Zacks Bull and Bear of the Day Highlights: Tenet Healthcare, China Life Insurance, Groupon, Google and Amazon
CHICAGO, Dec. 5, 2011 /PRNewswire/ -- Zacks Equity Research highlights Tenet Healthcare (NYSE: THC) as the Bull of the Day and China Life Insurance (NYSE: LFC) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Groupon Inc. (Nasdaq: GRPN),Google (Nasdaq: GOOG) and Amazon (Nasdaq: AMZN).
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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:
We are upgrading our recommendation on Tenet Healthcare (NYSE: THC) to Outperform based on its strong operating performance in the recent third quarter, which surpassed the Zacks Consensus Estimate, driven by strong results in all lines of the business, especially the robust performance in outpatient volumes and higher admissions.
New debt financing has improved Tenet's maturity profile and is also likely to reduce the company's future interest payments significantly. Moreover, we believe that volume growth can substantially help boost the earnings outlook of Tenet in future, while also facilitating growth through the acquisitions.
Our six-month target price of $5.50 per share equates to about 12.8x our earnings estimate for 2011. With no dividend supplement, this target price implies an expected total return of 18.3% over that period.
China Life Insurance's (NYSE: LFC) third-quarter earnings witnessed a steep decline from the comparable period of last year. High surrenders, low premium income and increased impairment losses led to a decline in the net income, while increased unrealized losses in the investment portfolio led to reduced shareholders equity.
Additionally, China Life inherently faces substantial interest rate, market and currency risk. Although the company has a strong brand name, it has to deal with considerable competition on the domestic front, which limits earnings growth. However, the debt issue is expected to improve solvency margin, while high liquidity will enable the company to take the high surrender rate in its stride.
Our six-month target price of $35.00 equates to 19.2x our earnings estimate for 2011. Combined with the $0.81 per ADR annual dividend, this target price implies an expected negative total return of 7.1% over that period. This is consistent with our Underperform recommendation on the ADRs.
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Daily Deals: The Future in Retail
What has become commonplace for tech companies and others aiming to lower costs is now seeping into the retail segment as well. The idea is the same: outsource routine functions to a specialized party, making them responsible for volumes that could generate higher profits than those shared with them.
This is what the tech companies had been doing previously, although they outsourced the manufacturing function, which is easier to understand given the tangible nature of goods produced. Also, the outsourcing of manufacturing was to lower-cost regions, so the cost advantage was significant. Naturally, the impact on profits was also greater, enabling them to pour funds into R&D and thereby increase product differentiation.
Background
Things are different in retail, however, especially for the small retailers that have been more willing to experiment. Here, store location is of paramount importance, since adequate space is required to stock and display wares, and also attract customers. Therefore, the primary concern for the small retailer is real estate that suits his or her needs.
After selecting the location, there are only a handful of things that the retailer could do to differentiate his or her store from the one next door. This lack of differentiation makes it impossible for retailers to generate high margins, forcing them to compete on price instead.
The retailer's next focus is the generation of traffic. Here, he or she is limited by the physical location of the store. As a result, there is reason for retailers to be interested in companies that send customers to their stores directly. And this is what the specialized companies like recently public Groupon Inc. (Nasdaq: GRPN) and LivingSocial have been doing. Google (Nasdaq: GOOG) Offers and Amazon (Nasdaq: AMZN) Local are other similar services.
Business Model of the "Specialized" Players
The concept started pretty crudely, with the daily deals companies offering coupons that promised huge discounts. The coupon was priced in a manner that could induce the buyer to spend more. However, the system didn't really work, because many customers did not spend the full coupon value and the initiative failed to generate repeat customers.
While the basic concept remains the same, most companies are now changing the rules of the game. They are tracking customer preferences through their registered credit cards to determine the kinds of products that induce a particular customer to repeat the purchase. This information is then being used to create customer profiles.
Customer profile data is perhaps the most valuable asset that these companies possess -- this is their bread and butter. Therefore, companies with a larger customer base (people purchasing coupons) and number of partners (retailers signing up for the service) stand a greater chance of creating valuable information. This clearly makes Groupon the leader in the space since its user and partner bases are both significantly higher than other players.
Moreover, the selection is also broader these days, with electronic goods, events, services and travel joining retail and restaurants. The inclusion of electronic goods is a big positive because this is an area that is expected to attract the largest percentage of consumer discretionary dollars in the next few years.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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