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Zacks #1 Stocks on the Move 08/21/2014

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Analyst Blog

Williams-Sonoma's West Elm Brand Widens Reach in Oklahoma

Posted Thu Aug 21, 07:20 pm ET

by Zacks Equity Research

After opening a West Elm retail store in Oklahoma City, OK earlier this month, Williams-Sonoma, Inc. (WSM) recently announced the opening of another West Elm store in Tulsa, OK. Located in Utica Square, this store will debut with the fall 2014 assortment, which will include exclusive designs for lighting, new collaborations and handcrafted products from Haiti, India, Peru and the Philippines. Moreover, the store will offer a local assortment of art, hand-woven throws, bar accessories, pillows and stationery, especially designed by Oklahoma-based artisans.

West Elm is one of the iconic home furnishings brands of Williams-Sonoma. The brand offers personalized products designed by the company’s team of artists and designers. The company offers West Elm branded furniture, bedding, bathroom accessories, rugs, curtains, lighting, decorative accessories, dinnerware, kitchen essentials, and gifts.

Williams-Sonoma has been consistently adding new stores in order to drive sales. Earlier this week, the company opened a new West Elm retail store in Kansas City, MO. In Jul 2014, the company introduced its first Pottery Barn and Pottery Barn Kids stores in Southeast Asia. These stores are located at Central Square, Bonifacio High Street, Manila, Philippines.

Later this year, Williams-Sonoma intends to open eight new stores in Australia and new West Elm stores in UK. The company also intends to launch Pottery Barn and Pottery Barn Kids fully-integrated websites in UK.

Headquartered in San Francisco, CA, Williams-Sonoma is a multi-channel specialty retailer of premium quality products for home.

Williams-Sonoma carries a Zacks Rank #2 (Buy).

Investors interested in the retail sector can also consider stocks like Mattress Firm Holding Corp. (MFRM), Barnes & Noble, Inc. (BKS) and J. C. Penney Company Inc. (JCP). While Mattress Firm Holding sports a Zacks Rank #1 (Strong Buy), Barnes & Noble and J. C. Penney hold a Zacks Rank #2.

Banks Offer 20-25% Pay Hike to Retain Junior Bankers

Posted Thu Aug 21, 07:10 pm ET

by Zacks Equity Research

In order to prevent defections and retain talent, Wall Street biggies are planning to hike the salary for their junior staff in the range of 20-25%. Some of the banks including JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC), The Goldman Sachs Group, Inc. (GS), Citigroup Inc. (C) and Morgan Stanley (MS) have either already announced the raise or are planning to do so in the coming months.

Goldman intends to give a pay raise to several junior analysts by roughly 20%. Notably, only analysts working in the U.S. are eligible for this hike from next year on. Moreover, this move will not impact bonuses that are paid at the year-end.

Further, BofA and JPMorgan are also planning a 20% hike in the salary of junior bankers. Nonetheless, the raise in these to companies will be applicable to all the junior bankers across the globe. The rise is expected to take effect in 2015.

While these banks including Morgan Stanley, which intends to increase the salaries for mid-level and junior bankers by 25%, have already planned to reward their junior bankers with a raise, Citigroup is still contemplating the move.

Apart from salary raise, the banks are also trying to improve the working conditions of their junior bankers through work-life balance strategy by limiting working hours and offering better compensation. The decision to increase salaries, taken by these Wall Street banks, at a time when many of these banks face increased overall expenses depicts on-going efforts to prevent loss of talent to the competitors that include other banks as well as private equity firms and hedge funds.

Dow Chemical to Bring PacXpert in Partnership with Darplas

Posted Thu Aug 21, 07:00 pm ET

by Zacks Equity Research

The Dow Chemical Company (DOW) has declared its collaboration with Darplas, a Latin American producer of liquid and high barrier packaging. Darplas has secured the license for Dow’s PacXpert Packaging technology and will produce packages in Columbia for its customers in the Andean region, Central America and the Caribbean.

Dow’s shares rose 0.6% during the trading session on Aug 19 and closed the day at $53.08. The stock is up roughly 22% so far this year.

The PacXpert Packaging technology facilitates the conversion of large hard plastics containers to portable packages. This was initially called Smart Bottle technology in Latin America by Dow’s Packaging and Specialty Plastics business. Following its success, Dow entered into a global license agreement and renamed it PacXpert Packaging technology.

