For Immediate Release
Chicago, IL – July 18, 2014– Zacks Equity Research highlights Pep Boys (PBY-Free Report) as the Bull of the Day and Buenaventura (BVN-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Pfizer Inc. (PFE-Free Report), Mylan (MYL-Free Report) and AstraZeneca (AZN-Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
Sometimes it just feels good to bust up your knuckles and get your hands dirty. It’s that primal male instinct that provides instant satisfaction, like starting a bond fire or smashing a bug. I can hear the low grunt of Tim Allen in the background. If you’ve got that hands-on gene in you then you probably love the smell of fresh rubber and cleaner like I do too. Walking into my local auto parts store is a religious experience.
Well in a world of an aging auto fleet walking your money to the correct auto parts stock could bring you heavenly returns. There are a few to choose from given that the industry is in the top 4% of our Zacks Industry Rank. One of these companies that is lighting up as a Zacks Rank #1 (Strong Buy) is Pep Boys (PBY-Free Report).
Pep Boys calls itself the “Founders of the Automotive Aftermarket.” The Philadelphia based company has 798 locations across 35 states and boasts $2.1 billion in revenue. The revenues stem from a mix of about 54% service, 35% do it yourself and 11% commercial.
The sweet spot for Pep Boys is vehicles between 5 and 13 years old. Most manufacturer warrantees expire before the 5 year mark so Pep Boys in there to fill that void. Service from a Pep Boys facility can be substantially less than that from a dealership.
Service has been a big part of the Pep Boys story and will continue to increase. The margins are greater on the service side than on the retail parts and it’s estimated that the service industry is four times the size of the do it yourself market. Pep Boys is trying to fill the value gap between the dealers’ expensive experience and the local, cheaper, unspecialized corner mechanic.
Analysts have taken notice of Pep Boys direction. Over the last 60 days two analysts have increased earnings estimates for the current year and three for next year. The upside revisions have pushed consensus a penny for the current year and up from 45 cents to 54 cents for next year.
Bear of the Day:
For anyone that’s read what I’ve written recently, it should come as a surprise that I’m bearish on a stock like this. After all it’s a Latin America mining company. There you’ve got emerging markets and gold exposure wrapped into one. So for me to be bearish on this, something must be wrong. Revenues and earnings estimates heading in the wrong direction spell out W-R-O-N-G to me. That’s what we have here with our Bear of the Day, Buenaventura (BVN-Free Report).
The drop in income, and EBITDA started in 2011 and was followed by a peak in revenue in 2012. Since then this company has been moving in the wrong direction. Now it seems to be getting worse. Rather than expanding mining operations the company plans to cut costs and streamline by closing mines.
Granted the mines that BVN is planning on closing are non-profitable operations currently. But they are also selling smaller assets that have a reduced contribution to revenues and reserves. In 2013 about 60% of revenue came from gold, 18% silver, 18% copper and 4% zinc. Last year the company had about $62 million in cash on hand to go along with $235 million in debt.
You don’t have to take my word for it, you can look to the recent analyst estimates. In the last week three analysts have lowered estimates for the current year and two have done so for next year. These revisions have helped lower estimates for the current year from 95 cents to 65 cents per share and next year from $1.23 down to $1.04.
That’s not the only troubling news for the company. Last quarter the company reported 6 cents loss per share versus analyst consensus of 20 cents per share profit. That huge miss came on the heels of what had been a great Q42013 where BVN blew estimates out of the water. However the prior two quarters BVN also disappointed by a combined 30 cents.
Pfizer Eyes Acquisition in Injectables Market
Pfizer Inc. (PFE-Free Report) signed a deal to acquire InnoPharma, Inc., a company that specializes in the development of hard-to-make, differentiated, sterile injectables. The acquisition, which could result in Pfizer shelling out up to $360 million, is scheduled to close in the third quarter.
Pfizer will make an upfront payment of $225 million and could end up paying up to $135 million on the achievement of certain milestones. With this acquisition, the company will gain 10 approved generic products plus a pipeline of more than 30 injectable and ophthalmic products. These include products for areas like cancer and central nervous disorders. Once the acquisition is completed, Pfizer’s sterile injectables portfolio will increase to 73 products.
Pfizer is not the only company to announce an acquisition to boost its injectable business. Late last year, Mylan (MYL-Free Report) boosted its injectables segment through the acquisition of the Agila injectables businesses from Strides Arcolab Limited in a deal worth up to $1.75 billion.
While the InnoPharma acquisition will strengthen Pfizer’s injectables segment, the company needs to boost its pipeline and bring new products to market to drive growth. With this in mind, the company had launched a proposal to acquire UK based AstraZeneca (AZN-Free Report). The acquisition, had it gone through, would have boosted Pfizer’s pipeline specifically for immuno-oncology drugs, and would have resulted in a more efficient tax structure. However, AstraZeneca was not game and Pfizer subsequently abandoned its plans to acquire AstraZeneca.
Pfizer is a Zacks Rank #2 (Buy) stock. We expect the company to continue pursuing bolt-on acquisitions and in-licensing deals to boost its portfolio.
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About the Bull and Bear of the Day
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