For Immediate Release
Chicago, IL – August 9, 2012 – Zacks Equity Research highlights CBS Corporation (CBS) as the Bull of the Day and Wynn Resorts (WYNN) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Everest Re Group, Ltd (RE), ACE Limited (ACE) and XL Group Plc (XL).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
CBS Corporation's (CBS) second-quarter 2012 earnings of $0.65 per share beat the Zacks Consensus Estimate of $0.58 and rose 12% year-over-year on the back of increases in affiliate and subscription fee revenues as well as effective cost management that helped mitigate the fall in advertising revenue. Although total revenue fell 3% to $3,476 million, management remains confident about continued growth momentum in fiscal 2012.
Olympic coverage and this fall's presidential election will be accretive to the company's results in the upcoming quarters. The biggest potential risk is CBS' high dependence on advertising revenue, which is driven by the health of the economy. To mitigate this, the company is striving to add diverse revenue streams to hedge against economic cycles, which include retransmission fees, syndication sales and streaming deals.
CBS' substantial liquidity positions it to drive future growth and enhance shareholder returns. Currently, we maintain our Outperform recommendation on the stock.
Wynn Resorts' (WYNN) second quarter 2012 earnings were disappointing as its performance in Las Vegas and business at Macau were weak. After several quarters of rapid growth, the Macau market is now witnessing a slowdown as the Chinese economy remains weak, resulting in lower tourists from the country and longer credit collection cycles.
Further, competition in the Macau market is increasing, forcing the company to increase junket commission and provide additional benefits to lure customers. Moreover, business in Las Vegas remains frail as a result of an uncertain economic environment, and might continue to struggle due to excess capacity in the market.
Additionally, we remain cautious on the stock because of the limited diversity and implementation of any stringent credit and visa polices by the Chinese government. Hence, we currently remain Underperform on the stock.
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Everest Re Ratings Affirmed
A.M. Best has affirmed the issuer credit ratings (“ICR”) of “a-” of Everest Re Group, Ltd (RE). The company’s debt ratings were also affirmed along with the ratings of its subsidiaries. All the ratings carry a Stable outlook.
This rating affirmation indicates Everest Re’s strong balance sheet profile and better-than-average underwriting performance, along with its ability to perform favorably amidst tough market conditions, a seasoned management team and huge market share in the insurance and reinsurance industry.
The company has adequate capital flexibility, which shields from market uncertainties. Moreover, its combined ratio, signifying an insurer’s profitability, remained below the breakeven levels over the past five years.
The company also has a liquid investment portfolio that has a short duration maturity. It has kept its investment portfolio conservative by investing just 10% of the total investment money in equities. A low incidence of equity in the investment portfolio will protect the company from equity market volatility.
The rating agency noted that Everest is well-run by a seasoned and experienced management team, which has kept the company’s operating costs under control and successfully delivered underwriting profitability year after year. The company is also well-diversified across different regions with a wide product portfolio, which helps it to garner a greater market share.
The rating agency also praises Everest Re for managing its enterprise risk effectively over the years. The company’s effective risk management capability has helped it to reduce risk across its business, and at the same time enabled it to allocate capital efficiently.
Nevertheless, factors negating the positives include Everest Re’s exposure to catastrophe losses, which impart volatility to its earnings. Though the company uses catastrophe models and has maintained risk limits to control catastrophe losses, occurrence of such incidents reduce the company’s earnings.
The company also carries net asbestos and environmental (A&E) exposure of approximately $480 million, which has been going down recently. Reserves against these policies are monitored on a quarterly basis and the current review shows that the company has adequate reserves against these liabilities.
Going forward, the rating agency is likely to give a positive review to the company’s ratings if it continues to deliver consistent underwriting profitability as well as maintain strong capital profile.
However, reduced profitability and capital levels, along with greater-than-expected exposure to catastrophe loss and declining of capital reserves may compel the agency to provide a negative rating.
Last month, A.M. Best Co. affirmed the financial strength ratings (:FSR) of A+ (Superior) and issuer credit ratings (:ICR) of “aa” of Everest Re’s peer, ACE Limited (ACE).
Another peer, XL Group Plc (XL), also received affirmation of FSR of “A” and ICR of “a” from A. M. Best.
Everest Re currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. Considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the shares.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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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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