The technology offers lightweight packaging design and fitment closure along with unified dual handles for easy pouring, reclosing and carrying. The PacXpert technology has a variety of household, institutional and industrial use and enables packaging of food, condiments, liquids and dry goods. Moreover, the cube-shaped package is also able to stand upright or on its side when filled.

The packaging technology is environment-friendly as it minimizes wastage of the products and also requires less raw materials compared to other alternative packages. Moreover, the empty PacXpert packages are efficient enough to be transported and stored easily, thereby reducing the carbon dioxide emissions.

The Owner and General Manager of Darplas, Daniel Ruiz, is looking forward to this partnership and believes that this innovative and flexible packaging solution will meet consumer needs and withstand stiff competition in the packaging industry in Latin America.

Dow is a Zacks Rank #3 (Hold) stock.

Better-ranked companies worth considering in the diversified chemical space include Celanese Corp. (CE), Johnson Matthey plc (JMPLY) and LyondellBasell Industries NV (LYB). All these stocks carry a Zacks Rank #2 (Buy).

JinkoSolar to Supply 40-MW PV Modules for Chilean Project

Posted Thu Aug 21, 06:50 pm ET

by Zacks Equity Research

JinkoSolar Holding Co., Ltd. (JKS) has entered into an agreement with 8i S.A. (8i) to deliver 305 Poly 72 high-efficiency photovoltaic (PV) solar modules, worth 40 megawatts (MW), to the latter for a Chilean solar power project. Per the contract, the delivery will commence in the fourth quarter of 2014.

8i, a solar development firm, will utilize the solar modules at a solar power project in the Valparaiso region of Puchuncavi, Chile. The project is scheduled to be completed in Jul 2015. The firm will act as the developer as well as engineering, procurement and construction services provider for the project. Post completion, 8i will also be the owner of the project.

Demand for solar products and allied services are gradually increasing in Latin America given the growing awareness about it advantages. As per a Greenwood Energy report, the Latin American solar market is expected to add 700 MW of new capacity in 2014. In particular, Brazil, Chile, Mexico, Panama, Uruguay and Costa Rica figure significantly among the budding solar markets of the region.

Historically, the Latin Americans worship sun as their god and we notice the symbol of the “Sun” in many of these countries’ national flags. We have heard several stories about solar eclipse and sun-related facts of the Inca civilization. Currently, the South Americans are properly utilizing the abundance of sunlight and converting it as a major source of energy. This will help to reduce dependence on fossil-fuels for electricity generation, thereby minimizing carbon emissions.

According to a media report, investments in solar projects in Chile stood at $1.3 billion in 2013. Chile will likely play an important role in the Latin American solar market backed by its positional advantage. The nation has a strong potential project lineup of 11 gigawatts. The Atacama Desert region in Chile has one of the highest irradiation levels in the universe. Higher power demand for mining operations plays a vital role in driving solar demand.

JinkoSolar has a significant presence in Chile and continues to strengthen its footprint in the region. On May 2, 2014, the company signed an agreement to offer 100 MW of PV modules for two solar projects in Chile. JinkoSolar’s peer Yingli Green Energy Holding Company Limited (YGE) is also active in Latin America. Recently, Yingli Green Energy opened an office in Santiago, Chile to tap the rising Chilean solar demand.

JinkoSolar’s current strategy of focusing more on the new emerging markets, including Chile and South Africa, will help it to expand its revenue stream and reduce dependence on the U.S. as well as Europe.

JinkoSolar currently holds a Zacks Rank #3 (Hold). However, some better-ranked stocks in the industry include ReneSola Ltd. (SOL) and Canadian Solar Inc. (CSIQ). ReneSola holds a Zacks Rank #1 (Strong Buy) while Canadian Solar carries a Zacks Rank #2 (Buy).

Lexmark (LXK) a Step Closer to Acquiring ReadSoft

Posted Thu Aug 21, 06:40 pm ET

by Zacks Equity Research

Lexmark International (LXK) is a step closer to acquire ReadSoft after it bought a 35.4% stake from its founders, Lars Appelstal and Jan Andersson, at 57 Swedish Krona (SEK) a share, according to Reuters. In the process, Lexmark has also increased its bid from 55.5 SEK to 57 SEK. This is the fourth time Lexmark has raised its bid price for ReadSoft. Previously, in August, Lexmark agreed to pay 55.50 SEK a share to counter Hyland Software’s 55 SEK offer.

