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Zacks #1 Stocks on the Move 07/02/2015

Company Name Symbol %Change
OPTIMIZERX C OPRX
12.15%
LIQTECH INTL LIQT
6.33%
OCULUS INNOV OCLS
5.56%
FIVE9 INC FIVN
3.77%
OCEAN RIG UD ORIG
3.46%

Analyst Blog

Health Net (HNT) to Be Acquired by Centene for $6.8 Billion

Posted Fri Jul 03, 02:40 pm ET

by Zacks Equity Research

Health Net, Inc. HNT and Centene Corporation CNC have entered into an agreement pertaining to which the latter will acquire all the shares of the former to form a combined entity.

The total consideration of the deal is $6.8 billion, including cash, stock and $500 million of debt. The $78.57 per share deal represents a premium of nearly 21% over Health Net’s closing price as of Jul 1, 2015. Per the terms of the agreement, shareholders of Health Net will receive 0.622 shares for each Centene share and $28.25 in cash per Health Net share.

The transaction is pending approval by shareholders of both the companies and is scheduled to culminate by early 2016. On culmination, Centene shareholders will have a 71% stake in the combined entity, while Health Net shareholders will own the remaining 29%.

The merger of the two companies should create a diversified multi-national health care enterprise that will cater to more than ten million members nationwide. Also, the new entity is estimated to have 2015 pro forma premium and service revenues of nearly $37 billion. Additionally, the deal is projected to be accretive to earnings per share (EPS) by 10% and adjusted earnings per share by 20% in the first year post closure. Cost synergies from the deal are expected to be nearly $150 million by 24 months from the closing date, of which 50% is likely to be achieved within the first twelve months.

The combined company will have a strong presence in the California Medicaid program, serve California’s dual eligibles, and expand Medcaid and Medicare programs in the Western United states. The merger would also tap opportunities in government programs like TRICARE, and the U.S. Department of Veterans Affairs. Additionally, the combined company will provide its members access to more solutions, with options for integrated specialty services across the entire enterprise.

Health Net currently holds a Zacks Rank #2 (Buy). Investors interested in the health care space may also consider stocks like Anthem, Inc. ANTM and Aetna, Inc. AET. While Anthem sports a Zacks Rank #1 (Strong Buy), Aetna has the same Zacks Rank as Health Net.

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15 Global Banks Under Brazilian Scanner for Rate Rigging

Posted Fri Jul 03, 02:30 pm ET

by Zacks Equity Research

Six weeks after reaching a multi-billion settlement with regulators in UK and the U.S., major banks might need to pump up their legal reserves again, as 15 of the world’s largest banks are on the radar of Brazil’s antitrust watchdog Administrative Council for Economic Defense or “CADE”. Reportedly, CADE is investigating these global banks for alleged manipulation of the Brazilian Real (R$).

CADE has accused banks of engaging in anti-competitive price fixing activities during 2007–2013, in order to rule out competition in the space; and for manipulating benchmark rates including Brazil’s PTax and WM/Reuters. Bank of America Corporation BAC, Citigroup Inc C, JPMorgan Chase & Co JPM, UBS AG UBS, Barclays Plc, BCS and The Royal Bank of Scotland Group plc RBS are among the 15 banks accused by CADE. Notably, these firms had also featured in the above-mentioned multi-billion settlement.

Other major banks facing investigation include Deutsche Bank AG DB and Morgan Stanley MS, Bank of Tokyo-Mitsubishi UFJ, Credit Suisse Group AG CS, HSBC Holdings Plc HSBC, Nomura Holdings Inc NMR, Royal Bank of Canada RY, Standard Bank Group Ltd and Standard Chartered Plc.

Probe & Allegations

Per the emailed statement by CADE, traders or “The Mafia” or “The Cartel”, of the banks allegedly fixed client spreads and shared confidential data in the currency market pertaining to spot and future trades as well as those related to volume of deal flow.

Front running and pushing through trades to rig benchmark rates are among the other accusations. Notably, all these trades were shared and discussed on online chat rooms through various Bloomberg terminals.

