Thursday - November 3, 2005
 Want to view the archive of past issues? Go to: http://at.zacks.com/?id=2337. Manage Profit from the Pros subscription: 1. ZACKS EQUITY RESEARCH After a second devastating hurricane season in as many years, many investors have been rightly concerned about industries directly affected by the storms. Among these is the high-end hotel segment of the travel and leisure group, so we asked senior analyst Matthew P. Quinn, CFA for his views on major hotel chains with extensive exposure in the Yucatan in Mexico and South Florida. Can you give us a quick update on what impact you expect the record-setting 2005 hurricane season thus far to have on lodging companies? Well, Hurricane Wilma was not supposed to be as disruptive or devastating as Hurricanes Rita and Katrina, yet the storm did cause a significant amount of damage in the Yucatan in Mexico as well as in South Florida. As far as hotel operations are concerned, most of the major hotels in Cancun are expected to remain offline until late December or early 2006. Marriott International (MAR) announced that its three major resorts in Cancun--operated under the Ritz Carlton, JW Marriott, and Marriott brands—will remain closed through the end of the year. Starwood Hotels & Resorts Worldwide (HOT) announced that its two properties in the region--operated under the Westin and Sheraton brands--would be closed until late December. Most of the major properties operated by Starwood in South Florida have also reopened or plan to reopen in the next few days following Hurricane Wilma. What type of financial impact do you expect the active hurricane season to have on financial results for lodging companies for the balance of the year and into 2006? The financial impact is minimal, given that the lodging companies have insurance that covers losses associated with business disruptions and property damage. Further, the major lodging companies are well diversified geographically and have large property portfolios. As an example, Hilton Hotels (HLT), perhaps the hardest hit by the hurricanes of the major lodging companies, announced that Hurricane Katrina would cost the company approximately $0.02 per share in earnings (approximately 2% of total earnings). This impact is primarily related to insurance deductibles and contributions made to an employee relief fund and the Red Cross. Incentive fees associated with managed properties may also be lower, as properties disrupted by the hurricanes were not able to meet their full-year potential. More. . .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - We are more concerned about what will be the long-term impact to the economy from the hurricanes. Although most lodging companies have been very forthcoming on the impact from property disruptions and damage, we remain concerned about the consumer psyche. Consumer confidence has plunged, and it remains to be seen how pricing can hold up if demand falters heading into 2006. A tightening of budgets by businesses in an inflationary environment would also likely put a crimp on occupancy and pricing for the industry. That being said, we believe these risks have largely been priced into the lodging companies, which are now trading at much lower multiples than just a few months ago. Are there any other concerns holding back Hilton’s stock performance? Although all of the lodging stocks have been down lately, Hilton appears to have underperformed its peers. We believe the big issue holding back the performance of Hilton shares right now is investor concern regarding a potential reunification of the Hilton brand globally. Hilton indicated in mid-October that it is in discussions with Hilton Group, Plc to acquire that company’s lodging operations. Investors are concerned that the company will complete the deal on unfriendly terms for shareholders, with a preference for equity instead of debt. The stock price has been further hampered by a suspension of the company’s share buyback program in the interim. We see the pullback in the shares as a buying opportunity, as we believe the global reunification of the Hilton brand presents even more opportunities for the company to enhance the value of its lodging brands. As we have stated previously, we think there are tremendous opportunities within European and Asian markets for branding initiatives. Along with MAR’s joint-venture development with Whitbread and the purchase of the Le Meridian brand by Starwood, we believe the potential Hilton reunification fits well with this theme. There are also benefits associated with expansion into ancillary businesses, such as timeshare development and guest services. Will high energy prices add any additional negative impact to hotel stocks in your coverage? Of course--higher fuel costs do negatively impact utility costs for lodging companies. However, a survey by Smith Travel Research indicated that energy/utility expenses represent less than 4% of room revenue for the operators of full-service hotels. Further, rising gas prices are not likely to impact demand for full service hotels and resorts, as business and leisure travel decisions at the upper end of the market are unlikely to be affected by rising fuel costs. We see a larger impact to lodging companies related to inflationary pressures on employee-related expenses. Marriott International recently indicated that about half of the costs associated with operating a full