CHICAGO, April 9, 2012 /PRNewswire/ -- Zacks Equity Research highlights: UnitedHealth Group (NYSE: UNH) as the Bull of the Day and Leggett & Platt, Inc.'s (NYSE: LEG) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on ConocoPhillips(NYSE: COP), ExxonMobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX).
We are reiterating our Outperform recommendation on shares of UnitedHealth Group (NYSE: UNH) prior to the release of its first-quarter earnings scheduled on April 18, 2012, to reflect its better-than-average operating fundamentals and expected strong performance in 2012. The company ended the year 2011 with better performances showing growth in membership, revenues, operating margins and cash flow.
The company strengthened its key capabilities to respond to the emerging growth opportunities. These initiatives have been taken to expand its Medicaid and Medicare business, growing the health service business and expanding international operations.
Though certain headwinds such as high unemployment, growing medical cost, pressure from Health Care overhaul, etc. remain, we believe the company will beat the odds given its diversified business model with leading market share positions in the Commercial, Medicare and Medicaid markets. A solid balance sheet and a highly conservative investment portfolio will further help it to outperform its peers.
Leggett & Platt, Inc.'s (NYSE: LEG) fourth-quarter 2011 earnings of $0.22 per share were up from the prior-period level, but we believe it was inorganic growth primarily spurred by the company's share buyback program. Moreover, during the quarter, Leggett's gross margin contracted 90 basis points to 16.7% due to higher input costs.
Further, the company's operating margin shriveled 470 basis points to 1.5% due to increased selling and administrative expenses. we believe that intense competition from global and regional players, volatility in raw material prices and exposure to adverse foreign currency translations may undermine the company's future growth prospects and profitability.
Currently, we are maintaining a long-term Underperform recommendation on the stock. Our target price of $20.00, 15.3x 2012 EPS, reflects this view.
ConocoPhillips(NYSE: COP) won the approval from its board of directors to split its refinery arm, Phillips 66, in a move to further accelerate the value of both entities.
In July last year, the third biggest U.S. integrated oil company, following ExxonMobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX), planned to separate its upstream oil and gas exploration and production unit from its downstream refining division into two stand-alone, publicly traded corporations. The move is expected to create the largest refining company in the U.S. (with a capacity of 2.4 million barrels per day) and the largest exploration and production (E&P) player based on oil and gas reserves.
Following the closure of market on April 30, 2012, the groups – with headquarters in Houston − will be alienated through a tax-free distribution of Phillips 66 shares to ConocoPhillips common stock holders. The shareholders of the E&P arm will receive one share of Phillips 66 common stock for every two shares of ConocoPhillips stock held at the close of business on April 16. The refinery unit will trade on the New York Stock Exchange under the symbol PSX. Prior to the distribution, Phillips 66 shares will trade under the symbol PSX WI in a "when-issued" public market.
The strategies at both companies to return cash to shareholders will remain unchanged. Over the past two years, ConocoPhillips has been in a restructuring program to sell up to $17 billion in assets and reduce its debt load, simultaneously buying back shares and increasing its dividend.
We remain positive on the outlook for the new ConocoPhillips post-split, as it holds the promise of unlocking significant value. The idea behind the spin-off is to create value for shareholders who like the volatility in the refining business.
The creation of two separate groups is also believed to be beneficiary since the two separate entities will get to pursue greater opportunities in their respective market segments without the constraints of the parent company. It will also better serve the needs of both investor groups. We expect this move to allow ConocoPhillips to narrow the return gap, which historically lags its peers.
We see ConocoPhillips shares performing in line with the broader market considering its sensitivity to changes in the crude oil price, as well as geopolitical risks associated with international operations and operational challenges. Our long-term Neutral recommendation is supported by a Zacks #3 Rank (short-term Hold rating).
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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