The watchdog is conducting dual investigations. Firstly, trading practices of these 15 banks with onshore Brazilian clients; and secondly, the trading of real by these banks for other currencies. Further, CADE has given a 30-day window for banks to respond. Among those accused, at least one participant is reportedly cooperating with CADE, hoping for lenient treatment.

Apart from banks, the Brazilian watchdog is also interrogating 30 individuals for their alleged illegal behavior during 2007–2013. Interestingly, no domestic bank has come into the picture so far.

Nonetheless, CADE is working with Brazil’s central bank and other international authorities on the case. Without disclosing much, the watchdog hinted that related penalties could amount to nearly 20% of the money raised from the scam.

The Road Ahead

Trading in the FX market guarantees significant revenues for banks at a very low risk. Nevertheless, a lack of oversight in the FX market aided banks to easily manipulate rates as early as Dec 2007.

However, conducts of these banks are now being carefully watched by various antitrust bodies, resulting in increasing legal hassles for the wrongdoers. While major banks continue to cooperate with pending litigations, their financials are hit by mounting legal expenses arising from settlements and increasing provisions to meet potential claims.

As a matter of caution, South Korea and South Africa are also investigating the impact of foreign currency manipulation by global banks in the UK and the U.S. in their respective nations.

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Video Game Stock Roundup: Twitch.tv Viewership Up, Nintendo NX in Focus

Posted Fri Jul 03, 02:20 pm ET

by Zacks Equity Research

Video game stocks weren’t immune to the global market downtrend as a result of the Greece debt crisis and continued to slide over the past week.

Some important events from the past five days include rising viewership of Twitch.tv, thanks to the Electronic Entertainment Expo (E3) and the announcement of a game based on Demi Lovato – the latest celebrity to join the video game industry.  Further, Nintendo’s most awaited console Nintendo NTDOY NX is rumored to hit markets by 2016 with production beginning this year.

Top Stories this Past Week

1.    Though the Electronic Entertainment Expo (E3) 2015 has come to an end, related news keeps pouring in. A case in point is fresh reports about the increasing viewership of Twitch.tv. Accordingly, Amazon.com Inc.’s (AMZN) live streaming video platform - Twitch.tv registered 21 million viewers who tuned in for the E3 2015 shows. As E3 is targeted toward industry insiders like professionals, journalists and business owners, the live channel benefitted from broadcasting press conferences from Microsoft MSFT, Sony SNE and other players. However, this time around, Twitch enabled a commentary section on the E3 show, which allowed fans across the world to voice their opinion. According to reports, nearly 12 million hours of E3 footage was consumed over Twitch. Apart from Twitch, Google’s GOOGL YouTube was also one of the main broadcasters of the events.

2.    Recently, Chinese online gaming company, Perfect World Co., Ltd. PWRD announced its Zhi-Xing China-Perfect World US-China Young Leaders Fellowship Program in Beijing. The program focuses on building a platform for research and exchange between China and the U.S. and aims to develop bilateral relations between the two countries. Under the new arrangement, the company will sponsor the new Zhi-Xing China Program in order to build a long-term relationship.

3.    This week Demi Lovato was the latest to join the celebrity club in the video game industry. Reportedly, the singer, songwriter and actress has collaborated with mobile game maker Pocket Gems to create a video game that involves the storyline of becoming a famous musician. In the game, players will follow Lovato on tour and backstage and build their own music careers. While the game title has not been decided yet, it is expected to debut this summer on Apple AAPL iOS and Google’s Android devices.

4.   Activision Blizzard, Inc. ATVI has reportedly added new characters, the Butcher and other heroes, as part of its Eternal Conflict online event that took place on Jun 30.  Reportedly, the company is also planning to bring these characters into its multiplayer online battle - Heroes of the Storm. In addition, Activision Blizzard also announced a new map for Heroes of the Storm called Battle of Eternity at the Eternal Conflict event. The map would involve the characters of two bosses and whichever team defeats one of the bosses will get them on their side as an ally.

