CHICAGO, Oct. 18, 2011 /PRNewswire/ -- Zacks Equity Research highlights UnitedHealth Group (NYSE : UNH) as the Bull of the Day and Goldman Sachs (NYSE : GS) as the Bear of the Day. In addition, Zacks Equity Research provides analysis The Coca Cola Company (NYSE : KO), Coca Cola Enterprises (NYSE : CCE) and Pepsico, Inc. (NYSE : PEP).
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 UnitedHealth Group (NYSE : UNH) to Outperform from Neutral as we believe the company will beat consensus estimates helped by lower medical utilization since both Medicare and Commercial cost trends remain at historical lows.
The company's health benefits business UnitedHealthcare is performing strongly with its reputable service, value and innovation of affordable benefit products, combined with balanced and trusted local market engagements. The unit has recorded increased memberships even amid a soft employment scenario. The company is also gearing itself to increase its earnings from the Health Services business and has made a number of acquisitions in this segment.
Our six-month target price of $57.00 equates to about 13.2x our earnings estimate for 2011. We view the $0.65 per common share annual dividend as secure, implying an expected return of about 21% over that period. This is consistent with our Outperform recommendation on the shares.
We are downgrading our recommendation on Goldman Sachs (NYSE : GS) to Underperform from Neutral based on current general economic conditions and the company's involvement in a number of lawsuits. Previous quarter earnings results deteriorated, owing to decreased revenue and poor performance at Institutional Client Services division, coupled with global macro-economic concerns.
Regulatory issues, including lawsuits filed against the company, might dent the company's financials in the upcoming quarters. Our six-month price target of $88.00 equates to about 12.1x our earnings estimate for 2011. Combined with the $0.35 per share dividend, the price target implies an expected total negative return of 8.3% over that period, which is consistent with our Underperform recommendation.
The quantitative Zacks Rank for Goldman Sachs is currently #5 (Strong Sell), indicating significant downward pressure on the shares over the near term. The company reports quarterly earnings before the opening bell Tuesday.
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Coca Cola Earnings Preview
The Coca Cola Company (NYSE : KO) is slated to release its fiscal third-quarter 2011 results on Tuesday, October 18. The Zacks Consensus Estimate for the company is $1.02 per share.
Second Quarter Recap
Coca Cola reported second-quarter 2011 earnings per share of $1.17, beating the Zacks Consensus Estimate by a penny. It was also higher than the year-ago EPS of $1.06 per share by 10.38%.
Coca Cola's net revenues saw robust growth of 47% to $12.7 billion, surpassing the Zacks Consensus Estimate of $12.4 billion and the year ago revenue of $8.7 billion. The growth was mainly attributable to an increase in concentrate sales, currency benefit, favorable impact of price-mix ratio and the North American businesses acquired from Coca Cola Enterprises (NYSE : CCE), partially offset by the effect of structural changes.
Coca-Cola exited the year with $10,166 million in cash and cash equivalents and long-term debt of $11.4 billion. Coca Cola also repurchased $1.37 billion in shares through the second quarter of 2011, although some of these repurchases have been offset by other treasury stock activity, primarily related to the exercise of employee stock options.
The company did not buy shares under its share repurchase program for most of the quarter. However, Coca Cola is planning to purchase at least $2.5 billion worth of shares under its existing share repurchase program by year end 2011.
Agreement of Analysts
Though the company posted strong second-quarter earnings, the analysts expect a declining trend for the upcoming quarters and fiscal years 2011 and 2012 on the back of increased prices of commodities and raw materials including high fructose corn syrup, sucrose, citric acid, orange juice concentrate, and packaging materials for bottles and aluminum for cans since the last few quarters.
Moreover, Coca Cola remains cautious for the remainder of 2011 due to the natural disasters, which took place in Japan, causing earnings to decline. The analysts have therefore revised their estimates downward for fiscal years 2011 and 2012, justifying the negative sentiment on the stock.
Over the past 30-day period, 7 out of 11 analysts have reduced their estimates for the third quarter, while 8 out of 11 analysts have lowered estimates for the fourth quarter of 2011, with no upward revisions for the corresponding periods.
For both fiscal 2011 and 2012, 10 out of 14 analysts have moved their estimates down with no positive revisions over the past 30-days period.
The declining trend indicates a clear downward movement for the coming quarters and signifies that the analysts are circumspect about the long-term earnings trend of the company.
Magnitude of Estimate Revisions
Over the past 30 days, the Zacks Consensus Estimates has decreased its estimate by a penny to $1.02 per share for the current quarter and by 3 cents to 79 cents per share for the fourth quarter of 2011. The estimates also plummeted for fiscal years 2011 and 2012 from $3.87 per share to $3.83 per share and from $4.30 per share to $4.17 per share, respectively.
The average earnings surprise over the last four quarters is a positive 1.03%, ranging from negative 1.15% to positive 3.37%.
Coca Cola commands a leading place in the juices or still beverages category, with its flagship brands of Minute Maid, Simply and POWERade. However, the non-alcoholic beverages segment of the commercial beverages industry remains highly competitive.
Coca-Cola also expects its full-year comparable EPS to dilute in the range of 3 cents to 5 cents due to the negative impact of natural disasters. The company also remains under the pressure of rising prices of raw materials, though the company remains actively engaged in hedging activities principally related to commodity exposures associated with the CCE transaction.
Coca Cola, which competes with Pepsico, Inc. (NYSE : PEP), currently holds a Zacks #3 Rank, which translates into a short-term Hold rating. On a long-term basis, we maintain a Neutral rating on the stock.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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