The Zacks Analyst Blog Highlights: Johnson & Johnson, China Unicom, Apple, China Mobile and China Telecom

For Immediate Release

Chicago, IL – November 1, 2011 – 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 Johnson & Johnson ( JNJ - Analyst Report), China Unicom ( CHU - Analyst Report), Apple Inc. ( AAPL - Analyst Report), China Mobile ( CHL - Snapshot Report) and China Telecom Corp. ( CHA - Snapshot Report).

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Here are highlights from Monday’s Analyst Blog:

Earnings Scorecard: J&J

Following the release of third quarter 2011 results, majority of the analysts covering Johnson & Johnson ( JNJ - Analyst Report) revised their earnings estimates. While 2011 estimates have been revised in both directions, 2012 estimates have gone predominantly downwards.

Third Quarter Recap

Johnson & Johnson posted third quarter 2011 earnings (excluding special items) of $1.24 per share, three cents above the Zacks Consensus Estimate of $1.21 and 0.8% above the year-ago earnings of $1.23.

Johnson & Johnson’s revenues for the reported quarter increased 6.8% year-over-year to $16 billion. Revenues were in-line with the Zacks Consensus Estimate. Operational factors and foreign exchange movement favorably impacted sales by 2.6% and 4.2%, respectively. Including one-time items, Johnson & Johnson reported earnings of $1.15, 6.5% below the year-ago earnings of $1.23.

(Read our detailed earnings report at: J&J Beats, Adjusts Outlook).

Agreement of Analysts

Estimates for fiscal 2011 indicate a somewhat mixed reaction to third quarter results. Out of 22 analysts covering the stock, 9 have raised their estimates over the last 30 days with 7 moving in the opposite direction.

For fiscal 2012, estimates are negatively inclined with 14 analysts (out of 22) making downward revisions over the last 30 days while 1 has increased the forecast. Foreign exchange is unlikely to benefit 2012 earnings significantly.

Magnitude – Consensus Estimate Trend

In view of the significant estimate revisions for 2011 in both directions (over the last 30 days), the earnings estimate has remained static as movements in both directions have balanced out each other. The significant downward bias in 2012 earnings estimates has resulted in the estimate being trimmed by $0.05 over the last 30 days. The current Zacks Consensus Estimates for 2011 and 2012 are $4.97 and $5.24, respectively.  

Unicom Posts Stable Profits, Revs Up

China Unicom ( CHU - Analyst Report), China's second largest mobile operator, announced results for the first nine months of 2011 with earnings per share of RMB 0.18 ($0.27 per share), which is flat year over year.

Adjusted net income inched up 0.3% year over year to RMB 4.263 billion ($0.656 billion). High costs associated with 3G service deployments and network expansion were compensated by strong revenues.

Revenue & Subscriber

Total revenue climbed 23.5% year over year to RMB 155.92 billion ($24 billion). Telecommunication service revenues, comprising roughly 89% of the total revenue, were RMB 137.80 billion ($21.2 billion), up 13.2% from the year-ago period.

Healthy revenue growth was credited to strong sales of Apple Inc.'s ( AAPL - Analyst Report) iPhones as China Unicom enjoys the exclusive right to distribute the device in China since October 2009.

Total revenue from the mobile business shot up 44.8% year over year to RMB 93.96 billion ($14.46 billion). A large contributor was the telecommunication service with revenues of RMB 75.89 billion ($11.68 billion), up 25.63% from the prior year-period. China Unicom added 21.61 million subscribers in the first nine months to reach 189.034 million.

China Unicom’s 3G business is growing at a faster pace since its introduction in October 2009. 3G business telecommunication service revenues were RMB 22.19 billion ($3.41 billion) in the first nine months of the year. The company’s total 3G subscriber base reached 30.230 million, with 16.170 million new customers added in the first nine months.

Telecommunication service revenue from the GSM business inched up 1% year over year to RMB 53.70 billion ($8.26 billion). Net subscriber additions were 5.438 million to 158.804 million at September 30.

Revenue from the fixed-line business grew 2.2% to RMB 61.29 billion ($9.43 billion). Telecommunications services revenue from the fixed-line business rose 2.3% year over year to RMB 61.24 billion ($9.42 billion) backed by the rapid growth in fixed-line broadband business.

Telecommunications service revenues from the broadband business was RMB 26.09 billion ($4.01 billion), up 18.1% from the year-ago period. In the first nine months of the year, China Unicom added 7.313 million customers bringing the total number to 54.537 million.

The local telephone business recorded service revenue of RMB 26.129 billion ($4.02 billion), down 14.8% from the year-ago period. Erosion in fixed-line subscriber base continues with the loss of approximately 2.060 million customers over the first nine months, bringing the total customer base to 94.575 million.

Expenses

Total expenses climbed 24.3% year over year to RMB 150.271 billion ($23.13 billion) on the back of higher selling expenses, network deployment costs, depreciation charges and inflation rate. Selling and marketing expenses rose 20.6% year over year to RMB 3.524 billion ($0.54 billion), mostly due to higher promotional spending on 3G and broadband services.  

Liquidity

At the end of September 30, China Unicom had cash and cash equivalents of RMB 14.778 billion compared with RMB 10.591 billion in the year-ago period.

Our Analysis

China Unicom’s 3G business is performing well and has surpassed its full-year 3G user target of 25 million. The company is also poised to benefit from the stabilization in the fixed-line business and expansion of fiber optic service in the fixed-line broadband business. Hence, China Unicom expects to generate revenues faster by accelerating large-scale developments of 3G and fixed-line broadband.

On the other side, high levels of marketing and promotional expenditures and a precipitous decline in the landline business might hurt profitability going forward. Additionally, increased operating expenses coupled with higher depreciation and amortization will have an adverse effect on the company’s profitability, free cash flow and margins.

Further, China Unicom remains significantly challenged by aggressive nationwide 3G service rollouts by its peers, China Mobile ( CHL - Snapshot Report) and China Telecom Corp. ( CHA - Snapshot Report).

We recently upgraded our long-term recommendation from Underperform to Neutral on the stock. The stock retains a Zacks #3 Rank (Hold) for the short term (1–3 months).

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