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The Zacks Analyst Blog Highlights: Kroger, Wal-Mart Stores, Boeing, Lockheed Martin and Northrop Grumman

KR WMT BA LMT NOC

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For Immediate Release

Chicago, IL – October 19, 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 The Kroger Company (KR - Analyst Report), Wal-Mart Stores Inc. (WMT - Analyst Report), The Boeing Company (BA - Analyst Report), Lockheed Martin Corporation (LMT - Analyst Report) and Northrop Grumman Corporation (NOC - Analyst Report).

 

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Here are highlights from Thursday’s Analyst Blog:

Kroger Sets New 52-Week High

 

Shares of The Kroger Company (KR - Analyst Report) set a new 52-week high of $25.25 on Wednesday, October 17, 2012, beating its previous 52-week high of $24.84. The closing price of this food retail grocery chain as of October 17, 2012 was $25.01, which represented a return of 10% from its last reported quarter on September 7.

Growth Drivers

Kroger’s Customer 1st strategy, positive earnings surprises in the last four quarters with an average beat of 5.23% and strong outlook are the primary growth drivers for this stock.

Moreover, we believe Kroger’s customer-centric business model provides a strong value proposition to consumers, and is well positioned to deliver higher earnings primarily through strong identical supermarket sales growth (sans fuel).

The Kroger Company posted better-than-expected fiscal second-quarter 2012 results, wherein the quarterly earnings of 51 cents a share surpassed the Zacks Consensus Estimate by a couple of cents, and rose 24.4% from 41 cents earned in the prior-year quarter. Total revenue (including fuel center sales) climbed 3.9% to $21,726.4 million from the prior-year quarter.

Healthy results prompted management to raise the outlook. Recently, Kroger enhanced its long term earnings per share growth target to 8% to 11% (excluding its current dividend of 2.5%) from its earlier target of 6% to 8%.

The company is focusing on bolstering return on invested capital through operating efficiencies and cost containment efforts to enhance profitability. The company will also boost its capital spending by an incremental $200 million annually to concentrate more on store expansions into existing and newer markets and other viable projects.

Moreover, the company announced a new $500 million share repurchase program, overriding its existing program which had about $340 million remaining under the authorization.

Going ahead, the company envisions fiscal 2012 earnings between $2.35 and $2.42 per share. Management expects to attain the higher end of the guidance range. The Zacks Consensus Estimate stands at $2.41 for fiscal 2012. Kroger expects identical supermarket sales (excluding fuel) growth guidance of 3% to 3.5% for fiscal 2012.

Valuation

Valuation looks reasonable for Kroger, with shares trading at 10.4x 12-month forward P/E, compared with a peer group average of 10x. However, on a price-to-book basis, shares are currently trading at 3.6x, a substantial premium to the peer group average of 2.0x.

Nevertheless, the stock looks attractive given a trailing 12-month ROE of 28.7%, which is higher than the peer group average of 18%. The company’s long-term estimated earnings per share growth rate also remain healthy at 9.1%.

About the Company

Founded in 1883 and incorporated in 1902 with headquarters in Cincinnati, Ohio, The Kroger Company is one of the nation’s largest grocery retailers operating 2,425 supermarkets and multi-department stores in 31 states under approximately 24 local banners, Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry's, King Soopers, QFC, Ralphs and Smith's. In addition, Kroger directly, or through subsidiaries or franchisee and operating agreements, runs 788 convenience stores, 342 fine jewelry stores, 1,124 supermarket fuel centers, and 37 food-processing plants. The company has a market cap of $13.20 billion.

Our Recommendation

Kroger’s shares maintain a Zacks #2 Rank that translates into a short-term ‘Buy’ rating, and well defines the company’s healthy performances and upbeat guidance.

However, due to the current macroeconomic environment and intense price competition from Wal-Mart Stores Inc. (WMT - Analyst Report), we maintain a long-term ‘Neutral’ recommendation on the stock.

 

 

 

Earnings Preview: Boeing

 

Aerospace & defense behemoth, The Boeing Company (BA - Analyst Report) is all set to report its third quarter 2012 results before the start of trading on October 24, 2012. The Zacks Consensus Estimate for the third quarter of 2012 is $1.12 (year-over-year decrease of 23.1%) on revenues of $20,110 million (year-over-year increase of 13.4%).

Prior-Quarter Recap

Boeing posted second quarter 2012 earnings per share (EPS) of $1.27, beating both the Zacks Consensus Estimate of $1.11 and year-ago EPS of $1.25. The company witnessed 27% higher commercial airplane deliveries while its defense business, showing resilience, clocked higher revenues and strong margins in a difficult market environment.

On the revenue front, the company witnessed its quarterly revenue rise 20.9% year over year to $20.0 billion, above the Zacks Consensus Estimate of $19.4 billion.

Boeing raised its fiscal 2012 earnings per share guidance to a range of $4.40–$4.60 versus its earlier guidance range of $4.15–$4.35. The company also raised its revenue guidance for 2012 to the range of $79.5 billion – $81.5 billion versus the earlier range of $78.0 billion–$80.0 billion.

(Read our full coverage on this earnings report: Boeing Tops, Raises Outlook).

Agreement of Estimate Revisions

Over the last 7 days, 2 of the 18 analysts covering Boeing for the third quarter of 2012 have upped their earnings estimates with 1 downward movement. Prior to that, the company, over the last 30 days, has also witnessed a positive bias among analysts regarding estimate revisions. In the aforementioned period Boeing witnessed 7 upward moves versus 3 downward revisions.

The upward revisions are mainly attributed to Boeing’s status as the largest aircraft manufacturer in the world in terms of revenue, orders and deliveries, and one of the largest aerospace and defense contractors. Its revenue exposure is spread across more than 90 countries around the globe. Due to the continuing recovery of the global economy, demand for Boeing’s Commercial Airplanes is benefiting from a steady improvement in passenger and freight traffic. To catch up with the expected rise in air traffic and to check fuel bills, airliners will need to replace older airplanes with new ones. The company is slated to benefit greatly from improving air traffic.

Per the company, the worldwide market for new commercial airplanes is expected to be $4.5 trillion in the next 20 years. Boeing’s projection of growth is based on the strength of the commercial aviation market, recovery witnessed in world economies and strong demand for fleet addition and replacement. Airline traffic is forecast to grow at a 5% annual rate over the next two decades, with cargo traffic projected to grow at an annual rate of 5.2%.

The downward revisions are attributed to the cautious stance of some analysts in the face of downward U.S. defense budget trends and the incoming effect of sequestration currently required under the Budget Control Act.

Estimates for 2012 have also witnessed a positive bias. Consensus 2012 earnings estimate of $4.71, composed of 22 estimates, witnessed 4 upward revisions compared with 2 downward revisions over the last 30 days.

Magnitude of Estimate Revisions

Given the positive sentiment in earnings estimate revisions witnessed over the last month, the consensus earnings estimate for the third quarter of 2012 has gone up by a penny to $1.12. Earnings estimate for 2012 has remained fixed at $4.71 per share over the last 30 days.

Surprise History

Boeing has consistently surpassed earnings estimates in the last four quarters. The company recorded a maximum positive surprise of 31.53% in the third quarter of 2011. On an average, the earnings surprise was 22.80%.

Our Recommendation

Boeing currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. This is in sync with other aerospace and defense behemoths. A clearer picture will emerge next Wednesday when Boeing along with defense biggies like Lockheed Martin Corporation (LMT - Analyst Report) and Northrop Grumman Corporation (NOC - Analyst Report) release their versions of the third quarter of 2012.

 

 

 

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