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Zacks #1 Stocks on the Move 09/30/2014

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Analyst Blog

Columbia Sportswear Realigns Management to Boost Growth

Posted Tue Sep 30, 06:20 pm ET

by Zacks Equity Research

Outdoor and sports apparel maker Columbia Sportswear Company (COLM) is geared to expand its leadership team to fuel growth. The company recently added Steve Woodside and Stuart Redsun to its management.

Woodside was appointed as the newly created vice president of global manufacturing on Aug 25, 2014 and will report directly to Columbia Sportswear’s chief operating officer, Bryan Timm. In his 25-year career in the global supply chain for apparel, footwear, accessories and equipment business, Woodside served at Nike Inc. (NKE) for 23 years and handled assignments in various Asian countries such as Taiwan, Indonesia, Vietnam, China and Hong Kong. He also served in Hong Kong as VF Corp.’s (VFC) Vice President of global footwear, overseeing global footwear sourcing and manufacturing.

Stuart Redsun will report to Tim Boyle, Columbia Sportswear’s president and CEO. In his new role, effective Oct 6, 2014, Redsun will be responsible for developing and executing global consumer marketing programs for the Columbia, Sorel and Montrail brands.

Redsun boasts years of experience in the sportswear industry. He began his marketing career at Nike and later held marketing leadership position in Under Armour, Inc (UA). He also has experience in marketing communications for global technology brands Gateway, Motorola and Sony.

We expect Columbia Sports to further bolster its position in the sportswear industry buoyed by the experience of its new leaders. The company also announced the retirement of current Vice President of Global Marketing, Dan Hanson, and current Vice President of Global Apparel Manufacturing, Patrick Werner.

Columbia Sports carries a Zacks Rank #4 (Sell).

SUPERVALU (SVU) Reports Another Data Breach

Posted Tue Sep 30, 06:10 pm ET

by Zacks Equity Research

Grocery retailer SUPERVALU Inc. (SVU) reported a second data breach incident at its Albertson stores closely following a similar incident in late July when its customer payment system was hacked.

Per management, a criminal intrusion in the company’s computer network was detected which may have led to the loss of some cardholder data from payment cards used at its Shop ’n Save, Shoppers Food & Pharmacy and Cub Foods owned and franchised stores, including some of its standalone liquor stores. The company suspects that a malware was installed on its network in late August or early September.

SUPERVALU reported a similar incident in July, when hackers installed a different malware to steal customers’ data from payment cards used between Jun 22 and Jul 17.

SUPERVALU, currently carrying a Zacks Rank #3 (Hold), enhanced its security system after the July incident, which helped it to eradicate the malware immediately and secure the affected part of its network. The recently installed malware, however, did not affect the Farm Fresh or Hornbacher’s stores, its owned or licensed Save-A-Lot stores or the independent grocery stores supplied by the company through its Independent Business network.

It is noted that the U.S. remains vulnerable to such credit card thefts with a flawed card payment system. Unlike Europe and Canada, credit cards in the U.S. use a magnetic strip to store data, making it quite simple to obtain data with the sophisticated hacking technology. Outside the U.S., cards have digital chips that store data, which generate a new code after every use thereby making them difficult to hack.

The biggest security breach in the U.S. history was detected in 2007 when the leading off-price retailer of apparel and home fashions, The TJX Companies, Inc. (TJX) reported data theft involving nearly 90 million credit and debit cards over a span of about one and a half years. Since then, companies like Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT) are spending substantial cash to tighten security.

HCC Insurance (HCC) Receives Rating Action from A.M. Best

Posted Tue Sep 30, 06:00 pm ET

by Zacks Equity Research

Recently, credit rating giant, A.M. Best Company, Inc. has taken rating action on HCC Insurance Holdings, Inc. (HCC) and some of its subsidiaries.

