Wednesday - March 15, 2006

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Many companies with extensive businesses in Europe have reported disappointing results in the region lately. Is Europe due for a rebound? We spoke with senior European analyst Santiago Burgaleta, CFA to find out if companies in his coverage are poised to perform better.

U.S. Energy stocks are currently leading the market. Is this the case in Europe, too?

The European Energy sector has underperformed the one in the U.S. as mega-caps like BP (BP) and Royal Dutch Shell (RDSC) have slightly disappointed investors. We believe TOTAL (TOT) can still outperform, however, as we expect 4Q sales to come in the range of €35 billion-€39 billion ($43.75-$48.75 billion), up 14-18%. This would represent a much better performance than the mega-caps. Chemicals should improve to 8-10% growth in sales, with Marketing and Refining up 12-14%. Higher oil prices and improving margins should push operating results up 23% for the quarter. We expect management at TOT to reiterate its dividend policy and continue with buybacks. Another strategic issue is the Sanofi-Aventis (SNY) stake. We think TOTAL is very likely to sell the stake to take advantage of the new tax legislation.

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Zacks Equity Research continued...

Swiss Business Services company Adecco is looking to make a big acquisition soon. What do you think about this?

We have upgraded Adecco (ADO) stock to a BUY from a HOLD on the back of this acquisition. We view the acquisition of DIS AG as a catalyst for Adecco to break out of its trading range. DIS is the number one professional staffing company in Germany, and number five in the overall German staffing market, with an estimated market share of 4.8%. It has estimated 2005 sales of €305 million and an estimated 2005 EBIT of €36 million. Margins are of the best in Europe with 12% and a top-line growth of over 18% in the last five years. It is a less cyclical company than the industry as a whole thanks to its high level of specialization. The exposure to the cyclical Industrial sector is far bellow the average of 65% and Engineering represents 29% of revenues. We do not think this acquisition is earnings accretive in 2006, but we believe it represents a positive catalyst for the stock. We think it represents a turning point for Adecco – its professional staffing services exposure will be boosted, the competitive position in Germany will dramatically improve. Also, DIS enjoys a top management team that will help increasing investors’ confidence in Adecco’s execution capabilities. In addition, this acquisition nearly doubles the size of Adecco in Germany. This is a step in the right direction, as Germany has the largest employment market in Europe. It diversifies Adecco away from the troubled French market and it also enhances growth potentials. The German staffing market has a very low penetration rate of nearly 1%, compared to an average of 2.8-3.2% in the rest of Europe.

Were you surprised by anything you saw in Syngenta's earnings reported Thursday?

For the full year 2005, Syngenta AG (SYT) reported sales of $8.1 billion, up 9%, with earnings per share of $1.53. Corporate protection sales were up 3% to $6.3 billion. New products were up 23% to $847 million. Seeds sales surprised on the upside with a 42% increase, up to $1.8 billion (9% up ex-acquisitions). The cost-cutting program will increase operational cost savings targeted from $300 million to $450 million by 2008. Cash return to shareholders will be $800 in 2006 and dividend was increased by 22%. Our rising payout and cost cutting thesis is confirmed.

Management has given a somewhat aggressive guidance of 10% growth in EPS over the next three years. As revenue growth accelerates, cost cutting improves and share buy-backs increases, I think it is attainable.

What would be your top Buy recommendation at this time?

Well, we continue to have a Buy on Syngenta (SYT) as we are still bullish on the company and the sector is involved in a short-term correction. We would buy the stock on weakness. However, if I had to pick one stock to buy in my coverage right now, it would be Adecco (ADO). Adecco announced on February 13th that the offer price for its voluntary tender offer for all outstanding shares of German-listed DIS AG has increased from €54.50 to €58.50 per share in cash. German Voith AG, Heidelheim, and Jupiter Asset Management, London, both agreed to immediately sell their shares in DIS AG based on the increased offer price. We believe that the stock may react negatively to this increase and would use weaknesses to add to positions, but we do not think it will have a material impact going forward. Even more, we feel it will secure the transaction.

Santiago Burgaleta, CFA is a senior Zacks analyst covering European companies in a variety of sectors.

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MORE FROM ZACKS EQUITY RESEARCH...
 

Analyst Blog - NEW!