5.   Reportedly, Nintendo is set to begin production of its upcoming console Nintendo NX by Oct 2015. According to reports Nintendo has collaborated with Foxconn Electronics, and expects pilot assembly of Nintendo NX by October. Foxconn is reportedly employing one million people to accomplish the project. According to Forbes reports, the device may be launched in 2016. The details have been kept under wraps, given concerns regarding information leaks to competitors like Sony and Microsoft.

Performance

The following table shows the price movements of the major video game companies over both the past 5 trading days as well as the 6-month period:

Company

Last 5 Days

Last 6 Months

ATVI

-1.64%

30.66%

EA

0.25%

74.25%

GLUU

-3.92%

35.32%

MSFT

-1.90%

-3.75%

NTES

-4.91%

44.36%

TTWO

-4.26%

-2.49%

ZNGA

-3.40%

4.03%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Over the last five trading sessions, Electronic Arts was the only stock to remain positive with a 0.3% gain. The stock that lost the most was NetEase, Inc., down 4.9%.

Over the 6-month period, Electronic Arts surged the most — nearly 74.3%. We believe that the continued growth in the company’s mobile gaming audience makes it one of the most consistently performing video game makers in current times. In addition, strategic collaborations with the likes of Google, Apple and Facebook in developing its gaming platform will add to its bottom line over the long term. However, the stock that was down over the same time frame was Microsoft, down 3.8%.

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ReneSola Sells 6.4 MW UK Solar Project to Foresight Group

Posted Fri Jul 03, 02:10 pm ET

by Zacks Equity Research

ReneSola Ltd SOL announced that it has sold its 6.4 megawatt (MW) Field House utility scale project in the United Kingdom to funds managed by Foresight Group. ReneSola is gradually transitioning toward downstream development and servicing from OEM manufacturing. The monetization of the Field House utility scale solar project is part of this transition.

China based ReneSola has started to branch out globally, having established its base in Japan, Australia, France, India, UK, Canada and other countries. ReneSola currently has nearly 90 MW of solar projects in development. The company is also looking to develop, build and transfer new downstream projects.

The Field House project utilizes ReneSola's Virtus II modules. It was connected to the grid in Mar 2015 and is qualified for the UK's 1.4 ROC (Renewable Obligation Certificate) scheme. Incidentally, in the first quarter of 2015, the company successfully completed and connected three utility-scale projects totaling 57.5 MW in the UK, all of which are eligible for ROC 1.4 – a government incentive program to encourage large-scale renewable electricity generation..

In order to reduce carbon emissions as well as ensure energy security, renewables are increasingly been used for power generation worldwide. Responding to growing demand for large-scale solar plants, ReneSola has from the beginning of 2015 scaled back its global OEM capacity to concentrate more on downstream projects.

Other China based solar module producers like JinkoSolar Holding Co., Ltd. JKS, Yingli Green Energy Holding Co. Ltd. YGE and Trina Solar Limited TSL are also cracking domestic and international deals and entering into partnerships to enhance market penetration.

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

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Applied Genetic Up on Biogen Deal for Eye Disease Drugs

Posted Fri Jul 03, 02:00 pm ET

by Zacks Equity Research

Applied Genetic Technologies Corporation AGTC was up approximately 17% after it announced a collaboration and license agreement with Biogen BIIB for the development of gene-based therapies for multiple ophthalmic diseases. The transaction is expected to close in the third quarter of 2015.

The collaboration will focus on the development of Applied Genetic’s candidates – a clinical stage candidate for X-linked Retinoschisis (XLRS) and a pre-clinical candidate for X-Linked Retinitis Pigmentosa (XLRP). Both XLRS and XLRP are for orphan diseases of the retina that can lead to blindness in children and adults.

Terms of the Agreement

Biogen will make an upfront payment of $124 million to Applied Genetic. The upfront payment includes a $30 million equity investment in Applied Genetic at a price equal to $20.63 per share, representing a 26.9% premium over Applied Genetic’s unaffected closing price on Jul 1, 2015, and certain prepaid research and development expenditures. Apart from worldwide commercialization rights to XLRS and XLRP programs, Biogen will also enjoy the option to license discovery programs for three additional indications.

