For Immediate Release
Chicago, IL – June 15, 2012 – Zacks Equity Research highlights Teradyne (TER) as the Bull of the Day and Nexen Inc (NXY) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Gap Inc. (GPS), American Eagle Outfitters Inc. (AEO) and The TJX Companies Inc. (TJX).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
Teradyne (TER) was upgraded from Neutral to Outperform based on the recent positive earnings surprise. Earnings estimates for future quarters were in line with company guidance. The most recent quarter saw the company top the Zacks Consensus Estimate on both the top and the bottom lines.
Teradyne is a leading provider of automated test equipment. The strengthening demand and order growth driven by the rebound in the core business, the extremely timely and strategic LitePoint acquisition and strength in the HDD business makes us extremely positive about Teradyne.
Despite the relatively low exposure to the memory segment, we are optimistic about the product lineup, leaner cost structure and strong balance sheet. Our target price of $17 per share implies a 9.2x forward PE multiple.
Nexen Inc (NXY) has been downgraded from Neutral to Underperform. The company reported mixed results for the first quarter of 2012 with earnings coming in below the Zacks Consensus Estimate. Revenues came in approximately 13% above the Zacks Consensus Estimate.
Production also decreased in the quarter mainly due to the expiry of the Masila contract in Yemen in December 2011. Though the production guidance for the year has been maintained, we are skeptical about the company s sustainable operational and execution abilities in achieving it.
Low gas prices and execution risk are other concerns. Given these headwinds, we expect shares of Nexen to be under pressure in the near future. As such, we see no upside in the stock from the current level. Our target price for Nexen is $15.
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Gap on Recovery Path
Gap Inc. (GPS) witnessed considerable recovery in its comparable sales and total sales performance driven by its relentless endeavors to keep itself on the growth trajectory. The company’s efforts have paid off well in an economy, which is looking for ways to shield itself from a financial turmoil that seems to have no end.
During the period from February to May, the company registered comparable sales growth in each month except April. During that period, comps growth touched a low of negative 2% and hit a high of 8%, thereby recording average growth of approximately 3%. In the first four months of fiscal 2012, comps increased 4% in February, 8% in March and 2% in May while it declined 2% in April.
Monthly sales data for Gap also portrays a decent performance. Within February to May 2012, the company registered a minimum year-over-year flat sales growth and a maximum growth of 10%, reflecting an average growth of approximately 5% for the period. The company registered sales growth of 6% in February, 10% in March, flat in April and 4% in May.
Fiscal 2011 Sales: A Recap
In fiscal 2011, Gap reported a decline in comparable sales every month, except April and June. Lackluster sales in the North American region have continuously dragged down Gap’s comparable store sales throughout fiscal 2011. During the fiscal, the company reported a decline of 4% in comparable sales compared with an increase of 2% during the same period in fiscal 2010. Accordingly, Gap’s net sales inched down 1% to $14.55 billion from the prior-year sales of $14.66 billion.
Initiatives Taken to Rebound Top Line
In an effort to improve customer experience and enhance productivity per square footage, the company plans to strategically close and consolidate square footage at Gap and Old Navy brands. Gap intends to strategically reduce its Gap North America store counts to 950 by the end of fiscal 2013, including 700 specialty stores and approximately 250 outlets.
Contrary to this, the company is planning aggressively to expand its international and franchise business. Moreover, the company intends to triple the Gap store count in China from 15 to approximately 45 during current fiscal.
In a drive to boost its international operations, Gap also consolidated its foreign business under one division in London. Lackluster sales in North America compelled the company to explore the overseas market. In order to counter the domestic market saturation, Gap is aiming to generate 30% of total sales from overseas operations and online business by 2013. To achieve this, Gap has opened stores in China, Italy and Australia, and has launched the e-commerce business in more than 90 markets. These moves are expected to further strengthen its top and bottom lines, moving forward.
Results so far
Despite a consistent weak performance in all four quarters of fiscal 2011, the company reported a strong first-quarter 2012 result with net sales increasing 5.8%. The robust performance was primarily driven by a 4% growth in comparable store sales. As a result of the increased top line, the company’s earnings climbed 17.5% year over year to 40 cents per share.
We believe that the company’s long-term strategic moves along with disciplined cost management measures will not only provide financial flexibility, but will also help to drive value proposition. Moreover, Gap’s globally recognized brands complement one another, enabling it to leverage its position in the sector.
Gap which competes with American Eagle Outfitters Inc. (AEO) and The TJX Companies Inc. (TJX) currently holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. Our long-term recommendation on the stock remains ‘Neutral’.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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