Back to top

Zacks Bull and Bear of the Day Highlights: Intuitive Surgical, Leggett & Platt, Bank of America, Morgan Stanley and Citigroup

Read MoreHide Full Article

For Immediate Release

Chicago, IL – April 25, 2012 – Zacks Equity Research highlights Intuitive Surgical, Inc. ( (ISRG - Free Report) as the Bull of the Day and Leggett & Platt, Inc. ( (LEG - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Bank of America Corporation ( (BAC - Free Report) , Morgan Stanley ( (MS - Free Report) and Citigroup Inc. ( (C - Free Report) .

Full analysis of all these stocks is available at

Here is a synopsis of all five stocks:

Bull of the Day:

We upgrade our rating for Intuitive Surgical, Inc. ( (ISRG - Free Report) to Outperform. First quarter earnings per share of $3.50 beat the Zacks Consensus Estimate. Gynecology and prostatectomy procedures did well in 2011, as did certain emerging procedures.

Recurring revenue continues to grow as a proportion of sales. In the interim, the installed base of Intuitive is expanding as more hospitals feel compelled to upgrade their technology. Overall, a proper valuation is appropriate given positive factors such as Intuitive's leading position in robotic surgery, a growing list of emerging procedures, barriers to entry, sizeable cash balance and no debt.

We like the company's da Vinci system, particularly its unique status as an enabler of robotic, minimally invasive surgery. Our target price of $701 is based on a P/E of 48.2x our fiscal 2012 EPS estimate.

Bear of the Day:

Leggett & Platt, Inc.'s ( (LEG - Free Report) fourth-quarter 2011 earnings of $0.22 per share were up from the prior-period level, but we believe it was inorganic growth primarily spurred by the company's share buyback program. Moreover, during the quarter, Leggett's gross margin contracted 90 basis points to 16.7% due to higher input costs.

Further, the company's operating margin shriveled 470 basis points to 1.5% due to increased selling and administrative expenses. we believe that intense competition from global and regional players, volatility in raw material prices and exposure to adverse foreign currency translations may undermine the company's future growth prospects and profitability.

Currently, we are maintaining a long-term Underperform recommendation on the stock. Our target price of $20.00, 15.3x 2012 EPS, reflects this view.

Latest Posts on the Zacks Analyst Blog:

Making Sense of Bank Earnings Is Not Easy

Looking at the first quarter 2012 earnings releases of the major U.S. banks, you can see hefty accounting-related gains or losses are primarily responsible for the outsized differences between reported and 'recurring' numbers (as calculated by analysts and others). In addition, the difficulty in accounting adjustments and consequently the difference in calculations results in several 'recurring' numbers.

If we take a look at the big Wall Street firms that reported last week, we can see that their first quarter numbers were positively or negatively impacted by certain accounting adjustments and several one-off items. Though identifying these items was not difficult, analysts were not in agreement with respect to interpretation.

Bank of America Corporation’s ( (BAC - Free Report) first quarter profit declined 68% from the year-ago quarter because of a $4.8 billion accounting charge. Excluding the charge, its earnings per share would have been substantially better than the consensus expectation. We at Zacks recorded the company as having come out with a big positive surprise, though others have treated the company's multiple supposedly non-recurring items differently.  

In the case of Morgan Stanley ( (MS - Free Report) , on a reported basis, first-quarter loss from continuing operations came in at 5 cents per share, compared with an income of 51 cents in the year-ago quarter. The deterioration was due to a hefty accounting-related impact on its revenues during the reported quarter. But as with BAC, the company's reported numbers turn into a strong positive surprise once adjusted for these accounting-related numbers. Excluding the accounting-related charge, the company posted 27% growth in earnings from continuing operations.    

Citigroup Inc.’s ( (C - Free Report) 95-cents-a-share earnings came in lower than 99 cents earned in the year-ago quarter. Accounting charges of $1.3 billion was included in the result, causing the company to miss the consensus expectation of $1.01 per share. However, excluding accounting charges and many other one-off items, the company surpassed the consensus estimate. 

It makes sense to adjust the banks' reported GAAP earnings for non-recurring items that do not have a direct bearing on its underlying business. But the process is far from simple. Take the example of one such accounting adjustment that has been constant in recent bank earnings: the debit-valuation adjustment (DVA).

The DVA relates to the value of the bank's debt during the period. According to this accounting measure, banks are allowed to mark some of their debt to market. To simplify, if the market value of their debt instruments decrease, it can be interpreted as a decline in liabilities and reported as earnings. The reasoning for this rule postulates that the bank can realize gains by buying back its own debt instruments at a lower value. So the bottom line here is that higher risk of a bank’s defaulting on its debt implies bigger DVA gain.

Most of the firms actually do not buy back their own debt instruments, but they certainly report DVA gains if they recognize market value declines. The firms do this by widening credit spreads in the swaps market. Now, widening credit spreads implies deterioration in the credit-worthiness of a bank.

So, should the investors be happy with the incremental earnings, at the cost of worsening credit-worthiness of banks?  

Get the full analysis of all these stocks by going to

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting

About Zacks is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment

Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at

Visit for information about the performance numbers displayed in this press release.

Follow us on Twitter:

Join us on Facebook:

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Media Contact
Zacks Investment Research
800-767-3771 ext. 9339

You May Like