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J.M. Smucker, Baidu, Altria Group, Reynolds American and Philip Morris International highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – June 17, 2016 – Zacks Equity Research highlights J.M. Smucker Company (SJM) as the Bull of the Day and Baidu Inc. (BIDU) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Altria Group Inc. (MO), Reynolds American Inc. (RAI) and Philip Morris International Inc. (PM) .

Here is a synopsis of all five stocks:

Bull of the Day :

The J.M. Smucker Company (SJM) just reported one of the best years in the company's history. But the good times are expected to keep going.

This Zacks Rank #1 (Strong Buy) is forecast to see double digit earnings growth again in fiscal 2016.

Founded 120 years ago, Smucker makes some of the most iconic consumer food and beverage products in America. Its well-known brands include Smucker's, Folgers, Jif, Crisco, Pillsbury, Hungry Jack and others.

It also makes pet food and pet snacks including the famous brands Meow Mix, Milk-Bone, Kibbles 'n Bits, Natural Balance and 9Lives.

Huge Earnings Beat in the Fiscal Fourth Quarter of 2016

On June 9, Smucker reported its fiscal fourth quarter 2016 earnings and blew away the Zacks Consensus Estimate by 56%. Earnings were $1.86 compared to the consensus of $1.19.

Net sales rose 25% thanks to the contribution from Big Heart Pet Brands which had been acquired in the fourth quarter of the prior year. But growth of US retail coffee also boosted the quarter.

The company saw record sales, earnings and cash flow for the full year.

Strong Growth Expected to Continue

The company is bullish on fiscal 2017. It is looking to have another record year thanks to its sponsorship of the US Olympic and Paralympic Teams in Rio as well as the synergies from its recent acquisitions, including the Big Heart Pet Brands.

The analysts are agreeing as the estimates have jumped for both fiscal 2017 and 2018.

5 estimates were raised for fiscal 2017 in the last week, pushing the Zacks Consensus up to $7.70 from $6.39. That's eanrings growth of 17%.

4 also moved higher for fiscal 2018, with another 5.5% earnings growth expected.

Shares at New All Time Highs

Since the Great Recession, the shares have been on a fantastic run. They hit new all-time highs on the recent earnings beat and solid guidance.

 

Bear of the Day:

 

Baidu Inc. (BIDU) recently lowered full year guidance. This Zacks Rank #5 (Strong Sell) is seeing a revenue shortfall as healthcare providers hold back on advertising.

Baidu is China's largest Internet search provider.

Revenue Guidance Cut

On June 13, Baidu surprised Wall Street by cutting its second quarter revenue guidance to a range of $2.807 billion to $2.823 billion from the prior guidance of $3.119 billion to $3.192 billion.

Healthcare providers have delayed advertising while they wait for clarity on recent regulatory actions.

Baidu itself has also taken steps to implement new measures requested by regulatory authorities, such as modifying paid search practices.

Healthcare accounts for about 20% of search revenue.

Estimates Cut

The analysts responded by cutting their earnings estimates for this year and next.

2 cut for 2016 which lowered the Zacks Consensus Estimate to $4.85 from $5.51.

3 estimates were cut for 2017 as well. The 2017 Zacks Consensus fell to $6.98 from $7.61 in the last 7 days. That's still year over year earnings growth of 43%, however.

While Wall Street was surprised that the regulatory review was taking this long, its not expected to impact Baidu for the long-term.

Baidu continues to be the top Internet search portal. Once the regulations are clarified, the healthcare companies really have nowhere else to advertise so they will return. It's just a short-term slowdown, not a fundamental change to the business.

 

Additional content:

 

Altria vs. Reynolds: Tobacco Stocks on Fire

The U.S. market is on a roller coaster ride with recent events spiking up volatility. Speculation surrounding the Fed rate hike and volatile gasoline prices triggered by ‘critical’ gas supply are now accompanied by the debate on ‘Brexit’.

Uncertainties Persist: Brexit Fear and Fed Decision

The recent buzzword in the global economy is Brexit or Britain’s exit from the European Union. Recent polls indicate that the ‘Leave’ campaign is stronger than ‘Remain’. A Brexit will start a long and complicated process resulting in a fundamental change in U.K.’s relationship with the other EU members. This is also expected to increase the cost of trade and services for Britain across international borders. For the world economy, Brexit may be followed by prolonged uncertainty that could dent growth and trigger losses in the global financial market.

