Zacks Analyst Blog Highlights: PetroChina Company Limited, CNOOC Ltd., Sinopec, Cal-Maine Foods Inc and Del Monte Food Co.

For Immediate Release

Chicago, IL – December 29, 2010 – Zacks.com Analyst Blog features: PetroChina Company Limited (PTR - Analyst Report), CNOOC Ltd. (CEO - Analyst Report), Sinopec (SNP - Analyst Report), Cal-Maine Foods Inc (CALM - Snapshot Report) and Del Monte Food Co. (DLM).

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Here are highlights from Tuesday’s Analyst Blog:

PetroChina to Sell Pipeline Stake

PetroChina Company Limited (PTR - Analyst Report) is planning to sell its stake in a gas pipeline operator to its subsidiary Kunlun Energy Co. for approximately $2.9 billion. The decision has been taken by PetroChina to make fuel distribution the main business of Kunlun Energy.

PetroChina acquired a majority stake of Kunlunin August 2008 to turn it into a gas distributor. PetroChina’s initiatives toward natural gas is notable as its natural gas business is a potentially lucrative growth area that is expected to witness strong growth in the coming years as China transits from coal to natural gas. At present, two-thirds of China's electricity is generated by coal-fired power plants, which emit greenhouse gases that cause pollution.

We believe that continued demand growth in China (expected to outperform developed countries in the next few years), together with the recent turnaround in commodity prices, will fuel PetroChina’s medium-term earnings outlook. Additionally, we expect the company to benefit from attractive growth prospects in both downstream and natural gas sectors.

In line with its strategy to fuel downstream businesses, PetroChina is reorganizing its assets base across its subsidiaries. Its current marketing operations include a distribution network of 17,262 retail sites, 23 regional sales and distribution branch companies, and one lubricants branch company.

Our near-term concerns include high-priced gas imports in the face of low domestic gas sale prices and uncertainty pertaining to the impact of the newly rolled out national resources tax. Strong competition from peers such as CNOOC Ltd. (CEO - Analyst Report) and Sinopec (SNP - Analyst Report) is also a threat to PetroChina. A Zacks #3 Rank for the company retains, which translates into a short-term Hold recommendation.

Cal-Maine Misses Estimate

Jackson, Mississippi-based Cal-Maine Foods Inc (CALM - Snapshot Report) posted second-quarter 2011 earnings of 63 cents per share, which were well below the Zacks Consensus Estimate of 72 cents and year-ago quarter’s earnings of 67 cents. The company reported lower-than-expected profit due to higher feed costs, which the company said would remain a concern in fiscal 2011 as well.

Inside the Headline Numbers

Total revenue in the quarter under review rose 2% year over year to $234.5 million, driven by stronger pricing. However, it missed the Zacks Consensus Estimate of $238 million. The largest U.S. producer and distributor of fresh-shell eggs said that in spite of challenging economic conditions, specialty-egg sales grew 15.5% per dozen. Gross income increased 3.4% from the prior-year quarter to $45.2 million and gross margin contracted 110 basis points (bps) year over year to 19.3%, mainly on account of a rise in feed cost. During the quarter, feed cost per dozen produced increased 11.5% year over year to $0.387.

Operating income grew 10.4% year over year to $22.8 million, while operating margin dropped 140 bps year over year to 9.7%.

Financial Position

Cal-Maine ended the quarter with cash and short-term investment of $167.8 million, long-term debt of $98.3 million and shareholder equity of $389.7 million. The company also announced a dividend of 21.2 cents per share during the quarter. The dividend will be paid on February 10, 2011 to shareholders of record as on January 26, 2011.

Our Take

Given the company’s earnings miss and escalating feed cost, we expect estimates to drop down in the coming days. The Zacks Consensus Estimates for 2011 and 2012 are $2.77 and $2.99, respectively.

One of Cal-Maine’s primary competitors, Del Monte Food Co. (DLM) posted second quarter 2011 earnings of 41 cents per share, which outpaced the Zacks Consensus Estimate of 35 cents.

Cal-Maine engages in the production, grading, packaging, marketing and distribution of shell eggs primarily in about 29 states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S. The company also produces and markets specialty shell eggs, under the Egg-Land's Best, Farmhouse and 4-Grain brands.

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