For Immediate Release
Chicago, IL – August 21, 2012 – Zacks Equity Research highlights Clorox (CLX - Analyst Report) as the Bull of the Day and Penn Virgina Resource Partners as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Electronic Arts Inc (EA - Analyst Report)), Zynga (ZNGA - Snapshot Report)) and Activision (ATVI - Snapshot 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:
Clorox (CLX - Analyst Report) was upgraded from Neutral to Outperform following the recent positive earnings surprise. Earnings estimates for future quarters were in line with company guidance. The most recent quarter saw the company top the Zacks Consensus Estimate on both the top and the bottom lines.
Clorox Company's business operations, represented by the aggregate of its U.S. Household Products and Canada, U.S. Specialty Products and International segments, include the production and marketing of non- durable consumer products sold primarily through grocery and other retail stores.
For the full year, the company reported earnings of $4.24 per share, surpassing the year-ago earnings of $4.16 and the Zacks Consensus Estimate of $4.05. Full-year sales increased 4.5% year over year to $5,468 million, slightly surpassing the Zacks Consensus Estimate of $5,461 million.
In the quarter, Clorox bought back about 1 million shares for approximately $68 million. Full year share repurchases totaled 3.4 million shares for approximately $225 million. The company anticipates annual earnings of $4.20 to $4.35 per share in fiscal 2013.
Our target price of $86.00 is based on a 20x multiple of 2013 earnings estimates.
Bear of the Day:
Penn Virgina Resource Partners has been downgraded from Neutral to Underperform. The change in rating comes as commodity prices have fallen along with a drop in coal production and an increase in emission free resources.
Penn Virginia Resource Partners is a limited partnership that is in the business of managing coal properties in the Central Appalachian region of the United States. They enter into long-term leases with experienced, third- party mine operators for the right to mine their coal reserves in exchange for royalty payments.
Penn Virginia Resource Partners announced second quarter 2012 earnings of $0.11 per unit, down from $0.32 per unit in the year ago period. That works out to be a decline of 67.0%. This decline was due to a weakening coal market, decreasing natural gas liquid prices and low fee-based contracts in the Midcontinent business wing. Earnings were lower than the Zacks Consensus Estimate of $0.19 per unit or a miss of 42%.
Earnings estimates for 2013 have been falling lately, as analysts trim their estimates in the face of slower growth. In June, the 2013 Zacks Consensus Estimate stood at $1.89 and was subsequently trimmed to $1.61 in July and currently sits at $1.40.
Latest Posts on the Zacks Analyst Blog:
EA Rumored to Go Private
Video game developer and publisher, Electronic Arts Inc (EA - Analyst Report) is reportedly up for sale. According to a recent news feed from the New York Post, private equity players KKR and Providence Equity have shown keen interest in buying the video game maker. EA shares jumped 5.5% in response, closing at $13.81 on August 16, 2012.
According to the New York Post, the private-equity firms are rumored to have offered $20 a share, which is approximately a 45% premium to the closing price of $13.81. Since the discussions are at a very preliminary stage, EA has declined to provide any details.
Redwood City, California based EA is well known for its popular franchises such as Battlefield, Madden NFL, SimCity and many more. However, declining retail sales due to the ongoing transition from the physical to the digital platform and the emergence of free-to-play games has hurt EA’s top-line and profitability growth over the last couple of years.
U.S. video game retail sales declined 20.1% year over year to $548.8 million in July 2012, the eighth consecutive month of decline. Sluggish consumer spending on packaged goods has been a major factor behind this decline. According to market research firm NPD, overall consumer spending dropped 16% annually in the second quarter of 2012.
Online gaming is expected to witness growth at the expense of retail sales, given the growing popularity of digital distribution and free-to-play browser games. Consumers are increasingly spending more on smartphones and portable devices (such as the iPad) as compared to traditional devices for playing online games.
Although EA has been steadily increasing its presence in the digital segment by offering its popular franchises online, they have not attained much success in terms of monetization to offset the significant loss from the packaged goods segment.
In the recently concluded first quarter of 2012, revenue declined 6.0% year over year despite the 55% jump in digital revenue (66% of total revenue) being fully offset by a 25% year over year decline in publishing and other (30% of total revenue) and 83.0% decline in distribution revenue (4% of total revenue).
Moreover, consumers’ reluctance to spend has compelled EA to provide most of its online games for free (in order to attract more subscribers), which has significantly hurt its profitability. EA reported an operating loss of $220.0 million in the first quarter.
EA expects that the increasing online subscriber base will boost its revenue from the sale of virtual goods going forward. The company also expects to earn significant advertising revenue over the long term.
However, we believe that EA’s online games face significant competition from social and casual game providers such as Zynga (ZNGA - Snapshot Report)), Roveo (makers of Angry Birds) and many other small application developers who not only update their game content and features but also introduce new games on a regular basis.
In this regard, we believe that EA is handicapped by the limited number of new games in its portfolio. The company continues to publish digital versions of its existing franchises, but being mature, these games are naturally not doing as well as new ones from others. We believe that this is going to hurt its attempt to attract online subscribers, thereby negatively impacting revenue growth going forward.
Currently, on a year-to-date basis, EA shares are down 35.2% compared with a 10.8% increase for the S&P 500 and a 2.6% decrease for Activision’s (ATVI - Snapshot Report). EA is trading at a premium to most of its peers on a Price to Earnings, P/Sales and PEG basis. The current offer of $20.00 equates to a P/E of 31.7x, a significant premium to the current P/E multiple of 21.9x, which investors may find attractive.
We remain Neutral over the long term (6-12 months). Currently, EA has a Zacks #3 Rank, which implies a Hold rating over the short term (1-3 months).
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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