Zacks Bull and Bear of the Day Highlights: Rent-A-Center, PACCAR, Whole Foods Market, MetroPCS Communications and United States Cellular
CHICAGO, July 27, 2012 /PRNewswire/ -- Zacks Equity Research highlights Rent-A-Center, Inc. (Nasdaq:RCII) as the Bull of the Day and PACCAR, Inc. (Nasdaq:PCAR) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onWhole Foods Market Inc. (Nasdaq:WFM), MetroPCS Communications Inc. (NYSE:PCS) and United States Cellular (NYSE:USM).
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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:
Rent-A-Center, Inc. (Nasdaq:RCII) leverages an extensive network of stores to effectively penetrate its target markets. Despite a sluggish economic recovery, the company witnessed healthy demand for its product and services, aiding it to post better-than-expected second-quarter 2012 results.
The quarterly earnings of $0.74 per share beat the Zacks Consensus Estimate of $0.71, and rose 8.8% from the prior-year quarter on the back of growth in the top line. The company's top-line jumped 7.4%, boosted by higher revenue from the RAC Acceptance. Management reiterated its fiscal 2012 earnings projection of $3.00 to $3.20 per share and maintained its revenue growth forecast of 7% to 10% for the year.
The company remains optimistic about its future growth prospects, with store openings in international markets and accelerated rollout of RAC Acceptance kiosks. Due to continued tightening of the credit market, customers see rent-to-own as a more viable option to credit.
Despite being the third largest manufacturer of heavy-duty trucks in the world, PACCAR, Inc. (Nasdaq:PCAR) faces tough competition in its principal markets: the U.S., Canada and Europe. Further, the company expects industry sales in the above-16-ton truck market in Europe will fall due to the ongoing uncertainty in Eurozone.
Although the company beat the Zacks Consensus Estimate by a penny in the second quarter of the year, it expects sluggish growth in the U.S. and economic weakness in Europe to continue to mar its earnings growth. Therefore, we have downgraded the recommendation on the shares of the company to Underperform from Neutral and set a target price of $35.00.
The current P/E, which is close to the lower end of the historical range, is at a 15% premium to the peer group for 2012. Our $35.00 target price, 10.5x our 2012 EPS estimate, reflects our downgraded recommendation.
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Whole Foods Posts Healthy 3Q
Whole Foods Market Inc.'s (Nasdaq:WFM) healthy performance in the second quarter of 2012 was followed by better-than-expected third quarter results. The company seems to be sustaining its growth momentum in fiscal 2012 on the back of strong sales as shoppers are flocking to the grocery chain.
The company has been gaining better market share against other supermarket chains, defying economic fears.
These boosted management's expectations about the company's performance in 2012, which was quite evident from an upbeat outlook. The shares of the company rose $9.82 or 11.6% to $94.35 in after-market trading hours on Wednesday.
Let's Unveil the Picture
Austin, Texas-based Whole Foods said that quarterly earnings of 63 cents a share beat the Zacks Consensus Estimate by a couple of cents, and jumped substantially from 50 cents earned in the prior-year quarter.
Whole Foods, one of the leading natural and organic foods supermarkets, sustained its top-line growth momentum, with revenue climbing 13.6% to $2,727.3 million in the quarter, but falling short of the Zacks Consensus Estimate of $2,733 million.
Consumers, who had cut back their spending during the recession, are now gradually returning to the chain.
Effective inventory management and improved store-level performance have helped the company sustain the downturn and achieve improved sales and profit. Whole Foods has been revamping its pricing strategy and concentrating more on value offerings, while maintaining healthy margins. In the last five fiscal years, gross margin has been in the range of 34% to 35%.
Whole Foods said that comparable-store sales rose 8.2% in the quarter, down from 8.4% in the prior-year quarter and 9.5% in the previous quarter. For the first three weeks of the fourth quarter, comparable-store sales jumped 9.7%.
The company also notified that identical-store sales climbed 8% in the quarter compared with 8.1% in the prior-year quarter and 9% in the previous quarter. For the first three weeks of the fourth quarter, identical-store sales rose 9.5%.