As per the terms of the agreement, Applied Genetic is entitled to receive up to $472.5 million for the XLRS and XLRP programs as upfront and milestone payments. Applied Genetic will also receive royalties (high single digit to mid-teen percentages) based on annual net sales. Additionally, Biogen will make payments of up to $592.5 million for the discovery programs to Applied Genetic. For these discovery programs, Applied Genetic will receive royalties in the mid single digit to low teen percentages of annual net sales.

Applied Genetic will lead the clinical development programs of XLRS through product approval and of XLRP through the completion of first-in-human trials. The company has an option to share development costs and profits after the initial clinical trial data are available, and an option to co-promote the second of these products to be approved in the U.S.

We note that several companies including Avalanche Biotechnologies AAVL are developing gene therapy for eye diseases.

Both Applied Genetic and Biogen hold a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector are Achillion Pharmaceuticals, Inc. ACHN and Avalanche Biotechnologies, carrying a Zacks Rank #2 (Buy).

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AutoNation's (AN) Retail Sales Up 9% Y/Y in June, 7% in Q2

Posted Fri Jul 03, 01:50 pm ET

by Zacks Equity Research

Automotive retailer AutoNation, Inc.’s AN total retail sales of new vehicles increased 9% year over year to 27,862 units in Jun 2015. On a same-store basis, retail new vehicle sales improved 7% from the year-ago figure.

Segment Results

Retail new vehicle unit sales in AutoNation’s Domestic segment went up 9% to 8,282 vehicles. The segment comprises retail automotive franchises that sell vehicles manufactured by Ford Motor Co. F, Chrysler and other automakers.

Sales at AutoNation’s Import segment increased 8% to 13,110 vehicles in Jun 2015 from the corresponding month last year. The segment covers retail automotive franchises that sell vehicles manufactured by Toyota Motor Corporation TM, Honda Motor Co., Ltd. HMC and others.

In the Premium Luxury segment, sales advanced 14% year over year to 6,470 vehicles during the month. This segment consists of retail automotive franchises which offer vehicles made by Mercedes Benz, BMW, Lexus and other carmakers.

Quarterly Sales

AutoNation recorded a year-over-year increase of nearly 7% in new vehicle sales to 86,794 units in the second quarter of 2015. On a same-store basis, retail new vehicle sales improved 4% year over year in the quarter. The Domestic segment’s sales improved 8% to 26,826 units, the Import segment’s sales inched up 1% to 41,018 vehicles, and the Premium Luxury segment sales surged 17% to 18,950 units in the quarter.

U.S. Auto Sales

Rising U.S. auto sales are contributing to AutoNation’s sales growth. U.S. light-vehicle sales rose 3.9% year over year to 1.48 million units in Jun 2015. Also, sales improved 4.4% year over year to 8.52 million units in the first half of 2015. This is the highest first-half sales results since 2005. Sales on a seasonally adjusted annualized rate (“SAAR”) basis declined to 17.16 million units in Jun 2015 from 17.78 million units in May 2015. However, the SAAR improved from 16.91 million units in Jun 2014.

The impressive sales volume was driven by strong demand for light trucks, crossovers and SUVs. These vehicle segments have been gaining from low gas price as well as the easy availability of credit with lower interest rates and longer repayment periods.

Earnings Review

AutoNation, which currently carries a Zacks Rank #2 (Buy), is set to report second-quarter 2015 results on Jul 22. In the trailing four quarters, it has delivered an average positive earnings surprise of 11.49%. The Zacks Consensus Estimate for second-quarter 2015 stands at $1.01 per share.

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21st Century Fox Rides High on Women's World Cup Ratings

Posted Fri Jul 03, 01:40 pm ET

by Zacks Equity Research

Broadcasting FIFA Women’s World Cup 2015 tournament has paid off for Twenty-First Century Fox, Inc FOXA.