The current bid for ReadSoft is valued at $254 million, significantly higher than the original $182 million bid. Hyland is reported to be in control of 10.9% of ReadSoft shares. However, with the current 35.4% founders’ stake and 52.2% votes in its favor, Lexmark is well ahead in the race to acquire the company.

Post acquisition, ReadSoft is expected to be integrated into Lexmark’s Perceptive Software segment which has been strengthened with several acquisitions such as PACSGEAR, Saperion and Brainware to name a few.  

Lexmark’s interest in ReadSoft is strategic as it will strengthen its position in the European business process management market. Reportedly, Gartner recognized EMEA to be the second-biggest content and process management software market.

Moreover, with more than 12,000 customers in diversified sectors and operations in 71 countries, ReadSoft provides Lexmark the perfect footing to expand its business process solutions operations. The valued clientele including John Deere, BASF and HSBC Bank is another positive.

We see strong growth prospects for Lexmark in the software sector, although the company is trying to expand its hardware solutions business. However, the overall macro uncertainty could affect product demand. Lexmark has a strong market position, but reduced demand for traditional printing hardware has affected pricing in the computer peripherals market.

Though constant pricing pressure from competitors such as Canon Inc., Xerox Corp. (XRX) and Hewlett-Packard Co. (HPQ) and a high debt burden are the concerns, we expect Lexmark to come back strongly with its increasing focus on software and services.

Currently, Lexmark has a Zacks Rank #3 (Hold).

Investors can also consider Stratasys (SSYS), which sports a Zacks Rank #1 (Strong Buy).

Tyson Extends Tender Offer Related to Hillshire Merger

Posted Thu Aug 21, 06:30 pm ET

by Zacks Equity Research

Tyson Foods, Inc. (TSN), after winning the bid for packaged meat producer, The Hillshire Brands Company (HSH) on Jul 2, is working closely with the Antitrust Division of the Department of Justice to close the deal on the expected date, i.e. Sep 27.

Recently, Tyson extended the offering period of its previously announced tender offer to purchase all of the outstanding shares of Hillshire Brands for $63.00 per share in cash. The offer was previously scheduled to expire on Aug 19 but now has been extended to Aug 26, 2014, to allow additional time for the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

The tender offer was initially made on Jul 2, when Tyson Foods had signed a definitive acquisition deal with Hillshire Brands, after a long fought bidding war with poultry producer Pilgrim’s Pride Corp. (PPC). Per the deal, Tyson Foods will pay $63 per share in cash for all the outstanding shares of Hillshire, valuing the company at approximately $8.55 billion, including debt.

On the same day, Hillshire’s board accepted the notice of termination of the deal from frozen foods maker Pinnacle Foods, Inc. (PF), which was the prime condition for the Tyson deal to materialize.

Chicago-based Hillshire Brands had proposed to buy Pinnacle for about $6.6 billion on May 12, including debt, in order to diversify its portfolio. (Read: Hillshire to Buy Pinnacle Foods for $6.6B). However, two weeks later Tyson and Pilgrim’s Pride engaged in a bidding war to acquire Hillshire. It came to an end when Tyson finally clinched the deal.

Both Hillshire and Tyson have a Zacks Rank #3 (Hold).

Peabody Energy Enjoys Wide Global Presence, Regulations Bind

Posted Thu Aug 21, 06:20 pm ET

by Zacks Equity Research

On Aug 18, we issued an updated research report on coal mining company Peabody Energy Inc. (BTU).  Peabody’s presence in two of the fastest growing U.S. coal markets and its exposure in Australia could help it to overcome the current slackness in the coal market. However, the U.S. Environmental Protection Agency’s (EPA) proposal to curb pollution could negatively affect coal demand and consequently impact the future prospects of the miners.

Peabody Energy, a Zacks Rank #3 (Hold) stock, reported a loss of 28 cents in the second-quarter 2014, marginally wider than the Zacks Consensus Estimate of a loss of 27 cents. However, overall improvement in sales volumes and higher realized prices of U.S. tons sold helped the company to beat the top-line estimate.

