Ark Restaurants Profit Drops – Analyst Blog
Ark Restaurants Corp.’s (ARKR) fourth quarter 2010 earnings of 31 cents per share fell 18.4% from 38 cents in the prior-year quarter. The profit of the company declined primarily due to an extra week in the year-ago period.
Ark Restaurants said that total revenue in the fourth quarter declined 4.3% year over year to $32.0 million, as company-wide same-store sales dropped 7.3% year over year in the reported quarter.
The company’s full-year earnings per share were 74 cents versus 87 cents in full fiscal 2009. Revenues were $117.8 million in full fiscal 2010, representing a year-over-year growth of 2.4%.
Inside the Headline Numbers
The operating income of the company plunged 39.8% to $1.1 million in the reported quarter and operating margin contracted 210 basis points (bps) to 3.5%, reflecting a 10 bps increase in food and beverage cost, leap of 50 bps in payroll, upside of 110 bps in occupancy expense, spike of 82 bps in general and administrative expense and expansion of 30 bps in depreciation and amortization, partially offset by a decrease of 60 bps in other operating expenses.
The New York-based Ark Restaurants indicated that adjusted EBITDA in the quarter was $2.7 million compared with $3.0 million in the year-ago quarter.
Net income from operations came in at $1.0 million compared with $1.4 million in the prior-year quarter.
Financial Aspects
As of October 2, 2010, the company had cash, cash equivalents and short-term investments of $9.4 million. Ark Restaurants has no long-term liability.
Our Take
Given the company’s earnings miss and escalating costs, we expect estimates to drop in the coming days.
Ark Restaurants’ close competitor AFC Enterprises Inc. (AFCE) reported its third quarter earnings of 23 cents per share, which was higher than the Zacks Consensus Estimate of 18 cents.
Ark Restaurants through its subsidiaries owns and operates 22 restaurants and bars, 29 fast food concepts and catering operations.
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Noble Finds Oil in Israel – Analyst Blog
Independent oil and gas company Noble Energy (NBL) announced that it has made a natural gas discovery in the Leviathan field offshore Israel. The well drilled under the Rachel license, encountered a minimum of 220 feet of net natural gas in several subsalt Miocene intervals.
Noble Energy is working jointly with other operators in the Leviathan field. In Leviathan, Noble holds a 39.66% working interest, Delek Drilling and Avner Oil Exploration have 22.67% each and Ratio Oil Exploration has a 15% working interest.
This new discovery Leviathan 1 is about 29 miles southwest of the Tamar discovery and 80 miles offshore Haifa at a depth of approximately 5,400 feet of water. The initial results from drilling the well confirm the pre-drill estimated resource range, with a gross mean for Leviathan of 16 trillion cubic feet. However, since this field is spread over 125 square miles, Noble will require to spud a few more appraisal wells to define the total gas resources of this field.
Noble Energy will continue with its plans and spud two more wells in Leviathan 1 to evaluate the possibility of finding gas at a deeper depth. The current discovery well is at a depth of 16,960 feet, while the company is scheduled to drill one well at a depth of 23,600 feet and another one at 8 miles northeast of the discovery well in early 2011.
Prior to the Leviathan discovery, Noble has made two significant natural gas discoveries in Israel. One of the discoveries Tamar was done in January 2009, and the other one -- Dalit -- was done in March 2009. Noble has a 36% working interest each in both.
One of Noble Energy’s peers Anadarko Petroleum Corporation (APC) recently made discoveries of natural gas in the Offshore Area 1 of Mozambique's Rovuma Basin and also in block BM-C-29, offshore Brazil.
Noble Energy currently retains a Zacks #3 Rank (short-term Hold rating). We maintain a Neutral rating on the stock.
Based in Houston, Texas, Noble Energy operates internationally and engages in the acquisition, exploration, development, production,and marketing of crude oil, natural gas and natural gas liquids.
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Raytheon Wins $52M Radar Contract – Analyst Blog
Raytheon Company (RTN) has received a $52 million contract to make APG-79 Active Electronically Scanned Array (AESA) radars for Naval Air Systems Command’s F/A-18 Super Hornet tactical aircraft.
This is Raytheon’s third retrofit contract bringing the total orders for the update of block II F/A-18 to 57. The company will conduct operations for this program at its facilities in El Segundo, California; Andover, Massachusetts; Forest, Mississippi; and Dallas, Texas. Raytheon expects deliveries under the project to begin in October 2012.
