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Zacks Industry Rank Analysis

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Highlighted stocks include Hot Topic Inc. (HOTT), Hormel Foods (HRL - Analyst Report), JetBlue Airways Corporation (JBLU - Analyst Report) and Winn-Dixie (WINN).


Thanksgiving has implications for many industry groups. Therefore, I thought it would be timely to follow up on these groups, all of which have been featured in this column before.

Thanksgiving Dinner Costs 5.5% More

The American Farm Bureau calculates that the average Thanksgiving Day dinner costs $44.61 this year, up from $42.26 last year. Turkey prices are up 8%. Rolls, cranberries, sweet potatoes and even pumpkin pie are more expensive.

The higher prices are not showing up on corporate profit statements, however. Rather, commodity costs have risen faster than the prices consumers pay, resulting in lower gross margins.

A good example is yesterday's report from Hormel Foods (HRL - Analyst Report). The company blamed higher feed and fuel costs for hurting margins in its Jennie-O Turkey Store segment. Total fiscal fourth-quarter profits fell to 50 cents per share, from 73 cents.

(Earnings were also affected by the company's "rabbi trust", which is a vehicle used to defer compensation. The name comes from a specific IRS ruling.)

CEO Jeffrey M. Ettinger anticipates "a slow start to fiscal year 2009", but is hopeful that the second half of the year will be stronger. He predicts HRL will earn between $2.15 and $2.25 this fiscal year, which is below the consensus earnings estimate of $2.29 per share.

Hormel's numbers came a day after Campbell Soup Company (CPB - Analyst Report) revealed that its gross margins were hurt by higher commodity costs. Gross margins for the company's fiscal first-quarter fell to 40.2%, on an adjusted basis, from 40.8% a year prior.

Sales still rose, however, increasing 3% to $2.25 billion. A slight increase in volume and a 7% improvement in price and sales allowances caused the revenue growth. This, combined with a lower share count, allowed earnings per share to total 77 cents, 10% higher than a year ago and a penny above expectations.

Nonetheless, 10 brokerage analysts are lowering their forecasts for fiscal 2009. Concern about the weaker margins has resulted in the consensus earnings estimate falling 6 cents to $2.16 per share.

Investors looking for a way to profit from the higher food costs may want to research grocery-store chain Winn-Dixie (WINN). The company enjoyed a 3% increase in same-store sales for its fiscal first-quarter. Excluding the impact of hurricanes and tropical storms, same-store sales rose 1.9%. At the same time, WINN was able to widen its gross margin by 40 basis points to 27.9%.

The improvements led to a narrower-than-expected loss of 4 cents per share. Though the company maintained its guidance, brokerage analysts increased their full-year profit projections. The revised consensus estimate calls for fiscal 2009 earnings of 3 cents per share, versus the month-old forecast for a loss of 3 cents per share.

WINN is Zacks #2 Rank ("buy") stock and is classified in Retail-Supermarket. Campbell Soup is a Zacks #3 Rank ("hold") stock and is classified in Food-Canned. Hormel is a Zacks #4 Rank ("sell") stock and is classified in Food-Meat Products.


Fewer Americans Are Traveling

AAA predicts 1.4% fewer Americans will travel 50 miles or more this Thanksgiving. If the prediction proves to be correct, it would be the first decline in Thanksgiving holiday travel since 2002.

The biggest percentage decrease will be in airline travel. The automobile association calls for a 7.2% drop.

Though a drop in volume would typically be a negative, brokerage analysts have been raised their full-year profit projections on 18 airlines with the past 4 weeks. Beneficiaries include JetBlue Airways Corporation (JBLU - Analyst Report) and Southwest Airlines (LUV - Analyst Report).

Benefiting the airlines is the decrease in fuel costs, reduced capacity (fewer flights) and new fees. Combined, these factors have offset the impact that the recession has had on demand.

JetBlue Airways Corporation is a Zacks #1 Rank ("strong buy") stock and Southwest Airlines is a Zacks #2 Rank stock. Both are classified in Transportation-Airlines.


Previewing Black Friday

The National Retail Federation believes up to 128 million people will shop this weekend. The results of the survey, released yesterday, suggest that 49 million will definitely go into stores, while an additional 79 million are waiting to see just how good the deals are going to be.

A possibly too optimistic NRF President Tracy Mullin expects that "Shoppers who held off buying a DVD player or winter coat over the last few months will find that prices may literally be too good to pass up."

Many consumers have become more frugal, and this change in spending patterns has benefited discount retailers such as BJ's Wholesale Club (BJ) and Dollar Tree Inc. (DLTR - Analyst Report). Conversely, full-price retailers like Best Buy Co. (BBY - Analyst Report) and Nordstrom Inc. (JWN - Analyst Report) have seen sales decline.

One full-price retailer that is bucking the trend towards frugality is Hot Topic Inc. (HOTT). This teen apparel retailer matched third-quarter expectations with profits of 17 cents per share. Same-store sales increased 1% and helped total revenues to grow 4.7%. (The popularity of Twilight is helping.)

All of the covering brokerage analysts raised their full-year projections in response, and 5 analysts also raised their 2010 projections.

Both BJ Wholesale Club and Dollar Tree Inc. are Zacks #2 Rank stocks classified in Retail-Discount. Hot Topic Inc. is a Zacks #2 Rank stock classified in Retail-Miscellaneous. Best Buy Co. and Nordstrom Inc. are Zacks #5 Rank ("strong sell") stocks classified in Retail-Consumer Electronics and Retail-Apparel/Shoe, respectively.


Zacks Premium and Zacks Elite subscribers can view the Zacks Industry Rank List at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

The sector table now shows revisions for 2009, not 2008.

Sector Rank as of Nov 26
Sector This Week's
Zacks Rank
Last Week's
Zacks Rank
FY09
Revisions Ratio
FY09 Estimates
Revised Up
FY09 Estimates
Revised Down
FY08
Revisions Ratio
Medical 2.52 2.57 0.73 593 816 0.95
Aerospace 2.76 2.98 0.32 24 76 0.75
Computer and Technology 2.92 2.91 0.20 333 1668 0.38
Utilities 2.94 3.01 0.22 79 361 0.45
Business Services 2.98 3.00 0.15 42 283 0.42
Consumer Discretionary 3.00 2.98 0.20 107 524 0.50
Transportation 3.01 2.98 0.39 100 255 1.06
Consumer Staples 3.11 3.10 0.17 63 366 0.33
Retail-Wholesale 3.14 3.18 0.13 109 808 0.22
Construction 3.16 3.21 0.07 16 215 0.26
Finance 3.18 3.19 0.13 262 2005 0.36
Industrial Products 3.22 3.22 0.09 38 419 0.37
Oils-Energy 3.28 3.24 0.22 247 1107 0.46
Basic Materials 3.28 3.30 0.12 55 461 0.30
Conglomerates 3.59 3.41 0.04 3 76 0.19
Auto-Tires-Trucks 3.66 3.49 0.07 11 154 0.07

Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.

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