Zacks Bull and Bear of the Day Highlights: SurModics, Amerisafe, Walgreen, Catalyst Health Solutions and Ford Motor
CHICAGO, June 21, 2011 /PRNewswire/ -- Zacks Equity Research highlights: SurModics, Inc. (Nasdaq: SRDX) as the Bull of the Day and Amerisafe, Inc. (Nasdaq: AMSF), as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Walgreen Co. (NYSE: WAG), Catalyst Health Solutions (Nasdaq: CHSI) and Ford Motor Co. (NYSE: F).
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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:
In June 2011, SurModics, Inc. (Nasdaq: SRDX) received a blow when Johnson & Johnson announced that it will stop manufacturing Cypher stents by year end, as SurModics receives royalties on sales of the product. However, we believe the impact of the blow will not be very severe, and that the current price represents an attractive entry point for long-term investors.
We have increased our fiscal 2011 earnings estimate by $0.14 per share to $0.16. This is within the guidance range of $0.13-$0.26 provided by the company. We have also upped our fiscal 2012 estimates to $0.41 from $0.20. We believe that if the company continues to deliver strong results in the coming quarters then the increased projection will be achieved easily.
We believe that investors should be more concerned about the outcome of the measures taken by SurModics to revive itself (work-force reduction, change in management and operating segments), rather than on the loss of Cypher stent revenues. We maintain our long-term Outperform recommendation on the stock.
We are downgrading our recommendation on Amerisafe, Inc. (Nasdaq: AMSF) to Underperform based on its first quarter earnings that modestly lagged the Zacks Consensus Estimate, owing to low underwriting profits coupled with higher expenses. These significantly deteriorated both the combined ratio and the operating ROE
Overall, though the pricing environment has witnessed some improvement, the company is expected to face uncertainty for the next few quarters as the market weakness continues to hurt payrolls. The sluggish economic recovery and dampened macro factors have produced an operating ROE of 9.9% for 2010 against 15.4% in 2009, and 8.1% in the first quarter of 2011 against 14.7% in the year-ago period.
Our six-month target price of $20.00 per share equates to about 12.6x our earnings estimate for 2011. With no dividend to supplement, this target price implies a total expected negative return of 10.5% over that period, which is consistent with our Underperform recommendation.
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Earnings Preview: Walgreen
Walgreen Co. (NYSE: WAG) is scheduled to release its third quarter 2011 earnings on Tuesday, June 22, 2011, before the market opens.
The Zacks Consensus Estimate for the third quarter is pegged at 62 cents per share.
The company has already reported total sales of $18.38 billion in the third quarter, up 6.8% from $17.20 billion in the year-ago period. Comparable store sales (those open for more than a year) increased 4.1% during the quarter, while front-end comparable store sales also spiked 3.9%, with prescriptions filled at comparable stores increasing by 4.2%.
Agreement of Analysts
Estimate revision trends among analysts depict a positive bias for the company's earnings in the third quarter. Over the last 30 days, out of the 20 analysts covering the stock, estimates have been raised by 4 analysts with none moving in the opposite direction.
However, estimate revisions for fiscal 2011 reflect a negative bias. Over the last 30 days, out of the 8 analysts covering the stock, 3 have downgraded estimates for the quarter while none raised their estimates.
Earlier this month, Walgreen completed the divestment of its pharmacy benefit management (PBM) business to Catalyst Health Solutions (Nasdaq: CHSI) for $525 million in cash. Subsequent to this deal, Walgreen will be able to better focus on its 7,700 drug stores.
We are also awaiting more update regarding sales trends, Walgreen's Customer-Centric Retailing (CCR) initiative and the progress on the Rewiring initiative. At the end of the second quarter, the company converted 1,873 stores and opened 450 new stores with the CCR format.
Walgreen expects to convert 3,200 stores and open approximately 100 new stores with the CCR format by the end of 2011. For the remaining remodels, the company expects to incur costs of approximately $45,000 per store.
Moreover, in order to accelerate its Infusion Pharmacy business, Walgreen decided to limit its presence in the respiratory therapy durable medical equipment (RTDME). In December, the company started the process of selling facilities and currently has sold RTDME operations in six states.
In June 2011, Walgreen completed the acquisition of online retailer drugstore.com for a total enterprise value of $409 million. Walgreen plans to reinvest in this business and expects the transaction to be dilutive by 3 cents per share to fourth quarter of fiscal 2011 earnings.
Surprise
Analyzing past trends, Walgreen has exceeded estimates in two of the last four quarters and missed in one. However, the company has an average surprise of 2.88% over the trailing four quarters.
Our Recommendation
We are encouraged by Walgreen's strategic decisions, including the sale of the PBM business and the acquisition of drugstore.com. Moreover, the company has made satisfactory progress with respect to the CCR rollout and meeting the targeted savings under the rewiring initiative. The benefits from these initiatives will be experienced over a period of time.
In order to make the best use of available funds, Walgreen has scaled down its stores opening target. We believe this decision will benefit the company as the new stores take 2 to 3 years to break even. Leveraging on its strong cash balance, the company is well equipped to pursue suitable acquisitions in future.
However, Walgreen has been impacted by high unemployment levels and lower discretionary spending in the past few quarters.
Ford Races into European Market
Ford Motor Co. (NYSE: F) announced its plan to roll out as many as 20 new models in Europe over the next three years in order to boost car sales in the continent. The company will also expand capacity at some of the plants in and around Europe in order to support the new model launches.
The company has announced an investment of €812 million ($1.2 billion) in its plant in Valencia region of eastern Spain. It will create assembly lines for two new models – the Kuga crossover SUV and Transit Connect van – at the plants.
Ford will also enhance capacity to 400,000 units per year at the Kocaeli plant in northwestern Turkey through its joint venture, Ford Otomotiv Sanayi AS (Ford Otosan). In April, the joint venture announced investment of €205 million ($290 million) at the plant that will help manufacture a new van model.
Ford revealed that it will begin manufacturing the Ford B-Max model beginning next year and fuel-efficient 1-liter EcoBoost engines in 2012 in Craiova, Romania. The company has invested €675 million ($955 million) in Romania.
The expansion in Europe will give way to a strong workforce at the plants. The company will hire 500 employees at the Valencia plant and 200 employees at two German plants. The company will begin producing revamped Focus model and an electric-powered version at a factory in Saarlouis, Germany, adding upto 150 jobs.
Recently, Ford revealed that it expects global sales to expand by 50% to 8 million vehicles by 2015 given the potential growth in Asia, mainly China and India; and rising demand for small cars. However, Ford still looks up to U.S. and Europe for the lion's share of its sales and profits.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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