The Zacks Analyst Blog Highlights: Macy's, McGraw-Hill Financial, Exxon Mobil, Chesapeake Energy and Carrizo Oil & Gas

Zacks

For Immediate Release
 
Chicago, IL – October 1, 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 the Macy’s Inc. (M-Free Report), McGraw-Hill Financial Inc. (MHFI-Free Report), Exxon Mobil Corp. (XOM-Free Report), Chesapeake Energy Corp. (CHK-Free Report) and Carrizo Oil & Gas Inc. (CRZO-Free Report).
 
 
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Here are highlights from Monday’s Analyst Blog:

Macy’s Downgraded to Underperform

On Sep 27, we downgraded our long-term recommendation on Macy’s Inc. (M-Free Report) to Underperform based on the company’s dismal second-quarter fiscal 2013 performance. The stock currently carries a Zacks Rank #4 (Sell).

Why the Downgrade?

Estimates for Macy’s have shown a downtrend since the company reported disappointing second-quarter results on Aug 14, 2013. The company posted lower-than-expected results as consumers’ cautious attitude toward making any discretionary purchases resulted in soft sales. Moreover, the offered discounts hurt margins. As a result, management trimmed its comparable sales and earnings outlook.

The quarterly earnings of 72 cents a share missed the Zacks Consensus Estimate of 78 cents. However, the quarterly earnings registered year-over-year growth of 7.5%. Total sales edged down 0.8% to $6,066 million in the quarter but fell short of the Zacks Consensus Estimate of $6,246 million. Comparable-store sales for the quarter also slipped 0.8%.

Following soft results, Macy’s now anticipates comparable-store sales growth of 2% to 2.9% for fiscal 2013. Management now forecasts full-year earnings in the band of $3.80 to $3.90 per share. Earlier, the company had envisioned comps growth of 3.5% and earnings between $3.90 and $3.95 per share for the fiscal year.  

Consequently, we are witnessing a fall in the Zacks Consensus Estimate, as analysts become less constructive on the stock’s future performance. The Zacks Consensus Estimate for fiscal 2013 fell by 3% to $3.83 and for fiscal 2014 it tumbled by 4.2% to $4.30 per share, over the past 60 days
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Going forward, management remained optimistic of capturing incremental sales opportunities with its fresh inventory along with My Macy's localization initiatives, omnichannel integration and Magic Selling. However, we would prefer to wait and see if the efforts show some positive results.
Natural Gas Stifled by Big Supply Gains
 
Natural gas spot prices tumbled to around $3.50 per million Btu (MMBtu) on Thursday, Sep 26, following the U.S. Energy Department's weekly inventory release that showed a larger-than-expected rise in the commodity’s supplies. On a further bearish note, the storage build was also higher than the benchmark 5-year average gain for the week.

Mild weather forecasts – that could slow demand even more – further worsened the situation. However, natural gas ended slightly higher Friday (at $3.59 per MMBtu), as investors came back to the market to accumulate the commodity at low prices.     

About the Weekly Natural Gas Storage Report

The Weekly Natural Gas Storage Report – brought out by the Energy Information Administration (EIA) every Thursday since 2002 – includes updates on natural gas market prices, the latest storage level estimates, recent weather data and other market activities or events.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of natural gas. It is an indicator of current gas prices and volatility that affect businesses of natural gas-weighted companies and related support plays.

Analysis of the Data

Stockpiles held in underground storage in the lower 48 states rose by 87 billion cubic feet (Bcf) for the week ended Sep 20, 2013, higher than the guided range (of 74–78 Bcf gain) as per the analysts surveyed by Platts, the energy information arm of McGraw-Hill Financial Inc. (MHFI-Free Report). The increase – the twenty-fourth injection of 2013 – also exceeded both last year’s build of 79 Bcf and the 5-year (2008–2012) average addition of 75 Bcf for the reported week.

Following past week’s build, the current storage level – at 3.386 trillion cubic feet (Tcf) – is now 30 Bcf (0.9%) above the 5-year average. However, supplies are still down 179 Bcf (5.0%) from the last year’s level.

Natural gas stocks hit an all-time high of 3.929 Tcf in 2012, as production from dense rock formations (shale) – through novel techniques of horizontal drilling and hydraulic fracturing – remained robust. In fact, the oversupply of natural gas pushed down prices to a 10-year low of $1.82 per million Btu (MMBtu) during late Apr 2012 (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana).

However, things started to look up in 2013. This year, cold winter weather across most parts of the country boosted natural gas demand for space heating by residential/commercial consumers. This, coupled with flat production volumes, meant that the inventory overhang was gone, thereby driving commodity prices to around $4.40 per MMBtu in Apr – the highest in 21 months.

Outlook

However, with moderate weather expected during the next few weeks, leading to reduced power demand, natural gas price may experience another downward curve. This, in turn, is expected to pull down natural gas producers, particularly small ones.

Considering the turbulent market dynamics of the natural gas industry, we advocate big, relatively low-risk names like Exxon Mobil Corp. (XOM-Free Report) and Chesapeake Energy Corp. (CHK-Free Report) – both Zacks Rank #3 (Hold) stocks.  

However, one company that stands out is Carrizo Oil & Gas Inc. (CRZO-Free Report). This Zacks Rank #2 (Buy), small, inexpensive natural gas producer has seen its share price jump more than 75% since the start of 2013. Despite this price appreciation, we remain optimistic on the firm’s near-term prospects, supported by its exposure to the high-return shale plays, as well as the company’s above-average production growth.
 
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