The Zacks Analyst Blog Highlights: Apple, News Corp., Amazon, Google and XL Group

Zacks

For Immediate Release

Chicago, IL – June 17, 2013 – 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 Apple Inc (AAPL-Free Report), News Corp. (NWS-Free Report), Amazon (AMZN-Free Report), Google (GOOG-Free Report) and XL Group plc (XL-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Friday’s Analyst Blog:

Apple, DOJ e-Book Clash Continues

The ongoing e-book price-fixing case between Apple Inc (AAPL-Free Report) and the U.S Department of Justice took an interesting turn, after the former’s senior VP for Internet Services and Software Eddy Cue appeared as a central witness.

In his testimonial to the Manhattan federal court, Eddy Cue denied involvement in any price fixing with the five publishers namely, HarperCollins Publishers Inc, Simon & Schuster Inc, Hachette Book Group, Macmillan and Penguin Group. Currently, Apple is the only defendant in the case with the others having settled with the government.

In Apr, 2012, the Department of Justice (:DOJ) filed a civil antitrust lawsuit against Apple and these five publishers for conspiring and manipulating e-book prices. The DOJ alleged that the conspiracy resulted in inflating e-book prices by an average $2.0 to $3.0 in a three-day period in early 2010, which resulted in consumers paying millions of dollars more for e-books.

In May this year, the DOJ filed an e-mail as evidence, from Apple’s late CEO Steve Jobs to James Murdoch of News Corp. (NWS
-Free Report), the parent company of HarperCollins, which invited News Corp to join the e-book market along with Apple to sell e-books at $12.99 and $14.99.

The DOJ alleged that Apple feared Amazon’s (AMZN
-Free Report) dominant position in the market and believed that it would be difficult to compete against its low priced business model. This bought the two parties (Apple and the publishers) together to fight a single common enemy: Amazon.

As per the DOJ’s investigation, the next phase comprised a number of secret meetings (also e-mail & phone conversations) between the two parties in Manhattan and certain parts of Europe.

As per the DOJ, Eddy Cue was the main negotiator between these five publishers and Apple, who hatched a conspiracy to shift the e-book industry from the wholesale model practiced by Amazon to an agency based model, which helped publishers to inflate e-book prices.

He testified that the negotiations were hurriedly done in order to showcase the iBookstore at the time of the launch of Apple’s inaugural iPad in Jan 2010. However, he denied Apple’s involvement in forcing the agency model on any other publishers/retailers, including Amazon.

In regard to the higher e-book prices after Apple opened iBookstore, he argued that the publishers were not happy with the Amazon’s low $9.99 pricing policy, and they demanded higher prices from Apple at the time of negotiations.

Although this may not have been in the best interest of the general public, Apple’s entrance into the e-book market improved it greatly, as consumers got a lot of book choices at reasonable prices. Eddy Cue said that the deals enabled Apple to sell e-books within the same price range as that of the cheapest retailer.

We believe that Eddy Cue’s testimonial has been looked upon favorably by investors. Apple’s stock price gained 1% ($3.77) to close at $435.96 at the close of Jun 13, 2013, after a steady decline over the last three days.

We believe that Apple will vehemently fight off the anti-trust allegations to not only protect its reputation but also its late founder’s legacy. On the other hand, since the e-book segment does not form a major part of Apple’s business, we believe that the lawsuit will not be a major overhang on the stock.

However, Apple is expected to continue to face a number of other headwinds that include the lack of new innovative products and increasing competition from Samsung and Google (GOOG
-Free Report), which will keep the stock range bound in the near term.

Currently, Apple has a Zacks Rank #4 (Sell).

XL Maintained at Outperform

We have retained our Outperform recommendation on XL Group plc (XL-Free Report). The conservative underwriting practices of the company and repositioned P&C portfolio is expected to push up XL Group’s financials in the upcoming period.  The global insurance and reinsurance provider currently carries a Zacks Rank #1 (Strong Buy).

Why the Reiteration?

Over the last 30 days, one out of 13 estimates moved north pushing the Zacks Consensus Estimate for 2013 by 1.7% to $2.92 per share. This also translates into a year-over-year improvement of 47.4%. Over the last 60 days 10 out of 13 estimates moved up pushing the Zacks Consensus Estimate by 11.9%.

With a strong international exposure and a diversified product offering suite, XL Group positions itself to write higher premiums. It focuses on those lines of businesses within its insurance and reinsurance operations that generate higher returns. Moreover to reach out to more number of clients the company has been undertaking a number of initiatives which include strategic alliances and expansion of its geographic territory.

Additionally, the formation of a new unit within its reinsurance business is expected to consolidate its operations, thereby enhancing customer service. The company also launched the Motor Truck Cargo Coverage Solutions recently, which targets the mid-to-large sized trucking business in North America. This is expected to strengthen its inland marine business under the Property and Casualty segment thereby bolstering top line growth.

XL Group consistently rewards its shareholders through share buybacks and dividend payouts. The Board in Feb 2013 authorized an $850 million worth of share buyback replacing the $250 million worth of shares remaining under the previous authorization. As of Mar 31, 2013, the company is left with $725 million under its authorization. XL Group also increased its quarterly dividend by 27% to 14 cents per share in Feb 2013. The company also scores strongly with the rating agencies.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

 

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