Zacks Bull and Bear of the Day Highlights: Watson Pharmaceuticals, The Travelers Companies, Caterpillar, Verizon Communications and McDonald's Corporation
CHICAGO, July 25, 2011 /PRNewswire/ -- Zacks Equity Research highlights Watson Pharmaceuticals (NYSE: WPI) as the Bull of the Day and The Travelers Companies (NYSE: TRV) as the Bear of the Day. In addition, Zacks Equity Research provides analysis Caterpillar Inc. (NYSE: CAT), Verizon Communications (NYSE: VZ) and McDonald's Corporation (NYSE: MCD).
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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:
Based on its first quarter performance and increased guidance, we are upgrading Watson Pharmaceuticals (NYSE: WPI) to Outperform. The company posted first-quarter 2011 earnings of $0.89 per share, beating the Zacks Consensus Estimate by $0.03 and the year-ago earnings by $0.08 per share. Revenues increased 2% to $876.5 million, mainly driven by higher generics sales.
Watson Pharma increased its 2011 earning guidance range to $3.95 - $4.20 per share from $3.85 - $4.15 per share. Following the earnings announcement, we raised our 2011 earnings estimate by 14 cents to $4.29 per share.
We believe that the company's cost saving initiatives and new product launches, both branded and generic, will help drive growth. Our target price of $82 is based on 19.1x our 2011 EPS estimate.
The Travelers Companies (NYSE: TRV) second quarter was hurt by huge catastrophe losses. The company reported a wider loss in the quarter than the Zacks Consensus Estimate. We expect the rate of premium growth to stay restricted and underwriting margins to remain under pressure.
Also, potential reserve additions for asbestos liabilities present another risk. Further, exposure to significant catastrophic events remains a concern.
Our six-month target price of $52.00 equates to 12.2x our earnings estimate for 2011. Combined with $1.64 per share annual dividend this price target implies an expected total negative return of 8.4% over that period. This is consistent with our Underperform recommendation on the shares.
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Caterpillar Profits Up, but Misses
Caterpillar Inc. (NYSE: CAT) posted a robust 44% increase in profit to $1.02 in the second quarter of the year from $707 million in the year-earlier quarter. Excluding $204 million of expense related to the acquisition of Bucyrus, earnings per share surged 58% to $1.72 from $1.09 a year ago. However, the company failed to meet the Zacks Consensus Estimate of $1.77 per share.
Sales in the quarter rose 37% to $14.23 billion from $10.41 billion a year ago driven by higher customer demand. However, it was lower then the Zacks Consensus Estimate of $13.48 billion.
The sales growth was led by continued economic growth and improvement from the low levels of machine demand in the second quarter of 2010. However, the disaster in Japan had a negative impact of $200 million on sales.
Operating profit increased to $1.60 billion from $977 million in the second quarter of 2010. The improvement was attributable to higher sales volume and better price realization.
However, it was partially offset by higher manufacturing costs and selling, general and administrative (SG&A) and research and development (R&D) expenses. Moreover, the Japan disaster negatively impacted operating profit by nearly $60 million, primarily due to disruptions in factory and supply chain.
Verizon Beats, Hires New CEO
The largest U.S. mobile service provider Verizon Communications (NYSE: VZ) declared its second quarter earnings results before the opening bell today. Adjusted earnings of 57 cents per share were two cents ahead of the Zacks Consensus Estimate and above the year-ago earnings of 51 cents.
Continued strength in the wireless segment and improved revenue trends in wireline led to higher-than-expected earnings in the quarter.
Total revenue grew 6.3% year over year to $27.54 billion surpassing the Zacks Consensus Estimate of $27.45 billion. Including last year's revenue from divested operations, total revenue increased 2.8% year over year. Verizon recorded the strongest revenue growth in the last ten quarters.
EBITDA (earnings before interest, taxes, depreciation and amortization) rose 5.2% year over year to $9 billion in the second quarter.
New CEO
Concurrent with its second quarter earnings release, Verizon appointed Lowell McAdam as the new CEO. McAdam will replace the retiring CEO, Ivan Seidenberg effective August 1.
Our Analysis
We believe strong demand for wireless and FiOS services, cloud computing business, market share gain in the retail post-paid market along with increasing smartphone penetration and other data devices makes the stock attractive for the long term. Further, the speedy growth of LTE networks and iPhone sales will boost the company's growth prospects.
However, persistent erosion in access lines, uncertain returns from investments, iPhone subsidies and intense competition from cable companies and other alternative services providers may result in downside risk for the stock.
We are currently maintaining our long-term Neutral rating on Verizon with the Zacks #3 (Hold) Rank.
McDonald's Tops on Both Lines
McDonald's Corporation (NYSE: MCD), the world's largest hamburger chain, posted second quarter 2011 earnings of $1.35 per share, beating the Zacks Consensus Estimate of $1.28.
Reported earnings increased 19% from $1.13 per share reported in the prior-year quarter. However, excluding the favorable currency impact of 10 cents in the reported quarter, earnings grew 11.0% year over year.
The significant upside in earnings was driven by higher comparable store sales across all regions arising from higher traffic. The company also continues to benefit from its "Plan to Win" program, which aims to sustain growth by driving restaurant visits, providing everyday value, innovating new menu items, and re-imaging restaurant and market campaigns.
Quarter Highlights
The leading fast-food chain operator reported revenues of $6.91 billion, up 16% year over year, and exceeded the Zacks Consensus Estimate of $6.65 billion. Excluding the positive impact of foreign currency translation, revenues grew 8.0% year over year.
Revenues from company-operated restaurants rose 17% to $4.70 billion while revenues from franchise-operated restaurants jumped 14% to $2.21 billion. Total operating income grew 19% to $2.19 billion.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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