PPL Corporation (PPL) – Bear of the Day
PPL Corporation's (PPL) earnings of $0.62 per share in the second quarter of 2010 came in below the Zacks Consensus Estimate, impacted by weak performances at the Pennsylvania Delivery and International Delivery businesses.Going forward, we are apprehensive about the company given management's lowered 2010 earnings guidance, due to the recent dilution in the company's shares outstanding. Additionally, expectations for continued pressure on PPL's hedges and projections for higher coal transportation costs could weigh on future earnings, in our view.
This has led us to lower our estimates for 2010 and 2011 and also downgrade our recommendation on the stock to Underperform.
Zacks Investment Research
BJ's Wholesale Club (BJ) – Bear of the Day
BJ's Wholesale Club (BJ) posted lower-than-expected second-quarter 2010 results. The quarterly earnings of $0.67 per share missed the Zacks Consensus Estimate of $0.73.The company hinted that the quarter has been challenging, as it faced intense competition from supermarket stores trying to grab market share by going aggressive in their pricing. This compelled BJ's to make pricing adjustments at the cost of margin. BJ's forecast a sluggish economic recovery and a weak consumer spending environment in the second half of 2010 that could intensify the competition.
Consequently, the company has taken a conservative stance and lowered its fiscal 2010 guidance. Therefore, we prefer an Underperform recommendation on the stock.
Zacks Investment Research
Questar Corp. (STR) – Bear of the Day
We are downgrading Questar (STR) shares to Underperform from Neutral, due to the weak natural gas fundamentals and the company's clouded post-split outlook. The continued glut in domestic gas supplies continues to weigh on the company, and storage levels remain above their five-year average.This translates into a bearish near- to medium-term outlook for natural gas-weighted companies like Questar. The transfer of the low-cost and high-growth E&P assets (post-split) have also held back the stock.
These factors are reflected in our downgrade of the company's shares to Underperform from Neutral. Our $16 price objective reflects 2010 P/E multiple of 14.6x.
Zacks Investment Research
Valmont Industries, Inc. (VMI) – Bear of the Day
We are downgrading Valmont Industries (VMI) to Underperform from Neutral and are also reducing our target price to $63.00 from $91.00 due to the company's muted second quarter 2010 profitability and poor topline growth. Valmont fell short of the Zacks Consensus Estimate by 39 cents.Results were hurt by a subdued performance in the Utility Support Structures and Engineered Support Structures segments, caused by a weak commercial and residential construction market. Soft demand for wireless communication structures as well as poor federal spending on infrastructure led to lower revenues.
We do not expect any significant momentum in Valmont's major businesses until a new highway bill is passed. Our long-term Underperform recommendation on the stock indicates that it would perform below the market. Our $63.00 target price, based on 15.4x 2010 EPS, reflects this view.
Zacks Investment Research
J.C. Penney Co., Inc. (JCP) – Bear of the Day
We believe that J.C. Penney (JCP) stock will remain under pressure in the near term. Despite the introduction of new product lines, its sales performance has not been impressive.J. C. Penney hinted that the discontinuation of the publishing of Big Book catalogs in November 2009 has been adversely impacting sales. We expect a negative sentiment among investors, following the sales results for the second-quarter 2010 that breached its own guidance.
Moreover, the company's sales of home products have remained sluggish for the last few years. This may weigh upon the company's overall results. However, the Sephora concept inspires confidence but a consistent improvement in the stock has yet to be witnessed.
Zacks Investment Research
Methanex Corp. (MEOH) – Bear of the Day
Methanex Corp. (MEOH) is the world's largest supplier of methanol. Lower methanol pricing and an increase in global inventories are negatively affecting the company. Methanex's Chilean facility is currently operating at 60% due to the lack of natural gas supply.Although the company reversed year-ago losses in the second quarter of 2010, it missed the Zacks Consensus by $0.04. Methanex has a long history of underperforming the Zacks Consensus Estimate. The company projects a further sales decline and higher costs in the upcoming quarter due to production outages at the Atlas plant.
Methanol prices are expected to be volatile owing to the upcoming additional methanol capacity in the industry in
2010. We are downgrading the stock to Underperform from the previous Neutral recommendation and reduce our target price to $20.00 from $27.00.
Zacks Investment Research
BJ's Wholesale Club (BJ) – Bear of the Day
BJ's Wholesale Club (BJ) posted lower-than-expected second-quarter 2010 results. The quarterly earnings of $0.67 per share missed the Zacks Consensus Estimate of $0.73.The company hinted that the quarter has been challenging, as it faced intense competition from supermarket stores trying to grab market share by going aggressive in their pricing. This compelled BJ's to make pricing adjustments at the cost of margin. BJ's forecast a sluggish economic recovery and a weak consumer spending environment in the second half of 2010 that could intensify the competition.
Consequently, the company has taken a conservative stance and lowered its fiscal 2010 guidance. Therefore, we prefer an Underperform recommendation on the stock.
Zacks Investment Research
Lowe's Companies, Inc. – Bear of the Day
Lowe's Companies, Inc. (LOW) recently posted lower-than-expected second quarter 2010 results. The quarterly earnings of $0.58 per share missed the Zacks Consensus Estimate by a penny.The company also witnessed a decline in the rate of growth of sales and comps in the quarter that breached its planned outlook. As a result, the company lowered its fiscal 2010 sales guidance.
Although the economy is showing signs of revival, we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes, inventory levels normalize and consumer-spending rebounds.
Consequently, we prefer an Underperform recommendation on the stock, until we observe steady improvement in the housing markets, which most likely will occur in 2011.
Zacks Investment Research
Walgreen Company – Bear of the Day
Walgreen Company (WAG) posted third quarter fiscal 2010 earnings per share of $0.47, lower than the Zacks Consensus Estimate of $0.57 and year-ago quarter s $0.53. Walgreen's strategy of store expansion coupled with operating acumen has made the company a leader in the retail drug store industry.However, we are concerned about the competitive pressures faced by the company due to prescription reimbursement issues and slow introduction of new generic products. Moreover, our apprehensions are further bolstered by factors like higher SG&A expenses, a shift towards the low-margin pharmacy business as well as gross margins reflecting a downward trend.
Based on these factors, we have lowered our estimates for fiscal 2011 and downgrade the stock to Underperform with a target price of $26.00.
Zacks Investment Research
PetMed Express, Inc. – Bear of the Day
PetMed Express, Inc. (PETS) reported first-quarter fiscal 2011 EPS of $0.32, way below the Zacks Consensus Estimate of $0.38 and the year-ago quarter's $0.36. The company witnessed a decline in revenues due to a lack of television remnant space availability at affordable rates.Moreover, both gross and operating margins declined during the quarter driven by increase in higher product costs and higher advertising cost to acquire a new customer.
Economic uncertainty is taking a toll on the company, forcing consumers to switch to cheaper alternatives. We do no expect the situation to improve significantly in the near future. On account of these factors we have lowered our estimates and downgraded the stock to Underperform.
Zacks Investment Research