Fox Sports Network has witnessed escalating viewership as the tournament progressed, indeed much to the pleasure of the sponsors. The first semi-final match between the USA and Germany that had an average audience of 8.4 million, became the highest watched football world cup semi-final in the United States. USA won 2-0 and has advanced to the finals where it will face defending champions Japan on Jul 5, at the BC Place Stadium, Vancouver.

The match had the highest peak audience of 12.1 million, dwarfing the 8.1 million peak audience recorded at the USA-China quarterfinals. Moreover, the 8.4 million viewership broke the earlier record of 5.7 million during the USA-China quarter final match held on Jun 26. It now has the third highest rating behind the 1999 USA-China Women’s World Cup final (17.9 million) and 2011 USA-Japan Women’s World Cup final (13.5 million).

As per sources, this has made the USA-Germany match the second-most viewed Fox broadcast in the key 18-49 demographic after the season finale of Empire aired on Mar 18, 2015 that had a viewership of 21.1 million. Moreover, Fox Sports Go saw a record 166,000 people streaming the match live.

In 2010, it looked like a risky gamble when Twenty-First Century Fox in partnership with Comcast Corporation CMCSA owned Spanish-language network Telemundo shelled out $1 billion to have the rights to the FIFA events from 2015 to 2022. This reflected a substantial rise from the combined cost of $425 million paid by The Walt Disney Company’s DIS ESPN ($100 million) and Univision ($325 million) for the 2010-2014 events. 21st century Fox had paid $400 million while Telemundo shelled out $600 million.

At the time, soccer was relatively less popular in America than in Europe and other parts of the world. Moreover, women’s edition of the game was still lesser popular.

However, things have changed drastically in the last five years. Apart from live coverage becoming excessively valuable, soccer started gaining tremendous popularity, especially after the national team made it to the Round 16 of 2014 FIFA Men’s World Cup held in Brazil. Moreover, the women’s edition has started to garner sizable attraction globally as reflected in rising viewership for 2015 FIFA Women’s World Cup.

All matches in the tournament had an average of 1.3 million viewers across FOX, FOX Sports 1 and FOX Sports 2.

With USA contenting Japan in the final, 21st Century Fox is likely to conclude the tournament coverage on a high note. Viewership is expected to be better than the semi-final ratings. This will set the rhythm for the Men’s World Cup to be broadcasted by the company in 2022. 21st Century Fox recently acquired the telecast rights for 2026 World Cup.

Rising viewers guarantees increase in sponsorships and in turn, higher advertising revenues. Moreover, broadcasting soccer tournaments will help 21st Century Fox to expand the reach of its sports channels that currently has a relatively smaller audience compared to ESPN.

At present, Twenty-First Century Fox carries a Zacks Rank #3 (Hold). A better-ranked stock in media sector is AMC Networks Inc. AMCX, which sports a Zacks Rank#1 (Strong Buy).

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Petrobras to Sell Stake in Bijupira & Salema Fields for $25M

Posted Fri Jul 03, 01:30 pm ET

by Zacks Equity Research

Brazilian state-run energy company Petroleo Brasileiro S.A. or Petrobras PBR announced that it has entered into a deal with PetroRio S.A – engaged in oil and gas exploration, and production activities.

Per the agreement, Petrobras will likely divest its 20% interest in the concessions of Bijupirá and Salema oil and gas fields, located at water depth of 480–850 meter in the Campos Basin. Presently, these fields are being operated by Royal Dutch Shell plc RDS.A. It is to be noted that from the sale, Petrobras will likely get $25 million.

Average production of oil − of 28 to 31 degree API − from the fields is 22,000 barrel per day while the daily gas output stands at 325,000 cubic meters.

Petrobras added that the asset divestment is in sync with the business and management plan for the period 2015–2019. We believe that the sale proceeds will also help the company to lower its mounting debt as it has been facing difficulties in raising money from the market since its involvement in a multimillion dollar money laundering scam was exposed.

Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company’s activities include: exploration, exploitation and production of oil from reservoir wells, shale and other rocks, as well as refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.