The APG-79 AESA radar is designed to enhance the capabilities of the jets allowing crew members to detect and identify targets beyond the reach of most missiles. The radars’ long-range abilities give the crew ample time for accurate decision making. Additionally, these radars are extremely reliable and maintainable, with low failure and maintenance rates.
Based in Massachusetts, Raytheon is one of the largest aerospace and defense companies in the U.S., with a diversified line of military products, including missiles, radars, sensors, surveillance and reconnaissance equipment, communication and information systems, naval systems, air traffic control systems, and technical services.
Raytheon is slated to release its fourth quarter results of fiscal 2010 on January 24, 2011. The Zacks Consensus Estimate for the quarter is currently $1.15 per share, lower than the year-ago quarterly earnings of $1.29.
We continue to view Raytheon as one of the best positioned companies among the large-cap defense primes due to its non-platform-centric focus, strong order bookings and order backlog, healthy cash flow generation and focus on shareholder value. Its prime competitors are L-3 Communications Holdings Inc. (LLL), and Herley Industries Inc. (HRLY).
However in the near-term, we do not expect any upside since we feel all these positives have been factored into Raytheon’s current market price. Thus we maintain our ‘Neutral’ recommendation on the Zacks #3 Rank (Hold) stock.
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Teradata to Take Over Aprimo – Analyst Blog
A leading provider of Enterprise Data Warehousing (EDW) solutions, Teradata Corporation (TDC) announced that it will acquire Aprimo, a leader in cloud-based integrated marketing software for approximately $525 million in cash.
The acquisition is expected to be completed in the first quarter of 2011. Aprimo products will continue to be marketed and sold under its own name once the acquisition closes. The takeover is expected to be slightly accretive to Teradata's non-GAAP earnings per share in the first year of closing.
The acquisition is one of the largest for Teradata. Although the company has made only two acquisitions since 2000, it has continuously added to its growth story and has remained focused on expanding organically.
Teradata acquired DecisionPoint Software, a provider of integrated data solution for financial management in late 2005. Post-acquisition, DecisionPoint’s products were integrated into Teradata’s financial management solution and rebranded as Teradata Decision Expert.
In 2008, Teradata acquired Claraview, a consulting service for business intelligence and data warehousing to expand its Professional Services capabilities. We expect these acquisitions to expand the company’s analytical data warehousing solution and augment its growth.
With the most recent deal, Teradata’s expertise in data warehousing and business analytics will be integrated with Aprimo’s marketing solutions. This will enable corporations to improve and optimize marketing performance with data-driven insights, thereby driving growth and profit over the long term.
Teradata will also benefit from Aprimo's expertise in Cloud and Software as a Service (SaaS) offering. Further, Teradata will be positioned as a leader in integrated marketing management, marketing resource management and multi-channel campaigning, as pointed out by management.
The acquisition will aid Teradata in providing customers with end-to-end solutions available in SaaS and on-premise environments. Moreover, it will help Teradata compete against larger rivals International Business Machines Corp. (IBM) and Oracle Corp. (ORCL) in cloud-based offerings. To this end, Teradata launched its new cloud computing initiative, the Teradata Enterprise Analytics Cloud, which will further drive growth.
Aprimo will be included in Teradata's business analytics portfolio. This should support Teradata's analytics and applications business, including development, marketing, sales and services going forward.
Aprimo generated $68 million in revenue in 2009 and is expected to generate about $80 million in revenues in 2010. Over the long term, Aprimo is expected to grow revenue in the high-teens. The acquisition is expected increase Teradata’s customer base. We remain highly positive on the Teradata- Aprimo deal.
Teradata’s balance sheet remains strong with no debt. The company is sitting on a cash (cash plus short-term investments) pile of $741.0 million as of September 30, 2010 a $17.0 million increase from the end of the second quarter 2010. The company also generated impressive cash flow from operations. Teradata currently has $300 million available under its credit facility.
We maintain our long-term Neutral rating on the stock. Currently, Teradata is a Zacks #3 Rank stock, implying a short-term Hold rating.
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First California to Acquire Electronic Banking Solutions Division of Palm Desert National Bank
WESTLAKE VILLAGE, CA--(Marketwire - December 30, 2010) - First California Financial Group, Inc. (
Allstate Sues BofA on MBS Purchase – Analyst Blog
On Monday, Allstate Corp. (ALL) filed a federal complaint against the mortgage giant, Countrywide Financial Corp., and 17 other defendants, alleging that the latter have sold $700 million of toxic investments in lieu of safe investments to Allstate in 2005, which later experienced a drastic price decline.
