For Immediate Release
Chicago, IL – November 23, 2011 – Zacks Equity Research
highlights Aetna Inc. (AET) as the Bull of the Day
and McDermott International (MDR) as the Bear of
the Day. In addition, Zacks Equity Research provides analysis on
Kellogg, Inc. (K), General Mills,
Inc. (GIS) and Ralcorp Holdings Inc.
(RAH).
Full analysis of all these stocks is available at
http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
Bull of the Day:
Aetna Inc.'s (AET) third quarter 2011 results
exceeded the Zacks Consensus Estimate. Declining utilization,
strong performance across all the product lines, disciplined
pricing and medical cost trends powered the earnings upside.
Aetna is making very good progress in its Medicare business. The
lifting of the CMS sanctions in June and the acquisition of
Genworth's Medicare Supplement business will advance its Medicare
platform. Aetna is also aggressively looking to generate
incremental fee revenues by managing the infrastructure necessary
for care organizations. Aetna is growing its international business
for diversification benefits.
Moreover, its deployment of $1.2 billion for acquisitions will
gear it fully for the changed environment after the implementation
of the Health Care law. A solid balance sheet, in-target range of
debt and adequate liquidity provide strength.
Bear of the Day:
Following a third quarter earnings miss and disappointing
outlook for 2012, we are maintaining our Underperform
recommendation for McDermott International (MDR)
shares. The company recently reported lower-than-expected EPS for
the September quarter, adversely affected by higher costs and weak
activity in the Middle East.
McDermott has already warned that its margins will suffer next
year due to lower marine activity and fabrication work. Near-term
bookings remain lumpy at McDermott, as the current uncertain
environment has hurt the economics of building new oil and gas
infrastructure. Additionally, the transfer of the power generation
and government operations has left McDermott with a less
diversified business, thereby heightening its risk profile.
These factors are reflected in our continued Underperform
recommendation on the company's shares. Our $11 price objective
reflects 2012 P/E multiple of 10.2x.
Latest Posts on the Zacks Analyst Blog:
Kellogg Slips to Sell
Following the third quarter 2011 earnings, we have downgraded
our recommendation on Kellogg, Inc. (K) to Sell
from Hold.
Kellogg posted weak third-quarter 2011 earnings of 80 cents per
share, which lagged the Zacks Consensus Estimate by 10.1% and the
prior-year earnings by 11%, on the back of economic slowdown,
increased cost of goods sold, increased supply-chain costs and
reinstatement of incentive compensation costs.
The cost of commodities, energy and fuel soared and peaked in
the year, exceeding the expectations. Gross margins and operating
margins also plummeted by 270 and 310 basis points, respectively,
in the third quarter of 2011 due to mounting costs. Besides, the
investments in the supply chain infrastructure across the U.S.
added to the gross margin pressure, resulting in increased logistic
costs, and reduced operating leverage.
Kellogg also expects gross margin to remain under pressure in
fiscal 2011 and be down approximately 100 basis points compared to
2010. Kellogg has also narrowed its internal operating profit
guidance to a range of down 2% to 4% for the year 2011 due to the
impact of third quarter results and expected continued investments
in supply chain during the remainder of the year.
Though the company has shown signs of improvement in the third
quarter, particularly in the top-line growth, the results do not
inspire in a challenging environment. Thus, the company has
reaffirmed its 2011 internal sales guidance growth in the range of
4% to 5%. Earnings are also expected to remain flat for 2012.
In addition, Kellogg has a highly leveraged balance sheet, and
is focused on continued reinvestment in the brands, as well as
optimizing its business model and global organization. All these
activities require huge cash investment. Though Kellogg has a
strong cash-generating capability, but it is utilized to repurchase
shares or pay dividends.
Additionally, Kellogg needs to finance the interest obligations
on its long-term debts, which have increased at a 4-year CAGR
(2006-2010) of 13%; whereas Kellogg had a total debt of
approximately $5.3 billion and total equity of $2.3 billion, at the
end of October 1, 2011.
Though the company has provided greater visibility in achieving
its long-term profit growth targets with its continued spending on
cost-reduction initiatives, we believe that intense competition
from other established players and high debt load undermine the
company’s future growth prospects.
Agreement of Analysts
For the current fiscal 2011, 16 out of 17 analysts covering the
stock lowered their estimates over the past 30 days, while 15 out
of the 19 analysts reduced their estimates for fiscal 2012. Thus,
there are no positive catalysts to drive the stock.
Magnitude of Estimates Revisions
For fiscal 2011, the estimates plummeted from $3.48 to $3.38
over the past 30 days, while the analysts lowered their estimates
from $3.78 to $3.57 in fiscal 2012.
Kellogg, which competes with General Mills,
Inc. (GIS) and Ralcorp Holdings Inc.
(RAH), holds a Zacks #4 Rank, translating into a short-term Sell
rating.
Get the full analysis of all these stocks by going to
http://at.zacks.com/?id=2649.
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
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events impacting stocks and the financial markets.
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AETNA INC-NEW (AET): Free Stock Analysis Report
GENL MILLS (GIS): Free Stock Analysis Report
KELLOGG CO (K): Free Stock Analysis Report
MCDERMOTT INTL (MDR): Free Stock Analysis Report
RALCORP HLD-NEW (RAH): Free Stock Analysis Report
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