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The Zacks Analyst Blog Highlights: Apple, Google, Home Depot, Lowe's and TECO Energy

Zacks Equity Research

For Immediate Release

Chicago, IL – October 31, 2012 – 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 Apple (AAPL), Google (GOOG), The Home Depot Inc. (HD), Lowe's Companies Inc. (LOW) and TECO Energy Inc. (TE).

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Here are highlights from Tuesday’s Analyst Blog:

Apple’s Growth in Peril?


Last week's earnings miss from Apple (AAPL) obviously wasn't the whole story. Now it's all about margins, supply and delivery constraints, competition, and a slowing growth rate.

These issues show up in hard numbers in the analyst earnings estimate revisions (:EER) that have been pouring in to the Zacks databases. Consensus estimates show the deluge of downward revisions taking the December quarter to $13.55 from $15.65 and the Fiscal Year 2013 (including this holiday quarter) down to $51.22 from $53.57.

To get an idea of how the consensus estimates are coming down so hard, it often helps to look at what analysts are doing individually. We can see on Zacks Premium the specific moves of certain houses and their analysts.

Some generally optimistic analysts like Stifel Nicolaus, Jefferies, and Oppenheimer have taken down their estimates quite a bit. Three other very important investment banks not shown here have taken their Dec quarter estimates down over 20% to below $13.

Looking at the full-year 2013 estimates, again we see some of the more bullish houses like Stifel and Oppenheimer coming down over $6 (11%) to $45.90 and $47.01 respectively, while Gabelli & Company (:GAMCO) came down $3 (6%) to $47. They are all well below the current consensus of $51.22.

One bullish standout here is still Jefferies who, while lowering their FY13 estimate by $4.36 (7%) to $58.43 from $62.79, is still top of the range. They stand in stark contrast to the three unnamed investment banks who average a $7 hit to FY13, inline with many others coming down to the $47 handle.

What About Apple TV?

One analyst I haven't heard from yet is the super AAPL bull Gene Munster of Piper Jaffray. He, like the gentleman from Jefferies, is likely counting on Apple TV sometime next year to be another product category game-changer. I looked for any post-earnings interviews with Munster on Bloomberg TV where he often appears but couldn't find any.

But the real point here is that most analysts are not "modeling" anything about Apple TV into their 2013 estimates. What doesn't exist yet cannot be sold yet. And therefore, it can't be put into earnings estimate models.

Apple will no doubt continue to be the dominant disrupter in the mobile mega-trend. And they will continue to please their existing customers and win new ones as they build out their product/service ecosystem, integrating the "4 screens" of phone, tablet/notebook, desktop, and eventually, TV.

Until then, the only thing we are very certain of is that the analysts have missed bigger than the company in their overly optimistic projections for growth this year. So that means even if AAPL shares, trading around 12X ($600 / $50 EPS), are destined for $700 again, it could take a while to get there.

Is Most of the Damage Done?

And this downward EER explains much, of course, about Apple's recent share price action. Price spoke first in October and told us something was coming that shareholders may not like.

I had thought only a September quarter earnings miss was getting priced-in a few weeks ago. I didn't see that it was about the guidance and margins and supply/delivery/quality issues too.

But the good news is that after lots of big liquidation above the $625 level, the stock held up on Friday extremely well given all these negative analyst reactions.

That makes me think a lot of this bad news (significantly-lowered growth expectations) is now priced-in too. Instead of a vicious gap down like Google (GOOG) suffered after its earnings miss, Apple was in a slow melt-down for a month.

So this is the big question as trading resumes Wednesday: Are these lowered expectations priced-in to the stock at $600?

And even if so, will a final capitulation selling event, testing support around the $550-570 area, still be necessary?

I think it might be. And I also think it will be a great buying opportunity for investors with at least a one-year horizon.



Home Depot Acquires Home Systems


World’s largest home improvement retailer The Home Depot Inc. (HD) recently announced that it has successfully closed the merger of U.S. Home Systems, Inc. This all-cash deal was valued at $95.0 million approximately. It is believed that the merger will help to build a better relationship with the customers by providing them improved home services.

On August 6 this year, Home Depot reached an agreement with U.S. Home Systems, where Home Depot has to pay $12.50 per share to about 7.6 million shareholders. The agreed deal price was 38% higher than the closing price on August 6.

The newly acquired company will be operated as a wholly-owned subsidiary of Home Depot. U.S. Home System has been delisted from NASDAQ Global Market after the trading hours on October 26, 2012.

U.S. Home Systems, Inc. manufactures or procures, designs, sells and installs custom quality specialty home improvement products for The Home Depot in certain markets. The Ccompany's home improvement products are marketed nationally under the The Home Depot Kitchen and Bathroom Refacing and The Home Depot Installed Decks brand.

Home Depot is a leading player in the highly-fragmented home improvement industry. We believe the recent acquisition will provide new opportunities to Home Depot for driving sales.

Further, the company has implemented significant changes to its store operations to make these simpler and more customer-friendly. In addition, the company has reinvigorated itself with a shift in focus from new square footage growth to maximization of productivity through its existing store base. We believe these initiatives will induce more customer traffic to its stores while boosting the top line.

Moreover, with the introduction of new warehousing and transportation system, the company has been able to improve its supply chain while minimizing cost. Further, this has facilitated Home Depot to improve its Central Automated Replenishment System for immediate refilling of stock while reducing its investment in inventory.

However, the company’s business is highly competitive, primarily based on customer services, price, store location and assortment of merchandise. It faces stiff competition from local, regional and international players as well. To maintain its market share, the company is making selective acquisitions and strategic alliances with third parties, which are increasing its operational risks.

Home Depot, which competes with Lowe's Companies Inc. (LOW), currently has a Zacks #2 Rank, implying a short-term Buy rating.



Earnings Preview: TECO Energy


Energy utility TECO Energy Inc. (TE) is slated to release its third-quarter 2012 earnings results before the market open on November 1, 2012.

Second Quarter Performance

The company reported second-quarter profit of 34 cents per share, lower than the year-ago earnings of 36 cents per share.  The earnings in the reported quarter were also below the Zacks Consensus Estimate of 37 cents.

The earnings underperformance was due to weather irregularities and the current downturn in coal markets, partially offset by favorable growth in the company’s Florida utilities owing to an increased customer base.

Teco Energy posted total revenue of $788.4 million in the second quarter of 2012, down 11% from $885.7 million in the year-ago quarter. This was due to a combined decline in the company’s regulated electric and gas sales as well as in the unregulated division.

Reported revenue widely missed the Zacks Consensus Estimate of $893 million.

Guidance 2012

Teco Energy lowered its earnings expectation for 2012 to $1.20–$1.30 per share from the prior forecast of $1.30–$1.40 per share. This downward revision is due to the negative effect of mild weather in the month of July.

However, under the new base rate system, the company’s natural gas business wing expects to earn returns near the middle of its equity range as the new rates make People Gas less exposed to weather sensitivities.

Teco Coal forecasts depressed sales volume for 2012 and projects sales to be in the range of 6.0 million tons to 6.3 million tons with an average selling price of $96 per ton.

The company anticipates cost of production to be in the range of $83 per ton to $87 per ton.


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