However, Countrywide Financial was acquired by Bank of America Corp. (BAC) (BofA) in July 2008. Accordingly, Allstate now directly demands for justice and penalty from the leading US bank. Allstate seeks undetermined damages in the litigation.
The company alleged that Country Financial enhanced its market share in 2003 by accepting mortgage products that borrowers were unable to afford. These risks were then passed on to investors as securities without previously revealing that those were toxic mortgage-backed securities (MBS).
Further, Allstate claims to have been duped by Capital Financial as the latter acknowledged the true worth of these investments, thereby concealing and misrepresenting crucial information. As a result, Allstate has questioned its investments in Country Financial made between March 2005 and June 2007.
However, BofA, which will now defend the case for Country Financial, believes that Country Financial is less likely to be blamed since the turn of events was the effect of the global downturn that drastically increased the investment losses of Allstate. The company incurred about $1.7 billion in investment losses in 2008.
Conversely, Allstate is not the only organization pointing out the misleading investment practices of Country Financial, the leading underwriter until 2006. Post its acquisition in 2008, BofA incurred an $8.4 billion lawsuit settlement, with 12 states, on behalf of Country Financial.
Moreover, BofA is yet to deal with more mortgage pullback lawsuits that surface from companies such as Pacific Investment Management Co., BlackRock Inc. (BLK), TCW Group, Fannie Mae, Freddie Mac and MetLife Inc. (MET), among others. These mono-line insurers would be seeking a buyback relief of $47 billion in MBS that were offloaded by Countrywide Financial before it was acquired by BofA.
Although the lawsuit remains unsettled, we believe such mortgage pullback issues need to be attended adequately in order to avoid another downturn in the market cycle.
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Earnings Scorecard: CarMax – Analyst Blog
CarMax Inc. (KMX) reported its earnings for the third quarter of its fiscal year 2011, ended November 30, 2010, on December 21, 2010, barely surpassing the Zacks Consensus Estimate by 2 cents per share. However, the market reacted negatively, with share prices falling subsequent to the earnings release due to the weak performance of CarMax Auto Finance and absence of the company’s outlook.
Analysts were indifferent as well, without upgrading or downgrading the stock since the earnings announcement. Below we will cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for both short-term and the long-term.
Third Quarter Highlights
CarMax has beaten the Zacks Consensus Estimate with the help of a rebound in customer traffic and sales execution along with a favorable year-over-year comparison. This was reflected in the improvement of comparable store sales by 16% for the quarter.
Net sales and operating revenues in the quarter went up 23% to $2.12 billion, higher than the Zacks Consensus Estimate of $1.97 billion. Used vehicle sales escalated 20% to $1.69 billion while new vehicle sales rose 24.9% to $47.7 million.
Gross profit was $297.9 million in the quarter, up 23% from $242.9 million driven by increases in used and wholesale unit sales as well as an improvement in ESP revenues.
CAF reported a decline in income to $55.7 million from $65.8 million in the quarter. The lower income was attributable to adjustments of $31.6 million related to loans originated in the third quarter of previous fiscal year.
In the first nine months of fiscal 2011, CarMax had a cash outflow of $22.5 million compared with an inflow of $56.5 million in the same period of the prior year. The decline in cash flow was mainly attributable to increases in inventory and auto loans receivables.
(Read our full coverage on this earnings report: CarMax Surpasses Zacks Estimates)
Earnings Estimate Revisions – Overview
Estimates have remained the same over the last 7 days, reflecting analysts’ indifference about the stock, driven by the lackluster results of the company and absence of any earnings outlook. Let us delve into the earnings estimate details.
Agreement of Estimate Revisions
The table below shows a strong agreement among analysts regarding the outlook of CarMax’s earnings. Over the last 7 days, none of the analysts covering the stock have revised the estimate for both fiscal 2011 and 2012.
However, over the last 30 days, 6 out of 14 analysts covering the stock have revised the estimate upward for fiscal 2011 while 2 analysts moved in a downward direction. For fiscal 2012, 9 out of 14 analysts have revised the estimate upward while only one moved it downward.
