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Zacks #1 Stocks on the Move 04/22/2014

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Analyst Blog

Goldcorp Won't Raise Osisko Offer

Posted Tue Apr 22, 07:00 pm ET

by Zacks Equity Research

Gold miner Goldcorp Inc. (GG) announced that it will not raise its offer to acquire all of the outstanding common shares of Osisko Mining Corp. which is set to expire on Apr 22. The company had previously raised its offer to buy all of the outstanding common shares of Osisko to C$7.65 per Osisko share for a total consideration of roughly C$3.6 billion ($3.3 billion).

Last week, Agnico Eagle Mines Ltd. (AEM) entered into an agreement with Yamana Gold Inc. (AUY) and Osisko, under which Agnico Eagle and Yamana will jointly acquire 100% of Osisko's issued and outstanding common shares. Both the companies agreed to acquire Osisko for a total consideration of about C$3.9 billion ($3.5 billion) or C$8.15 ($7.42) per share. The purchase price represented an 11% premium to the current value of Goldcorp’s recently announced revised bid for Osisko.

Goldcorp remains committed not to extend its offer and remain focused on maximizing the value of its investments and generating strong returns for its shareholders.

Recently, Goldcorp hosted its annual Investor Day. The company also declared its first-quarter 2014 gold production, preliminary all-in sustaining costs and revised gold production outlook for 2014.

Gold production for the first quarter totaled 680,000 ounces and all-in sustaining costs for the same period are expected to be roughly $875 per ounce. However, the final calculation of capital and operating costs has not been completed yet.

Goldcorp also revised its gold production outlook for 2014 between 2.95 million ounces and 3.1 million ounces. The company anticipates all-in sustaining costs to remain within the range of $950 and $1,000 per ounce of gold. The revision in 2014 outlook was due to the sale of the Marigold joint venture.

Goldcorp, which currently carries a Zacks Rank #3 (Hold), will release its full first-quarter 2014 results on May 1.

A better-ranked stock in the gold mining industry is AngloGold Ashanti Ltd. (AU), carrying a Zacks Rank #1 (Strong Buy).

Comcast, Charter Negotiating Divestitures

Posted Tue Apr 22, 06:50 pm ET

by Zacks Equity Research

Comcast Corp. (CMCSA) is exploring several options to get regulatory approval of its proposed acquisition of Time Warner Cable Inc. (TWC). Recently, both the Financial Times and Reuters reported that Comcast is negotiating with Charter Communications Inc. (CHTR) to divest around 3 million video subscribers of the combined Comcast-Time Warner Cable entity.

In Feb 2014, Comcast reached an agreement with Time Warner Cable to acquire the latter in an all-stock deal valued at around $45.3 billion. Liberty Media Corp. (LMCA), which controls a 27.3% stake in Charter Communications, was also aggressively pursuing the idea of Charter Communications taking over Time Warner Cable. However, it lost to Comcast in the bid.

The merged entity of Comcast and Time Warner Cable will have around 33 million pay-TV (video), 32 million high-speed broadband (Internet) and 16 million telephony (voice) subscribers. The deal is expected to face tough scrutiny and close monitoring by regulator, Federal Communications Commission (FCC) and is expected to close within a year.

In order to avoid antitrust restriction, Comcast has decided to divest around 3 million Time Warner Cable video subscribers to maintain its total market share at 30% of the U.S. pay-TV industry. Several industry researchers have valued these 3 million subscribers between $18 billion - $20 billion.

The FCC may also ask Comcast to spin-off these subscribers as a separate entity. If Charter Communications takes over that part, it will create another formidable player in the U.S. cable TV market with the fourth largest subscriber base. Notably, Charter Communications currently has approximately 4.2 million subscribers.

We believe that this deal will benefit both the companies. Comcast can avoid antitrust measurers. The company already assures FCC that its merger with Time Warner Cable will not result in higher prices for cable TV and high-speed Internet packages. On the other hand, Charter Communications will achieve necessary scale to remain competitive in the intensely competitive U.S. pay-TV market.      

Currently, Comcast, Time Warner Cable, Charter Communications and Liberty Media, all carry a Zacks Rank #3 (Hold).

YUM's Earnings Mixed, China in Focus

Posted Tue Apr 22, 06:49 pm ET

by Brian Hamilton

YUM’s Earnings Mixed, China in Focus

YUM Brands (YUM) reported earnings after the bell today.  The company reported EPS of $0.87, beating the Zacks Consensus EPS Estimate of $0.84, and revenues came in at $2.72 billion, just below the Zacks Consensus Revenue Estimate of $2.8 billion.  

