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Analyst Blog

Can Illinois Tool (ITW) Deliver Upbeat Results This Quarter?

Posted Fri Jul 25, 07:20 pm ET

by Zacks Equity Research

Industrial products and equipments manufacturer, Illinois Tool Works Inc. (ITW), is scheduled to report its second-quarter 2014 results on Jul 29 before the market opens. The Zacks Consensus Estimate for the quarter is pegged at $1.20.

Illinois Tool Works reported better-than-expected results in the first quarter, with an earnings surprise of 3.06%. Let's see how things are shaping up and whether the company will be able to post another quarter of upbeat results.

Factors to Influence Q2 Results

Illinois Tool Works’ second-quarter results will largely be influenced by lower share count, due to the company’s accelerated share buyback activity associated with the divestment of the Industrial Packaging segment. The company had planned a 50 million share-buyback program, targeting to complete it by Jun 30.

Moreover, improving operating conditions in the U.S and Europe as well as growing demand for Illinois Tool Works’ products in the construction end market, will help push organic growth in the quarter. Further, the company’s enterprise initiatives are likely to contribute nearly 100 bps to the operating margin.
 
Industrial activities in the second quarter were impressive in the U.S. Industrial production grew 5.5% year over year, including a 6.7% annual hike in manufacturing production and an 18.8% increase in mining production. Favourable industrial activities indicate a healthy demand for industrial tool makers.

However, there are certain near-term risks arising from foreign currency translation and competitive pressure, among others, that might act as potential headwinds to growth.

Earnings Whispers?

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

Zacks ESP: Illinois Tool Works has an ESP of 0.0% for second-quarter 2014. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.20.

Zacks Rank: Illinois Tool Works’ Zacks Rank #3 (Hold), when combined with a 0.00% ESP, makes surprise predictions difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.
 
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:  

Nordson Corporation (NDSN), with Earnings ESP of +1.77% and a Zacks Rank #2.

Lincoln Electric Holdings Inc. (LECO), with Earnings ESP of +1.10% and a Zacks Rank #3.

Altra Industrial Motion Corp. (AIMC), with Earnings ESP of +4.00% and a Zacks Rank #3.

Liberty Media Down on Senior Note Conversion Rate Adjustment

Posted Fri Jul 25, 07:15 pm ET

by Zacks Equity Research

Yesterday, Liberty Media Corp. (LMCA) announced a major adjustment to the conversion rate of its 1.375% Cash Convertible Senior Notes, due 2023. So far, the company had two categories of outstanding voting shares. Series A (LMCA) offers one vote per share while Series B (LMCB) offers ten votes per share.

In May 2014, Liberty Media’s board of directors decided to offer a stock dividend of two shares of its non-voting Series C common stock for each share of LMCA and LMCB.

The whole stock restructuring exercise has almost tripled the number of outstanding shares. The new conversion rate increased to 15.7760 shares of LMCA from the initial rate of 5.5882 shares of LMCA per $1,000 principal amount of Cash Convertible Notes. As a result, the stock price of Liberty Media crushed by an enormous $92.37 (65.37%) to $48.94 yesterday.

However, the overall market value of the stock remains the same owing to the issuance of new shares. The newly issued Series C common stock will begin regular trading from today on the Nasdaq Global Select Market under the ticker symbol LMCK.  

Nonvoting classes are generally issued by a company when it is pursuing the acquisition of another company with stocks. In early 2014, Liberty Media was relentlessly focusing on taking the full control over SIRIUS XM Radio Inc. (SIRI), the largest satellite radio broadcaster in the U.S. Meanwhile, management abandoned its plans to acquire full control of the satellite radio broadcaster. Liberty Media currently controls more than 50% stake of SIRIUS XM.

Notably, Liberty Media, which holds a 27.3% stake in Charter Communications Inc. (CHTR), was aggressively pursuing the idea of acquiring Time Warner Cable Inc. However, Charter Communications has lost to Comcast Corp. (CMCSA) in its bid to acquire Time Warner Cable. This disrupted Liberty Media’s plans of gaining significant traction in the U.S. cable industry.

Moreover, Liberty Media has also decided to increase its stake in Live Nation Entertainment Inc. from the existing 27%. Live Nation is the largest concert promoter and ticketing company in the U.S. If successfully completed, the deal will help Liberty Media drive earnings and revenues as Live Nation Entertainment has performed reasonably well in the last couple of years.

Liberty Media currently carries a Zacks Rank #3 (Hold).   

Will NextEra Energy (NEE) Beat Earnings Estimates in Q2?