Magnitude of Estimate Revisions
Earnings estimate for fiscal 2011 has remained the same at $1.64 since the earnings announcement. It has been revised upward 30 days ago from $1.61. The trend is same for fiscal 2012. Analysts have revised upward the estimate 30 days ago by 6 cents to $1.77. However, no revisions were made over the last 7 days.
CarMax in Neutral Lane
CarMax’s strong exposure to the used-car market has helped it improve the results through a favorable appraisal buy rate. The automotive retailer’s car-buying appraisal strategy helps provide an inventory of makes and models that reflects the tastes of each market.
The improved economic and sales environment in the U.S. has helped CarMax to resume its strategy to open new used-car superstores every year. Under the strategy (suspended at the end of fiscal year 2009) the company plans to open used-car superstores at an annual rate of 15%–20% of its used-car superstore base every year.
During the first half of fiscal 2011, the company opened one used-car superstore, entering the Augusta, Georgia market. Subsequent to the end of the quarter, it has also opened the two remaining new stores in Cincinnati and Dayton, Ohio. It now plans to open five stores in 2012; and five to ten in 2013. However, the decline in cash flow may hamper the company’s aggressive store expansion strategy.
However, slow sales in the new vehicle market, especially domestic cars, have forced manufacturers and dealers to offer incentives and attractive pricing for new cars. These have encouraged consumers to trade in their old cars for new, which has lowered used-car sales and increased the used-car inventory. This is forcing CarMax to lower the prices of vehicles in order to reduce a high used-car inventory, thereby shrinking margins.
Due to the above factors, CarMax retains a Zacks #3 Rank (Hold) on its stock for the short term (1–3 months) and we have reiterated our long-term recommendation of Neutral for the long term (more than 6 months).
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings athttp://www.zacks.com/education/
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TNS to Acquire Research and Marketing – Analyst Blog
Advertising titan WPP Group Plc (WPPGY), through its TNS network (a part of Kantar), entered into a definitive agreement to acquire the major stake holding in African custom research network, Research and Marketing Services group of companies.
Research and Marketing Services specializes in providing in-depth knowledge of the African market in market and social research having operations spread over the West and Central Africa. The company provides services in sectors including consumer goods, financial services, telecoms and social research. Its key client base comprises Cadbury, Coca-Cola, Diageo, Heineken, MTN, Nigerian Breweries and Unilever.
Research and Marketing Services employs over 225 people and reported consolidated revenue of approximately $12.6 million for the year ended 31 December 2009. Gross assets were roughly $7.7 million.
We believe WPP Group lays a lot of emphasis on new markets, new media and consumer insights, as is evident from the acquisition of Marketing Direct. The company has a dominant market share in many areas and has the pricing power to improve margins and sustain future profit growth. Moreover, revival in the global economy has enhanced advertising spending by companies across the world.
Global advertising expenditure is expected to be approximately $502 billion in 2011, representing an increase of 5.8% over $474 billion in 2010, according to a report by GroupM. Expenditure in the U.S. is expected to be roughly 29.4% of the global forecast, an increase of 3.7% over $142.5 billion in 2010.
Kantar, one of the largest insight, information and consultancy networks, provides insights for the global business community.
WPP Group faces competition from its peers like Interpublic Group of Companies, Inc. (IPG), Omnicom Group Inc. (OMC), and Publicis Groupe SA.
We currently maintain an Outperform recommendation on the company.
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Patterson-UTI Cut to Neutral – Analyst Blog
We have downgraded onshore contract driller Patterson-UTI Energy Inc. (PTEN) to Neutral from Outperform following the stock’s recent gains, which have brought its valuation in line with our earlier expectations.
Patterson-UTI is one of the largest onshore contract drillers in the U.S. with approximately 350 land-based rigs that operate primarily in the oil and natural gas producing regions of North America. Additionally, the company is engaged in the exploration and production business and provides pressure pumping services.
In the most recent earnings release, management indicated that U.S. drilling activity is picking up, reflected by the sequential improvement in rig count. Patterson-UTI also stated that there is considerable tightness in the market for shale-suitable rigs, and dayrates across the rig fleet have been going up. In the near term, the company stands to benefit from the current boom in pressure pumping services.
While we continue to like the company for its growing premium land rig fleet, stellar financial health (free cash flow positive and a debt-free balance sheet) and exposure to the boom in pressure pumping services, we think that the current valuation is fair and adequately reflects the company’s future growth prospects.
