For Immediate Release
Chicago, IL – March 1, 2010 – Zacks Equity Research highlights Health Net (HNT) as the Bull of the Day and TiVo (TIVO) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Lockheed Martin (LMT), General Dynamics (GD) and Tenet Healthcare Corporation (THC).
Full analysis of all these stocks is available at http://at.zacks.com/?id=5506
Here is a synopsis of all five stocks:
Health Net’s (HNT) fourth quarter earnings per share came in at $0.69, marginally above the Zacks Consensus Estimate of $0.67 and the year-ago earnings of $0.61. Following the sale of its Northeast segment to UnitedHealth, Health Net will be able to concentrate on its core Western markets.
We are also encouraged by its recent partnership program with Stanford University to provide health care coverage to its students. While we remain concerned about the decline in membership, we believe a gradual improvement of the U.S. economy should improve its membership status.
Moreover, a strong balance sheet should enable it to tackle the current scenario. Given these factors, we upgrade the stock to Outperform.
TiVo’s (TIVO) third-quarter results fell substantially from the prior-year quarter and missed the Zacks Consensus Estimate. Despite an improving spending environment, the company provided lower-than-expected guidance.
TiVo faces increasing competition from cable and satellite providers, which is eroding its subscriber base and leading to market share losses. Aggravating the situation is the competitive offerings from Comcast and Cox. Further, TiVo’s long-standing patent infringement dispute with Dish Network remains an overhang.
With falling margins, we do not expect the company to become profitable in the next several quarters. However, the company has signed a number of agreements, which will be beneficial in the longer term. But with negative earnings and falling revenues, we downgrade the stock to Underperform with a price target of $8.50.
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Where the GDP Growth Came From
In the 3Q, federal spending contributed 0.62 points to growth (0.45 from Defense, 0.17 from Non-Defense) while state and local governments were a slight 0.08 drag on economic growth. On both counts, though, government was essentially a rounding error as far as overall growth was concerned in the 4Q.
However, in the national income accounting, transfer payments like Social Security are counted as part of PCE, not Government. Within the federal spending, expenditures on National Defense were a 0.19 (0.19) point drag on growth, after being a positive contributor of 0.45 points in the 3Q. Non-Defense spending added 0.21 (0.21) points to growth, up from a 0.17 point contribution in the 3Q. In other words, government spending on the military, and for the stuff it buys for Lockheed Martin (LMT) and General Dynamics (GD) fell a bit, relative to what it was spending in the 3Q, but that was offset by increases in spending for things like highway infrastructure and civilian government salaries.
Those sorts of numbers do not support the claim that all the growth is just a “sugar high” from direct government spending and the stimulus program. However, very big parts of the stimulus package were actually tax cuts and entitlement spending (for example, the extended unemployment benefits show up in PCE as the people getting the checks spend them). Another big part of the ARRA was help for S&L governments. In the absence of that aid, S&L spending would have been a far bigger drag on growth. Since states and municipalities are generally not allowed to run operating deficits, they would have been forced to slash spending and raise taxes even more than they already have been.
Tenet Downgraded to Neutral
Recently, we downgraded Tenet Healthcare Corporation (THC) to Neutral with a price target of $5. Our price target is based on 23.8x our 2010 earnings estimate of 21 cents.
Although we are pleased with the company’s efforts to improve service quality, the competition in the industry is a concern. Furthermore, bad debt expense in the most recent quarter increased $12 million year-over-year on a same-hospital basis. The increase in bad debts could weaken Tenet. Furthermore, Tenet’s dependence on government programs for revenues has inherent risks.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.
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