Meanwhile, the Fed did not increase interest rates in its recently concluded two day long meeting following lower-than-expected U.S. non-farm payroll data. Moreover, the upcoming Presidential elections are likely to stall Fed’s decision of raising the interest rate until Nov 2016.

The looming uncertainty has made investors jittery about investing in high risk profile stocks. Moreover, they are resorting to government bonds and gold. But little did anyone guess that tobacco would send smoke signals of safety in investment.

Tobacco: A Safe Haven

Even though a little unorthodox, tobacco seems to be a relatively safer sector to invest in at present. These companies stand to benefit from the addictive nature of tobacco. Smoking rates have, in general, been declining in the developed countries, while rising in the developing ones. This figure is expected to grow and translate into steady sales and attractive yields for investors.

Let us consider two tobacco stocks – Altria Group Inc. (MO) and Reynolds American Inc. ( RAI) with a Zacks Rank #2 (Buy) – and decide on the one to bank on in this volatile market.

Altria’s Start to FY16

Altria made a strong start to fiscal 2016 with both its top- and bottom-lines improving year over year backed by higher shipments and retail share gains by its flagship brand Marlboro. Supported by lower excise tax, gross profit and operating income increased year over year during the period.

Altria upgraded its shopping website – marlboro.com – which provides engaging content directly to adult smokers through mobile devices. Further, in first-quarter 2016, PM USA, the subsidiary of Altria expanded the distribution of Marlboro Midnight Menthol nationally, offering adult smokers a strong menthol flavor. The variant has already received favorable response in the test market. These initiatives helped Marlboro gain a leadership.

Further, during the quarter, Altria’s subsidiary Nu Mark LLC (Nu Mark) stepped up the distribution of MarkTen XL and Green Smoke e-vapor products across several lead markets. Altria’s joint venture with Philip Morris International Inc. ( PM) to develop a modified risk tobacco product is on track and the companies are scheduled to submit application for launching the product to the U.S. Food and Drug Administration (FDA) by the end of 2016.

How is 2016 Going for Reynolds?

Reynolds also reported higher year-over-year earnings and sales in first-quarter 2016 backed by increased cigarette and moist snuff pricing. It’s impressive brand portfolio of tobacco products helps it to maintain strong business momentum and generate decent profits. Further, the company invests continuously in innovation and brand building, which have helped it to maintain its leading position in the industry.

What do the Numbers Say

In terms of share price, Altria is racing ahead with a 12.23% appreciation year-to-date in 2016 against Reynold’s appreciation of almost 11.79%.

However, with regard to long-term growth, Reynolds seems to have the lead. Its estimated long-term growth rate is 12.20%, which is way ahead the industry growth rate of 9.10%. Also, it is better than Altria’s long-term growth rate of 7.5%, which is behind the industry growth rate.

As per our style score system, Altria has better growth prospects than Reynolds. Our Growth Style Score condenses all the essential metrics from a company’s financial statement to get a true sense of the quality and sustainability of its growth. Our research shows that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) offer the best investment opportunities in the growth investing space.

Altria has a Growth Style Score of ‘A’ while Reynolds carries a Growth Style Score of ‘D.’

But both stocks are overvalued as is evident from their unfavorable P/E and P/S ratios compared with the homebuilding industry.

Reynolds’ P/E ratio is 21.50 while that of Altria is 21.41. On the other hand, the P/E ratio of the industry is 19.43. Altria’s P/S ratio is 6.55 while that of Reynolds’ is 5.66 compared to the industry average of 5.01.

Tobacco stocks reward investors with attractive yields. While Altria’s dividend yields 3.46%, Reynolds American has a dividend yield of 3.32%.

Get today’s Zacks #1 Stock of the Day with your free subscription to Profit from the Pros newsletter:

 

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

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Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

 

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SMUCKER JM (SJM): Free Stock Analysis Report
 
BAIDU INC (BIDU): Free Stock Analysis Report
 
ALTRIA GROUP (MO): Free Stock Analysis Report
 
REYNOLDS AMER (RAI): Free Stock Analysis Report
 
PHILIP MORRIS (PM): Free Stock Analysis Report
 
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