The shift of the Easter holiday into the second quarter this year from the third quarter in the last year, adversely impacted comparable and identical store sales by 62 basis points.
Whole Foods indicated that gross profit rose 15.6% to $981.4 million, whereas gross margin grew 62 basis points to 36%. Store contribution soared 27.9% to $291.5 million. As a percentage of sales, store contribution increased 119 basis points to 10.7%.
EBITDA for the quarter surged 26% to $260.6 million, whereas EBITDA margin expanded 94 basis points to 9.6%. Operating income for the quarter jumped 33.8% to $188.2 million, whereas operating margin increased 100 basis points to 6.9%.
MetroPCS Beats, Profit Soars
MetroPCS Communications Inc. (NYSE:PCS) reported second quarter 2012 earnings per share of 41 cents that breezed passed the Zacks Consensus Estimate of 22 cents and shot up 78% from 23 cents in the year-ago quarter driven by strong operating results.
Total revenue climbed 6% year over year to $1,281 million in the second quarter, beating our expectation of $1,267 million. Adjusted EBITDA rose 33% year over year to $477 million. EBITDA margin (adjusted EBITDA as a percentage of service revenues) increased a whopping 900 basis points (bps) to 41.1% from 32.1% in the year-ago quarter. Operating expenses dropped 3% year over year to $969.2 million.
Operational Metrics
Average revenue per user (ARPU) was $40.62 in the reported quarter compared to $40.49 in the year-ago quarter. The increase was mainly backed by strong demand for "Wireless for All" services and fourth-generation (4G) long-term evolution (LTE) rate plans, offset by promotional service plans and an increased penetration of family plans that rose to 42% from 38% in the year-ago quarter.
Cost per user (CPU) dipped 3% year over year to $18.40 due to the decrease in expenses on customer retention and long distance cost, taxes and regulatory fees. Additionally, cost on handset upgrades were substantially lowered to $3.06 in CPU from $3.73 in the year-ago quarter. These cost related gains were partially offset by an increase in expenses associated with 4G LTE network upgrade and roaming expenses related to Metro USA.
Cost per gross addition (CPGA) increased 7% year over year to $190.53 due to lower gross additions offset by reduces promotional expenses.
Churn (customer switch) decreased 50 bps to 3.4% in the second quarter, reflecting an improvement from 3.9% in the prior-year quarter. The sequential improvement was primarily attributable to continued investment in network upgrades.
Subscriber Statistics
MetroPCS lost 186,062 subscribers during the quarter compared to subscriber addition of 198,810 in the year-ago quarter. Total subscriber base at the end of the reported quarter was 9.3 million customers (up 2% year over year). Consolidated penetration of the covered population remained flat year over year at 9.1%.
Liquidity
The company ended the second quarter with cash and cash equivalents of $1,901.2 million compared with $1,856 million at the end of the year-ago quarter. Long-term debt was $4.726 billion compared with $4.711 billion.
Guidance
For fiscal 2012, MetroPCS maintained its prior expectation of capital expenditures in the range of $0.9 billion to $1.0 billion.
The company expects the launch of its 4G LTE for All program by the end of the third quarter this year. Given the launch of 4G LTE for All the company anticipates subdued results this year in terms of CPGA and CPU.
Our Analysis
MetroPCS remains hopeful that the launch of its 4G LTE for All program will enable it to add subscribers in near future. The company expects to further expand its LTE services, which currently serves 8% of its existing subscriber base.
With faster broadband speed the company aims at fulfilling the growing demand for data services. Further, the stellar operating performance in terms of record adjusted EBITDA and EBITDA margin remains encouraging despite substantial subscription losses.
However, we remain cautious on associated expenditures on expansion plans that may weigh over the margins. Further, the company faces stiff competition from peers like United States Cellular (NYSE:USM).
We are currently maintaining our long-term Neutral rating on MetroPCS with a Zacks #3 Rank (Hold).
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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