The Zacks Analyst Blog Highlights: Wal-Mart, Abbott Labs, Johnson & Johnson, Coca-Cola and Cepheid

Zacks

For Immediate Release

Chicago, IL – August 8, 2012 – 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 Wal-Mart (WMT), Abbott Labs (ABT), Johnson & Johnson (JNJ), The Coca-Cola Company (KO) and Cepheid (CPHD).

 

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Here are highlights from Tuesday’s Analyst Blog:

 

“Boring” Blue Chips at All-Time Highs

 

Have you noticed what's going on with those boring blue chips lately?

Take Wal-Mart (WMT) for example. The retail king had essentially traded within a range of $45-$60 for more than a decade. But suddenly in mid-May the stock broke above $60 and has soared 25% since then to reach a new all-time high. And it's up more than 50% over the last year.

Yes, Wal-Mart has returned to its roots of Everyday Low Prices, and it has seen a modest upward revision in earnings estimates recently. But that's not enough to explain its recent meteoric rise. Check out the company's Price & Consensus chart over the last 5 years:

Meanwhile stodgy but stable Abbott Labs (ABT) has risen nearly 20% since early March and is trading at an all-time high too. Mega cap Johnson & Johnson (JNJ) reached a new all-time high on August 1.

Although not quite at an all-time high, The Coca-Cola Company (KO) is trading at its highest level since the late 1990's.

So why are these stocks trading at (or near) all-time highs while the S&P 500 is still 11% below its all-time high? I see two reasons for this: (1) a search for yield and (2) a flight to safety.

With cash and bonds yielding next to nothing, income-oriented investors are looking to stocks for yield. And within the stock market, there's a flight to safety because of a slowing global economy and sovereign debt crisis in Europe. In fact, according to CNBC, the average S&P 500 stock gained 0.2% in July. However those that pay dividends increased 1.2%.

But as valuations rise, have these "boring" blue chips become overbought? Or will a continued search for yield and flight to safety keep them afloat?

 

 

Cepheid’s MTB/RIF Test Price Falls

 

Cepheid (CPHD) has entered into agreements with the Bill & Melinda Gates Foundation, the United States President's Emergency Plan for AIDS Relief (:PEPFAR), the United States Agency for International Development (:USAID) and UNITAID to bring down the price of Xpert MTB/RIF – a tuberculosis diagnostic test.

This was done to drive adoption of the test that received endorsement from the World Health Organization (:WHO) in late 2010, to fight against tuberculosis in High Burden Developing Countries (HBDCs).

The Xpert test enjoys certain advantages over traditional methods, which makes its geographical expansion all the more significant. The Xpert test diagnoses tuberculosis based on the recognition of the DNA of the tuberculosis bacillus, which is more reliable than currently used microscopy in most laboratories.

Subsequently, the test will now be available in 145 HBDCs at $9.98 per test from the $16.86, the difference being funded by the collaborators. To make the test available with immediate effect, the Bill & Melinda Gates Foundation is making an initial payment of $3.5 million that will be recognized as revenue by Cepheid. On execution of agreements with other collaborators, the remaining revenue will be recognized over an 18-month period.

This development comes on the heels of a $30 million funding approval from UNITAID in June. This was meant to facilitate access to Xpert MTB/RIF and reduce the cost of use. The funds were supposed to be used to roll out Xpert-based programs in 20 countries and bring down the price of each Xpert MTB/RIF cartridge from $17 to $10.

During the recently reported second quarter 2012, Cepheid’s revenue from the HBDC business was lower-than-expected but roughly at par with the preceding quarter. While revenue from some systems could not be recognized due to a change in customer agreement, many customers delayed orders anticipating possible reduction in the price of the test following the announcement by UNITAID. These factors negatively impacted total revenue by approximately $3 million.

Consequently, Cepheid lowered its 2012 earnings guidance to reflect changes in the company’s outlook for gross margin for the HBDC business and a less favorable currency movement. In addition, a lower-than-targeted gross margin contribution from the Infinity family of systems also led the company to lower its guidance. However, we believe that with the agreements in place, HBDC business should pick up gradually.

 

 

 

 

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Read the analyst report on WMT

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