CHICAGO, Oct. 11, 2012 /PRNewswire/ -- Zacks Equity Research highlights Texas Capital Bancshares (Nasdaq: TCBI) as the Bull of the Day and Staples, Inc. (Nasdaq: SPLS) 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) andDollar General Corporation (NYSE: DG).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
Texas Capital Bancshares' (Nasdaq: TCBI) second-quarter 2012 operating earnings surpassed the Zacks Consensus Estimate by $0.05 per share. Quarterly results benefited from an increase in the top line aided by an augmentation in both net interest income as well as non-interest income.
The company's business model remains a chief growth driver. In addition, the gain in market share from its competitors and organic growth is impressive. Its efforts to hire experienced bankers and expand its presence are encouraging.
We believe that with an eventual improvement in Texas' economy, the company would be poised to experience a further increase in earnings. Our six-month target price of $62.00 equates to 20.5x our earnings estimate for 2012. This price target implies an expected total return of 20.1% over that period, which is consistent with our Outperform recommendation on the shares.
We downgraded our recommendation on Staples, Inc. (Nasdaq: SPLS) to Underperform following dismal second-quarter 2012 results. The quarterly earnings of $0.18 per share missed the Zacks Consensus Estimate of $0.22 and fell 18% from the prior-year quarter due to lower-than-expected sales trends in North America and continuing softness in Europe and Australia. The company witnessed a fall in computer sales and sluggish trends in core categories.
Total sales dropped 6% to $5,498.5 million, and came below the Zacks Consensus Estimate of $5,721 million. Consequently, management lowered its guidance and now expects sales for fiscal 2012 to remain flat compared with the prior year, while the bottom line is expected to increase in low single digits.
We remain cautious about the macroeconomic environment and a sluggish job market, with small businesses and consumers still remaining watchful on their spending. Our target price of $10.50, 7.6X 2012 EPS, reflects this view.
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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 fourth-quarter 2012 results. Street analysts have had adequate time to contemplate the company's scores. In the paragraphs that follow, we cover the recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock.
Last Quarter Synopsis
Based in Matthews, North Carolina, Family Dollar unveiled its fourth quarter financial results on October 3, 2012. The quarterly earnings of 75 cents a share came in line with the Zacks Consensus Estimate but jumped 13.6% from 66 cents earned in the prior-year quarter owing to healthy sales witnessed in the Consumables and Seasonal & Electronics categories.
Family Dollar posted a 10.8% increase in revenue to $2,364.1 million from the prior-year quarter, and reflected sales growth across Consumables (up 16.1%) and Seasonal & Electronics (up 4.8%) partially mitigated by Apparel and Accessories (down 6.7%) and Home Products (down 1.4%). However, total revenue fell short of the Zacks Consensus Estimate of $2,367 million.
The company hinted that comparable-stores sales are on the rise due to improved traffic count and a boost in average consumer transaction values. Comps jumped 5.4% in the quarter compared with a growth of 5.6% in the prior-year quarter.
Strolling Through Guidance
Family Dollar now expects earnings between 69 cents and 78 cents for the first quarter and in the band of $4.10 to $4.40 per share for fiscal 2013.
Management predicts first quarter and fiscal 2013 comparable-store sales to increase between 4% and 6%. Family Dollar, which faces stiff competition from Wal-Mart Stores Inc. (NYSE: WMT) andDollar General Corporation (NYSE: DG), expects fiscal 2012 net sales to jump by 13% to 15%.
(Read our full coverage on this earnings report: Family Dollar Meets, Profit Rises)
Agreement of Estimate Revisions
In the last 7 days, 11 out of 21 analysts covering the stock lowered their estimates, whereas only 1 analyst raised the same for the first quarter of 2013. For the second quarter, 10 analysts made upward revisions, whereas 2 analysts trimmed their estimates.
For fiscal 2013, 11 analysts revised their estimates upward, with 5 analysts revising the same downward in the last 7 days. For fiscal 2014, 2 analysts increased their estimates and 4 analysts decreased the same.
What Drives Estimate Revisions
Family Dollar's healthy results and an upbeat outlook impressed the analysts, who went on to revise their estimates upwards to better align with management's guidance range. Going forward, analysts remain confident about the company's commitment towards better price management, cost containment efforts, effective inventory management, private label offering, store expansion and renovation, and merchandise initiatives.
Family Dollar did register growth in the top and bottom lines, but the increments were not enough to alleviate the concern about intensifying gross margin pressure. It was apparent that the growth in the top line was led by the lower-margin consumables category. Lower-margin consumables category now accounts for 72.5% of fourth-quarter 2012 sales compared with 69.1% in the prior-year quarter.
Consequently, the increase in sales of lower margin merchandises weighed upon the company's gross margin that contracted about 20 basis points to 33.8%. Operating margin shriveled 140 basis points to 6.1%. For fiscal 2012, gross margin dropped approximately 60 basis points to 34.9%.
It is obvious that given a dismal economy, consumers will focus on basic necessities only, such as food that generally carries lower margin. Management anticipates gross margin to remain under pressure in fiscal 2013 due to increasing percentage of consumables in sales mix.
Magnitude of Estimate Revisions
The magnitude of estimate revisions by the analysts is clearly reflected through changes in the Zacks Consensus Estimates.
The Zacks Consensus Estimate for the first quarter of 2013 dropped by 4 cents to 74 cents a share in the last 7 days. The Zacks Consensus Estimate for the second quarter moved up by 5 cents to $1.40, in the same time frame.
For fiscal 2013, the Zacks Consensus Estimate jumped 3 cents to $4.25 in the last 7 days. However, for fiscal 2014, the Zacks Consensus Estimate plunged 12 cents to $4.83.
The economy is still not completely awakened from the state of hibernation, and buyers remain prudent with respect to their expenditures, purchasing only those items that cater to their basic needs. Thus, we could witness more competitive pricing and new offerings to lure consumers.
The onset of a price war will definitely eat away margins, and in turn affect the company's results. In order to remain competitive, it is better to experiment with innovative ways to win the hearts of target consumers rather than lagging in an unhealthy contest.
Currently, we maintain our long-term Neutral recommendation on the stock. Moreover, Family Dollar shares maintain a Zacks #3 Rank that translates into a short-term Hold rating.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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