Get real-time market insights from Zacks Equity Research Analysts. To see their latest posts, click here.

 
BULL OF THE DAY

Xoma, Ltd. (XOMA) - Further Room for Upside. For full Zacks research report, click here.

 
BEAR OF THE DAY

Bandag, Inc. (BDG) - Margins Under Pressure. For full Zacks research report, click here.

 
ZACKS INDUSTRY OUTLOOK

Industry Rank Analysis for the Week of Mar 13

With inflation worries likely to continue, investors may want to look towards metal stocks – particularly copper. More...

 
EARNINGS TRENDS

Energy Estimate Revisions for 2006 Head South

Director of Research Dirk Van Dijk says estimate revisions have become soft for the Energy sector this year, but remain strong for 2007. More...

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Zacks.com offers three unique weekly commentaries that all further our mission to help you Profit from the Pros. Today is the latest installment of Screen of the Week from Kevin Matras. Each week, Kevin shares with you another winning screen he has discovered using the Research Wizard software from Zacks Investment Research. Learn more about the Research Wizard at: http://at.zacks.com/?id=2335.
 

“New Analyst Coverage”

If you’re a regular reader of this article, you know that I’m not a big fan of Broker Recommendations.

And as you read on, you’ll see that I’m still not.

This is largely because of their overwhelmingly bullish bias.

Nevertheless, Broker Recommendations do have their place. From small individual investors to large institutional portfolio managers, there are plenty of people who take them into consideration. (Although I should note that changes in the average broker recommendation are generally better indicators than the actual recommendations.)

Anyway, today I want to talk about companies that receive new analyst coverage.

One of the things that generates analyst coverage is investor interest. How else can you explain the increased analyst coverage for Google (a company that’s been public for only a little over a year) in comparison to companies like GE (public for nearly 40 years) and Microsoft (public for nearly 20 years)?

And as new coverage is initiated, it becomes more visible, which in turn means potentially more demand (read higher prices).

This is often the case because analysts almost always initiate coverage with a positive recommendation. (Why write a research report on a company not widely followed only to say it stinks?)

And when it comes to companies with little to no analyst coverage, that one new recommendation can sometimes give portfolio managers the validation they need to build a position. (And the more money they can invest, the more they can potentially influence prices.)

The best way to use this information is to look for companies whose analyst coverage has increased over the last four weeks.

Simply look at the number of analyst recommendations now in comparison to the number of analyst recommendations four weeks ago. An increase in coverage is bullish whereas a decrease in coverage is bearish.

It’s typically more bullish if the increase went from none to one or if the coverage was minimal to begin with. (Going from 25 to 26 isn’t going to have the same impact because that 26th analyst isn’t discovering something ‘new’.) But increased coverage is better than decreased coverage -- assuming the coverage is positive of course.

Here’s a screen to try:

• Number of Broker Ratings four weeks ago <= 5
  (No more than five analysts were covering the stock four weeks ago.)
   
• Number of Broker Ratings now >= 6
  (There are at least six analysts covering the stock now.)
   
• Average Broker Rating < Average Broker Rating four weeks ago
  (By ‘less than’, I mean ‘better than’ four weeks ago.)
   
• Average Broker Rating <=3
  (I’m not that concerned about the rating itself. But since analysts’ recommendations tend to be bullishly biased, I’d prefer to not have them be ‘bearish’.)
  
  And for good measure ...
   
• % Change in Q(1) Estimates >= 0 and ...
   
• % Change in F(1) Estimates >= 0
  (Companies that receive upward estimate revisions have a tendency of receiving even more upward estimate revisions. This, in combination with the stock’s increased visibility due to ‘new’ coverage, can be quite powerful.)
   
• And I’m applying all of the above parameters to stocks with Prices >= 5 (most money managers won’t even look at a stock under $5) and Average Daily Volume >= 50,000 shares (if there’s not enough volume, even individual investors won’t want it).
   

There are seven stocks that made it thru this week’s screen. Here are three of them;

Get the rest of the stocks on this list and see what new stocks the analysts are talking about. And don’t stop there. Try finding companies with no coverage four weeks ago that are finally being looked at today.