The rating agency has affirmed the financial strength rating (FSR) at “A+” and the issuer credit ratings (ICR) at “aa” of the property and casualty companies in the Houston Casualty Group and HCC Life Insurance Company. At the same time, the FSR of American Contractors Indemnity Company and United States Surety Company was affirmed at “A+” while the ICR for these companies was upgraded to “aa” from “aa-”. A.M. Best has also affirmed the parent company’s 6.300% senior notes worth $300 million that are scheduled to expire in 2019 at “a”. All these ratings carry a stable outlook.

Apart from A. M. Best, HCC Insurance scores strongly with Standard & Poor's Corporation, Fitch Ratings and Moody’s Investors Service, Inc., the credit rating arm of Moody’s Corp. (MCO). The company’s major domestic and international insurance companies have FSR of “AA” assigned by Standard & Poor's, “AA” from Fitch and “A1” from Moody’s.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market. We believe that HCC Insurance’s present score with the credit rating agencies will help it write more business going forward.

Currently, HCC Insurance carries a Zacks Rank #3 (Hold). Better-ranked stocks in the insurance space that look attractive at current levels include ACE Ltd. (ACE) and AmTrust Financial Services, Inc. (AFSI). Both these sport a Zacks Rank #1 (Strong Buy).

Meridian Bancorp (EBSB) Upgraded to Strong Buy on Conversion

Posted Tue Sep 30, 05:50 pm ET

by Zacks Equity Research

On Sep 27, Zacks Investment Research upgraded Meridian Bancorp, Inc. (EBSB) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The rank upgrade of this Massachusetts-based financial institution was driven by strong estimate revisions on the back of its recent conversion to a holding company for another bank and impressive second-quarter 2014 results.

On Jul 28, Meridian Bancorp announced the completion of the conversion of Meridian Financial Services, Inc. (‘MHC’) and the related stock offering, following which the company now stands as the holding company for East Boston Savings Bank. MHC and Meridian Interstate Bancorp, Inc – the former mid-tier holding company of East Boston Savings Bank – no longer exist.

Meridian Bancorp went fully public on Jul 29, 2014, as it commenced trading on the Nasdaq Global Select Market under the ticker symbol “EBSB.”

Further, on Jul 22, Meridian Bancorp released its second-quarter 2014 results. Earnings per share of 25 cents came significantly above the prior-year quarter figure of 14 cents.

Meridian Bancorp witnessed top-line growth, driven by increase in both interest income ('NII') and non-interest income and lower provision for loan losses. Also, the company’s loan and deposit balance increased and its credit quality exhibited improvement. However, the positives were partially offset by higher expenses.

Nevertheless, analysts’ bullish stance on the stock was reflected in the estimate revisions over the past 30 days. For 2014, the Zacks Consensus Estimate advanced nearly 30% to 26 cents per share. Also, it moved north 27.3% to 28 cents per share for 2015.

Other Stocks to Consider

Other stocks in this space worth considering include Great Southern Bancorp Inc. (GSBC), Laporte Bancorp, Inc. (LPSB) and Select Bancorp, Inc. (SLCT). All three stocks hold the same Zacks Rank as Meridian Bancorp.

Preferred Bank Up to Strong Buy on Legacy Issues Resolution

Posted Tue Sep 30, 05:40 pm ET

by Zacks Equity Research

On Sep 30, Zacks Investment Research upgraded Preferred Bank (PFBC) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

On Sep 17, California-based Preferred Bank announced the termination of the Memorandum of Understanding (MOU) entered on Oct 1, 2013, on the notification by the Federal Deposit Insurance Corporation (FDIC) and the California Department of Business Oversight (DBO). Therefore, such move will facilitate the bank in maximizing shareholders’ returns through effective capital management.

In Aug 2014, Preferred Bank recorded a non-accrual loan payoff worth $5.6 million along with allowance for loan and lease losses recovery of $4.6 million, charged off in 2012 over 50% of the loan balance. Such financials will be included in third-quarter 2014 results.

On Jul 23, Preferred Bank declared second-quarter 2014 earnings of 43 cents per share, which beat the Zacks Consensus Estimate by 10.26%. Moreover the company has sustained an earnings streak in the trailing four quarters with an average beat of 11%.

