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Range Resources Corp. (RRC) – Bear of the Day

admin — Mon, 26 Jul 2010 00:00:01 +0000

Range Resources (RRC) long-term production prospects are gaining momentum, but while the company's second quarter production increased on the back of solid contribution from its core Marcellus Shale properties, this area is primarily over-pressured and, in some areas, contains rich gas that must be processed further. As such, Range Resources needs more capital as well as new high-pressured lines to gather Marcellus gas.

Although Range Resources is increasing its drilling activity in Northeast Pennsylvania, there is a high risk associated with this acreage due to faultlines and other geologic anomalies. Also, with the bulk of its projected 2010 production hedged, Range Resources may limit its leverage to commodity prices.

We are concerned about the macro factors, particularly regulatory and natural gas as well as natural gas liquids prices. We believe that the company's natural gas-weighted reserves and production profile will further weigh on the stock.

Zacks Investment Research

Genomic Heath, Inc. (GHDX) – Bear of the Day

admin — Fri, 23 Jul 2010 00:00:01 +0000

Genomic Health's (GHDX) first quarter 2010 loss of $0.07 per share missed the Zacks Consensus Estimate of a loss of $0.03. Although the company's lead product, Oncotype DX breast cancer test, recorded a year-over-year growth of 20%, revenues declined sequentially.

Meanwhile, Genomic launched its colon cancer test in January 2010, though this test will take a fair amount of time before contributing significantly to the top line. As a result, the company is solely dependent on the breast cancer test. Moreover, we are concerned about the outcome of the FDA meeting on LDTs, the outcome of which might have a long-term impact on the company.

Other pipeline tests at Genomic have a long way to go before commercialization, as well. Given these factors, we downgrade the stock to Underperform. We have also lowered our estimates for the second quarter 2010 and fiscal 2011.

Zacks Investment Research

FTI Consulting (FCN) – Bear of the Day

admin — Thu, 22 Jul 2010 06:00:01 +0000

We are downgrading our recommendation on FTI Consulting (FCN) to Underperform from Neutral as the company trimmed its fiscal year 2010 outlook. The revised outlook is due to dramatic deceleration expected in Corporate Finance and Restructuring, less-than expected recovery in Merger and Acquisition activity and the struggling Technology segment.

Additionally, progress in its other segments such as Economic Consulting, Strategic Communications and Forensic and Litigation Consulting businesses are slower than expected. Further, the near-term outlook remains cautious as demand environment for practices remains uncertain and seizing up of business in Europe.

Our six-month target price of $31.00 per share equates to about 12.0X our earnings estimate for 2010, implying a negative total return of about 7.8% over that period.

Zacks Investment Research

POSCO – ADR (PKX) – Bear of the Day

admin — Wed, 21 Jul 2010 06:00:01 +0000

POSCO (PKX), the largest steel producer in Korea, remains well-positioned to leverage from its expansion into the fast-growing markets in the years ahead. But lackluster operating earnings guidance due to higher raw material costs and anticipated increases in Chinese steel volume exports are stiff headwinds for the second half of 2010.

Rising competition will result in significant price competition, declining margins and reductions in revenue. Moreover, concerns over gains/losses from volatility in foreign currency and the cyclical nature of the industry will restrict share price performances.

Thus, we downgrade our recommendation from Neutral to Underperform. Our $92.00 target price, 7.8X 2010 EPS, reflects this view.

Zacks Investment Research

Honda Motor Co. (HMC) – Bear of the Day

admin — Tue, 20 Jul 2010 06:00:01 +0000

Honda Motor Company (HMC) is expanding its business in Asia, growing its global network to increase efficiency and introducing new products to satisfy local markets. However, the economic downturn in the U.S. and Europe continues to negatively affect Honda's operations, especially the Power Products and Other business.

Moreover, Honda's global position is threatened by unfavorable currency exchange rates, flat-to-lower sales in its key markets and increased competition.

Therefore, we are downgrading our recommendation on the stock from Outperform to Underperform with a target price of $28.