Most screeners won’t let you search for the number of analysts covering a stock, let alone comparing the amount of coverage they had weeks or even months ago. The same goes for changes in the Average Broker Rating and Estimate Revisions. But you can with the Research Wizard. And you can backtest it all. Find out how to pick the right stocks right now by learning more about our free trial to the Research Wizard stock picking and backtesting program. http://at.zacks.com/?id=2335

Discover all the Free Screening Tools on Zacks.com at: http://at.zacks.com/?id=2336.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

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Every day on Zacks.com we highlight four Zacks Rank Buy stocks. Each individual stock is chosen based on how well they match the criteria for the four main schools of investing: Aggressive Growth, Momentum, Growth & Income and Value.
 

Aggressive Growth – Amkor Technology, Inc. (AMKR)

Amkor Technology, Inc. (AMKR) is benefiting from outsourcing in the chip industry. The company has exceeded earnings estimates for three straight quarters, by an average margin of 112%. Estimates for 2006 have exploded 278% to 68 cents per share over the past 90 days, while 2007 estimates have increased 84% to 81 cents per share over the same time frame. Read the full analysis on AMKR at: http://at.zacks.com/?id=2498.
 

Growth & Income – Grupo Televisa, S.A. (TV)

Grupo Televisa, S.A. (TV) recently reported better-than-expected results for the fourth quarter of 2005. Analysts’ earnings estimates for 2006 have been on the rise as the company should benefit from the Mexican presidential elections in July and the World Cup. The company has a return on equity of 20%, compared to 5% for the industry. Earnings per share are forecasted to grow 14.0% over the next 3-5 years. Read the full analysis on TV at: http://at.zacks.com/?id=2499.

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Zacks Rank continued...

Momentum – Hansen Natural (HANS)

Hansen Natural (HANS) closed lower after a positive earnings report. Profit taking or end of a bull move? Read the full analysis on HANS at: http://at.zacks.com/?id=2500.
 

Value – Ashland, Inc. (ASH)

Ashland, Inc. (ASH), a Zacks #1 Rank stock, recently posted first-quarter fiscal 2006 earnings per share that beat the Street by 24.7%. The Board of Directors at ASH increased its share repurchase program to $250 million in late January and declared a regular quarterly dividend of 27.5 cents per common share. The company is currently yielding 1.7% and has a price-to-book multiple of 1.3. Read the full analysis on ASH at: http://at.zacks.com/?id=2501.

 
Zacks Rank Resources

• View All Zacks #1 Rank stocks: Go to: http://at.zacks.com/?id=2383.
   
• Free Zacks Rank Guide: Learn how to use the Zacks Rank to pick more profitable stocks. Get the guide: http://at.zacks.com/?id=2545.
   
• Zacks Advisor: Discover Ben Zacks' hand picked #1 Rank stocks on his Timely Buys list at: http://at.zacks.com/?id=2546.
   
• Zacks Wealth Management: Own all the Zacks #1 Ranked stocks in a portfolio managed by Zacks. Learn more at: http://at.zacks.com/?id=2547.

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Here we cast the spotlight on a timely Featured Expert commentary that recently appeared on Zacks.com. Following the article you will find previews of other profitable commentaries with insights and recommendations from leading investment experts.

 
a) Donald Rowe, Editor of the Wall Street Digest
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Falling oil prices and a good February Jobs report triggered a rally on Wall Street today. At the close, the Dow added 104 points, closing at 11,076; the Nasdaq rose 12 points, closing at 2,262; and oil closed down $0.51 at $59.96 per barrel.

In February, 243,000 jobs were created; only 210,000 were expected. Hourly earnings were up 0.3 percent in February. Traders pushed stocks higher after oil prices fell below $60 a barrel. The economy was booming in February. Inflation is still well contained. The stock market is still undervalued by 31 percent, while liquidity is at record levels. Shares of stock available for purchase continue to shrink because of cash corporate buybacks, mergers and acquisitions.

The M3 supply jumped $28 billion last week to a record high of $10.36 trillion dollars. During his 18 years as Fed chairman, Alan Greenspan created more money than all other Fed chairmen combined.

All of the above is bullish and portends higher stock prices ahead. With liquidity at record levels, Donald Rowe continues to expect a substantial move-up in stock prices between now and August.

If Mr. Kilts does get to join the board, Coca–Cola is definitely a company Mizrahi would want to keep his eye on.

