For Immediate Release
Chicago, IL – October 4, 2011 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Costco Wholesale Corporation (NasdaqGS: COST - News), Wal-Mart Stores Inc. ( WMT), Philip Morris International Inc. ( PM), Reynolds American Inc. ( RAI) and Lorillard Inc. ( LO).
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Here are highlights from Monday’s Analyst Blog:
Earnings Preview: Costco
Costco Wholesale Corporation (NasdaqGS: COST - News), one of the leading U.S. warehouse club operators, is slated to report its fourth-quarter 2011 financial results on October 5, 2011. The current Zacks Consensus Estimate for the quarter is $1.09 a share. For the quarter to be reported, the Zacks Consensus Estimate for revenue is $27,886 million.
Fourth-Quarter 2011 Zacks Consensus
Analysts considered by Zacks expect Costco to post fourth-quarter 2011 earnings of $1.09 a share. The current Zacks Consensus Estimate reflects a growth of 12.4% from the prior-year quarter’s earnings. The current Zacks Consensus Estimates for the quarter ranges between $1.02 and $1.13 per share.
Our View
Costco continues to be a dominant retail wholesaler based on the breadth and quality of merchandise it has to offer. The company’s strategy to sell products at heavily discounted prices has helped it to remain on a positive growth track amid beleaguered economic conditions as cash-strapped customers continue to see it as a viable option for low-cost necessities. Having delivered consistent comparable-store sales growth, Costco is well positioned in the warehouse club industry.
Moreover, Costco remains committed to opening new clubs in domestic and international markets. The company’s diversification strategy is a natural hedge against risks that may arise in specific markets.
Further, Costco continues to make prudent use of its free cash flows through share repurchases and dividend payments. This underlines its efforts to maximize shareholder returns even under trying economic conditions. Moreover, the company’s current cash resources are adequate to support expenditures associated with its ongoing expansion initiatives.
However, Costco faces stiff competition from BJ’s Wholesale Club Inc. and Sam’s Club, a division of Wal-Mart Stores Inc. ( WMT). These two rivals follow similar business models as they market high volumes of merchandise at low prices in membership-only warehouse clubs. Thus, aggressive pricing to gain market share and drive traffic amid stiff competition, may depress sales and margins.
Moreover, the company’s customers are sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, sluggishness in the housing market, and high unemployment and household debt levels, which may affect their spending.
Costco currently operates 592 warehouses, which include 429 in the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, 9 in Japan, 7 in Korea, 8 in Taiwan and 3 in Australia.
Given the pros and cons we maintain our long-term Neutral recommendation on the stock. Moreover, Costco holds a Zacks #3 Rank, which translates into a short-term Hold rating.
Canada’s Tougher Anti-Smoking Campaign
Canada has decided to become stricter and fight strongly against the evil of smoking. In September 2011, the Canadian government disclosed that labels on cigarette packets would have to be scarier. The new labels were introduced on grounds that consumers had become used to the existing labels.
The new labels will cover three fourth of the packets while the present labels covered only half of the packets. Among the 16 proposed new labels, some will show Edmonton native Barb Tarbox, a well-known anti-tobacco advocate who died of lung cancer in 2003, on her deathbed.
Tobacco manufacturers and importers have until March 21, 2012 to make the transition to the new labels, while retailers will have until June 19, 2012 to ensure all packages on their shelves feature the new labels.
The new labels include the addition of a national toll-free number and website address for support in quitting smoking, as well as new full-color warning messages inside the packages. Moreover the new packets cannot have the words ‘light’ or ‘mild’ printed on them.
Canada pioneered the idea of using scary labels to deter consumers from smoking. In 2000, it issued the first-of-its kind order to affix graphic health warnings on the packets, which resulted in the decline in smoking rate among young people aged 15-19 over a 10-year period, from 25% in 2000 to 12% in 2010.
Though the Canadian Public Health Association welcomed the move, major tobacco player in the region, Imperial Tobacco Canada Ltd, a unit of British American Tobacco (BATS) said the new labels were "poor policy for political gain" and would not cut the number of smokers. Other tobacco giants like Rothmans Benson & Hedges Inc, which is partly owned by Philip Morris International Inc. ( PM) and Imperial Tobacco Canada Ltd, also expressed discontentment on the tougher warning labels.
Cigarette manufacturers are facing pressure as governments around the world are embarking on stricter anti-smoking campaigns. Philip Morris has sued Norway's Ministry of Health and Care Services in the Oslo District Court against a Norwegian law banning cigarette displays in stores.
Five tobacco giants across the globe have together voiced against the forceful use of horrendous labels on the cigarette packets. Reynolds American Inc. ( RAI), Lorillard Inc. ( LO), Ligget Group, Santa Fe Natural Tobacco, and Commonwealth Brands all have filed a case against Food and Drug Administration (‘FDA’) for imposing labels that are focused on cutting down smokers rather than helping consumers make a free choice. In June, tobacco giant Philip Morris stood up against the Australian government’s proposed ban on cigarette-packaging advertisements.
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