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The Zacks Analyst Blog Highlights: Aflac, Novatel Wireless, Verizon Communication, AT&T and Sprint Nextel

Zacks Equity Research

For Immediate Release

Chicago, IL – May 9, 2013 – 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 Aflac Inc. (AFL), Novatel Wireless Inc. (NVTL), Verizon Communication Inc. (VZ), AT&T, Inc. (T) and Sprint Nextel Corp. (S).

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Here are highlights from Wednesday’s Analyst Blog:

Aflac Slips to Underperform

We have downgraded life and health insurer – Aflac Inc. (AFL) to Underperform based on its faltering financial growth outlook.

Why the Downgrade?

Estimates for Aflac have witnessed a steady decline since its first-quarter 2013 results on Apr 24. The company’s first-quarter earnings per share of $1.69 comfortably surpassed the Zacks Consensus Estimate of $1.62, but lagged the year-ago quarter’s earnings of $1.74. Meanwhile, total revenue of $6.21 billion missed the Zacks Consensus Estimate of $6.27 billion but inched up 0.5% on a year-over-year basis.

Following a tempered growth outlook, the Zacks Consensus Estimate for 2013 has gone down 2.7% to $6.17 per share in the last 30 days. The Zacks Consensus Estimate for 2014 also slid 4.2% to $6.54 per share. With the Zacks Consensus Estimates for both 2013 and 2014 going down, the company now has a Zacks Rank #4 (Sell).

Cause for Concern

Aflac’s top line remains sufficiently exposed to a challenging operating environment, particularly in Japan. Sales from its banks channel, WAYS life policies and other third sector cancer and medical products (together contributing about 75% to Japan’s top line) decelerated in the first quarter of 2013.

Management’s expectation of third sector revenue growth in Japan in the band of nil to 5% in 2013 further validates the lackluster results ahead. Despite the re-pricing initiatives taken in Apr 2013, Aflac projects a 40–60% decline in the WAYS sales in the upcoming quarters, after over 124% growth in 2012. This will severely weigh on the financials of the company.

On the other hand, Aflac’s U.S. operations are yet to gain traction given the deteriorated new annualized sales on the back of intense competition, low demand and reduced client activity from larger businesses. Management projects new annualized sales in the U.S. to witness sluggish growth of nil to 5% in 2013, driven by difficult comps.

Moreover, the company’s investment portfolio comprises about 43% in Japanese government bonds, which is being adversely impacted by the historically low interest-rate environment. The past few quarters have witnessed significant weakness in yen as well, indicating deterioration in the upcoming quarters. Increasing expenses, lower investment yield and low rate environment have further impelled management to peg its earnings growth guidance at low- to mid-single digit in 2013.


Novatel Drives MiFi Usage

Novatel Wireless Inc. (NVTL) – one of the leading manufacturers of wireless data modems – launched SA 2100, a superior higher frequency MiFi-based M2M device which will connect various M2M vertical markets.

The launch of the new SA 2100 technology will ease the usage of M2M applications across vertical markets as the new device will be integrated with simple applications.

The new device will be of immense help to various M2M vertical markets which includes M2M Fixed Telemetry, M2M Fleet Management and Asset Tracking and Connected car. By using SA 2100 in cars as a hotspot, the user can easily connect multiple devices through a Wi-Fi platform.

Likewise, the usage of SA 2100 device for M2M Fleet Management and Asset Tracking will also benefit the user to easily track the fleet through advanced GPS tracker. While in case of M2M Fixed Telemetry, the new device will connect Ethernet-powered or Wi-Fi-based devices to lightning fast Internet by 4G LTE access.

Novatel is one of the leading brands to offer MiFi devices to its customers. The company already supplies its LTE-based MiFi devices to the top three carriers in the U.S., namely, Verizon Communication Inc. (VZ), AT&T, Inc. (T) and Sprint Nextel Corp. (S).

However, the company is facing stiff competition from the low-cost Asian manufacturers, including ZTE and Huawei Technologies. Moreover, in recent times, most smartphones have inbuilt hotspot facilities, thus completely bypassing the need for any MiFi modem.

In order to boost its top line, the company is continuously upgrading its software and launching innovative devices in an attempt to drive the Mi-Fi usage.

Currently, Novatel Wireless has a Zacks Rank #3 (Hold).


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