Peabody expects a revival in thermal coal demand globally, led by continuous urbanization and industrialization in the Asian countries, primarily in China and India. A World Steel Association projection indicates an improvement in met coal sales driven by higher steel consumption. Harsh winter conditions in the U.S. had led to higher usage of coal-fired units to meet increasing demand for electricity, thereby lowering stockpiles. This could also create fresh demand for thermal coal.

However, these positives are negated by the ongoing congestion in railroads services in the U.S. Peabody lowered its 2014 U.S. coal sales target to 185–190 million tons from 185–195 million tons to accommodate the loss in sales due to railroad congestion. Increasing pressure from natural gas and alternate energy sources continue to weigh on the coal stocks as well.

In June this year, the EPA proposed a Clean Power Plan, the primary objective of which is to cut down emissions from existing coal-fired power plants by 30% over the 2005 to 2030 time frame. If the proposal is accepted, it could hurt Peabody s domestic thermal coal sales as coal-fired power units are a major contributor of greenhouse gas generation.

Coal still grabs a major share in the global energy mix, despite increasing pressure from other fuel sources. Peabody’s strategic presence in the U.S. and Australia could help it to benefit from any revival in the coal markets.

However, Peabody will have to ward off competition from other coal producers like Alliance Resource Partners (ARLP), Alpha Natural Resources, Inc. (ANR) and Arch Coal, Inc. (ACI).

Infineon (IFNNY) to Buy International Rectifier (IRF)

Posted Thu Aug 21, 06:20 pm ET

by Zacks Equity Research

German chipmaker Infineon Technologies AG (IFNNY) recently entered into a definitive agreement to acquire International Rectifier Corp. (IRF), a manufacturer of power management semiconductors, for $3 billion in an all cash deal. The deal, which is the German chip maker’s largest to date, will be funded by cash and $2 billion (1.5 billion-euro) in debt financing.

Per the terms of the deal, Infineon will acquire the U.S. firm for $40 a share, which represents a fully diluted enterprise value of roughly $2.4 billion and a 51% premium over Tuesday’s closing share price.

It is worth noting that shares of Infineon fell nearly 2% following the announcement. On the other hand, shares of International Rectifier soared 47.2% to $39.10 yesterday, close to Infineon's offer of $40 per share.

The boards of both companies have approved the deal, which is most likely to close late this year or early next year after regulatory approval and customary closing conditions.

International Rectifier Corporation, an El Segundo, CA-based company, manufactures power-efficient electrical components for devices including satellites, cars, aircrafts and lighting systems.

Therefore, its product line is a perfect complement to Infineon’s existing power management business. The acquisition will also help Infineon expand to important international markets, particularly North America and Asia.

International Rectifier has been streamlining operations, which helped it swing to a profit in fiscal year 2014 (ended in June). Infineon’s scale and capacity may enable better distribution of IRF products and also enable further cost cutting at IRF. Therefore, the acquisition should be immediately accretive to Infineon’s earnings. Moreover, Infineon expects International Rectifier’s margin contribution to be at least in line with its average-cycle margin target of 15%.

For International Rectifier shareholders, this is an attractive return on their investment. It is worth mentioning that the pace of mergers and acquisitions in the Semiconductor industry has picked up of late. Some of the recent deals include Intel Corp.'s (INTC) announcement to acquire the Axxia chip business from Avago Technologies Ltd. (AVGO) for $650 million and Applied Materials, Inc.’s agreement to acquire Tokyo Electron Ltd.

Infineon manufactures chips for industrial electronics and the automotive industry and provides complete systems solutions. In the recently-concluded third quarter of fiscal 2014, the company reported earnings of €0.13, which was up 18% sequentially and 86% year over year. In dollar terms, earnings came in at 18 cents per share.

Revenue for the quarter increased 6% sequentially and 9% year over year to $1.5 billion (1.1 billion-euro). The company’s exited the quarter with cash and cash equivalents of $394.0 million (291 million-euro).

Both Infineon Technologies and International Rectifier currently have a Zacks Rank #2 (Buy).

T-Mobile U.S.: Attractive Get for Telecom, Big Tech

Posted Thu Aug 21, 06:16 pm ET

by Zacks Equity Research

T-Mobile U.S. Inc. (TMUS) remains hot in the ongoing consolidation trend within the U.S. telecom industry. Since 2011, T-Mobile U.S.’s parent company, Deutsche Telekom, has been exploring several options to divest its U.S. operations. Recently, the New York Post reported that French broadband service provider, Iliad SA, is considering renewed bid for T-Mobile U.S.