Posted Fri Jul 25, 07:10 pm ET

by Zacks Equity Research

NextEra Energy, Inc. (NEE) will release its second-quarter 2014 financial results before the opening bell on Jul 29, 2014. In the prior quarter, the utility firm reported a positive earnings surprise of 15.6%. NextEra Energy currently has a Zacks Rank #3 (Hold). Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

NextEra Energy continues to expand its customer base, primarily on the back of a strengthening Florida economy. An increase in housing permits, a decline in the unemployment rate, creation of new jobs and business expansions all point towards an economy on the rebound in this sunshine state.  

NextEra Energy also continues with its infrastructure modernization program besides adding new facilities to its portfolio. The start-up of the company’s two projects -- the Riviera Beach and the Cape Canaveral facilities -- will increase its power generation capacity.

In first-quarter 2014, NextEra Energy generated around $8 million of additional unbilled retail base revenues associated with the hike of retail base rate related to the modernization of the Riviera Beach power plant. The company is expected to collect the annualized retail base rate increase of roughly $234 million from it.  Such favorable rate case decisions and the timely recovery of capital investments encourage the utility to invest in infrastructure projects.

NextEra Energy’s operations are nonetheless subject to federal, state and local regulations associated with air, water and other environmental issues. Weather patterns also influence utility earnings. A mild summer in the U.S. is expected to keep energy demand muted.

Earnings Whispers

Our proven model does not conclusively show that NextEra Energy is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here.

Zacks ESP: This is because the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.46, resulting in an ESP of 0.00%.

Zacks Rank #3 (Hold): NextEra Energy’s Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.  We caution against stocks with a Zacks Rank #4 and #5 going into the earnings release.

Other Stocks to Consider

Here are some utility companies worth considering as our model shows they have the right combination of elements to post an earnings beat this quarter:

Ameren Corp. (AEE) has an earnings ESP of +14.04% and carries a Zacks Rank #2 (Buy).

Consolidated Edison, Inc. (ED) has an earnings ESP of +9.26% and carries a Zacks Rank #2 (Buy).

TECO Energy, Inc. (TE) has an earnings ESP of +3.70% and carries a Zacks Rank #2 (Buy).

DICK'S Sporting Field & Stream Store Expansion

Posted Fri Jul 25, 07:05 pm ET

by Zacks Equity Research

Full-line sporting goods retailer DICK'S Sporting Goods Inc. (DKS) remains focused on driving growth through expansion of its store base. In line with its strategic initiatives, the company recently announced the opening of a new Field & Stream store in Washington, PA.

The specialty retail concept store will be located at Old Mill Shopping Center, 60 Old Mill Boulevard. The store is scheduled to open on Sep 12, 2014 with celebrations extending over the weekend.

Apart from enjoying giveaways and activities during the celebration weekend, customers will get the opportunity to learn tips and techniques from proficient anglers at the 4,000 gallon Field & Stream bass tank, and practice at the Field & Stream archery trailer.

Offerings at the Field & Stream store will include outdoor equipment, accessories and services in hunting, fishing, archery, camping and more. Additionally, the store will offer a large collection of leading national outdoor brands, including Hoyt, Remington, Sitka, Sage, Simms and Yeti, and also provide first class in-store services.

Other than this, DICK’S Sporting also announced that it is looking for anglers, campers, hunters and outdoor enthusiasts to join the company as associates. The interested candidates may apply at “Jobs.Field&StreamShop.com.” Selected candidates will be provided training on equipment and apparel, enabling them to assist customers.

We believe that the company’s strategic measures of consolidating its store base and use of technology to provide better services will enhance its relationship with present customers while attracting new ones and effectively promote its products.

However, DICK’S Sporting currently carries a Zacks Rank #4 (Sell), reflecting lower-than-expected first-quarter fiscal 2014 results and trimmed guidance followed by downward revision in the Zacks Consensus Estimate.

The company’s adjusted earnings of 50 cents per share not only missed the Zacks Consensus Estimate of 53 cents but also came below its own guidance range of 51–52 cents. Management blamed the miss on unfavorable weather, which negatively impacted its golf and hunting businesses.

For fiscal 2014, management now anticipates earnings per share to be between $2.70—$2.85, down from the previous forecast of $3.03–$3.08. Currently, the Zacks Consensus Estimate stands at $2.77 per share, down 10% in the past 60 days.

Other Stocks to Consider

Some better-ranked stocks in the same industry include Barnes & Nobel, Inc. (BKS), Marinemax Inc. (HZO) and Five Below, Inc. (FIVE), each carrying a Zacks Rank #2 (Buy).