One of the major concerns going into this earnings announcement was the impact of sales in China.  Management stated that Same Store Sales increased 9% in the first quarter 2014 (analysts were expecting 9.2%).  Moreover, management stated that they expect to open 700 new restaurants in China during 2014. Overall, it appears as though the KFC segment has moved pass their poultry suppliers issues from last year, and are now gaining some traction in China.  

New to the quarter was the revamped breakfast menu in their Taco Bell restaurants; this was designed to compete with the likes of McDonalds (MCD), Dunkin Donuts (DNKN), and Starbucks (SBUX).  Currently, McDonalds has the largest market share of fast food breakfast at 30%, but the Waffle Taco, and the AM Crunchwrap are expected to compete with the traditional McDonalds breakfast menu.    

But for taco lovers out there, the most important short term news is the launch of the Spicy Chicken Cool Ranch Doritos Locos Taco, which is debuting on May 1, 2014!

In afterhours trading YUM has risen over 2% on mild volume, indicating the streets approval of their EPS beat.  Zacks will have a fully detailed report into YUM’s earnings numbers tomorrow morning. 

Eni to Start Bids for FLNG Vessel

Posted Tue Apr 22, 06:45 pm ET

by Zacks Equity Research

Italian major, Eni SpA’s (E) share price rose by 0.3% on the news that it is preparing to issue bid documents relating to a multi-billion-dollar floating liquefied natural gas (FLNG) vessel within weeks. The vessel is likely to be employed in Area 4 off northern Mozambique.

A minimum of four consortia is likely to receive bid documents this month itself to take part in Eni’s debut FLNG development. It will be the second to be launched in Africa after Ophir Energy’s Block R project in Equatorial Guinea.

The definite set of contenders includes South Korea’s three major yards and a Japanese yard. All these contestants will be linked to Asian, American and European engineering and construction companies. Per market sources, another consortium, probably Chinese, may also participate, but no confirmation has been received yet.

The bidding battle will be among Daewoo Shipbuilding & Heavy Engineering, which has linked up with KBR, Samsung Heavy Industries, which has teamed up with Technip and JGC, and Hyundai Heavy Industries with its allies Chiyoda and Saipem.

Sources revealed that the Japanese consortium is being led by Ishikawajima-Harima Heavy Industries, which has teamed up with Modec, Toyo Engineering and CB&I. The fifth consortium, as hinted by some sources, could engage all or some of Wison Offshore & Marine, Yinson and Offshore Oil Engineering Corporation.

Another source revealed that Eni’s initial bid documents are likely to call for a front-end engineering and design competition, which would continue for a year before the operator invites at least two rival groups to tender price offers.

The winner of this prestigious contract would be well positioned to receive more work for Eni off Mozambique where the operator has recognized the need for two more FLNG vessels. Hyundai’s group is considered to be at an advantage because partner Saipem performed early engineering work on Eni’s FLNG concept, sub-contracting some work to Aker Solutions. This consortium is also performing pre-front-end engineering and design work for ExxonMobil Corp’s (XOM) difficult Scarborough project, off Australia.

The competition for Hyundai is expected to be severe from Samsung and Daewoo, which are working on FLNG projects in Australia for Royal Dutch Shell plc (RDS.A) and Malaysia for Petronas, respectively.

Eni carries a Zacks Rank #3 (Hold). A stock in the oil and gas industry looking good with the Zacks Rank #1 (Strong Buy) is Range Resources Corp. (RRC).

TransCanada Slumps on Keystone XL Delay

Posted Tue Apr 22, 06:43 pm ET

by Zacks Equity Research

Pipeline operator TransCanada Corp.’s (TRP) controversial Keystone XL pipeline witnessed another setback on the U.S. Department of State’s (DOS) announcement of a further delay in the decision on the project.

The effect of the news was evident as shares fell 3.65% to close at $44.87 on Apr 21. A sudden increase in the traded volume also gives an overview of the disturbed investor sentiment.   

The DOS stated on Apr 18 that the federal agencies assessing the project will get additional time to submit their views following the uncertainty created by the pending Nebraska Supreme Court decision on the pipeline’s route through the state. The agencies would also look into the large number of public comments submitted on the issue.