Earlier this month, Iliad offered $15 billion for a 56.6% stake in the nation’s fourth largest telecom operator. However, T-Mobile U.S.’s management immediately rejected the offer on ground of inadequacy. Meanwhile, the New York Post revealed that Iliad is pursuing tech giants Google Inc. (GOOG) and Microsoft Corp. (MSFT) to help it to bid for the second time for T-Mobile U.S.

Both Google and Microsoft primarily function as software developers. However, in recent times, both of these companies have given clear signals of opting for operational diversification. In keeping with this, Google acquired the smartphone business of Motorola Mobility, which was later sold to Lenovo and Microsoft took over Nokia’s smartphone division.

Nevertheless, a direct involvement in the telecom, especially in the wireless business is altogether a different ball game. It is still not clear whether either Google or Microsoft will become a partner of Iliad for its renewed bid for T-Mobile U.S.

Way back in 2011, AT&T Inc. (T) placed the first bid for T-Mobile U.S. After a close scrutiny, the Federal Communications Commission (FCC) thwarted AT&T’s attempt to acquire T-Mobile U.S., stating that it seeks a minimum four national carriers in order to maintain competitiveness.

In Jul 2014, Sprint Corp. (S) offered $16 billion for a little over 50% stake in T-Mobile U.S. Again the deal was thoroughly evaluated by both the FCC and the U.S. Department of Justice. The regulators decided for the same opinion. Consequently Sprint opted out from the race.  

Meanwhile, satellite TV operator DISH Network Corp. (DISH) has been pursuing the idea to acquire T-Mobile U.S. DISH Network has created an extensive portfolio of spectrum, the most important component of wireless networks. Recently, DISH Network confirmed its intentions of taking over T-Mobile U.S. after Sprint’s bid was stifled down by regulators.

According to industry rumors, cable TV operator Charter Communications Inc., which lost to Comcast Corp. (CMCSA) in its efforts to acquire Time Warner cable Inc., may also submit a proposal for T-Mobile U.S. However, both DISH Network and Charter Communications have yet to come up with a firm bid. T-Mobile U.S. currently has a Zacks Rank of #3 (Hold).

AES Corp. to Divest Stake in UK Wind Projects for $160M

Posted Thu Aug 21, 06:10 pm ET

by Zacks Equity Research

The AES Corp. (AES) has entered into a deal to sell its entire stake in four operating wind projects in the United Kingdom, totaling 87.5 megawatt (MW). The company is expected to receive $160 million, which is subject to customary purchase price adjustments.

The transaction, which is slated to wrap up in the third quarter of 2014, has been struck with SYND Holdco Limited – a joint venture between Greencoat UK Wind PLC and Swiss Life Funds (Luxembourg) Global Infrastructure Opportunities S.C.A.

The properties slated for sale comprise four operating wind projects in the United Kingdom. These include a 28.6-MW farm in Drone Hill, a 22-MW farm in North Rhins, a 20.5-MW farm in Sixpenny Wood and a 16.4-MW farm in Yelvertoft.

These four projects having a book value of $100 million were expected to add about $10 million to AES’ net income (after tax) in 2015. This deal will eliminate AES’ non-recourse debt by $134 million from the balance sheet as of June 30, 2014.

In addition to following systematic investment strategies in growth projects, AES continues to pursue asset divestment plans to exit markets and businesses where it is difficult to achieve a compelling competitive advantage.

In the process, the company has exited 8 foreign markets and reaped in proceeds of $497 million in 2013. AES plans to divest additional assets worth approximately $500 million to $700 million by 2015 though a systematic asset divestment program, ensuring more cash inflow. The company would thus be able to focus on its cash deployment strategy better.

AES Corp. is repurchasing its shares and prepaying recourse debt. Also keeping in mind stringent regulations on carbon pollution, AES Corp is working to make its generation portfolio more environmentally friendly. At present, 2,400 MW of environmental upgrades are under construction and on track to come online through 2018.

AES Corp. currently holds a Zacks Rank #3 (Hold). Other better-ranked players in the space include CMS Energy Corp. (CMS), Duke Energy Corp. (DUK) and Consolidated Edison, Inc. (ED), all with a Zacks Rank #2 (Buy).

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