Will Eastman Chemical (EMN) Keep the Earnings Streak Alive?

Posted Fri Jul 25, 07:00 pm ET

by Zacks Equity Research

Eastman Chemical (EMN) is set to release its second-quarter 2014 results after the close on Jul 28.  
 
In the last quarter, the chemical maker delivered a 0.62% positive earnings surprise. The company, however, saw lower profit in the quarter, impacted by higher impairment and restructuring charges.

Eastman Chemical has beaten the Zacks Consensus Estimate in the trailing 4 quarters with an average beat of 5.21%. Let’s see how things are shaping up for this announcement.

Factors to Consider this Quarter

Eastman Chemical, in its first quarter call, said that it expects higher sales in the remainder of 2014. The company expects to gain from specific actions that it has taken up to increase earnings as well as balanced deployment of strong cash flow. It also sees higher demand in the coatings and tires markets.

Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses remains its strength. It also benefits from business restructuring and cost-cutting measures.
 
Eastman Chemical should continue to benefit from synergies related to Solutia acquisition in the June quarter. The acquisition has boosted its foothold in the emerging markets, especially in Asia Pacific.

However, Eastman Chemical remains exposed to volatility in raw material costs. Higher energy and raw material costs, particularly for propane, are expected to weigh on the company’s earnings in the second quarter. Moreover, weak demand for adhesives resins in specific markets and lower pricing due to competitive pressure may continue to affect sales in the company’s Adhesives and Plasticizers segment.

Earnings Whispers
 
Our proven model does not conclusively show that Eastman Chemical is likely to beat the Zacks Consensus Estimate in the second quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
 
Zacks ESP: ESP for Eastman Chemical is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.84.
 
Zacks Rank #3 (Hold): Eastman Chemical’s Zacks Rank #3 when combined with an ESP of 0.00% makes surprise prediction difficult. We caution against stocks with Zacks Ranks #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 stocks in the basic materials sector you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Agrium Inc. (AGU) has earnings ESP of +1.95% and retains a Zacks Rank #3 (Hold).

CF Industries Holdings, Inc. (CF) has earnings ESP of +1.70% and sports a Zacks Rank #3 (Hold).

Albemarle Corporation (ALB) has earnings ESP of +0.92% and retains a Zacks Rank #3 (Hold).

Legg Mason Acquires UK's Martin Currie, Financials Undisclosed

Posted Fri Jul 25, 06:55 pm ET

by Zacks Equity Research

On Thursday, Baltimore-based Legg Mason, Inc. (LM) announced the acquisition of UK-based international equity specialist firm Martin Currie. Financial terms of the deal were not disclosed.

At the close of the transaction, which is expected in the fourth quarter of 2014, Martin Currie, with assets under management (AUM) worth $9.8 billion as of Jun 30, 2014, will serve as a core independent investment partner of Legg Mason. Other existing affiliates include Brandywine Global, ClearBridge Investments, The Permal Group, QS Investors, Royce & Associates and Western Asset Management.

Moreover, the acquisition is anticipated to be accretive to Legg Mason's earnings in the first year, reflecting management’s continuing assurance to create shareholder value. With six Martin Currie offices in different locations, after the integration, Legg Mason's product capabilities will be expanded in active equity strategies including Global Equity, Global Emerging Markets, Asian Equity, European Equity and strategies particularly focused on Japan and China.

In accordance with Legg Mason's stratagem of creating larger investment affiliates, as part of this transaction, Legg Mason Australian Equities (LMAE) with $2.5 billion in AUM and a team of 14 persons will be part of Martin Currie. LMAE is an active Australian equities manager, which offers clients strategies including Small Cap, Property/Infrastructure, Income and Large Cap Value. However, these strategies will be under the management of LMAE investment teams, though it will be benefited from global expansion of institutional business.

Having strengthened its foothold over the years in global macro and fixed income credit, Legg Mason commands a strong presence in the U.S. Most of the company’s international business is in fixed income. Therefore, the purchase of a non-US equity manager will help in diversifying Legg Mason’s overall line of products and is a strategic fit for grabbing growing opportunities in equity business.

On the other hand, Martin Currie has a strong business in the UK. Therefore, with the acquisition of Martin Currie, Legg Mason will expand globally with the help of the acquired firm’s asset management brand and proficiency.

Moreover, the acquisition demonstrates Legg Mason’s aim of providing exceptional services to its clients with the purchase of such a flourishing asset management firm. The completion of the deal will significantly expand Legg Mason’s institutional business globally.

