Zacks Bull and Bear of the Day Highlights: Valero Energy, McDermott International, McDonald's, Texas Instruments and Bank of America
CHICAGO, Sept. 12, 2011 /PRNewswire/ -- Zacks Equity Research highlights Valero Energy (NYSE: VLO) as the Bull of the Day and McDermott International (NYSE: MDR) as the Bear of the Day. In addition, Zacks Equity Research provides analysis McDonald's (NYSE: MCD), Texas Instruments (NYSE: TXN) and Bank of America (NYSE: BAC).
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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:
Valero Energy's (NYSE: VLO) second quarter earnings climbed more than 39% year over year. The growth was backed by the overall improvement in the refining environment and higher feedstock discounts. Valero Energy remains enthusiastic about the third quarter and is consistently reviewing its refining portfolio and enhancing the asset base by acquiring refinery assets that enhance its operating performance.
We expect Valero's 2011 and 2012 earnings to benefit from improving U.S. and global economies, higher refining margins, wider crude discounts, increased operating rates and continued cost saving initiatives. Therefore, we are maintaining our recommendation at Outperform.
Valero remains our favored stock in the refining space for its sound balance sheet, good liquidity and solid assets base. Our $26 price objective reflects a P/E of 6.25 on our 2011 EPS estimate.
Following a second quarter earnings miss, we are downgrading McDermott International (NYSE: MDR) shares to Underperform from Neutral. The company recently reported lower-than-expected EPS for the June quarter, adversely affected by a less favorable geographic mix and weak margins in the Middle East.
Near-term bookings remain lumpy at McDermott, as the current uncertain environment has hurt the economics of building new oil and gas infrastructure. Additionally, the transfer of the power generation and government operations has left McDermott with a less diversified business, thereby heightening its risk profile.
These factors are reflected in our downgrade of the company's shares. Our $12 price objective reflects a 2011 P/E multiple of 10.1x.
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The President's Jobs Proposal
With nothing else on the economic calendar, the market will be focused on evaluating the president's much-anticipated jobs speech Thursday evening. The day's other speech, from Fed Chair Ben Bernanke, had turned out be somewhat of a disappointment relative to what the market was looking for. It appears now that whatever the Fed will be doing will be at its two-day meeting later this month.
The president laid out quite an ambitious plan, at least in terms of its size. More than half of the $447 billion plan provides for tax cuts for employees and employers, while the rest targets infrastructure spending and extension of unemployment benefits. The bulk of the tax cut is an extension and expansion of the payroll tax cut that is already in place and set to expire at the end of this year. Given the concern in Congress over deficits and debt, the president asked the 'Super Committee' to look for additional cuts to pay for this package.
The plan is quite front-loaded, with more than 70% of the amount getting used up in 2012. Estimates for its impact on the economy's growth momentum vary, but range generally in the 1.5% to 2.5% vicinity. Those growth numbers are attractive and timely, given the current fears in the market of an impending recessionary downturn for the economy.
But we all know that the entire package has no hope of getting enacted in its present shape. The best that can happen would be for the tax cuts to pass Congress. Even that would be no mean achievement given what we saw during the debt ceiling debate.
As Bernanke rightly pointed in his Jackson Hole speech some time back, the economy needs fiscal initiatives at this stage to put it back on the growth trajectory. The Fed has done effectively all it it could under the circumstances. Bernanke reiterated in his speech yesterday that they have policy tools at their disposal that they stand ready to deploy should the need arise.
But it is reasonable to question the effectiveness of measures like 'Operation Twist,' aimed at bringing long-term interest rates down, in the current already-low interest rate environment. This leaves the president's plan effectively the only game in town. It doesn't go far enough in its scope and reach. One desirable provision left out of the plan concerns the repatriation of corporate profits -- a targeted tax holiday on that front would have been a very good addition to this plan.
In corporate news, McDonald's (NYSE: MCD) August same-store sales came out weaker than expected. We also had Texas Instruments (NYSE: TXN) provide a downbeat outlook for the third quarter after the close on Thursday, citing soft demand conditions. And Bank of America (NYSE: BAC) is reportedly considering cutting as many as 40,000 jobs as part of its restructuring efforts, media reports indicate.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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