Zacks Bull and Bear of the Day Highlights: Watsco, CME, Gap, Ross Stores and Nordstrom
CHICAGO, June 4, 2012 /PRNewswire/ -- Zacks Equity Research highlights Watsco, Inc. (NYSE:WSO) as the Bull of the Day and CME Group, Inc. (Nasdaq:CME) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onGap Inc. (NYSE:GPS), Ross Stores Inc. (Nasdaq:ROST) and Nordstrom Inc. (NYSE:JWN).
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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:
Watsco, Inc. (NYSE:WSO) reported first quarter earnings per share of $0.24, up 14% year over year and on par with the Zacks Consensus Estimate. Total revenue increased 19% year over year to $634 million, outpacing the Zacks Consensus Estimate of $581 million.
Watsco has acquired Carrier's Canada HVAC distribution network, which will be accretive to its revenue and earnings. Watsco has great potential in the replacement market of air conditioners and heating systems in the U.S, as nearly 89 million of them are more than 10 years old.
Furthermore, backed by its solid balance sheet, Watsco can continue to increase its dividend and make additional investments going forward. We have thus upgraded our recommendation from Neutral to Outperform with a target price of $86.00.
We are downgrading our recommendation on CME Group, Inc. (Nasdaq:CME) to Underperform based on its first quarter earnings that lagged the year-over-year results, although it came in line with the Zacks Consensus Estimate. Lower-than-expected volumes, clearing and transaction fees and higher operating, non-operating and tax expenses deteriorated the top line and operating margin.
However, average rate per contract improved marginally. Although excess cash paves the way for capital deployment, debt obligations stands at a cautious level, positing ample financial risk. Additionally, interest rate volatility and intensely rising competition pose operational risks.
Our six-month target price of $237.00 per share equates to about 14.4x our earnings estimate for 2012. Combined with the annual dividend of $8.92 per share, this target price implies an expected negative total return of 7.4% over that period, which is consistent with our Underperform recommendation on the shares.
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Hide & Seek Persists for Gap Comps
The positive-negative comparable store sales (comps) trend continues for the fashion retailer Gap Inc. (NYSE:GPS) as it posted a 2% rise in comps for the four week period ended May 26, 2012 versus a 4% decline witnessed in the comparable prior-year period. The positive comps in May mainly ride on the favorable response that the company's summer collection received from its customers. Year-to-date, comps increased 3% compared with a 3% decline posted in the year-ago comparable period.
Last month, Gap had registered a 2% decline in comps (four-week period ended April 28, 2012) against an 8% increase recorded in April 2011.
Net sales in May 2012 totaled $1.10 billion, up 4% compared with the prior-year period sales of $1.06 billion. Overall net sales in the five months of 2012 (17 weeks ended May 26, 2012) jumped 5% year over year to $4.59 billion.
Comps for the month of May 2012 remained positive at all of Gap's segments, except Old Navy North.
May comps at Banana Republic North America spiked 8% in contrast to a 6% decline recorded in the prior-year period. Gap North America's same-store sales were up 6% versus a 4% dip seen in the prior-year period. Results at its International segment rose 1% compared with a 9% decline in the prior-year period. However, same-store sales at Old Navy North America dipped 1%, flat compared with the year-ago period.
Gap is scheduled to release its June 2012 sales results on July 5, 2012.
On the same day, two other apparel store retailers -- Ross Stores Inc. (Nasdaq:ROST) and Nordstrom Inc. (NYSE:JWN) -- reported positive same-store sales for the month of May 2012. Comps growth at Ross was 8% in May, while Nordstrom recorded a 5.3% rise.
We believe that Gap's long-term strategic moves along with disciplined cost management measures will not only provide financial flexibility, but will also help to drive value proposition. Moreover, Gap's globally recognized brands complement one another, enabling it to leverage its position in the sector.
Currently, Gap's shares maintain a Zacks #2 Rank, which translates into a short-term Buy rating. Our long-term recommendation on the stock remains Neutral.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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