Zacks Bull and Bear of the Day Highlights: Whole Foods Market, Universal Forest Products, Ventas, Nationwide Health Properties and HCP

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Mar 02, 2011, 09:30 ET

CHICAGO, March 2, 2011 /PRNewswire/ -- Zacks Equity Research highlights: Whole Foods Market (Nasdaq: WFMI) as the Bull of the Day and Universal Forest Products Inc. (Nasdaq: UFPI) as the Bear of the Day. In addition, Zacks Equity Research provides analysis Ventas Inc. (NYSE: VTR), Nationwide Health Properties Inc. (NYSE: NHP) and HCP Inc. (NYSE: HCP).

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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:

Bull of the Day:

Whole Foods Market (Nasdaq: WFMI) with a strong brand image offers investors one of the strongest growth profiles in the industry, and the stock is poised to surge as the demand for natural and organic products improves. The company is also revamping its pricing strategy and concentrating more on value offerings while maintaining healthy margins.

The stringent cost-control measures, effective inventory management and improved store-level performance are driving earnings growth. The company, in the wake of better-than-expected first-quarter 2011 results now expects sales growth between 10.7% to 12.8% and bottom-line in a range of 23% to 26% in fiscal 2011.

Moreover, a prudent capital investment is also translating into improved cash flows with lower debt level and a healthy balance sheet. We have a long-term Outperform recommendation on the stock. Our target price of $65.00, 35.9X 2011 EPS, reflects this view.

Bear of the Day:

Universal Forest Products Inc. (Nasdaq: UFPI) reported quite disappointing results in fourth quarter 2010 with EPS falling 14 cents below the Zacks Consensus. The company's healthy top-line growth was offset by higher cost of sales due to volatile lumber prices in the quarter.

In addition, Universal's precarious dependence on general market conditions and growth in end-markets increases top-line risks in the event of any adverse conditions. Also, significant volatility in the cost of commodity lumber products from primary producers is problematic.

The company also derives a large portion of its sales from one single customer, which exposes it to customer concentration risks. In anticipation of a lack of positive catalysts, we downgrade the stock to an Underperform recommendation.

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Ventas-NHP: Stellar Healthcare REIT?

In concurrence with the ongoing consolidation in the REIT (real estate investment trust) industry that redefined the market dynamics, the healthcare sector witnessed a significant development when Ventas Inc. (NYSE: VTR) announced the acquisition of its rival Nationwide Health Properties Inc. (NYSE: NHP) in an all-stock deal.

The transaction worth $7.4 billion would create one of the largest publicly traded REITs in the U.S. and arguably the leading healthcare REIT as per value.

Since late 2010, publicly traded REIT's easy access to the open market for funds has provided an impetus for increased accquisitions and mergers. Healthcare REITs had announced $11.25 billion worth of acquisitions in 2010, led by $6.1 billion purchase by HCP Inc. (NYSE: HCP), the largest medical REIT in the U.S.

HCP acquired ownership interests in 338 post-acute, skilled nursing and assisted living facilities from HCR ManorCare Inc., a leading privately owned provider of skilled nursing facilities.

The latest acquisition by Ventas reinforces the buzz in the healthcare REIT industry, spurred by an aging Baby Boomer generation's increased demand for assisted and independent living facilities. The combined entity would have a pro-forma equity market capitalization of approximately $17 billion and a pro forma enterprise value of approximately $23 billion.

According to the terms of the agreement, each Nationwide Health share will be traded for 0.7866 of Ventas' share. Based on the closing pre-bid stock price of Ventas on February 25, 2011, this would equate to $44.99 of Ventas stock for each Nationwide Health's share, representing a premium of approximately 15% to the shareholders of the latter.

The transaction is expected to complete during the third quarter of 2011, when Ventas' shareholders are expected to own approximately 65% of the combined company and Nationwide Health shareholders are expected to own the balance 35%. The transaction is expected to be accretive to Ventas' recurring Funds from Operations (FFO) with immediate effect and Funds Available for Distribution (FAD) after the closing.

The merged entity brings two of the most complementary customer franchises together in healthcare real estate market and gives way to a much diversified body with better scope. The merged company will have over 1,300 total assets in 47 states, the District of Columbia and two Canadian provinces at their disposal.

The combined portfolio would generate about 70% of the total net operating income (NOI) from private-pay sources, minimizing its dependence on government reimbursement rates.

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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