ReneSola Ltd. – ADR (SOL) – Bear of the Day
ReneSola Ltd.'s (SOL) significant presence in the solar module original equipment manufacturing (OEM) market is currently slated to underperform, owing to Europe's challenging financing environment. The near-term valuation of the company will be adversely impacted by tepid solar products demand in Europe (especially Germany).Rising competition, credit risk from its customers, oversupply glut of solar wafer and modules in the market, and the company's high R&D expenses are our reasons behind this view. Given the industry-wide high inventory level, we believe performance is only going to be downhill going forward.
We advise investors to exit from the stock for now and look for a favorable entry point in the future. We are apprehensive over any near-term margin recovery for the company given the industry trend of cascading average selling prices.
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Avery Dennison Corp. (AVY) – Bear of the Day
Avery Dennison's (AVY) third quarter adjusted EPS of $0.48 fell short of the Zacks Consensus Estimate of $0.59 and the $0.62 in the year-ago quarter. Avery Dennison has reduced its fiscal 2011 EPS guidance to between $2.15 and $2.30 due to apprehensions of continued weakness in volumes.The Office and consumer products segment s volumes and sales have shown continued weakness due to weak end market demand and increased competition in the label category. Margins have been affected due to increased investment in demand creation, consumer promotions, and innovation, as well as lower volume.
Given lower volume expectations, higher tax rate and weak results in two of its largest businesses -- Pressure-Sensitive Materials and Retail Branding and Information Solutions -- we downgrade our recommendation from Neutral to Underperform with a target price of $26.00.
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Guess?, Inc. – Bear of the Day
We downgraded our recommendation on Guess? (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.
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HSBC Holdings Plc – ADS (HBC) – Bear of the Day
We retain our Underperform recommendation on HSBC Holdings plc - ADS (HBC) with an Underperform recommendation. Our primary concern is the harsh impact from the deepening Eurozone crisis. Moreover, the company is suffering from weak revenue growth in its mature markets due to ongoing low interest rates and regulatory restrictions.The company's cost containment measures will help it deal with economic pressures to a great extent. But we expect high inflation in some key Asian markets, slothful loan growth, insufficient core operating performance and high wage inflation to restrict the company's growth, at least in the near term.
Our six-month target price of $36.00 per ADS equates to about 8.5x our earnings estimate for fiscal 2011. This target price implies an expected negative total return of 9.0% over that period. This is consistent with our long-term Underperform recommendation on the ADSs.
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Citi Trends, Inc. (CTRN) – Bear of the Day
Citi Trends, Inc. (CTRN) falling comparable store sales, coupled with rising operating expenses battered the third-quarter 2011 results. The company incurred a quarterly loss of $0.38 per share that broadened from the prior-period loss of $0.03. The Zacks Consensus Estimate for the quarter was a loss of $0.37 per share.Further, due to uncertainty hovering around sales given the global economic unrest, the company rolled back its earnings guidance range of $1.25 to $1.35 per share for fiscal 2011. The company decided not to provide any guidelines unless it finds any near-term catalysts to drive sales.
Intense competition from other retailers, seasonal nature of business and risks associated with sourcing merchandise from developing countries may further undermine the company's future growth prospects. Currently, we are maintaining a long-term Underperform recommendation on the stock.
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BHP Billiton – ADS (BHP) – Bear of the Day
We have downgraded our recommendation on BHP Billiton Ltd. - ADS (BHP) from Neutral to Underperform based on declining industrial demand on the back of sluggish economic growth in Europe and the U.S. Other headwinds include competition from peers, an upsurge in oil prices and rising inflation in the emerging markets.Turning toward expenses, the cost of improving ore grades, mining disruptions due to natural calamities, governmental delays as well as currency fluctuations further thwart the stock. A slower global growth rate, on the back of the European crisis and a sluggish U.S. economy, may impact the demand for the company's products and dampen revenue growth going forward.
Volatility in currency prices may have a significant impact on the company's financial results going forward. Our $63.00 target price, 7.3x fiscal 2012 EPADS, reflects our Underperform recommendation.
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RadioShack Corp. (RSH) – Bear of the Day
RadioShack Corp. (RSH) difficulties persist as the company continues its disappointing performance. Precipitous decline of the signature and consumer electronics retail businesses, adverse product-mix toward low-margin devices, and a volatile macro-economic scenario in the U.S. are taking their toll on the company's financials.Weaker-than-expected growth of the mobile platform and growing marketing expenses are other near-term concerns. Management provided a tepid outlook for the ensuing fourth quarter of 2011.
In the previous quarter, comparable store sales for the company-operated stores and kiosks (those opened at least a year) declined 4% year over year. This is a key retail performance indicator measuring growth from the existing sales locations. We have thus downgraded our recommendation on RadioShack to Underperform.
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ReneSola Ltd. – ADS (SOL) – Bear of the Day
ReneSola Ltd.'s (SOL) significant presence in the solar module original equipment manufacturing (OEM) market is currently slated to underperform, owing to Europe's challenging financing environment. The near-term valuation of the company will be adversely impacted by tepid solar products demand in Europe (especially Germany).Rising competition, credit risk from its customers, oversupply glut of solar wafer and modules in the market, and the company's high R&D expenses are our reasons behind this view. Given the industry-wide high inventory level, we believe performance is only going to be downhill going forward.
We advise investors to exit from the stock for now and look for a favorable entry point in the future. We are apprehensive over any near-term margin recovery for the company given the industry trend of cascading average selling prices.
RENESOLA LT-ADR (SOL): Free Stock Analysis Report
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HSBC Holdings Plc – ADS (HBC) – Bear of the Day
We retain our Underperform recommendation on HSBC Holdings plc (HBC) with an Underperform recommendation. Our primary concern is the harsh impact from the deepening Eurozone crisis. Moreover, the company is suffering from weak revenue growth in its mature markets due to ongoing low interest rates and regulatory restrictions.The company's cost containment measures will help it deal with economic pressures to a great extent. But we expect high inflation in some key Asian markets, slothful loan growth, insufficient core operating performance and high wage inflation to restrict the company's growth, at least in the near term.
Our six-month target price of $36.00 per ADS equates to about 8.5x our earnings estimate for fiscal 2011. This target price implies an expected negative total return of 9.0% over that period. This is consistent with our long-term Underperform recommendation on the ADSs.
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Citi Trends, Inc. (CTRN) – Bear of the Day
Citi Trends, Inc. (CTRN) falling comparable store sales, coupled with rising operating expenses battered the third-quarter 2011 results. The company incurred a quarterly loss of $0.38 per share that broadened from the prior-period loss of $0.03. The Zacks Consensus Estimate for the quarter was a loss of $0.37 per share.Further, due to uncertainty hovering around sales given the global economic unrest, the company rolled back its earnings guidance range of $1.25 to $1.35 per share for fiscal 2011. The company decided not to provide any guidelines unless it finds any near-term catalysts to drive sales.
Intense competition from other retailers, seasonal nature of business and risks associated with sourcing merchandise from developing countries may further undermine the company's future growth prospects. Currently, we are maintaining a long-term Underperform recommendation on the stock.
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