TransCanada management expressed its disappointment and frustration over the matter stating that it is another missed opportunity for Americans. The company added that its appeal to stay the Nebraska Supreme Court decision is still valid and should not have an impact on the Keystone XL pipeline decision. However, DOS thinks otherwise as the ‘additional time’ does not have a deadline, making it an indefinite delay, for the time being, and an expensive one for TransCanada.
The Keystone XL pipeline, if approved, would connect the oil sands of Alberta to the U.S. Gulf. It would run up to 1,179 miles and carry up to 830,000 barrels of oil per day. The pipeline project would not only create jobs but would also be an economic driver for the nation, reducing dependence on foreign oil.

The company said that first phase of the Keystone pipeline, which started operating in 2010, took only 21 months from the appraisal to the approval stage. However Keystone XL, even after 6 years of assessment, is still nowhere near finalization.

Management believes that as oil production is on the rise in North America, not building the pipeline would be a big loss for the nation. Oil will definitely flow into the nation, if not through pipelines, then by accident-prone rail routes.

While the Calgary-based company has already invested around $2 billion in the pipeline project, it is waiting on for the final nod from the Obama Administration. As the impasse over Keystone XL deepens, we remain concerned about its effects on TransCanada. The Keystone project was originally partnered between TransCanada and ConocoPhillips (COP), however, in 2009, TransCanada purchased its partners’ stake, making it the sole owner.

TransCanada currently has a Zacks Rank #3 (Hold). Meanwhile, one can consider better-ranked players from the broader energy sector like Helmerich & Payne, Inc. (HP) and Range Resources Corp. (RRC), both of which sport a Zacks Rank #1 (Strong Buy).

Can Logitech (LOGI) Surprise This Earnings Season?

Posted Tue Apr 22, 06:40 pm ET

by Zacks Equity Research

Logitech International SA (LOGI) is set to report its fourth-quarter 2014 results on Apr 23. The company delivered a positive surprise of 128.57% in the last quarter. Let’s consider some important issues that may affect the upcoming results.

Growth Factors in the Past Quarter

Logitech has been working on its core business structure, including the designing, manufacturing and distribution system to significantly improve operational efficiency. The company’s cost-cutting and restructuring initiatives are also reaping expected benefits. Management implemented measures like reducing staff and revamping the product portfolio across all its businesses, among which the LifeSize business in particular is already showing a healthy improvement.

Last year, the company launched a number of innovative products including tablet covers and UE Mini Boom wireless speakers, which are a miniature version of the innovative high demand product, UE Boom. Recently, the company launched the keyboard folios for the latest Samsung Galaxy Pro Tablets.

The growing adoption of tablets and smartphones in both mature and emerging markets, are paving the way for an increased demand for Logitech’s peripherals and accessories going forward.

The company is confident about its long-term growth on the back of the success of the restructuring plan initiated in Apr 2012. Since then, the company’s share prices have gained more than 80% to date. The company’s three-year turnaround plan was formulated to reduce costs while driving up profits and margins significantly. In March, Logitech increased its guidance for fiscal 2014 earnings and provided an encouraging outlook for fiscal 2015.

Earnings Whispers?

Our proven model does not conclusively show that Logitech is likely to beat estimates this quarter. This is because a stock needs to have both positive Earnings ESP and Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below:

Zacks ESP: Logitech has a Zacks ESP of 0.00%.

Zacks Rank: Logitech’s Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

ON Semiconductor Corp. (ONNN), with Earnings ESP of +6.67% and Zacks Rank #1 (Strong Buy).

Orbitz Worldwide, Inc. (OWW), with Earnings ESP of +100.00% and Zacks Rank #2 (Buy).

Colfax Corporation (CFX), with Earnings ESP of +4.65% and Zacks Rank #2.

DaVita Expands, Strengthens Florida Presence

Posted Tue Apr 22, 06:40 pm ET

by Zacks Equity Research

DaVita, the kidney care division of DaVita HealthCare Partners Inc. (DVA), has recently declared the expansion of its diagnostic laboratory – DaVita Labs – in Florida that deals in dialysis organizations and physician practices. This will considerably strengthen its footprint in the city of DeLand, Florida.

DaVita Labs already boasts a strong existence in Florida, executing more than 47 million laboratory tests annually. Moreover, operations in the region have grown significantly over the last two years. The laboratories of DaVita in Florida mainly rely on renal-specific methodology and technology for enhancing the accuracy of its tests. DaVita currently operates between two Florida locations – Ft. Lauderdale and DeLand – spanning across 137,000 square-feet of diagnostic laboratories.

