The Zacks Analyst Blog Highlights: Wendy's, Starbucks, McDonald's, Stryker and Zimmer Holdings

Zacks


For Immediate Release

Chicago, IL – October 16, 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 The Wendy’s Co. (WEN), Starbucks Corp. (SBUX), McDonald’s Corporation (MCD), Stryker Corporation (SYK) and Zimmer Holdings Inc. (ZMH).

 

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Here are highlights from Monday’s Analyst Blog:

Wendy’s Tweaks, Revamps Brand

 

In consistent with its aim to reinvigorate the brand, The Wendy’s Co. (WEN) recently revamped its logo. This new logo replaces the old with a change in backdrop, frames, as well as the words like ‘old-fashioned hamburgers.’ The mascot too has undergone a few changes. This refreshed logo will be put into effect on packaging, advertising, crew uniforms, menuboards and websites in March 2013.

This Dublin, Ohio-based fast food company has renewed its logo for the first time since 1983 in association with Tesser, an award-winning design firm based in San Francisco. A corporate logo signifies a company’s nature of business and thus, is an integral part of the brand image. Currently, Wendy’s is seeking to reposition its brand and the new logo depicts its attempts to step outside the territory of mere hamburgers and venture into a larger arena of various quick service offerings.

Wendy’s is not the only company to modify its logo in the restaurant sector. Another sector behemoth Starbucks Corp. (SBUX) also resorted to several logo modifications to underline its growth strategy. The latest took place in January 2011.

Since the year 2011, Wendy’s has been on a transition mode. The company generated positive transactions in 2011, for the first time since 2002. The measures facilitating the transition include the divesture of Arby’s restaurants, expansion in overseas markets, menu innovations, exploring high-quality coffee offering namely Redhead Roasters, stress on customer service by launching a mobile application, focus on overall marketing, and last but not the least massive remodeling of its existing stores.

Wendy’s does not seem to miss out on any opportunity to relate to customers. All its refurbished restaurants will get an upscale setting featuring fireplaces, flat-screen TVs, digital menu board and lounge. Wendy’s benefited substantially from the re-imaging program undertaken in 2011 with an average sales increase of 25%.

Wendy’s also strives to increase the late-night business in which the company holds a strong market share, in order to attain optimum restaurant utilization. The company also has plans to cater to the growing Hispanic market.

Although, the five successive quarters of positive same-store sales at company-operated restaurants suggest that Wendy’s repositioning efforts are on track, yet the entire turnover process still needs time before it fully pays off. Moreover, an uncertain economy, faltering consumer confidence, high commodity costs as well as heightened competition remain an overhang.

Wendy's which competes with the likes of McDonald’s Corporation (MCD) currently carries a Zacks #4 Rank, which translates into a short-term Sell rating. We maintain our long-term Neutral recommendation on the stock.

 

 

Earnings Preview: Stryker

 

Medical technologies major Stryker Corporation (SYK) is slated to report its second quarter fiscal 2012 results after the closing bell on Wednesday, October 17. The current Zacks Consensus Estimate for the second quarter is 98 cents, representing estimated year-over-year growth of 7.79%.

Second Quarter Flashback

Stryker’s second-quarter 2012 adjusted earnings per share of 98 cents was in line with the Zacks Consensus Estimate and exceeded the year-ago earnings of 90 cents a share. The Michigan-based orthopedic devices major’s profit (as reported) increased 4.8% to $325 million (or 85 cents a share) in the quarter on the back of higher domestic sales and margin expansion.

Revenues increased 2.9% (up 5% in terms of constant currency) year over year to $2,106 million, but fell short of the Zacks Consensus Estimate of $2,129 million. Revenues were driven by healthy sales across its three segments in the U.S., partially offset by a weak European economy and currency fluctuations.

Sales from the company’s core Reconstructive unit inched up 1.2% in the quarter to $927 million led by acquisitions in the trauma and extremities franchise. Hips and Knees sales disappointed in the quarter and the company expects continued pricing pressure in these segments. The company further expects weak European sales to adversely affect global reconstructive sales for the full year.

MedSurg sales increased 1.7% (up 3.3% in constant currency) to $786 million in the quarter, supported by gains from Sustainability Solutions and Instruments sales. Stryker’s Neurotechnology and Spine business jumped 10.1% (up 12.3% in constant currency) to $393 million, driven by the Orthovita and Concentric acquisitions, which offset the weak results of the core Spine business.

Estimate Revisions Trend

Agreement

Estimates for the third quarter hardly demonstrate any activity over the past week and month. The past 7 days have seen none of the twenty three estimates change for the quarter in either direction. The past 30 days have seen one of twenty three estimates fall for the quarter, and none moving in the opposite direction.

The past 7 days have seen one of twenty five estimates rise for the full year 2012 move north, while none moving in the opposite direction. The past 30 days have seen one of twenty five estimates rise for the year, and one estimate moved in the opposite direction in the same period.

Magnitude

The magnitude of revisions, for the forthcoming quarter, has hit a plateau over the last week and month. The estimate for 2012 has also not moved over the prior week and month.

With respect to earnings surprises, Stryker has posted one positive surprise in the preceding four quarters while it met the Zacks Consensus Estimate on the other three occasions. The company has produced an average positive earnings surprise of 2.25% over the last four quarters, implying that it has surpassed the Zacks Consensus Estimate by that measure. Third quarter earnings are also expected to meet expectations.

Our View

With a market-cap of $19.9 billion, Stryker is one of the world’s largest medical device companies operating in the global orthopedic market. Despite a soft orthopedic market and Medsurg end-market pressure, the company’s well-diversified product portfolio along with solid business fundamentals is expected to drive future growth.

Further, expansion into fast-growing international markets via strategic acquisitions and new product launches represent attractive growth opportunities. Moreover, the company remains committed to delivering incremental returns to investors leveraging its solid balance sheet, healthy free cash flow and earnings power.

However, Stryker faces several challenges, which include a still soft U.S. and European economy, the upcoming Med-tech tax, tough hospital capital budgets, weak foreign exchange and pressure from international markets.

Weakness in the reconstructive business as well as in knees and spine sales might negatively affect Stryker. Additionally, Stryker operates in the highly competitive orthopedic industry and faces strong competition from players like Zimmer Holdings Inc. (ZMH).

We expect the company to provide some light on the pricing/volume as well as capital spending trend in its third quarter commentary. Our Neutral recommendation on Stryker carries a short-term Zacks #3 Rank (Hold).

 

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Read the analyst report on WEN

Read the analyst report on SBUX

Read the analyst report on MCD

Read the analyst report on SYK

Read the analyst report on ZMH

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