service hotel are related to labor. As such, mid-single digit increases in hourly wages, healthcare, and insurance costs could limit upside to financial results from impressive REVPAR growth. It is worth mentioning that Marriott has greater exposure to the energy market, relative to its lodging counterparts, given its ownership of a synthetic fuel business. Rising prices, volatility, and a range of production alternatives open to Marriott add to a degree of uncertainty for the company’s 2006 financial outlook. Thus, we are more cautious on our outlook for Marriott than for Hilton and Starwood. Do you see the luxury and upscale segment of the hotel industry continuing to drive the recovery in hotel stocks? Yes. As I mentioned previously, business and leisure decisions at the upper end of the market are unlikely to be affected by rising fuel costs. Further, supply trends in major urban markets are extremely favorable. Given rising interest rates, increased property values, and ever-higher costs for construction and raw materials, there are not a lot of new hotels coming on-line in major markets. In fact, hotels are actually coming out of the market in certain areas in favor of condo development. As such, the owners and operators of upscale properties in major urban markets are well-positioned to continue to raise rates, which we believe will allow them to continue to outperform the broader lodging industry. Finally, what is the preliminary outlook like for REVPAR growth in 2006? Is there additional room for growth in occupancy and rates among the major operators? Hilton and Starwood both gave preliminary guidance of 8-10% growth in REVPAR for company-owned lodging properties in 2006. Marriott International expects REVPAR growth of 7-9% in 2006 for its North American properties. Occupancy levels are very high, so we expect roughly three-quarters of this REVPAR growth to come from higher rates. The above-mentioned factors are reasons why we believe rates have room to grow in 2006. Of course, price increases are even more beneficial to bottom-line results, as there is very little cost associated with this incremental revenue growth. So profits should continue to grow at a faster rate than top-line growth in 2006. Matthew P. Quinn, CFA is a senior equity analyst for Zacks Investment Research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - BULL OF THE DAY Newfield Exploration (NFX) - Inexpensive Gas Stock. For full Zacks research report, click here. Aladdin Knowledge (ALDN) - Tougher Competition. For full Zacks research report, click here. Dramatic Turnaround for Estimate Revisions Industry Rank for the Week of October 31
2. PROFIT TRACKS Zacks.com is proud to share with you some of the best trading strategies that truly allow you to Profit from the Pros. Today we highlight… This screen looks for stocks trading in the upper range of their 52-week highs along with attractive Zacks Rank and Broker Ratings. This strategy proves that the "trend is your friend" with a +14.6% return versus +2.4% for the S&P 500 for the first half of 2005 (through July 15). Orix Corp. ADR (NYSE: IX), a financial services company, recently reported second quarter earnings of $3.70 per share. The result topped last year’s result of $2.43. During the past four weeks, IX’s share price has increased approximately 7% and is trading right at its 52-week high. To continue your research on IX, click here. McCormick & Schmick (NASDAQ: MSSR), a restaurant company, recently reported third quarter earnings of 15 cents per share, 15% above expectations. Over the past four weeks, the stock has risen almost 2%, and the stock is currently trading near a 52-week high. To continue your research on MSSR, click here. Quidel Corp. (NASDAQ: QDEL), an medical products company, recently delivered a strong earnings report. Third quarter earnings were two cents per share, ahead of last year’s loss of eight cents per share. Given this positive momentum in earnings, it is not surprising that shares of QDEL are trading near a new 52-week high and have soared in price by about 24% over the past four weeks. To continue your research on QDEL, click here. Encore Wireless Corp. (NASDAQ: WIRE), a Zacks #1 ranked (Strong Buy) company, posted third quarter earnings of 48 cents per share, exceeding the consensus estimate by 140%. Given positive earnings momentum, a share price increase of almost 33% in the past four weeks, and a current share price that is right at its 52-week high, this company is proving that the trend is your friend. To continue your research on WIRE, click here. All the Profit Track strategies were created and backtested using the Research Wizard software from Zacks Investment Research. If you like this screening strategy, but want to narrow down the list of stocks and even improve the performance, then you should start a free trial to this powerful stock picking tool. Learn more about the Research Wizard free trial offer and our new special report “Top 10 Stock Screening Strategies” at: http://at.zacks.com/?id=2359 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - A Simple Dividend Strategy with Extraordinary Returns Kevin Matras looks at how to find winning stocks in the winningest Sectors: http://at.zacks.com/?id=2360. 3. ZacksAdvisor.com TIMELY BUY of the WEEK Here you`ll discover a Zacks #1 Ranked stock hand selected by
Ben Zacks to outperform the market over the next 30 to 90 days.
