HDFC Bank, Ltd. – ADS (HDB) – Bear of the Day
HDFC Bank's (HDB) higher operating expenses were the headwind in the company's most recently reported quarter. The company is still exposed to threats related to higher cost of funds. Growing competition in the retail space with the re-entry of peers is an added future concern.Our six-month target price of $25.00 per ADS equates to about 22.3x our earnings estimate for fiscal 2012. This target price implies an expected negative total return of 7.6% over that period. This is consistent with our long-term Underperform recommendation on the ADSs.
Additionally, the quantitative Zacks Rank for HDFC Bank is currently #4, indicating a likelihood of downward pressure on the ADSs over the near term.
HDFC BANK LTD (HDB): Free Stock Analysis Report
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Darden Restaurants, Inc. (DRI) – Bear of the Day
Although Darden Restaurants, Inc. (DRI) registered improving blended comparable restaurant sales for the last few quarters, recent woes at Olive Garden continue to nag the company. Stiff competition resulting in higher discounting rates and promotional offers, increasing food costs for the upcoming quarter and cautious consumer spending add to the worry.Moreover, a recent cut in guidance compels us to downgrade the stock from a Neutral to Underperform recommendation. The company now expects earnings per share from continuing operations to grow 4 7% as against the lower end of 12-15% guided earlier.
Our six-month target price of $40.00 equates to about 11.2x our estimate for 2012. The target price implies an expected total negative return of 9.5% over that period. We recommend an Underperform rating on the shares.
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hhgregg, Inc. (HGG) – Bear of the Day
Hhgregg, Inc. (HGG) has recently expressed its apprehension with regard to its third-quarter 2012 earnings to decline to approximately $0.60 per share, from the prior-year quarter of $0.66. The estimate slid on the back of lower than expected margins in the video category owing to the promotional activities across all screen sizes.Hhgregg also expects advertising expenses to escalate due to the recent initiatives taken up to increase its market share in the appliance and home office categories. In addition, Hhgregg has also launched a mobile product offering to enhance its customers shopping experience. The preliminary third quarter 2012 results also led to a downward revision in fiscal 2012 earnings in the range of $1.05 to $1.15, compared with the previous guidance of $1.26 to $1.41.
Going forward, we expect net sales and operating margins to remain muted owing to the seasonal shopping patterns, rising costs and competitive pressures. Moreover, weakness across the consumer electronics and appliances industry may turn out to be serious headwinds to the top-line. We thus maintain our Underperform rating on the stock.
HHGREGG INC (HGG): Free Stock Analysis Report
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CNO Financial Group (CNO) – Bear of the Day
We are downgrading our recommendation on CNO Financial Group (CNO) to Underperform based on the continuous deterioration in the premium revenue of its Bankers Life segment, coupled with the significant underwriting and pricing risks. The company's third-quarter earnings results were driven by poor top-line performance in most business segments.The current interest rate environment, which is generating spread compression, will continue to put pressure on the bottom line. We do not expect any significant improvement on that front in the forthcoming quarters as the pricing pressure is expected to persist for awhile.
Our six-month target price of $5.75 equates to 7.9x our earnings estimate for 2011. This price target implies an expected negative total return of 10.9% over that period. This is consistent with our Underperform recommendation on the shares.
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Guess? Inc. (GES) – Bear of the Day
We downgraded our recommendation on Guess? Inc. (GES) from Neutral to Underperform as its third-quarter 2012 core earnings of $0.71 per share missed both Zacks Consensus Estimate as well as year ago earnings by 28% and 5%, respectively. The current global economic headwinds and the diminishing disposable income of the consumers were responsible for the earnings miss.Same-store sales also declined in the quarter. In the wholesale segment, reorders for the fall collections as well as spring/summer orders were weak. Channel mix was more than offset by accelerating operating expenses to maintain more stores and planned infrastructure expenses.
The potential slowdown in Europe, which has actually been one of the company's few bright spots, also creates a major risk for shares of GES. Our six-month target price is $27.