Growth in business and teammates requires new facilities. Thus, in order to tap more growth opportunities, the company is establishing a 65,000 square-foot facility in DeLand. The construction of the outlet is scheduled to commence by mid-2014 and end around early-to-mid 2015.

DaVita has been upfront in reaching out to more locations to capitalize on the opportunities and generate growth. The expansion of the DaVita Lab is not the first extension work by the company this year. So far in 2014, the company has inked a number of deals that highlight the company’s intentions to extend its geographic reach. In Jan 2014, to realize its long-term growth strategy in Europe, DaVita allied with Praxis mit Nahe – an eminent nephrology practice in Germany.

In Feb 2014, DaVita entered into a deal with the Kingdom of Saudi Arabia’s Ministry of Health to treat around 10,000 dialysis patients in the state. Again, DaVita ended up expanding its chronic conditions special needs plan (C-SNP) with SCAN Health Plan to reach out to more individuals in Los Angeles and Orange Counties, the same month.

We believe the strengthening of operations in DeLand will open up numerous opportunities for the company as DeLand has a total population of 27,031 as per the 2010 Census. Thus, the expansion initiative marks an important step for the company in recognizing its long-term growth objectives.

DaVita currently has a Zacks Rank #4 (Sell). However, some better-ranked stocks in the healthcare services space include Quest Diagnostics Inc. (DGX), Envision Healthcare Holdings, Inc. (EVHC) and BG Medicine, Inc. (BGMD). While Envision sports a Zacks Rank #1 (Strong Buy), Quest Diagnostics and BG Medicine carry a Zacks Rank #2 (Buy).

Updated Research Report on Zumiez

Posted Tue Apr 22, 06:30 pm ET

by Zacks Equity Research

On Apr 17, 2014, we issued an updated research report on Zumiez Inc. (ZUMZ). The company recently posted comparable-store sales (comps) for the five weeks ended Apr 5, 2014. Although comps declined 2.9% on a year-over-year basis, they bettered analyst expectations.

Also, despite a highly discounted promotional holiday season coupled with unfavorable weather conditions in January, Zumiez posted better-than-expected fourth-quarter fiscal 2013 bottom-line results. With a positive surprise of 6.6% in the fourth quarter, the company has now surpassed the Zacks Consensus Estimate in 20 of the past 21 quarters.

The results benefited from the company’s successful execution of long-term growth strategies and the strength of its distinguished and varied assortments. We expect the company to maintain this trend of posting positive earnings surprises in the years ahead, based on its focus on boosting productivity at existing stores, developing a leading omni channel platform and enhancing its presence, both domestically and overseas.

Zumiez’s plan to increase its network to 600-700 stores in the long run seems to be on track as in fiscal 2013, the company successfully completed the target of opening 59 stores. It now intends to further increase its store count by 55 stores in fiscal 2014.

Further, the company is striving to expand its e-Commerce and omni-channel platforms to give consumers quick and easy access to its products and brands. We believe that the company’s well-balanced store expansion and e-Commerce strategies will drive its top-line growth.

Finally, Zumiez’s acquisition of Blue Tomato is likely to be accretive to the company, as it strengthens the company’s international base and provides a solid platform to capitalize on the emerging opportunities.

The aforementioned factors provide investors an encouraging outlook and instill confidence about the company. However, we are not very constructive on the stock due to intense competition from rival specialty retailers, the seasonal nature of the business and risks related to sourcing merchandise from foreign countries, which may undermine the company’s results.

Zumiez currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Other stocks worth considering in the apparel-shoe sector include Bebe Stores, Inc. (BEBE), American Apparel, Inc. (APP) and Foot Locker, Inc. (FL). All these stocks carry a Zacks Rank #2 (Buy).

Will Altria (MO) Disappoint This Earnings Season?

Posted Tue Apr 22, 06:25 pm ET

by Zacks Equity Research

Altria Group Inc. (MO) is set to report first-quarter fiscal 2014 results on Apr 24. Last quarter, the company posted a negative surprise of 1.7%. Let's see how things are shaping up for this announcement.