This week`s Timely Buy is… Harris Corp. (HRS) Harris Corporation (HRS), based in Melbourne, FL, has evolved from a diversified electronics company to one that is focused on communications. In 1999, Harris spun off its Lanier office products division. It also sold its semiconductor division, which later became Intersil. The company is a global provider of communications equipment and services for government and commercial customers. Harris has strong market share positions in broadcast equipment, high-frequency and multi-band “man-pack” tactical radios, and ground-based military satellite communications terminals. Some of its important products include transmission equipment for microwave, satellite, and wireless communication; digital network broadcasting and management systems’ network test and management equipment and software; mobile radio networks; and air traffic control systems. Its four operating segments are Government Communications (which generated around 59% of fiscal 2004 revenue), RF Communications (17%), Microwave Communications (13%), and Broadcast Communications (11%). The commercial units serve a diverse clientele, including radio and television broadcasters, utilities, construction companies, and oil producers. By geography, 80% of 2004 sales were to U.S. customers with the remaining 20% coming from foreign sources. Harris has a strong market position in the government communications sector, with a broad product line and an enviable win rate on government contracts (over 60% historically and over 80% in recent quarters). The two defense electronics divisions (Government Communications and RF Communications) have seen a noticeable pickup over the past couple years as overall defense spending has increased dramatically and a major effort to upgrade the military’s communications infrastructure is underway. Notable successes include the company’s Falcon II radios, which are being widely used by U.S. Special Operations forces, the U.S. Army and various NATO and “Partnership for Peace” countries. More...
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The company has several big opportunities on the commercial side. For one, the Broadcast Communications business should get a boost from the U.S. Government’s mandate which will require all TV broadcasters in the U.S. to upgrade to digital technology by the end of 2006 or whenever digital television penetration reaches 85%. While most of the nation’s 1,700 commercial and public broadcasters have ordered some of the necessary equipment to make this conversion, activity should pickup as the deadlines approach. Another promising long-term opportunity is in the area of digital radio. In part spurred by competition from satellite radio, as well as broadcasters’ desire to find new revenue streams, we expect many radio stations to invest in digital technology over the next 1-2 years. Given its strong market position, Harris should be one of the major beneficiaries. Analysts have been significantly raising estimates after the company reported strong fiscal first quarter 2006 earnings and raised guidance. Strength in their RF Communications segment was a big contributor to earnings and recorded its seventeenth consecutive quarter of double-digit sales growth. HRS is expanding its production capacity in the RF Communications segment going into the second half of Fiscal 2006.
