Zacks Bull and Bear of the Day Highlights: Standard Motor Products, Hudson City Bancorp, Family Dollar Stores, Wal-Mart Stores and Dollar General
CHICAGO, July 8, 2011 /PRNewswire/ -- Zacks Equity Research highlights Standard Motor Products (NYSE: SMP) as the Bull of the Day and Hudson City Bancorp (Nasdaq: HCBK) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Family Dollar Stores Inc. (NYSE: FDO), Wal-Mart Stores Inc. (NYSE: WMT) and Dollar General Corporation (NYSE: DG).
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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:
Standard Motor Products (NYSE: SMP) enjoys strong brand recognition worldwide. Successful R&D and perfect strategic acquisitions have helped the company enrich its product portfolio and maintain a broad customer base. Standard Motor's recently amended credit agreement with GE capital has increased its scope for further investments.
Moreover, Standard Motor has hiked its dividend payment, signaling the company's improved confidence in its operations. Furthermore, the company is not vulnerable to the cyclicality of the auto industry. In the first quarter, its earnings exceeded the Zacks Consensus Estimate by $0.18 per share.
Therefore, we have maintained our Outperform recommendation on the stock. Our $17.00 target price, which is 12.1x our 2011 EPS estimate, reflects this view.
We are downgrading our recommendation on Hudson City Bancorp (Nasdaq: HCBK) to Underperform. It reported a loss on a GAAP basis in the first quarter of 2011 for the completion of the balance sheet restructuring during the quarter. Lower interest and dividend income, and increased non-interest expense, were on the downside.
Going forward, the low interest rate environment would likely result in a compression of the net interest margin from its new higher level resulting from the restructuring transaction, and in combination with the reduction in the size of its balance sheet from the restructuring transaction, would lead to a reduction of net interest income.
While its strong business model and solid capital position would aid results, the dividend cut somewhat dampens investors appetite for the stock. Increase in FDIC insurance costs also remains an overhang.
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Earnings Scorecard: Family Dollar
Family Dollar Stores Inc. (NYSE: FDO), the operator of self-service retail discount store chains, recently posted third-quarter 2011 results.
Street analysts had a week to ponder on the news. In the subsequent paragraphs, we will cover the recent earnings announcement, subsequent analysts' estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.
Earnings Report Review
Family dollar's quarterly earnings of 91 cents a share missed the Zacks Consensus Estimate of 95 cents, but jumped 18.2% from 77 cents earned in the prior-year quarter due to healthy sales witnessed in the Consumable and Home Products categories.
Management now expects fourth-quarter 2011 earnings between 62 cents and 70 cents, and fiscal 2011 earnings between $3.08 and $3.16.
The company posted an increase of 7.8% in revenue to $2,153.4 million from the prior-year quarter, and reflected sales growth across Consumables categories (up 10.6%) and Home Products (up 8.2%) but sales declined at Seasonal and Electronics (down 0.4%) and Apparel and Accessories (down 1.1%). Total revenue also fell short of the Zacks Consensus Estimate of $2,166 million.
Family Dollar, which faces stiff competition from Wal-Mart Stores Inc. (NYSE: WMT) and Dollar General Corporation (NYSE: DG), forecasts fiscal 2011 net sales to jump by 8% to 9%. We believe effective price and inventory management, private label offering, expanded operating hours and merchandise initiatives should drive sales trends.
Our View
We believe that there is a tremendous opportunity for Family Dollar to increase sales and improve gross margin through effective price management, cost containment, tighter inventory control, private label offering, expanded operating hours and merchandise initiatives. Moreover, in order to enhance its market share, the company intends to focus on both consumable and discretionary categories.
The company's point-of-sale technology (credit card and food stamp acceptance) and store realignment initiatives better positions it to drive traffic, meet customer oriented demand and improve in-store shopping experience.
The self-service retail discount store chain has also been actively managing its cash flows, returning much of its free cash to shareholders through share repurchases and dividends. The company has also been making prudent investments related to store infrastructure, store openings, expansions and relocations, and improvement of distribution centers to drive revenue growth.
However, the company's customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn, the company's growth and profitability.
Currently, we maintain our long-term Neutral rating on the stock. Furthermore, Family Dollar shares maintain a Zacks #3 Rank, which translates into a short-term 'Hold' recommendation.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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