For Immediate Release
Chicago, IL – August 14, 2012 – Zacks Equity Research highlights Eastman Chemical Co. (EMN) as the Bull of the Day and GlaxoSmithKline, plc (GSK) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Staples Inc. (SPLS), Office Depot Inc (ODP) and OfficeMax Inc (OMX).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
We are reaffirming our Outperform recommendation on Eastman Chemical Co. (EMN). Second quarter adjusted earnings topped the Zacks Consensus Estimate while sales missed. However, the company continues to expect double-digit earnings growth in 2012.
We believe that Eastman Chemical is well placed to benefit in the second half from the synergies of the Solutia acquisition. The company's diversified chemical portfolio, along with its integrated and diverse downstream businesses, is driving its earnings. It also benefits from business restructuring, cost-cutting measures and increased capacity additions.
On a P/E basis, the stock is trading at a discount to the peer group. Our long-term Outperform recommendation indicates that it will perform above the broader market. Our price target of $65 is based on 12.5x our fiscal 2012 earnings estimate.
GlaxoSmithKline, plc's (GSK) second quarter earnings of $0.79 per ADS were below the Zacks Consensus Estimate of $0.84. Earnings fell 2.5% year over year. Revenues fell 7.3% y/y to $10.2 billion, missing the Zacks Consensus Estimate of $10.4 billion.
Glaxo expects 2012 revenues to remain flat y/y (at CER). Earlier, Glaxo was expecting revenues to grow from 2011 levels. Guidance was lowered due to EU pricing pressure. A major part of Glaxo's revenues will be exposed to generic competition as multiple drugs are scheduled to lose exclusivity in the next few years. We expect the company's top line as well as gross margins to remain under pressure in the coming quarters.
In addition to generic competition, US health care reform and EU pricing pressure will continue to affect sales. Thus, we maintain our Underperform recommendation on Glaxo, which carries a Zacks #4 Rank (short-term Sell rating).
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Earnings Preview: Staples
Staples Inc. (SPLS), a leading retailer of office products and services, is slated to report its second-quarter 2012 financial results on August 15, 2012. The current Zacks Consensus Estimate for the quarter stands at 22 cents per share (flat when compared with the prior-year quarter) on revenues of $5.73 billion.
Staples, which competes with Office Depot Inc (ODP) and OfficeMax Inc (OMX), posted quarterly earnings of 30 cents a share in the first quarter, in line with the Zacks Consensus Estimate and up 7.1% from 28 cents earned in the prior-year quarter. Including one-time items, earnings decreased 3.6% year over year to 27 cents.
Staples reported total sales of $6.1 billion, down 1.1% year over year. Sales marginally missed the Zacks Consensus Estimate of $6.2 billion.
Management expects sales to increase in the low single digits in fiscal 2012, while the bottom line is expected to augment in the high single digits.
Agreement of Estimate Revisions
Over the past 30 days, 4 out of 14 estimates have been revised downwards, while none were raised for the second quarter. Moreover, for fiscal 2012, 5 out of 16 estimates have been revised in the downward direction, while none moved in the opposite direction.
The analysts believe that the challenging macro economic outlook continues to remain a drag on the company’s results as the sector’s performance is closely related to the health of the economy. Further, Staples’ significant exposure to the European market remains a matter of concern.
Magnitude of Estimate Revisions
Given the downward estimate revisions, the Zacks Consensus Estimate for fiscal 2012 came down by a couple of cents to $1.47 in the last 30 days. The Zacks Consensus Estimate remained stable for the upcoming quarter.
With respect to earnings surprises, Staples surpassed as well as met the Zacks Consensus Estimate over the last four quarters in the range of 0% to 10%. The average remained at 10%, indicating that the company has outperformed the Zacks Consensus Estimate consistently over the trailing four quarters.
Being a leading retailer of office products and services, Staples is better positioned than its competitors to sustain growth based on its margin expansion, effective merchandising, and growth prospects across its retail, delivery and international divisions.
However, we remain concerned regarding the company’s International segment, which is suffering from declining sales.
Currently, we have a long-term “Neutral” recommendation on the stock. Moreover, Staples holds a Zacks #3 Rank that translates into a short-term “Hold” rating.
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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