4. FEATURED EXPERTS 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.
Conditions are improving in the market but we are still not out of the woods. No doubt some end-of-month window dressing contributed to the advance on Monday ahead of today's FOMC meeting. While Gregory Spear and his team are starting to get a sense of the new market leadership, no up trend has yet been established. In other words, we are still in a base-building process. Nevertheless, the odds are shifting back to the bulls although Spear and his team expect one more re-test to now begin. Their target is near the 1190 area in the S&P 500. This type of backing and filling is the normal course of events in the chaotic bottoming process, as stock is transferred from weak hands to strong hands. So, hold on for one more ride lower on the roller coaster. This should give you an opportunity to re-enter leadership stocks if you missed Monday’s rally. Crude oil closed below the psychologically important $60 level but blow-out earnings from Valero (NYSE: VLO) and other energy names allowed the share prices in the energy patch to decouple from a more direct correlation with the daily fluctuations in crude. Spear and his team still expect crude to hit $55. Natural gas prices have been imploding-- down another 6.5% on Monday and down 17% over the last four days. Considering this circumstance, Spear and his team’s favorite natural gas stocks such as XTO Energy (NYSE: XTO) and Chesapeake (NYSE: CHK) are holding up well. Encana (NYSE: ECA) has been weaker than expected due to the CEO retiring. Spear and his team noticed good trading action and increased volume in may foreign stocks yesterday. Foreign bourses, particularly South America, have far outperformed the US market in 2005. Spear and his team like the technical set ups in Brazilian steel maker Gerdau (NYSE: GGB), a former Buy List member, and in Vale de Rio Doce (NYSE: RIO) one of the world’s largest iron ore providers. They report earnings on November 8th and 9th respectively. Active traders need PROVEN professional-level tools! The Spear Report Professional Edition is a premium DAILY trading service. The TSR Pro trading strategy incorporates both fundamental and technical analysis. Gold, index proxies, shorts, longs…Pro covers it all EVERY SINGLE DAY! Sign-up now and find out how to make money in ANY market, up or down. With TSR Pro, it’s like having your own personal research assistant. http://at.zacks.com/?id=2347. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Charles Norton and Allen Gillespie highlight the growing need for protective equipment like armored vehicles. Check out a player in the field. More... c) Will Santa Visit Wall Street? Kelly Wright sees long rates going down while short rates increase. Read his explanation and discover two stocks. More... OTHER TOOLS FROM ZACKS At the heart of Zacks Investment Research is the Zacks Rank investment philosophy that continues to vastly outperform the market. Our Zacks #1 Rank (Strong Buy) List has produced the following results for investors:
And just as importantly, our #5 Ranked stocks (Strong Sells) have 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=2350. Or view the full list of Zacks #1 Ranked stocks at: http://at.zacks.com/?id=2351. FREE PORTFOLIO TRACKER Do you believe that these events affect stock prices?
If you answered yes, then how are you staying on top of these changes for your stocks? If you are one of the 45,000 investors who wake up every morning to the Daily Portfolio Updates emails from Zacks.com, then you are all set. If not, then sign up now to get this vital information sent to you daily to help take definitive action to improve your portfolio's performance. Did we mention it's free? Get started now! We hope you enjoyed this issue of "Profit from the Pros", And we look forward to visiting with you again next week. REFER-A-FRIEND If you enjoy this e-mail newsletter, then please pass it along to a friend. Simply forward them the link below to sign up for their own free subscription. If you're reading a forwarded copy, sign up for your own, so you get this wealth of information every week. Just click here. THANKS! Regards and Happy Investing, Charles Rotblut, CFA 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 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. To contact us by mail: Zacks Investment Research To unsubscribe from receiving "Profit from the Pros" e-mail newsletter, click here. | ||||||||||
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Zacks #1 Stocks on the Move 06/18/2013
| Company Name | Symbol | %Change |
|---|---|---|
| STAAR SURGIC | STAA | 10.98% |
| LUMOS NETWOR | LMOS | 5.70% |
| INSTEEL IND | IIIN | 5.28% |
| ERICKSON AIR | EAC | 5.10% |
| ASSURED GUAR | AGO | 4.98% |
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