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The Zacks Analyst Blog Highlights: Kirkland's, Chunghwa Telecom, LM Ericsson, China Mobile and Nokia

Zacks Equity Research

For Immediate Release
Chicago, IL – June 10, 2014 – 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 the Kirkland’s Inc. (KIRK-Free Report), Chunghwa Telecom Co. Ltd. (CHT-Free Report), LM Ericsson AB (ERIC-Free Report), China Mobile Ltd. (CHL-Free Report) and Nokia Corp. (NOK-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Monday’s Analyst Blog:

Will Kirkland’s Sustain the Turnaround?

On Jun 5, 2014, we issued an updated research report on Kirkland’s Inc. (KIRK-Free Report).

The home furnishing retailer reported first-quarter fiscal 2014 results on May 23. Kirkland’s’ first-quarter fiscal 2014 earnings per share of 12 cents increased 20.0% from the year-ago results and beat the Zacks Consensus Estimate. Profit was driven by higher sales and comps. Earnings also beat management’s guidance range of 10 to 12 cents.

Net sales of $108.0 million also improved year over year and beat the Zacks Consensus Estimate by 6.9% and 2.2%, respectively, backed by higher-than-expected comps. Although traffic remained negative at 1% for the first quarter, it represents a big improvement from the previous four quarters.

Kirkland’s expects the business momentum to continue and issued an optimistic outlook for the second quarter of fiscal 2014. The company expects net sales in the range of $104 to $105 million, up 7% to 8% from the prior-year level. Comps are expected to increase in the range of 3% to 4% versus a decrease of 0.2% in the prior-year quarter.

Overall, we are encouraged with Kirkland’s’ long-term fundamentals. The company remains focused on re-vamping its brands and merchandising process and expand its e-Commerce business to spur revenue growth. Moreover, the company regularly upgrades its information system to maintain growth and momentum in its e-Commerce business.

The initiatives have already started to yield results as its e-Commerce channel has been meeting management’s expectations of strong gains in categories like housewares, floral, clocks and decorative accessories for the past three quarters. Moreover, the company has been able to manage its inventory at desired level and lower its markdown rate by upgrading its merchandise.

However, the slowdown in the home building sector could affect the demand for the company’s home furnishing products in the next few quarters. Moreover, continued slag in consumer spending in the U.S. due to a slowdown in the economy may cause headwinds in the coming quarters.

Chunghwa Telecom Faces Tough Competition

Taiwan’s largest integrated telecom operator, Chunghwa Telecom Co. Ltd. (CHT-Free Report), is facing intense competition in the core wireless market. The telecom market in Taiwan is oversaturated and has become extremely competitive following the implementation of certain telecom regulatory changes.

Consequently, Chunghwa competes in a tough environment with two other major service providers, Taiwan Mobile Company and Far EasTone Telecommunications Co. Ltd. The wireless market size of Taiwan is small in comparison to other regional country markets, with approximately 23 million customers. At present, Taiwan has 115% wireless penetration.
Recently, Far EasTone became the first global wireless operator to launch commercial 4G LTE (Long-Term Evolution) services on the APT700 MHz spectrum. This marks a significant advancement in the global wireless industry. The technology for this network was provided by LM Ericsson AB (ERIC-Free Report). Far EasTone Telecommunications holds licenses for both APT700 and 1800 MHz frequencies.

Chunghwa has also won 2 slots of 1800 MHz spectrums to install 4G LTE wireless networks. The company plans to initiate LTE deployment from mid-2014. Also, Chunghwa has struck a deal with LINE, a developer of popular communication apps for smartphones. This agreement will provide Chunghwa’s mPro subscribers with free mobile Internet service.

At the end of the first quarter of 2014, Mobile subscriber base of Chunghwa stood at 10.78 million, up 4.1% year over year. Mobile Internet subscriber base was 4.29 million, reflecting a significant hike of 49.5% year over year. Chunghwa currently commands 35.6% of the mobile Internet market share in Taiwan.

On the flipside, approximately 59% of Chunghwa’s customers use 3G services, while around 71% of Taiwan Mobile’s subscribers and 63% of Far EasTone subscribers use 3G services.

If wireless and Internet/data segments fail to gain adequate business, Chunghwa’s top line may be severely affected. Moreover, Far EasTone’s business cooperation agreement with China Mobile Ltd. (CHL-Free Report) is likely to pose more competitive threat to Chunghwa.

In Dec 2013, Nokia Solutions and Networks (:NSN), a division of Nokia Corp. (NOK-Free Report), renewed its contract with Chunghwa to supply infrastructure for the carrier’s HSPA+ network capacity expansion. Chunghwa selected NSN as its major vendor for LTE network deployment.

NSN will provide its RAN (radio access network) superior technology, supported by Flexi Multiradio 10 Base Station to Chunghwa. Further, it will deliver circuit-switched fallback technology, which will support voice services for the company’s LTE smartphone users.

Chunghwa currently has a Zacks Rank #3 (Hold).

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