The deal widens Martin Currie’s scope and will help its expansion efforts with the commitment of providing best investment decisions to its clients. Overall, the clients of Martin Currie will have access to the industry's largest managed account platforms provided by Legg Mason, while the company will take advantage of Martin Currie’s investment management potencies. Moreover, the integration is providing investment and operational independence to Martin Currie, which is beneficial for its client proposition.

Our Viewpoint

The acquisitions of such asset management companies are welcome as they play a major role in preserving investor confidence in the stock.

We also believe that Legg Mason’s diverse revenue stream and sturdy capital position augur well for investors. Capital deployment efforts also bode well and boost investors’ confidence. Yet, the unsettled economic environment, low interest rate and stringent regulatory issues are matters of concern.

Legg Mason is scheduled to announce its June quarter-end results on Jul 31. Our proven model predicted that Legg Mason may not post an earnings beat as it did not have the right combination of two key ingredients – positive Earnings ESP and a Zacks Rank #3 (Hold) or higher. It had a Zacks Rank #3 (Hold), but Earnings ESP is 0.00%.

Among other investment managers, Ameriprise Financial, Inc. (AMP) and Affiliated Managers Group Inc. (AMG) is scheduled to report June quarter-end results on Jul 29, while Invesco Ltd. (IVZ) on Jul 31.

Will AGL Resources (GAS) Miss on Q2 Earnings This Season?

Posted Fri Jul 25, 06:50 pm ET

by Zacks Equity Research

Energy services holding company, AGL Resources Inc. (GAS) is set to report second-quarter 2014 results after the market closes on Jul 29.

Last quarter, AGL Resources failed to meet the Zacks Consensus Estimate and posted a negative earnings surprise of 25.95% — the second consecutive quarterly miss for the company. Let’s see how things are shaping up for this announcement.

Factors to Consider

Positioned in a niche industry with high barriers to entry, this energy services holding company enjoys near-monopoly status in its area of operation. On top of this, the utility’s best-in-class cost control and recession-proof business model presents additional growth opportunities for AGL Resources.

The company is also set to benefit from continued production growth in Marcellus and the need to transport the produce to fulfill the increasing natural gas demand. During the first-quarter conference call, AGL Resources raised its 2014 earnings per share (EPS) guidance in the range of $2.80 to $2.90. This could be an indication of improved results.

However, operating results for AGL Resources are affected by weather conditions and may vary on a seasonal and quarterly basis. Usually, almost 75% of the deliveries and sales occur during the six-month period of October to March. Thus, the second-quarter results will not likely benefit much.

Earnings Whispers?

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

Zacks ESP:  Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus estimate, is 0.00%.

Zacks Rank: Though AGL Resources’ Zacks Rank #2 (Buy) increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.  

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 from the utilities industry for investors to consider, that, according to our model have the right combination of elements to post an earnings beat this quarter:  

Ameren Corporation (AEE) has Earnings ESP of +14.04% and a Zacks Rank #2.

Consolidated Edison, Inc. (ED) has Earnings ESP of +9.26% and a Zacks Rank #2

BCE Inc. (BCE) has Earnings ESP of +6.25% and a Zacks Rank #2.

Will Cummins Inc.'s (CMI) Surprise This Earnings Season?

Posted Fri Jul 25, 06:45 pm ET

by Zacks Equity Research

Cummins Inc. (CMI) is set to report second-quarter 2014 results on Jul 28, 2014. Last quarter, it posted a surprise of +9.58%. Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

For 2014, Cummins increased the revenue guidance to 6–10% based on increased demand, particularly in North America. The company expects launch of new and innovative products to enhance profitability. Moreover, Cummins is focused on enhancing shareholders value by pursuing aggressive share repurchases and increasing dividend payouts. Cummins’ board authorized a share repurchase of up to $1 billion and announced a 25% increase in dividends to 78 cents.

However, weakness in the operating markets is considerably affecting the results of Cummins. The company is witnessing a challenging situation in India and Brazil because of weak economic conditions. In 2014, the company expects total revenue in India to decline 8%. Revenues in Brazil are expected to decline 15% this year due to weak truck demand.

Earnings Whispers?

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

Zacks ESP: Earnings ESP represent the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Cummins’ Most Accurate estimate stands at $2.34 while the Zacks Consensus Estimate is pegged at $2.39. Hence, the difference stands at -2.09% for the company.

Zacks Rank: Cummins’ Zacks Rank #2 (Buy) when combined with a negative ESP, makes surprise prediction difficult.

