Sallie Mae (SLM) – Bull of the Day
Sallie Mae, or SLM Corp.'s (SLM) fourth-quarter 2011 core earnings were a penny above the Zacks Consensus Estimate. Improvements in net interest income, loan loss provision, expenses and discontinued operations supported the core earnings figure. Recently, the company announced a dividend hike and a new share repurchases authorization.We believe that such shareholder-friendly efforts will give a boost to investors confidence in the stock. Moreover, its leading position in the student lending market, cost curtailment initiatives and the federal student loan assets acquisition augur well. Though pausing new federal student loan origination to comply with the legislation would affect revenue generation at the company, we believe that its diversifying efforts coupled with an economic recovery, though at a sluggish pace, will bolster its earnings.
Our six-month target price of $18.00 equates with 8.7x our earnings estimate for 2012. Combined with a quarterly dividend of $0.125 per share, this target price implies an expected total return of about 22.1% over that period. This is consistent with our Outperform recommendation on the shares.
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W.W. Grainger, Inc. (GWW) – Bull of the Day
W.W. Grainger, Inc. (GWW) reported fourth-quarter EPS and revenues of $2.13 and $2.08 billion, respectively, both outperforming Zacks Consensus Estimates. For 2011, adjusted EPS was $9.04 and revenues were a record $8.08 billion.Grainger's market share strategy is driven by increased product offerings. In addition, the company's expansion of private label products, sales force investment and its focus on e-commerce remain successful. A sound balance sheet coupled with cash flow enable Grainger to further invest in growth opportunities, increase dividends and reinvest capital through share repurchases.
We have maintained our Outperform recommendation, which indicates that it will perform better than the market. Our $231.00 target price, 22.0x our 2012 EPS estimate, reflects this view.
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Caterpillar, Inc. (CAT) – Bull of the Day
Caterpillar Inc.'s (CAT) fourth quarter EPS increased 53% to $2.25 and revenues surged 35% to a record $17.2 billion, driven by increased machine demand. Results were way ahead of Zacks Consensus Estimates.With the Bucyrus acquisition, the company is positioned to be the #1 mining equipment manufacturer in the U.S. with a strong footing in the major mining markets of China and India. Caterpillar's strong brand name, pricing power and global dealer network put it in a position to capitalize on the growing need for infrastructure development worldwide.
We maintain our Outperform recommendation, which indicates that it will perform better than the market. Our $134.00 target price, 14.5x our 2012 EPS estimate, reflects this view.
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UnitedHealth Group (UNH) – Bull of the Day
UnitedHealth Group's (UNH) fourth-quarter 2011 earnings came in substantially ahead of the Zacks Consensus Estimate, led by strong revenue growth from the UnitedHealthcare and Optum businesses, partially offset by higher medical costs. The company ended the year 2011 with better performances in virtually every meaningful metric: membership, revenues, MLR, operating margins and cash flow.The company strengthened its key capabilities to respond to the emerging growth opportunities. These initiatives has been taken to expand its Medicaid and Medicare business and for growing the health service business.
Though certain headwinds such as high unemployment, growing medical cost, pressure from Health Care overhaul, etc. remains, we believe the company will beat the odds given its diversified business model with leading market share positions in the Commercial, Medicare and Medicaid markets. A solid balance sheet and a highly conservative investment portfolio will further help it to outperform its peers.
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Mylan, Inc. (MYL) – Bull of the Day
Mylan, Inc. (MYL) is one of the leading players in the US generics market. The company holds immense potential as many blockbuster drugs have begun to go off-patent and many more will lose patent exclusivity in the next few years.Moreover, we are encouraged by Mylan's geographic reach and product depth along with a robust generic product pipeline. We believe the generic segment will post strong sales in 2012 benefiting from a slew of product launches already lined up.
We have therefore upgraded our rating on Mylan from Neutral to Outperform to reflect our overall bullish stance for generic makers. Our target price for the stock is $26.00.