Zacks Investment Research

Unisys Corp. (UIS) – Bear of the Day

admin — Mon, 19 Jul 2010 06:00:01 +0000

This year will remain tough for Unisys Corp. (UIS) due to an uncertain spending environment. Although management is progressing in expanding margins, we remain cautiously optimistic on the pace of the IT spending recovery and the maturing of higher-margin legacy product sales and services.

The stock took a hit earlier due to the debt overhang and weak quarterly results. After recovering some of the ground lost in 2009, the stock is again going on a downslide, as is evident from the decline in stock price over the last three months. Estimates have also gone down significantly in that time.

The current 2010 earnings estimate is $1.41 per share, down from $2.27 in 90 days. Consequently, we are downgrading the stock to Underperform from Neutral ahead of the second quarter results, scheduled for July 27, 2010.

Zacks Investment Research

Monsanto Company (MON) – Bear of the Day

admin — Fri, 16 Jul 2010 06:00:01 +0000

Monsanto Company (MON) is a leading global provider of agricultural products to farmers. The company's pipeline of agricultural biotechnology products stands unmatched in the industry.

However, an intense competitive environment and the company's huge dependence on a few large customers present risks to its top line. Monsanto also faces foreign currency risk since a significant portion of its income comes from outside the U.S.

We reiterate our Underperform recommendation on the stock based on weak results for three consecutive quarters. We believe this will continue based on the 2010 guidance provided by management, which is 43% lower than fiscal 2009.

Zacks Investment Research

Embraer S.A. – ADR (ERJ) – Bear of the Day

admin — Thu, 15 Jul 2010 06:00:01 +0000

The international economic environment remains an issue for aircraft manufacturer Empresa Brasileira de Aeronautica S.A., or Embraer (ERJ), considering the company's exposure to the U.S. and European markets.

Moreover, the company's high dependence on some models, with a primary focus on American airline companies, exposes it to considerable risks. The considerable strain on the Brazilian airport infrastructure will also impact the company's local top line results.

We do not expect better prospects for the industry. Thus, we have reduced our earnings estimate for fiscal 2010 from $1.39 to $1.31 per ADR and downgraded our recommendation on the ADR from Neutral to Underperform.

Zacks Investment Research

Transocean, Ltd. (RIG) – Bear of the Day

admin — Wed, 14 Jul 2010 06:00:01 +0000

We are downgrading Transocean (RIG) shares to Underperform from Neutral, due to the potential fallout from the Gulf of Mexico oil spill. The company's earnings are likely to suffer from the uncertainty in the near-to-medium term outlook for deepwater drilling, as reflected by the strong negative agreement among analysts regarding Transocean's outlook and the notable number of downward estimate revisions.

The slow pace of new contracting activity, reduced dayrates, declines in utilization and the stacking of idle equipment add to the bearish sentiment. Although Transocean has a significant backlog of $28.6 billion, we are apprehensive that the backlog may decline if the company fails to obtain new contracts for rigs.

For Transocean, the operator of the doomed Deepwater Horizon drill rig in the GoM spill, earnings are likely to suffer. The company has already warned investors regarding the risks associated with the Horizon rig disaster, including legal costs, government investigations and lost revenue.

Zacks Investment Research

CNOOC, Ltd. – ADR (CEO) – Bear of the Day

admin — Tue, 13 Jul 2010 06:00:01 +0000

We are downgrading CNOOC Ltd. (CEO) ADRs to Underperform from Outperform. We believe that the company has lost its attractiveness as a pure Chinese offshore oil explorer.

While domestic initiatives continue, CNOOC is currently exploring various international upstream projects to cope with the country's rising demand. We initially thought the $3.1 billion Bridas deal to be a prudent step, but now we are concerned about the challenging Argentine tax regime.

The company is currently experiencing a downward movement in the performance of its ADRs, which we believe will again run into rough weather with oil prices hovering in the mid-$70s. We recommend investors to go for attractively valued peers such as Sinopec.

Zacks Investment Research