However, the company’s upstream operations continue to face the challenges of weak crude prices.

As a result, Petrobras currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, a couple of better-ranked players in the energy sector are Pembina Pipeline Corporation PBA and Tallgrass Energy Partners LP TEP. Both stocks sport a Zacks Rank #1 (Strong Buy).

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Shell to Go Ahead with GoM Appomattox Deepwater Project

Posted Fri Jul 03, 01:20 pm ET

by Zacks Equity Research

Royal Dutch Shell plc RDS.A has decided to proceed with the Gulf of Mexico (GoM) based Appomattox deepwater project although the business scenario looks challenging with crude prices still at low levels. Per the company, the development will likely be operational by the end of this decade.

The project includes the installation and construction of a floating platform in the GoM. Initially, the platform will produce oil and gas from the Appomattox and Vicksburg fields. Shell estimates peak per day production capacity from the project at roughly 175,000 barrels of oil equivalent (BOE), not too far from the company’s total 2014 GoM daily output of 225,000 BOE. Investors should note that this development is the eight and the largest deepwater platform by the company in the GoM.  

It is highly possible that Shell’s decision to invest in upstream activities amid unfavorable oil prices raises questions among shareholders. But there is almost nothing to worry about as the integrated energy major’s estimated cost of producing oil from the development is $55 per barrel. This is less than the price of crude, which is now trading near $60 per barrel.

The company added that its improved design techniques, savings in the supply chain and a lesser number of required wells for upstream operations have helped it in reducing the project cost by 20%.

Shell is one of the largest integrated energy firms in the world with a strong and diversified portfolio of development projects that offer attractive long-term opportunities.

However, the oil price slump has affected the company’s earnings and cash flows, in particular in its upstream unit.

As a result, Shell currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, some better-ranked players in the energy sector are Pembina Pipeline Corporation PBA, EQT Midstream Partners LP EQM and Tallgrass Energy Partners LP TEP. All the stocks sport a Zacks Rank #1 (Strong Buy).

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BP to Settle Federal, State GoM Oil Spill Claims for $18B

Posted Fri Jul 03, 01:10 pm ET

by Zacks Equity Research

BP plc BP, one of the largest energy firms in the world, agreed to an $18.7 billion settlement of all federal and state claims related to the 2010 Gulf of Mexico (GoM) oil spill. This is touted as the worst spillage in the history of the U.S.

The explosion occurred in 2010, when Transocean Ltd’s RIG deepwater horizon semi-submersible mobile offshore drilling rig was working for BP in the Macondo Prospect, an oil field located off shore Louisiana in the GoM. BP was not able to control the oil spillage – that continued for several months. The estimated oil released – compiled by several media reports – was as high as 200 million gallons. The disaster also cost the lives of 11 workers.

Following the accident, BP was placed with significant liability by the United States. Originally, the company had estimated that it would have to $7.8 billion in compensation to those who were harmed by the oil spill.

BP provides its customers with fuel for transportation, energy for heat and light, retail services and petrochemical products.The company is offloading its non-core upstream properties while creating a portfolio with potentially higher growth from a smaller base.

However, BP’s capital expenditure guidance for 2015 is $20 billion, down 16% from the 2014 organic capex. The company’s 2015 production guidance also remains largely flat with 2014. The company announced divestitures of several non-core assets that comprise interests in many North Sea oil and gas fields and in its Yacheng gas field in the South China Sea. Thus, the forecasts raise concerns with respect to its performance in the coming years.

Moreover, BP projects a weaker refining environment for 2015. This is mainly due to narrowing crude differentials in the low crude price environment. Moreover, the financial impact of refinery turnarounds is likely to remain the same as 2014.

With crude prices tumbling 50% since June, BP’s upstream division has not been value accretive. This has put the group’s profit margins under pressure.

BP currently carries a Zacks Rank #2 (Buy). Investors interested in the oil and gas sector could also try out stocks like LRR Energy, L.P. LRE and Pembina Pipeline Corporation PBA. All these have a better Zacks Rank of 1 (Strong Buy).

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