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The Zacks Analyst Blog Highlights: Google, Apple, Research In Motion, Nokia and Ford Motor

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For Immediate Release

Chicago, IL – August 20, 2012 – 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 Google Inc. , Apple (AAPL - Analyst Report), Research In Motion , Nokia (NOK - Analyst Report) and Ford Motor Co. (F - Analyst Report).

 

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Here are highlights from Friday’s Analyst Blog:

 

Google to Lay Off 4000

 

Google Inc. recently announced that it will lay off 4,000 of the 20,000-person workforce that it inherited from Motorola Mobility, and will also shut down 30 of its 90 facilities worldwide. Two-third of the lay-offs will take place outside the U.S.

Google entered into a definitive agreement with Motorola Mobility Holdings Inc. on August 15, 2011, through which Google picked up a 100% stake of Motorola Mobility for $40.0 per share in cash or a total consideration of approximately $12.5 billion. Google closed the deal in May 2012.

The reason for the acquisition was Motorola’s 17,000 worldwide patents as well as another 7,500 patent applications, which could help Android fight off competition from the likes of Apple (AAPL - Analyst Report), Research In Motion and Nokia (NOK - Analyst Report) that have competing mobile operating systems.

While some feel that Google is contemplating its own hardware business under the Motorola banner, we think it unlikely considering the lower margins typical of a hardware business, Motorola’s lack of success in recent years and the fact that it puts Google in direct competition with hardware partners, such as Samsung and HTC.  But much could change over the next few years.

Motorola has now generated losses in 14 out of 16 quarters and the business continues to struggle. Google therefore decided to bring it to profitability by cutting down Motorola’s excessive workforce including 40% of its top management. It is also trying to reduce Motorola's product portfolio, which includes 27 different models of phones including several low-end models.

Motorola has lost ground to Apple and Samsung, but Google thinks that a few select models (with in-demand features such as voice-recognition sensors and long lasting batteries) would enable the company to compete more effectively.

The whole exercise will cost Google roughly $275.0 million in severance costs, impacting its profitability in the third quarter.

Google hopes to bring the loss-making handset maker to profitability, which could result in and some Android-based smartphones with cutting-edge hardware going forward. Motorola’s patents and experience in the smartphone hardware segment coupled with Google’s strategic planning could ultimately help the company to create a viable product portfolio in the already overcrowded smartphone market.

In the second quarter, Google has done very well with its gross revenue touching a record $12.21 billion. Revenues from both Google-owned and partner sites continued to grow in double digits on a year-over-year basis.

Google retains a Zacks #3 Rank, which translates into a short-term Hold recommendation.

 

 

S&P Raises Ford Outlook

 

Standard & Poor's (S&P) Ratings Services has upgraded its outlook on Ford Motor Co. (F - Analyst Report) to “Positive” from “Stable.” The revision is based on the company’s performance in North America which generated higher cash flow and profits. The agency also believes that the company’s initiative in restructuring the European operations will be profitable even in a weak sales scenario in the region.

Ford’s North American operation has recorded a 1% growth in revenues to $19.7 billion in the second quarter of 2012. Pre-tax operating profit improved 5% to $2 billion from $1.9 billion a year ago due to higher net pricing, improved contribution costs and other factors, partly offset by higher structural costs and unfavorable volume and mix.

However, the company posted a 39% fall in profits to $1.20 billion or 30 cents per share in the quarter from $1.98 billion or 49 cents per share in the corresponding quarter of 2011 due to lower operating results in all the regions except North America. However, the earnings per share were higher than the Zacks Consensus Estimate of 28 cents.
 
S&P rating service, however, retained its credit rating to "BB+." The credit rating can be upgraded to "investment grade" if the company further improves its profitability across the regions.

Meanwhile, Moody's and Fitch Ratings have raised the company’s credit rating from junk status to investment grade. Ratings upgrades will help the company in lowering its borrowing costs and increase the number of buyers for its bonds.

In addition, Ford reclaimed custody of its renowned blue oval logo following the upgrades. The logo was used, along with factories and other assets, as collateral to acquire a loan of $23.5 billion in 2006. With this, the company survived the bankruptcy along with the great recession and financial crisis.

Michigan-based Ford Motor Co. is one of the largest automobile producers globally. The company is divided into two segments: Automotive and Financial services. Its core and affiliated automotive brands include Ford, Lincoln and Mercury. Although the U.S. is Ford’s primary selling ground, Europe, South America and Asia-Pacific constitute its other major markets.  

Currently, Ford retains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating. We have a long-term Underperform recommendation on the stock.

 

 

 

 

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