Patterson-UTI – which competes with other U.S. onshore drilling companies, including Nabors Industries Ltd (NBR) – also faces weak natural gas fundamentals, which are expected to further limit its ability to generate positive earnings surprises.
As such, we expect Patterson-UTI’s growth potential to be restrained with little room for meaningful upside from current levels. Our long-term Neutral recommendation is supported by a Zacks #3 Rank (short-term Hold rating).
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Earnings Scorecard: Oracle – Analyst Blog
Software giant Oracle Corp. (ORCL) reported better-than-expected second quarter 2011 results with both earnings and revenues easily beating the Zacks Consensus Estimates. The results were driven by strong new software license sales (sales to new customers) and growth in hardware sales, boosted by the acquisition of Sun Microsystems.
Third quarter 2011 outlook was also above the Zacks Consensus Estimate, leading to a substantial rise in analysts’ estimates for the third quarter and full years 2011 and 2012.
Detailed below is the recent earnings announcement, subsequent analysts’ estimate revisions and the Zacks Rank as well as the long-term recommendation for the stock.
Second Quarter Earnings Highlight
Total revenue, growth in new licensing revenues and earnings per share (EPS) were encouraging and remained well above management’s expectations.
Earnings (excluding one-time items but including stock-based compensation expenses) of 49 cents per share shot up 32.4% from 37 cents in the year-ago period, and surpassed the Zacks Consensus Estimate of 44 cents. The rise in earnings was attributable to higher revenues from new software license sales, which grew for the fifth consecutive quarter.
Second quarter total revenue increased 47.0% year over year to $8.58 billion, driven by better-than-expected new software license revenues. Non-GAAP revenues leaped 47.3% year over year to $8.65 billion. Revenues were also above the Zacks Consensus Estimate of $8.30 billion.
New software license revenues (23.1% of total revenue and 35.3% of total software revenue), shot up 20.9% to $2.00 billion and were better than the company’s expectation. Revenues from hardware systems products were $1.11 billion, in line with the company’s expectation.
Agreement of Estimate Revisions
Clearly, a positive sentiment is palpable among the analysts, who remain optimistic about Oracle’s performance. Given impressive results and a robust guidance, the Zacks Consensus Estimates have been upward bound with the analysts increasing their estimates in the last 30 days.
In the last 30 days, 13 out of 15 analysts providing estimates raised their estimates for third quarter 2011. For fiscal 2011 and 2012, 15 analysts and 14 analysts, respectively, have raised their estimates in the last 30 days. There was no downward estimate revision, which points to the fact that analysts remain extremely bullish on the stock.
Magnitude of Estimate Revisions
Management provided a robust third quarter guidance. Total revenue growth on a non-GAAP basis is expected to range from 31% to 35% at current exchange rate and 30% to 34% in constant currency. New software license revenue growth is expected to range from 10% to 20% at current exchange rate and 9% to 19% in constant currency.
For the third quarter, Oracle expects non-GAAP EPS in constant currency to range between 48 cents and 50 cents. Assuming the current exchange, EPS is expected to range between 48 cents and 50 cents. This is up from 38 cents reported in the comparable quarter last year.
In the last 30 days, the Zacks Consensus Estimate for third quarter 2011 increased by 3 cents to 47 cents. For fiscal 2011, estimates rose by 10 cents to $2.00 and for fiscal 2012 the estimate increased 11 cents to $2.23.
Oracle a Zacks #2 Rank Stock
Oracle’s results indicate increased business spending by corporations. They also show that the demand for software is pacing up. With an increase in the number of upward estimate revisions, following the earnings release, we believe that the share price could go up. Oracle is currently rated as a Zacks #2 Rank (short-term Buy).
We also remain positive on Oracle’s growing Exadata pipeline, despite intense competition from International Business Machines Corp. (IBM) and EMC Corp. (EMC). Management expects the Exadata pipeline to grow to $2 billion, up from the previous expectation of $1.5 billion. We believe this will speed up both sales growth and profitability in the Sun server and storage businesses.
With Sun, Oracle will likely emerge as the foremost player in the database software market, including high-end servers, and compete against Hewlett-Packard Company (HPQ), a behemoth in the industry.
Over the long term, we maintain our Neutral rating on the stock. We are positive on the company's longer-term growth prospects based on its growing market share, new product pipeline, incremental cost savings, robust cash flow, improved margin and high recurring revenues.
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