipment. Despite posting 14% growth in earnings per share and 2% growth in revenues, the company failed to meet the Zacks Consensus Estimate in the third quarter of fiscal 2012. The company expects softness in the global markets, and a weak Euro would hamper its earnings.
We are also concerned about pricing pressure from OEMs and strong competition faced by the company. These have led us to downgrade our recommendation on the stock to Underperform from Neutral and set a target price of $25.00.
Our long-term Underperform recommendation on the stock indicates that it will perform below the market. Our $25.00 target price, 9.9X 2012 EPS, reflects this view.
Taking into account Suncor Energy Inc's (NYSE:SU) operational and cost issues, we have recalibrated our investment thesis on the energy explorer to Underperform from Neutral.
Calgary, Alberta-based Suncor is Canada's premier integrated energy company. Suncor's operations include oil sands development and upgrading, conventional and offshore crude oil and gas production, petroleum refining, and product marketing under the Petro-Canada brand.
Following the Petro-Canada acquisition last year, Suncor has become one of the largest owners of oil sands in the world – worth as much as 22 billion barrels. One of the largest publicly-traded energy outfits in Canada along with the likes of Encana Corp. (NYSE:ECA), Canadian Natural Resources Ltd. (NYSE:CNQ), etc., the company has gained new oil sands properties to supplement its existing operations in northern Alberta, making it the dominant producer in the region where reserves are second only to Saudi Arabia.
Additionally, Suncor explores, acquires, develops, produces and markets crude oil and natural gas in Canada and internationally, and it transports and refines crude oil and market petroleum and petrochemical products primarily in Canada.
Our pessimistic outlook on Canada's biggest energy firm is fueled by the ongoing suspension of its Syrian operations and high production costs. Post Petro-Canada acquisition, we also remain worried about Suncor's elevated debt level and significant anticipated capital expenditure requirements. Further, there is execution risk associated with the integration of Petro-Canada's predominately conventional assets, of a type and in geographies where Suncor lacks experience.
Nevertheless, Suncor's impressive portfolio of growth opportunities and unique asset base provides a high return potential in the long run. Embarking on a series of divestitures, Suncor is getting back on track following its merger with Petro-Canada.
However, we prefer to remain on the sidelines at this point until we get a better proof of the company's sustainable operational efficiency.
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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