For Immediate Release
Chicago, IL – October 20, 2010 – Zacks Equity Research highlights: RadioShack (RSH) as the Bull of the Day and Monsanto Company (MON) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Coca-Cola Co. (KO), PepsiCo (PEP) and Lockheed Martin Corporation (LMT).
Full analysis of all these stocks is available at http://at.zacks.com/?id=5506.
Here is a synopsis of all five stocks:
We upgrade our recommendation for RadioShack (RSH) to Outperform based on our assessment that the company is likely to improve its earnings in the future reporting quarters as a result of significant boom in the wireless industry.
The company is generating massive revenue growth from stronger sales of postpaid wireless business and prepaid wireless handsets and airtime. Emphasis on next-generation smartphones like iPhone 4 also helps RadioShack improving its bottom-line. Its Wireless product category is expected to perform well in future due to growing demand for feature rich smartphones together with management decision to extensively rolling out is Kiosks in Target stores.
Furthermore, management has recently raised its share buy-back program to $500 million from previously declared $290 million. Out of this, $300 million of share repurchase will be done on accelerated basis.
We are downgrading our recommendation on Monsanto Company (MON) from Neutral to Underperform based on the weak results that the company posted for fiscal 2010 with an EPS of $2.41, almost halved from $4.41 in fiscal 2009.
The increases in cost were the icing on the cake. We believe this will continue for a substantial period of time based on the slower market recovery. Further, an intensely competitive environment and Monsanto’s huge dependence on a few large customers can lead to risk.
Monsanto also faces foreign currency risk since a significant portion of its income comes from outside the U.S. Thus, we downgraded our recommendation on the stock from Neutral to Underperform, which indicates that it would perform below the broader market. Our $52.00 target price, 18.5x 2011 EPS, reflects this view.
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Coca-Cola Q3 Profit Rises
Coca-Cola Co.’s (KO) Quarterly Details
During the quarter, Coca-Cola’s net revenues rose 4.7% to $8.4 billion from $8.0 billion in the year-ago period. Revenues were also well above the Zacks Consensus estimate of $8.2 billion. Growth was mainly attributable to a 7% increase in concentrate sales, and 1% favorable impact of price and mix. Global unit case volume increased 5% in the quarter, driven by a 6% improvement in international unit case volume.
Geographically, the Eurasia & Africa division witnessed volume growth of 12% year-over-year led by Russia, which surged 30%, while Turkey, Southern Eurasia and East and Central Africa posted double-digit volume growth. The Latin American segment volumes increased 4% driven by Brazil (13%). The Pacific region recorded volume growth of 11%, led by Philippines, Korea, China and Japan. However, overall volume growth was partially offset by a modest 2% growth in North America, while Europe recoded flat revenue growth.
Coca-Cola’s gross profit during the quarter increased 7.8% year-over-year to $5.5 billion, while gross margin rose 184 basis points (bps) to 65.3% due to favorable currency translations and reduced commodity costs. Selling, general and administrative expenses, as a percentage of net revenues, increased 16 bps to 36.4%, the increase was driven by investment on the company’s bottling operations. The operating margin rose 109 bps to 27.8%.
Balance Sheet, Cash Flow and Share Repurchase
Coca-Cola exited the quarter with $10.5 billion in cash and a long-term debt-to-capitalization of 13.6%. During the first half of 2010, the company generated $7.2 billion of cash from operations and deployed $3.0 billion towards dividends and $2.7 billion towards investments. The company expects to repurchase approximately $2 billion worth of shares in fiscal 2010.
Zacks Rank
Coca-Cola is the world’s largest producer and marketer of beverages and commands a formidable portfolio of globally recognized brands. Coca Cola shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. The company successfully completed the acquisition of its North American biggest bottler in an effort to compete effectively with arch-rival PepsiCo (PEP).
Lockheed Reeling from Retrenchment
Lockheed Martin Corporation’s (LMT) third quarter 2010 earnings came in at $1.57, a penny shorter than the Zacks Consensus Estimate of $1.58 and way below the year-ago quarterly earnings of $2.07. However, reported quarter’s results were affected by a one-time charge of $178 million related to the VESP (Voluntary Executive Separation Program). Through VESP the company retrenched approximately 600 executives, or about 25% of its total executive population.
Although effects of the retrenchment program would prove to be beneficial to the company over the long-term, it has to absorb the near-term bumps in earnings. In contrast, year-ago quarterly earnings were boosted by an unusual tax benefit from the resolution of an IRS examination, which increased earnings by $58 million.
Operating Statistics
The lower trend was reflected on the revenue front also, where Lockheed Martin reported quarterly net sales of $11.4 billion, lagging behind the Zacks Consensus Estimate of $11.6 billion by $203 million. However, the company smoothly sailed past the year-ago quarterly revenue of $10.8 billion by $608 million.
Lockheed Martin finished the third quarter of fiscal 2010 with $70.5 billion backlog, of which $24 billion belonged to the Aeronautics segment and $21.2 billion to the Electronic Systems segment. However, total backlog fell 8.7% compared to fiscal-end 2009 backlog of $77.2 billion.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.
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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.
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COCA COLA CO (KO): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
MONSANTO CO-NEW (MON): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
RADIOSHACK CORP (RSH): Free Stock Analysis Report
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