Amid the present sluggish economic scenario, Preferred Bank managed to increase net interest income by 18.8% on a year-over-year basis. Further, non-interest expenses declined 2.2% from the prior-year quarter.

Analysts’ bullish stance on the stock was reflected in the estimate revisions over the past 60 days. The Zacks Consensus Estimate for 2014 increased 1.8% to $1.69 per share. For 2015, the Zacks Consensus Estimate advanced 2.2% to $1.83 per share.

Other Stocks to Consider

Some other stocks in the same sector worth considering include Sierra Bancorp (BSRR), Northrim Bancorp Inc. (NRIM) and SVB Financial Group (SIVB). All three carry a Zacks Rank #1.

Amazon to Expand Dutch Presence with e-Book Launch

Posted Tue Sep 30, 05:30 pm ET

by Zacks Equity Research

The world’s largest online retailer, Inc. (AMZN), plans to sell its e-books in the Netherlands.

In this regard, the e-tailer is, reportedly, in talks with a number of Dutch publishers. Though the exact time of the launch remains unknown, Amazon plans to open its online store by the end of this month.

In the recent months, Amazon has been aggressively foraying into international e-book markets and upgrading its e-book reader. According to a PwC (PricewaterhouseCoopers) report, the trade e-books (excluding educational publications) will reach $8.2 billion in sales by 2017 in the U.S. alone. The e-book market has witnessed unprecedented growth as both authors and readers have benefited from it. Amazon, through its Kindle reader and Kindle apps, is currently the leading e-book seller.

The planned e-book launch will help Amazon increase its market share in the Netherlands. The wide selection of books as well as its strong reputation and credibility will attract Dutch book lovers. This will likely boost Amazon’s e-books and other content sales.

However, Amazon is facing criticism from authors and publishing industry insiders, who allege that the e-Commerce giant is exploiting its position as a major retailer to extract unfair pricing terms from suppliers. Currently, Amazon is in a pricing dispute with Hachette, withholding pre-order shipping and reducing discounts on their books.

Though Amazon remains one of the leading players in the fast-growing e-Commerce market, investors are increasingly unimpressed with its huge investments that continue to yield low returns because of its aggressive pricing strategies. In the second quarter, the company reported a loss of 27 cents, wider than the Zacks Consensus Estimate of a loss of 13 cents. Also, revenues of $19.34 billion were down 2% sequentially but up 22.4% from the year-ago quarter.

Amazon currently has a Zacks Rank #4 (Sell).

Other Stocks That Warrant a Look:

Better-ranked stocks in this industry include Mercadolibre, Inc. (MELI), World Energy Solutions, Inc. (XWES), and PetMed Express, Inc. (PETS). While Mercadolibre and World Energy Solutions sport a Zacks Rank #1 (Strong Buy), PetMed Express holds a Zacks Rank #2 (Buy).

Encana to Move into the Permian with $7B Athlon Acquisition

Posted Tue Sep 30, 05:20 pm ET

by Zacks Equity Research

Encana Corporation (ECA) announced that it has entered into an agreement to acquire the Texas-based oil producer, Athlon Energy Inc. (ATHL). The Canadian energy explorer will pay $7.1 billion for the deal, which includes assumption of $1.15 billion of Athlon’s debt. The remaining cash consideration of $5.93 billion would be spent in acquiring Athlon’s stock at $58.50 per share. The deal is expected to close by the end of 2014.

Investors reacted positively to this announcement. The stock of Encana gained over 2% to close at $21.59 while Athlon’s shares surged nearly 25%, closing at $58.32.

The transaction would add about 140,000 net acres in the Midland Basin, the seventh addition in Encana’s oil-rich asset portfolio after Montney, Duvernay, Eagle Ford, DJ basin, San Juan basin and Tuscaloosa marine shale.

Management at Encana stated that the assets hold over 10 years of drilling inventory in one of the most lucrative oil plays in North America. The Permian region is anticipated to play an important role in the company’s growth plans, contributing significantly to Encana’s 2017 anticipated liquid-production plan of 250,000 barrels per day.