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

Other Stocks to Consider

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

Meritor, Inc. (MTOR) has an earnings ESP of +13.33% and a Zacks Rank #2. The company will be reporting second-quarter earnings on Jul 31, 2014.

BorgWarner Inc. (BWA), with an earnings ESP of +1.15% and a Zacks Rank #2, will be reporting second-quarter earnings on Jul 31, 2014.

American Axle & Manufacturing Holdings Inc. (AXL) has an earnings ESP of +8.45% and a Zacks Rank #2. The company will release its second-quarter financial results on Aug 1, 2014.

Liberty Global Offers Concessions for Ziggo Deal

Posted Fri Jul 25, 06:35 pm ET

by Zacks Equity Research

Liberty Global plc. (LBTYA), a leading cable MSO (multi-service operator) in Europe, recently offered some concessions to ward off anti-trust regulatory body, European Union (EU) Competition Commission regarding its proposed takeover of Ziggo N.V., the largest cable MSO in the Netherlands. In Jan 2014, Liberty Globalhad reached an agreement to acquire a 100% stake in Ziggo.

As part of the concessions offered, Liberty Global has decided to vend its pay-TV channel “Film1.” Furthermore, the company will not prevent online video streaming service providers from accessing its web (Internet) network for the next four years either contractually or technically.

Low-cost online video streaming service providers depend completely on Internet links for their offerings. The regulatory body is likely to take into consideration the feedback of third parties on the terms of the concessions.

At present, Liberty Global holds a 28.5% stake in Ziggo. Notably, the company will pay around $13.6 billion to acquire the remaining 71.5% stake in Ziggo including its outstanding debt. The deal will be completed through a stock and cash transaction.

The EU regulatory body is currently evaluating the deal and has expressed its concern over the impact the merger will have on the Netherlands’ cable TV industry and on the Flemish-speaking areas of neighboring Belgium. The EU deadline for a decision on the deal is Oct. 17, 2014.

Liberty Global boasts a strong presence in the Dutch cable TV market as its UPC Broadband Holding BV unit is the second largest cable MSO in the nation.A merger between Liberty Global and Ziggo will create a dominant cable TV operator in the Netherlands with approximately 10.8 million revenue generating units. Ziggo also competes with telecom operators such as Royal KPN N.V. and Vodafone Group plc. (VOD).

Liberty Global is striving to extensively penetrate the European region with its bundled video, voice and Internet (data) services. The company has also joined the RDK Management LLC., a joint venture between U.S. cable giants Comcast Corp. (CMCSA) and Time Warner Cable Inc. (TWC).

In 2013, Liberty Global acquired the license to test RDK standard on its next-generation Horizon IP video gateways. Liberty Global currently carries a Zacks Rank #3 (Hold).

BofA Fined $16.6M for Violating Drug-Trafficking Sanctions

Posted Fri Jul 25, 06:30 pm ET

by Zacks Equity Research

Endless legal issues and penalties associated with improper business conducts, continue to haunt Bank of America Corporation (BAC). BofA, in order to resolve the allegations of violating U.S. sanctions against drug-trafficking, will be paying a $16.6 million fine.

Per the U.S. Treasury Department, BofA processed nearly 208 transactions for 6 individuals who have been identified as narcotics traffickers. In aggregate, transactions worth approximately $91,192 million were processed between Sep 2005 and Mar 2009.

Additionally, BofA failed to block 5 accounts owned by 10 other traffickers, thereby violating the Foreign Narcotics Kingpin Sanctions Regulations. Further, the bank did not timely file blocked property reports on accounts held by four Specially Designated Narcotics Traffickers.

Moreover, BofA, for more than two years, failed to fix the problem in its screening process. This, in turn, led to processing of additional 79 similar transactions.

According to the U.S. Treasury, the base penalty for all these violations should have been more than $83 million. However, BofA is paying a substantially smaller amount, considering its cooperation with the law-enforcement authorities and eventual amendment of the issue causing the lapses. The company also identified other accounts operated by it for sanctioned individuals.

BofA is not the only major global bank that has faced fines for sanction violations. Over the last few years, the U.S. subsidiaries of many global banks including those of HSBC Holdings plc (HSBC), ING Groep NV (ING), BNP Paribas SA and Barclays PLC (BCS) have been penalized for money-laundering or sanctions violations..

We believe that such stringent actions by law enforcement agencies will go a long way in restoring investors’ confidence. Though this would lead to a marginal rise in the legal expenses for BofA, the resolution will remove yet another headwind.

Currently, BofA carries a Zacks Rank #3 (Hold).

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