GUESS INC (GES): Free Stock Analysis Report
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HDFC Bank, Ltd. – ADS (HDB) – Bear of the Day
HDFC Bank's (HDB) higher operating expenses were the headwind in the company's most recently reported quarter. The company is still exposed to threats related to higher cost of funds. Growing competition in the retail space with the re-entry of peers is an added future concern.Our six-month target price of $25.00 per ADS equates to about 22.3x our earnings estimate for fiscal 2012. This target price implies an expected negative total return of 7.6% over that period. This is consistent with our long-term Underperform recommendation on the ADSs.
Additionally, the quantitative Zacks Rank for HDFC Bank is currently #5, indicating a significant likelihood of downward pressure on the ADSs over the near term.
HDFC BANK LTD (HDB): Free Stock Analysis Report
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Darden Restaurants, Inc. (DRI) – Bear of the Day
Although Darden Restaurants, Inc. (DRI) registered improving blended comparable restaurant sales for the last few quarters, recent woes at Olive Garden continue to nag the company. Stiff competition resulting in higher discounting rates and promotional offers, increasing food costs for the upcoming quarter and cautious consumer spending add to the worry.Moreover, a recent cut in guidance compels us to downgrade the stock from a Neutral to Underperform recommendation. The company now expects earnings per share from continuing operations to grow 4 7% as against the lower end of 12-15% guided earlier.
Our six-month target price of $40.00 equates to about 11.2x our estimate for 2012. The target price implies an expected total negative return of 9.5% over that period. We recommend an Underperform rating on the shares.
DARDEN RESTRNT (DRI): Free Stock Analysis Report
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ICICI Bank Ltd. – ADS (IBN) – Bear of the Day
We are downgrading our recommendation on ICICI Bank Ltd. (IBN) to Underperform primarily on rising operating expenses. Net earnings for the second quarter of fiscal 2012 increased, but a substantial increase in operating expenses was the headwind.We anticipate continued synergies from the company's increased dependence on domestic loans, an almost stable funding base and market leadership in the insurance business. However, we are concerned about ICICI's highly competitive operating environment and below-average credit quality.
Our six-month target price of $26.00 per ADS equates to about 12.3x our earnings estimate for fiscal 2012. This target price implies an expected negative total return of 8.6% over that period. This is consistent with our Underperform recommendation on the ADSs.
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AGL Resources, Inc. (GAS) – Bear of the Day
We are initiating coverage on AGL Resources Inc. (GAS) with an Underperform recommendation and a target price of $39. We expect shareholder sentiment towards the company to remain lukewarm, considering its investment in higher-risk unregulated operations, ongoing regulatory uncertainties and the challenging economic environment.AGL had warned that its earnings will suffer in 2011 due to lower results at the wholesale segment. Additionally, the inclusion of the shipping operations (post Nicor acquisition) has left AGL with a weak business, thereby heightening its risk profile.
Considering these factors, we see little reason for investors to own the stock and, therefore, we initiate the company with an Underperform recommendation. Our $39 price objective reflects a 2012 P/E multiple of 12.5x.
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Urban Outfitters, Inc. (URBN) – Bear of the Day
We are initiating the coverage on Urban Outfitters (URBN) with an Underperform recommendation. Despite registering growth of 6.3% in the top line, the company's third-quarter 2012 earnings of $0.33 per share fell 23.3% from the prior-year quarter due to the rise in cost of sales and SG&A expenses.The company's inventory level, which rose 27%, remains a matter of concern. The company, in order to clear its inventory, is selling the slow-moving stock of women's clothing at increased markdowns, which in turn, is weighing upon margins. Its gross margin contracted 571 basis points to 35.4% during the quarter.
Management now expects the fourth quarter gross margin to be lower than the third quarter. Fashion obsolescence remains the key issue for the company's business model. In the past, this has weighed down on the company s comparable-store sales and operating margins. The company is presently inflicted with the same fashion risk.
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