With over 5,000 possible horizontal well locations, Encana expects recoverable resource of about 3 billion barrels of oil equivalent (boe). The company anticipates production of approximately 30,000 boe/day (about 80% liquid) from the properties based on Athlon’s current assumptions. As of second-quarter 2014, Athlon had 1,121 vertical and 17 horizontal wells with proved reserves totaling 173 MMBoe.

Encana added that it plans to invest over $1 billion in this play and increase the horizontal rig count to at least 7 from the current 3 rigs by the end of next year.

This acquisition is another step in Encana’s strategy of moving away from natural gas associated assets to liquid-linked acreage addition. The company has already sold natural gas assets worth about $8 billion and acquired nearly $10 billion in oil-related properties. The deal is expected to be immediately accretive to the company’s cash position. Further, Encana expects to become cash flow positive by 2016.  

Calgary, Alberta-based Encana, the second largest gas producer in North America, currently carries a Zacks Rank #3 (Hold).

Meanwhile, one could consider better-ranked players from the oil and gas exploration and production industry like Northern Oil and Gas, Inc. (NOG) and WPX Energy, Inc. (WPX). Both these stocks sport a Zacks Rank #1 (Strong Buy).

AMAG Up on Roughly $1B deal with Lumara to Widen Portfolio

Posted Tue Sep 30, 05:10 pm ET

by Zacks Equity Research

Shares of AMAG Pharmaceuticals, Inc. (AMAG) soared 28.2% after it announced that it will be acquiring privately held Lumara Health Inc. for approximately $1 billion in order to diversify its portfolio. The transaction, approved by the boards of both the companies, is expected to be completed by year end.

The Deal in Details

AMAG paid an upfront $675 million for the transaction including $600 million in cash and the rest in stock. Moreover, Lumara is expected to receive up to $350 million depending on the achievement of certain sales related milestones.

The highlight of the acquisition is Makena, the only U.S. approved drug to reduce the risk of preterm birth in women who are pregnant with one baby and who have delivered one preterm baby spontaneously in the past. The drug enjoys a 7-year orphan drug exclusivity which was granted in Feb 2011.

Makena sales for the 12 months ending Aug 31, 2014, increased 72% year over year to $130 million. As per AMAG, Makena sales growth was buoyed by positive market dynamics, including a favorable regulatory environment and the implementation of a new patient-centric business strategy. AMAG will make milestone payments on Makena sales achievement of $300 million, $400 million and $500 million in the consecutive 12-month periods. In addition to Makena, AMAG will also get hold of Lumara's maternal health business.

Financial Impact

The transaction is expected to be accretive to adjusted earnings per share immediately. AMAG expects combined product sales of around $350 million in 2015. AMAG also expects to generate $20 million of cost synergies every year. The company will provide a more detailed guidance for 2015 once the deal closes.

Our Take

We are highly encouraged by the deal as it will significantly diversify AMAG’s portfolio. The company currently has Feraheme, an injectable drug for intravenous use as iron replacement therapy for the treatment of iron deficiency anemia (IDA) in adults suffering from chronic kidney disease (CKD).

Most importantly, the addition of Makena and Lumara's maternal health business will reduce AMAG’s dependence on Feraheme for growth. Needless to say, the deal will also boost AMAG’s top as well as bottom line. AMAG, which incurred a loss of 7 cents per share in the second quarter of 2014, may soon swing to profitability on the back of its newly acquired products. We expect investor focus to remain on the Lumara deal.

Perrigo Buys Lumara’s Women's Healthcare Business

In a separate agreement, Perrigo Company (PRGO) will be acquiring Lumara’s Women's Healthcare Business for $82 million. The acquisition will add products like Clindesse (vaginal cream), Gynazole-1 (vaginal cream) and Evamist (estradiol transdermal spray) to Perrigo’s portfolio.

Both AMAG and Perrigo carry a Zacks Rank #3 (Hold). Some better-ranked stocks in the healthcare segment include Gilead Sciences (GILD) and Medivation (MDVN). Both stocks sport a Zacks Rank #1 (Strong Buy).

