Zacks Bull and Bear of the Day Highlights: Tractor Supply, Morgan Stanley, Alcoa, Sanofi-Aventis and Shire
CHICAGO, April 12, 2011 /PRNewswire/ -- Zacks Equity Research highlights Tractor Supply Co. (Nasdaq: TSCO) as the Bull of the Day and Morgan Stanley (NYSE: MS) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Alcoa Inc. (NYSE: AA), Sanofi-Aventis (NYSE: SNY) and Shire (Nasdaq: SHPGY).
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Here is a synopsis of all five stocks:
On the back of strong same-store sales, improved merchandise mix, prudent inventory management and effective cost control, Tractor Supply Co. (Nasdaq: TSCO) posted better-than-expected fourth-quarter 2010 results. The quarterly earnings beat the Zacks Consensus Estimate of $0.62. Furthermore, margins improved due to portfolio expansion of private label brands and focus on direct sourcing of merchandise.
The company has set a long-term target of generating 25% of sales from private label brands and 13% from strategic direct sourcing. Tractor is well positioned to capitalize on positive long-term trends. The company is expecting sales in the range of $4.0 billion to $4.07 billion in fiscal 2011.
Moreover, Tractor Supply's nearly debt-free balance sheet augurs well for future operating performance. Currently we maintain our Outperform recommendation on the stock.
The implementation of Basel III is expected to reduce Morgan Stanley's (NYSE: MS) flexibility with respect to its capital in the near term. Though the company's Tier 1 common ratio is expected to be below the Basel III minimum, given the lengthy period of implementation of the standard, it will not have to raise additional funds in the near term.
Moreover, following the Federal Reserve's second round of stress tests, Morgan Stanley was not granted the green signal to raise its dividend. We do not expect the company to be able to enhance shareholder value in the near to mid-term.
Our six-month target price of $25.00 equates to about 10.0x our earnings estimate for 2011. Combined with the $0.20 per share annual dividend, this price target implies an expected negative total return of 9.1% over that period, which is consistent with our Underperform recommendation on the shares.
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Alcoa: Big Year-Over-Year Growth
New York-based Alcoa Inc. (NYSE: AA) has kicked off another earnings season with its first quarter posting of 27 cents earnings per share (EPS) on revenues of $5.96 billion. This met the Zacks Consensus Estimate on the EPS side, but was down slightly from the $6.112 billion expected on the revenue side.
Shares of Alcoa, the U.S.'s top producer of aluminum, had ticked down 0.84% in regular Monday trading by 15 cents per share to close at $17.77 before the company posted its earnings numbers. Since the earnings have been released, after-market trading for Alcoa went back up a few cents before dropping roughly 3%.
Analysts had been revising their 1st quarter estimates higher for Alcoa over the course of the past 90 days. This clearly reflected the recent increases in the price of aluminum, which arrived a bit late to the party compared to the gains in several other important commodities.
While it is true that aluminum is an important metal in the construction of autos, airplanes, etc., it is not exactly "Dr. Copper." In fact, if Alcoa did not mark the traditional start to quarterly earnings season, its earnings report would like receive less coverage than it currently does.
That said, while Alcoa's numbers this afternoon are not eye-popping, they do solidify the narrative that the world economy has finally started to regain its solid footing. Today's earnings report marked the highest EPS for Alcoa since the company posted 37 cents per share back in the 2nd quarter 2008 -- before the onset of the Great Recession. And year over year, Alcoa's EPS is even more impressive: in the 1st quarter of 2010, the company posted only 10 cents per share in an earnings miss of 16.7%.
Sanofi Acquires Genzyme
Sanofi-Aventis (NYSE: SNY) recently completed its acquisition of biotech company Genzyme Corporation. With the completion of the acquisition, Genzyme, now a wholly-owned subsidiary of Sanofi, will be Sanofi's global center for excellence in rare diseases.
Sanofi said that 237,312,826 shares of Genzyme were validly tendered, representing about 89.4% of Genzyme's outstanding shares.
As a reminder, per the terms of the deal announced in Feb 2011, Genzyme shareholders received $74 per share in cash (or $20.1 billion) in addition to a contingent value right (CVR) for each share. The CVR allows each shareholder to receive additional payments related to Lemtrada (alemtuzumab for multiple sclerosis) and the achievement of specified production volumes in 2011 for Cerezyme and Fabrazyme.
Acquisition to Create New Source of Growth at Sanofi
With this acquisition, Sanofi is looking to create a new source of growth. The company has a high exposure to generic risk on many of its leading franchises. The company suffered a blow with the entry of a generic version of its anti-coagulant Lovenox, which was a major contributor to the top-line.
In addition to Lovenox, we see generic risk to other products as well. In such a scenario, it is imperative for Sanofi to successfully develop and launch new products in order to make up for the loss of revenues once major products lose exclusivity and start facing generic competition. The acquisition of Genzyme will boost Sanofi's revenues as well as its pipeline.
Sanofi will also get the chance to expand its presence in biotechnology. Genzyme's lead products include Cerezyme (Gaucher disease) and Fabrazyme (Fabry's disease). Cerezyme's primary competitor in the Gaucher disease market is Shire's (Nasdaq: SHPGY) Vpriv.
At the time of announcing the acquisition, Sanofi said that it expects the deal to be accretive to its business net EPS in the first year after closing. By 2013, the company expects the deal to be accretive by €0.75 – €1.00.
Sanofi is using the proceeds from its issuance of $7 billion in dollar-denominated notes, $7 billion raised through its US commercial paper program, a drawing of $4 billion on the bridge facility negotiated in October 2010, and available cash, to finance the $20.1 billion acquisition.
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