Factors to Consider This Quarter

Altria has been witnessing declining volumes for the past few quarters due to growing awareness against tobacco products. Worldwide anti-tobacco campaigns and consciousness among people against the harmful effects of tobacco are shifting consumer preference away from cigarettes and other traditional tobacco products.

Accordingly, the company has been reporting soft top lines in both the smokeable and smokeless segments for the past few quarters because of the ongoing industrial headwinds discussed above. We do not expect these conditions to improve in the quarter. Earnings of the company have been growing regularly only due to tailwinds from lower excise tax and share buybacks – suggesting lack of significant growth in the core business.

Moreover, e-cigarettes are now being considered by both the French and EU governments as tobacco products which face the same restrictions as other such products. These developments are expected to further hurt volumes of the tobacco companies.

Earnings Whispers?

Our proven model does not conclusively show that Altria is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:

Negative Zacks ESP: ESP for Altria is -1.75%. This is because the Most Accurate estimate stands at a loss of 56 cents a share, while the Zacks Consensus Estimate is pegged at a loss of 57 cents.

Zacks Rank #4 (Sell): We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies that investors may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Coca Cola Enterprises Inc. (CCE), Earnings ESP of +2.27% and a Zacks Rank #2 (Buy).

The Cheesecake Factory Inc. (CAKE), Earnings ESP of +2.04% and a Zacks Rank #3.

Church & Dwight Co. Inc. (CHD), Earnings ESP of +1.37% and a Zacks Rank #3.

ONEOK Partners Completes 3 Projects

Posted Tue Apr 22, 06:20 pm ET

by Zacks Equity Research

ONEOK Partners L.P. (OKS) continues with its steady effort towards expansion of its operations by adding new infrastructure. The partnership has completed three important projects: the Sterling III pipeline, Canadian Valley natural gas processing facility and an ethane/propane (E/P) splitter. All the three projects are part of ONEOK Partners’ $6-$6.4 billion capital-growth program through 2016.

ONEOK Partners has constructed a 540-plus-mile, 16-inch diameter natural gas liquids (NGL) pipeline, called Sterling III pipeline, stretching from the Mid-Continent region to the Texas Gulf Coast. The pipeline will carry 193,000 barrels per day (bpd) of either unfractionated NGLs or NGL purity products from the partnership's NGL operations at Medford, OK to its storage and fractionation facilities at Mont Belvieu, TX.

Located in Cana-Woodford Shale, OK, the Canadian Valley natural gas processing facility has a capacity to process 200-million cubic feet per day (MMcf/d) of natural gas. ONEOK Partners has invested $340-$360 million for this project. It is the partnership’s largest natural gas processing facility in OK. The new infrastructure will enable the partnership to increase its processing capability to around 700 MMcf/d.

The third project, a 40,000-bpd E/P splitter at ONEOK Partners’ NGL storage facility in Mont Belvieu, TX, cost the partnership $46 million. The infrastructure will enable ONEOK Partners to split E/P mix into purity ethane and propane. The facility has a capacity to produce purity ethane and propane of 32,000 bpd and 8,000 bpd, respectively.

Cana-Woodford Shale is situated in Western Oklahoma. As per a U.S. Energy Information Administration report published in 2011, the shale is expected to be the world’s deepest commercial horizontal shale play. The depth ranges from 11,500 to 14,500 feet. The estimated ultimate recovery (EUR) of the shale is 4-12 billion cubic feet (Bcf) with an average EUR of 5.2 Bcf per well. The shale contains gas, NGL and oil of about 65%, 30% and 5%, respectively.

To reap the benefits of the vast resources of Cana-Woodford Shale, energy companies like Devon Energy Corp. (DVN) and Marathon Oil Corp. (MRO) have a significant presence in the region and engages in steady exploration and production activities.

The construction of the Sterling III pipeline and Canadian Valley natural gas processing facility are in sync with the existing infrastructural development initiatives undertaken by ONEOK Partners in Cana-Woodford Shale.

ONEOK Partners has decided to further invest in Cana-Woodford Shale. The partnership intends to reconfigure its existing Sterling I and II pipelines. The estimated cost for the development of the Stateline III pipeline and the reconfiguration projects will be in the range of $760-$790 million. We believe that the scheduled completion of these projects will enable the partnership to meet the growing customer demand.

ONEOK Partners currently has a Zacks Rank #3 (Hold). However, another stock from the industry that is presently performing better is Energy Transfer Equity, L.P. (ETE) with a Zacks Rank #1 (Strong Buy).

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