For Immediate Release
Chicago, IL – March 2, 2010 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: D.R. Horton (DHI), Fluor (FLR), Foster Wheeler (FWLT), United Technologies (UTX) and Molson Coors Brewing Company (TAP).
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Here are highlights from Monday’s Analyst Blog:
Construction Spending Declines
A great leading indicator of commercial construction is the amount of work that architects are getting. Generally there is about a year delay (or slightly less, depending on the size of the project) between when an architect gets the work and when money is actually spent on construction.
The architects index, which is shown in the first graph below, is one of those indexes where any reading above 50 indicates expansion, and anything below means contraction. It has been consistently been below 50 since the recession started way back in December of 2007. But the downturn in private non-residential construction really did not start until the fall of 2008, and has picked up steam ever since. By contrast, the decline in residential investment spending started way back in early 2006.
Also note that the current situation where private non-residential construction spending is greater than private residential construction spending is very unusual, and will probably not last. We will probably see a stabilization of residential spending at around current levels, or perhaps even a slight rebound later in the year. Given the current very low levels, it would not take very heroic absolute levels to generate decent percentage gains in residential construction.
We will probably see residential construction back above non-residential construction by the end of the year. However, it will be because of the rapid decline in non-residential spending rather than because of an impressive increase in residential construction.
I think it is probably still a bit early to be investing in the home builders like D.R. Horton (DHI). The over-building on the residential side early in the decade was truly epic, but the decline in spending has been going on for a very long time now.
The numbers in the second graph are not adjusted for inflation. For a full year now, residential construction spending has been running below $300 billion a year, which is where it was in the late 1990’s. Eventually that low level of investment will cause a good case of pent up demand The homebuilders are closer to the end of their downturn than are the more commercial-oriented construction firms like the engineering and construction firms such as Fluor (FLR) and Foster Wheeler (FWLT). It is also not good news for firms like United Technologies (UTX), at least not for the elevator (Otis) and Air Conditioning units (Carrier) of the firm.
Molson Downgraded to Underperform
We are currently downgrading shares of Molson Coors Brewing Company (TAP) to Underperform. The company’s susceptibility to the global economic downturn and predominant operations in mature, low-growth markets is adversely affecting its top-line potential. Moreover, intense competition from other established players, along with seasonality of business and exposure to adverse foreign currency translations, severely undermine the company’s future growth prospects and profitability.
The continuing global economic downturn has compelled customers to reduce discretionary spending, preferring lower priced brands over premium ones. This is especially a matter of concern for the company as its business strategy is focused towards premium and above-premium offerings.
Molson Coors business is seasonal in nature with summer months (second and third quarters), recording the strongest revenues from Canada and the U.S. Consequently, unusual weather conditions adversely affect the company’s operating performance.
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