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The Zacks Analyst Blog Highlights: J. C. Penney, Prudential Financial, Hartford Financial Services Group, General Motors and Verizon Communications

Zacks Equity Research

For Immediate Release

Chicago, IL – May 14, 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 J. C. Penney Company, Inc. (JCP), Prudential Financial, Inc. (PRU), The Hartford Financial Services Group, Inc. (HIG), General Motors Company (GM) and Verizon Communications Inc. (VZ) .

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Here are highlights from Monday’s Analyst Blog:

J.C. Penney Earnings Likely to Miss

J. C. Penney Company, Inc. (JCP) is slated to report its first-quarter fiscal 2013 results on May 16, 2013. In the last quarter, it posted a negative surprise of 926.3%. Let’s see how things are shaping up for this announcement.

Factors This Past Quarter

J. C. Penney’s earlier pricing and marketing strategy resulted from the company’s disappointing performance. Moreover, the company’s restructuring initiatives have been crumbling as the company is exhibiting no signs of improvement.

J. C. Penney failed to obtain a positive response from customers for its pricing mechanism, which is well reflected through its poor sales results. It is believed that rather than harping on its restructuring efforts, the company should have been more vocal regarding its pricing mechanism and better aligned its marketing efforts to attract buyers.

Earnings Whispers?

Our proven model does not conclusively show that J. C. Penney is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here as you will see below.

Zacks ESP: ESP for J. C. Penney is 0.00%. This is because the Most Accurate Estimate stands at -$1.13, which is in line with the Zacks Consensus Estimate.

Zacks Rank #5 (Strong Sell): J. C. Penney’s Zacks Rank #5 (Strong Sell) lowers the predictive power of ESP because the Zacks Rank #5 when combined with 0.00% ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Rating Action for Prudential

A.M. Best Co. reiterated the issuer credit ratings (:ICR) of ‘a-’ on Prudential Financial, Inc. (PRU). Concurrently, the rating agency reiterated the financial strength rating (:FSR) of A+ (Superior) and ICR of ‘aa-’ of the domestic life/health insurance subsidiaries of Prudential. It also affirmed the debt ratings. Outlook remains stable.

The rating affirmation came on the back of solid market presence, strong operational performance in most of the business, potential for sustained organic growth, sturdy risk-adjusted capitalization, and financial flexibility and liquidity.

The rating also account for over $3.0 billion of junior subordinated debt issuance as well as the acquisition of The Hartford Financial Services Group, Inc.’s (HIG)  individual life block and two significant pension risk transfer transactions. While the Hartford deal added nearly 0.7 million life policies having face value of $135 billion and general account and separate account assets and liabilities of nearly $12 billion, the pension risk transfer transactions with General Motors Company (GM) and Verizon Communications Inc. (VZ)  added nearly $32 billion in liabilities for Prudential.

A.M. Best noted that Prudential’s diversified portfolio is represented by its international exposure.  While solid organic growth and the integration of Star/Edison augmented the international life insurance segment’s performance, domestic business benefited from higher variable annuity liabilities with automatic rebalancing features. Additionally, asset under management of Prudential exceeded the $1 trillion mark.

Nevertheless, above average holdings of below investment grade fixed income securities relative to capital and surplus, $2.2 billion investments in subprime residential mortgage-backed securities and overall exposure to commercial real estate via commercial mortgage-backed securities and direct commercial loan portfolio dwarfs the positives. A.M Best noted that though there remains considerable investment risk, credit impairments continue to trend lower.

According to A.M. Best, life insurance business is a more proven line of business than annuities. At the same time, it noted that Prudential not only effectively managed but also to some extent mitigated inherent risks in its various annuity products.

However, the ratings might be subject to downgrade if risk-adjusted capitalization erodes, operating or investment results soften, or the usage of leverage increases.

Prudential carries a Zacks Rank #2 (Buy).


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Read the analyst report on JCP

Read the analyst report on PRU

Read the analyst report on HIG

Read the analyst report on GM

Read the analyst report on VZ

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