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ZOLL Medical Corp. (ZOLL) – Bull of the Day
We retain our Outperform recommendation on ZOLL Medical Corp. (ZOLL) following its forecast-topping first quarter results. Revenues and earnings for the quarter beat the Zacks Consensus Estimates, driven by strong sales from the company's LifeVest and temperature management businesses.The company witnessed healthy sales across the North American hospital and pre-hospital markets. We are pleased with ZOLL's solid fundamentals and its broad product range. Moreover, its significant international presence should also drive growth.
The company has completed multiple acquisitions and is seeking more such lucrative transactions to aid growth. Management's outlook for fiscal 2012 is encouraging with sales are expected to grow at a healthy double-digit clip on the strength of the company's core defibrillator business.
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BJ's Restaurants, Inc. (BJRI) – Bull of the Day
BJ's Restaurants (BJRI) remains well positioned to sustain its growth momentum, while generating improved earnings on the heels of efficient operations and innovative offerings. These also help the company to drive traffic and post robust same-store sales growth. The company also boasts a debt-free balance sheet.The company remains committed to its unit growth beyond 2011 and believes that there is room for at least 300 restaurants. Additionally, the core Californian market, which had been badly hit during the housing downturn, has also begun to turn around. The gradual betterment of this market, one of the major operational locations for the company, is an important tailwind for BJ's.
Our six-month target price of $55.00 equates to about 41.7x our estimate for 2012. The target price implies an expected total return of 20.6% over that period. We recommend an Outperform rating on the shares.
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DaVita, Inc. (DVA) – Bull of the Day
We are upgrading our recommendation on DaVita, Inc. (DVA) to Outperform based on the company's strong cash flows and strategic acquisitions. The new bundled ESRD payment system is also expected to be a long-term positive. The company's third-quarter earnings slightly exceeded the Zacks Consensus Estimate on the back of strong top-line growth, partially offset by higher operating expenses.Moreover, a strong cash position expands the potential for meaningful M&A. While the acquisition of DSI should bring in new opportunities in most states, the company has to divest some of its centers as a condition. Nevertheless, we believe downside from current levels is likely limited.
Our six-month target price of $96.00 equates to 19.0x our earnings estimate for 2011. This price target implies an expected total return of 20.3% over that period. This is consistent with our Outperform recommendation on the shares.
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Caterpillar, Inc. (CAT) – Bull of the Day
Caterpillar, Inc. (CAT) posted an impressive third quarter with record EPS of $1.93 and sales of $14.6 billion driven by increased machine demand and continued economic growth. Results were ahead of Zacks Consensus Estimates. With the Bucyrus acquisition, the company is positioned to be the #1 mining equipment manufacturer in the U.S. with a strong footing in China and India, the major mining markets.Caterpillar's financial position continues to strengthen through the first nine months of the year. Caterpillar's cash flow for the period is an all-time high and better than the company's full-year results so far.
Furthermore, the company's order backlog has steadily increased throughout the year and is at a record level, which holds promise for the year ahead. We upgrade our recommendation from Neutral to Outperform and set a target price of $127.
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UnitedHealth Group (UNH) – Bull of the Day
UnitedHealth Group's (UNH) fourth-quarter 2011 earnings came in substantially ahead of the Zacks Consensus Estimate, led by strong revenue growth from the UnitedHealthcare and Optum businesses, partially offset by higher medical costs. The company ended the year 2011 with better performances in virtually every meaningful metric: membership, revenues, MLR, operating margins and cash flow.The company strengthened its key capabilities to respond to the emerging growth opportunities. These initiatives has been taken to expand its Medicaid and Medicare business and for growing the health service business.
Though certain headwinds such as high unemployment, growing medical cost, pressure from Health Care overhaul, etc. remains, we believe the company will beat the odds given its diversified business model with leading market share positions in the Commercial, Medicare and Medicaid markets. A solid balance sheet and a highly conservative investment portfolio will further help it to outperform its peers.
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