Zacks Bull and Bear of the Day Highlights: Vodafone, Somaxon, McDonald's Corporation, Starbucks and Yum! Brands Inc.
For Immediate Release
Chicago, IL – June 9, 2009 – Zacks Equity Research highlights Vodafone (VOD - Analyst Report) as the Bull of the Day and Somaxon (SOMX - Analyst Report) the Bear of the Day. In addition, Zacks Equity Research provides analysis on McDonald's Corporation (MCD - Analyst Report), Starbucks (SBUX - Snapshot Report) and Yum! Brands Inc (YUM - Analyst Report).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.
Here is a synopsis of all five stocks:
Bull of the Day:
We maintain our Buy recommendation for Vodafone (VOD - Analyst Report), the largest revenue-generating international wireless carrier. Operating results for fiscal 2009 were highlighted by respectable increases in subscriber count bolstered by record net additions for its Indian operation.
Vodafone continues to accelerate 3G wireless service deployments and expanding network availability across Asia, Eastern Europe and Africa, primarily through acquisitions. Additionally, the company is focused on improving shareholder returns through increased dividend payouts, which supports our valuation forecasts.
Management's outlook for fiscal 2010 appears favorable as operating results are expected to improve with continued growth across incipient markets coupled with ongoing cost saving initiatives and currency exchange translation gains.
Bear of the Day:
On June 4, 2009, Somaxon (SOMX - Analyst Report) announced that is has resubmitted the new drug application (NDA) to the U.S. FDA for Silenor (doxepin) for the treatment of insomnia. Despite this good news, we struggle to see how this drug can capture enough of the insomnia market to drive Somaxon to strong profitability.
The insomnia market is dominated by generic molecules, and without an onset claim, Silenor will already lose out on approximately half the market. Plus, Somaxon is running dangerously low on cash. We estimate the current cash balance is only enough to fund operations until July 2009.
Therefore, we expect a highly dilutive (30-40%) capital raise in the next week or two. We have a Sell rating on the shares and a target price of $0.50.
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MCD Sizzles, But FX to Take a Bite
McDonald's Corporation (MCD - Analyst Report) continues to report strong worldwide same-store sales but, as expected, foreign currency translation remains a drag on earnings.
Much of the foreign exchange [FX] drag -- expected to be $0.20 for 2009 -- was already factored into estimates or offset by anticipated declines in commodity costs in 2H09. In turn, we are trimming our 2009 EPS estimates by just $0.04 to $3.78 and maintaining our Buy rating on what we consider a defensive safe haven in a dangerous market.
McDonald's announced today that global same-restaurant sales jumped 5.1% in May, with overseas operations remaining strong and those in the U.S. moderating. Comps in in the U.S. grew 2.8% in May -- respectable given the powerful 7.7% rise in May 2008, though slower than the 6.1% reported in April. In Europe, comps surged 7.6%, and in Asia/Pacific, Middle East and Africa they grew 6.4%.
McDonald's U.S. sales were fueled by its successful recent rollout of McCafe coffees. The new premium coffee line has an appealing ad campaign and is likely to draw value-conscious customers away from the $4 lattes at Starbucks (SBUX - Snapshot Report).
Europe benefited as restaurants added breakfast and extended their late night hours. Notably, Germany -- a very weak area for Burger King -- continued to post positive comps.
Strong sales in Australia and Japan juiced strong Asia/Pacific comps. McDonald's has successfully tailored its menu offerings to local tastes.
China, where McDonald's represents a more expensive meal, remains one area of weakness. China's contraction, however, should have a much bigger effect on Yum! Brands Inc (YUM - Analyst Report), which derives 28% of its revenue there.
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About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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