For Immediate Release
Chicago, IL – July 5, 2012 – Zacks Equity Research highlights Beacon Roofing Supply (BECN - Analyst Report) as the Bull of the Day and Invesco, Ltd. (IVZ - Analyst Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Dell Inc. , Quest Software Inc. and Hewlett-Packard Co. (HPQ - Analyst Report).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
Bull of the Day:
We have upgraded our recommendation on Beacon Roofing Supply (BECN - Analyst Report) to Outperform from Neutral with a target price of $29. Second-quarter 2012 earnings were $0.07 per share, beating the Zacks Consensus Estimate for a loss of $0.08. Revenues increased 33.4% to $395.2 million, topping the Zacks Consensus Estimate of $346 million.
Beacon purchased Cassady Pierce Company to expand its business activities, while also augmenting its product portfolio in the lines of building products. It has entered into a new five-year senior secured credit facility that will provide financial stability for future acquisitions, enabling it to pursue growth opportunities.
Moreover, the ramp up in the housing market will benefit the company as demand for roofing and re-roofing activities are on the rise. Our six-month target price is $29, amounting to 18.1x 2012 EPS.
Bear of the Day:
We are downgrading our recommendation on Invesco, Ltd. (IVZ - Analyst Report) to Underperform based on continuously rising operating expenses and volatile capital markets. The company's first quarter 2012 earnings showed higher operating expenses.
Constantly rising operating expenses remains a concern for Invesco. Though a reverse trend was seen in the third and fourth quarter of 2011, operating expenses have been on the rise, primarily due to higher compensation costs.
Our six-month target price of $21.00 per share equates to about 11.2x the Zacks Consensus Estimate for 2012. Combined with the annual dividend of $0.69 per share, this target price implies an expected negative return of 5.6% over that period, which is consistent with our Underperform recommendation.
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Dell Edges Competition for Quest
After battling with other bidders over the past few months, Dell Inc. has finally snapped up information technology (IT) management software provider Quest Software Inc. . Dell edged out its competitors with a striking offer of $2.4 billion (net of Quest’s cash and debt).
The purchase consideration translates to $28.00 a share, which is a slight premium over Quest’s closing share price of $27.82 on Monday. The deal has already been approved by the boards of directors of both companies and is expected to close in Dell’s fiscal third quarter ending October 2012.
A Good Deal for Dell
California-based Quest Software develops network and database management software and offers a wide range of solutions to deal with IT challenges. Quest’s offerings will go hand-in-hand with Dell’s offerings and would expand the latter’s software capabilities in systems management, security, data protection and workspace management.
Moreover, Quest also brings on board 1,500 software sales experts and 1,300 software developers, which are expected to generate $1.2 billion of software revenue, annually.
Also, Dell could make its presence in the software space more stable, putting pressure on H-P, which is on a similar mission.
The Bidding Drama
Many software vendors were chasing Quest Software since the beginning of this year. Among the bidders, Quest found the offer made by private equity firm Insight Venture Partners competitive. Insight, which partnered with Vector Capital, offered a price of $23 per share or $2.0 billion in March. In June, Dell and Insight entered into a neck and neck bidding war. Dell’s $2.15 billion offer was outshined by Insight’s hefty $2.17 billion.
The Quest bid reminds us of the dramatic 3PAR bidding war between the PC bigwigs Dell and Hewlett-Packard Co. (HPQ - Analyst Report) in 2010. Dell lost the bid to its archrival.
The acquisition reflects the fourth consecutive deal by Dell this year and also furthers the company’s objective of moving to the higher-margin markets, such as software, storage and services. The initiative would help the company to shift its focus from the traditional PC business, which is putting pressure on its fundamentals.
The shift is critical for Dell’s success in the dynamic and evolving technology sector, where most of the growth in the next few years is likely to be in the storage, software and virtualization segments. Since Dell’s business has been focused on PCs, the company has had to refocus the business and even go in for some cost reduction over the next three years.
The basic idea of this cost reduction initiative was to support current profitability, with the longer-term objective being a move from the traditional computing business to a high-margin enterprise-class software and services business. The costs saved will also help fund further acquisitions targeting the higher-margin segment.
Dell’s shares slumped 5 cents in the after-hours reflecting integration risks, a higher debt burden and concerns regarding the uncertain PC market.
Currently, Dell has a short-term Sell recommendation, as indicated by the Zacks #4 Rank.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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