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The Zacks Analyst Blog Highlights: Hewlett-Packard, Procter & Gamble, Gap, Ross Stores and Nordstrom

Zacks Equity Research

For Immediate Release

Chicago, IL – November 7, 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 Hewlett-Packard Company (HPQ), Procter & Gamble Co. (PG), Gap Inc. (GPS), Ross Stores Inc. (ROST) and Nordstrom Inc. (JWN).

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Here are highlights from Tuesday’s Analyst Blog:

H-P, P&G Cut a Deal


Hewlett-Packard Company’s (HPQ) long-standing ties with the gigantic FMCG (fast moving consumer goods) dealer Procter & Gamble Co. (PG) were further strengthened with the latest information technology (IT) service deal between the two. Yesterday, H-P announced that it will be extending its application service support to help P&G manage supply chain operations efficiently. The financial details of the multi-year deal were kept confidential.


Per the deal, H-P will offer its Applications Development Services and Applications Management Services. These solutions will support P&G’s mission critical business applications, which help the company in research and development, inventory management, enterprise resource planning and business intelligence.


With H-P’s application services, P&G can access its various databases on consumer preferences, suppliers, retailers and distributors. This will help the company to formulate more effective product plans and refine its go-to-market strategy.


In June, P&G leveraged H-P’s 3PAR storage, networking, cloud and converged infrastructure solutions to convert its private cloud to a hybrid cloud, which will allow greater flexibility to cope with changing market dynamics.


The back-to-back deals prove the efficacy of H-P’s services and offerings, which enable P&G to provide constant and uninterrupted IT services. It lends the FMCG giant greater flexibility to cope with changing market dynamics and thus keeps it ahead of its peers.


H-P has been dealing with the consumer goods industry for years. No doubt the tech behemoth has gained extensive experience in market dynamics, which has benefited its sizeable customer base time after time. Rapid product innovation, a good understanding of changing demands, supply chain optimization, customer satisfaction and efficient customer feedback are critical to survival in the fast changing consumer goods market.


H-P’s technological innovations have given it the expertise to take care of these key issues. Close association with P&G could act as a catalyst to attract more deals from the sector.


Despite consistent wins and new product launches, we have a bearish view on H-P due to weak fundamentals as a result of lackluster PC, Printer and Services demand.


The lack of positive catalysts resulted in significant downward estimate revisions, on the basis of which H-P has a Zacks #5 Rank, implying a short-term Strong Sell rating.



Gap Posts Strong Oct & 3Q Sales

Leading apparel retail chain, Gap Inc. (GPS), posted strong October and third quarter comparable store sales (comps) driven by sustained strength in its North American brands portfolio. Going forward, the company targets to maintain its business performance by improving its product offerings for customers.

October (four-week period ended October 27, 2012) comps at Gap rose 4% versus a 6% decline in the comparable prior-year period. Moreover, net sales in October summed to $1.22 billion, up 7.0% compared with the prior-year period sales of $1.14 billion.

Comps at Gap North America increased 6% against a 5% decline recorded in the prior-year period. Banana Republic North America’s same-store sales were up 5% versus a 1% increase in October last year. Results at its Old Navy North America segment reflected a 5% rise in comps compared with a 9% fall in the prior-year period. On the flip side, comps at the International business declined 2% for the month, but were comparatively better than the 7% decline recorded in the prior-year period.

Simultaneously, the company reported an improvement in third quarter comps and sales numbers. Comps for the quarter escalated 6% compared with a 5% decline in third quarter last year. Improvement in the quarter’s comps came from a 7% elevation in comps at Gap North America, a 6% comps growth at Banana Republic North America and a 9% comps augmentation at Old Navy North America; offset by a 3% comps decline in the International segment. Net sales came in at $3.86 billion, an increase of 8% from $3.59 billion reported in the year-ago quarter.

Year-to-date through October 27, 2012, the company’s net sales climbed 6% to $10.93 billion compared with $10.27 billion in the prior-year period. Improvements in net sales were primarily driven by 5% growth in the company’s comps.

Concurrently, two of the company’s competitors – Ross Stores Inc. (ROST) and Nordstrom Inc. (JWN) – reported enhanced same-store sales for the month of October. Nordstrom recorded 9.8% growth in October comps, while comps at Ross increased 4%.

Gap is scheduled to release its third quarter financial results after the market closes on November 15, 2012.

The company projects third quarter earnings per share in the 61 cents – 63 cents range, versus 38 cents earned in the year-ago quarter. The Zacks Consensus Estimate for the quarter stands at the higher end of the company’s guidance range.

We believe the company’s relentless focus on turnaround strategies for improvising the top line are paying off, which is reflected in its solid comps and sales performance in recent months. The company has now posted positive comps for four consecutive months (July, August, September and October).

Further, Gap’s long-term strategic moves, along with disciplined cost management measures will not only provide it financial flexibility, but will also help reduce operating expenses. Moreover, Gap’s globally recognized brands complement one another, enabling it to leverage its position in the sector.

Currently, Gap’s shares maintain a Zacks #2 Rank, which translates into a short-term Buy rating. Our long-term recommendation on the stock remains Outperform.



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Read the analyst report on HPQ

Read the analyst report on PG

Read the analyst report on GPS

Read the analyst report on ROST

Read the analyst report on JWN

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