 
A Sampling of Buy Recommendations:

AAR Corporation (AIR) is a worldwide leader in supplying aftermarket products and services to the global aerospace/aviation industry. It provides aircraft, engines and engine parts; airframe and accessories products; overhaul, repair and maintenance services and company-manufactured products to customers in all segments of this industry, including the world's largest commercial airlines and air cargo operators, original equipment manufacturers, domestic and foreign military and government agencies, aircraft leasing companies and maintenance service providers.

Eclipsys Corporation (ECLP) is a healthcare information technology company delivering solutions that enable healthcare providers to achieve improved clinical, financial and administrative outcomes. Eclipsys offers an integrated suite of healthcare products in five critical areas -- clinical management, access management, patient financial management, strategic decision support and integration. Eclipsys' products have been designed to deliver a measurable impact on outcomes, enabling Eclipsys' customers to quantify clinical benefits and return on investment.

F5 Networks, Inc. (FFIV) is a leading provider of integrated Internet traffic and content management solutions designed to improve the availability and performance of mission-critical Internet-based servers and applications. The company's products monitor and manage local and geographically dispersed servers and intelligently direct traffic to the server best able to handle a user's request. The products are designed to help prevent system failure and provide timely responses to user requests and data flow.

Intevac, Inc. (IVAC) is a leading supplier of static sputtering systems and related manufacturing equipment used to manufacture thin-film disks for computer hard disk drives. Sputtering is a complex vacuum deposition process used to deposit multiple thin-film layers on a disk. The company's primary objective is to be the industry leader in supplying disk sputtering equipment by providing disk sputtering systems which have both the highest overall performance and the lowest cost of ownership in the industry.

SPSS, Inc. (SPSS) is a multinational company that delivers reporting, analysis and modeling software products, and whose primary markets are marketing research, business analysis/data mining, scientific research and quality improvement analysis. SPSS develops, markets and supports an integrated line of statistical software and other products that enable users to effectively bring marketplace and enterprise data to bear on decision-making.

 
About Donald Rowe’s Wall Street Digest newsletter

A SUPER ECONOMIC BOOM IS COMING! Momentum investor, Donald Rowe brings decades of experience and helps you utilize The Wall Street Profit System 2005™ to double your money every three years! http://at.zacks.com/?id=2328
 

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MORE FEATURED EXPERTS...

b) Taking All the Right Steps

Ian Wyatt highlights a company that “continues to take all the right steps.” Learn more and discover which firm has a new CEO. More...
 

c) A Play on the Auto Parts Industry

Ken Trester highlights a high risk option position. Receive trading insight from this options guru. More...
 

OTHER TOOLS FROM ZACKS

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At the heart of Zacks Investment Research is the Zacks Rank investment philosophy that continues to vastly outperform the market. Our Zacks #1 Ranked (Strong Buys) have produced the following results for investors:

• +32.5% average annual return since 1988 versus +11.8% for S&P 500
• Outperformed S&P 500 in 17 of the last 18 years
• +43.8% total return from 2000 to 2002, which was the worst bear market in over 60 years.
• +18% in 2005

And just as importantly, the Zacks #5 Rank (Strong Sell) List has alerted investors as to which stocks to dump from their portfolios to avoid unnecessary losses.

To truly take advantage of the Zacks Rank, you need to first understand how it works. That's why we created the free special report: "Zacks Rank Guide: Harnessing the Power of Earnings Estimate Revisions". Download a free copy now to prosper in the years to come, by visiting: http://at.zacks.com/?id=2332.

Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2279.

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• Broker Recommendation changes
• Earning Estimate revisions
• Earnings Announcements
• Zacks Rank changes

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We hope you enjoyed this issue of "Profit from the Pros", And we look forward to visiting with you again next week.

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Regards and Happy Investing,

Charles Rotblut, CFA

Senior Market Analyst
Zacks.com

p.s. What is the mission for Zacks Profit from the Pros? Click here to find out how we will help you become a more successful investor.

The Zacks Performance Rank performance is the total return of equal weighted simulated portfolios consisting of those stocks with the indicated Zacks Rank net of fees. Results reflect the reinvestment of dividends and other earnings. Simulated results do not represent actual trading and may not reflect the impact that economic and market factors might have had on decision-making if an adviser were actually managing a client's money.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor's. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

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