CorMedix Files IND Application for Neutrolin in the US

Posted Tue Sep 30, 05:10 pm ET

by Zacks Equity Research

Investors in the pharma/biotech sector eagerly wait for pipeline updates as they play an important role in deciding whether or not to invest in a particular company. Pipelines are of prime importance as far as pharma/biotech companies are concerned. These companies spend a significant amount in advancing their pipelines.

Late last week, pharma company CorMedix Inc. (CRMD) announced that it has submitted an Investigational New Drug (IND) application to the FDA for Neutrolin. Although Neutrolin is approved in the EU, it is still under development in the U.S. CorMedix is developing Neutrolin for the prevention of catheter-related infections and thrombosis.

The IND includes a pivotal phase III protocol for Neutrolin in hemodialysis patients with a central venous catheter. We note that an IND goes into effect 30 days after the FDA receives the application, unless the regulatory body informs that the IND is subject to a clinical hold.

We remind investors that CorMedix started commercializing Neutrolin in Europe in the fourth quarter of 2013 for the prevention of catheter-related bloodstream infections (“CRBI”) and maintenance of catheter patency in patients suffering from hemodialysis. Recently, Neutrolin’s label was expanded in the EU. With the label expansion, Neutrolin can now be used in cancer patients receiving chemotheraphy, IV hydration and IV medications through central venous catheters. Patients receiving medications and IV fluids via central venous catheters in intensive or critical care units (cardiac care unit, surgical care unit, neonatal critical care unit and urgent care centers) are also covered by the label expansion. Moreover, CorMedix gained approval for an indication for use in total parenteral nutrition.

We expect investor focus to remain on pipeline updates pertaining to Neutrolin.

CorMedix is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Cambrex Corporation (CBM), Gilead Sciences Inc. (GILD) and Regado Biosciences, Inc. (RGDO). All three stocks carry a Zacks Rank #1 (Strong Buy).

Boeing (BA) to Move Defense Work Out of Washington State

Posted Tue Sep 30, 04:45 pm ET

by Zacks Equity Research

The Boeing Company (BA) announced that it will relocate a major part of its defense and support-related services under the Boeing Defense, Space & Security division to other cities of the U.S. from Washington. A significant portion of the work will be shifted to Oklahoma City and St. Louis, while the rest will be relocated to Jacksonville, FL and Patuxent River, MD. The company is expected to complete the consolidation plan in the next three years.

As a result of the latest announcement, multiple Boeing projects, including the Airborne Warning and Control Systems (AWACS) program and the F-22 Raptor, which were built in collaboration with Lockheed Martin Corporation (LMT), will be shifted to other locations. However, the production of the P-8 maritime patrol aircraft and KC-46A Tanker will remain at the company’s existing facilities at Puget Sound in Washington.

Though around 2,000 employees will be affected by this consolidation plan, upon completion, it is expected to generate around 900 and 500 jobs in Oklahoma City and St. Louis, respectively.

The objective of this program is to enhance the company’s competitiveness in the market. It is also in sync with Boeing’s steady effort to reduce overhead costs under the defense business, thus offsetting the uncertain U.S. defense spending level.

As Boeing currently runs similar lines of operations in both Oklahoma City and St. Louis, the latest consolidation program will subsequently enable it to realize synergies and utilize its resources and expertise more efficiently. The company intends to minimize disruptions while executing the programs with necessary modifications as per customer requirements.

Given the declining U.S. defense budget, the contractors are slashing costs to maintain a stable financial condition, diversifying their operations through strategic acquisitions, and focusing more on research and development activities to introduce new products.

To offset the sequestration effect, Boeing had consolidated its business in the past as well. On Jan 4, 2012, the company decided to shut down its Boeing Defense, Space & Security operations in Wichita due to continuous cutbacks in U.S. defense spending.

Collectively, these initiatives will likely allow Boeing to maintain its leading position in the fast-evolving defense space globally and reduce its cost of operations.

Boeing currently holds a Zacks Rank #2 (Buy). Other similar-ranked stocks in the same sector include General Dynamics Corporation (GD) and Huntington Ingalls Industries, Inc. (HII).

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