For Immediate Release
Chicago, IL – April 6, 2010 – Zacks Equity Research highlights Big Lots (BIG) as the Bull of the Day and Dean Foods (DF) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Vornado Realty Trust (VNO), Boston Properties (BXP) and Redpoint Bio (RPBC).
Full analysis of all these stocks is available at http://at.zacks.com/?id=5506
Here is a synopsis of all five stocks:
Big Lots (BIG) is the largest broad-line closeout retailer with an annual turnover of more than $4 billion. The closeout format gives it an edge over traditional discount retailers as customers are offered merchandise assortments at very low prices.
The company’s business model is gaining strength. The retailer now expects EPS to grow at a CAGR [compound annual growth rate] of 12% to 16% over the next three years. We think the company’s focus on closing underperforming stores, reducing operating expenses, and improving merchandise content are steps in the right direction.
Moreover, the company’s in-store initiatives and testing of smaller prototype stores will help drive traffic. We have a long-term Outperform recommendation on the stock. Our target price of $42.00, 15.4X 2010 EPS, reflects this view.
We downgrade our recommendation for Dean Foods (DF) to Underperform, indicating the stock will perform below the broader market.
Sales over the past three-four quarters have been suffering due to passing on of lower dairy commodity costs and reduced sales volume in the WhiteWave-Morningstar segment. Nevertheless, management has taken definitive actions to improve shareholder and consumer value and extend its low-cost position while focusing on boosting branded product business through acquisitions (including Alpro).
While the company is focused on effective pass-through of changes in dairy input costs, near-term visibility of rising raw milk prices may impede earnings and margins in the upcoming reporting periods. We also remain concerned about the company’s high debt level.
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ISM Services Index Surges
The service employment sub-index is still below 50.0, indicating a contraction in employment, but at 49.8, its pretty much at the neutral mark, and the sub-index did rise 1.2 points on the month. The number of firms reporting higher employment rose to 16% from 12%, while the number reporting lower employment fell to 19% from 20%. Of course it is possible that the firms reporting higher employment were increasing workers by the hundreds, while those reporting lower employment only shed a handful of workers, so one set of data does not have to be “wrong” if it conflicts with the other.
Inventories are still contracting, but at a slower rate, as the index rose to 46.5% from 45.0%. However, the inventory sentiment index dropped to 52.5 from 60.0, indicating that most of the respondents still thought their inventories were too high, although less so than last month.
New export orders surged by 10.5 points to 57.5 as the percentage reporting higher export orders rose to 21% from 15% while the percentage reporting a drop in export orders fell to 6% from 21%. The import index also rose to 51.0 from 48.5, mostly due to a drop in firms reporting lower imports to 9% from 14%.
However, most of the firms surveyed don’t keep separate track of their imports. Still, taken together the two readings indicate an increase in world trade, and possibly a drop in the trade deficit going forward, both of which would be very good things. But given the large number of firms that don’t really have much to say on the import side, the numbers are suggestive, not predicative.
The ISM lists the industries that are doing well and poorly for each sub-index. The one industry that stands out in terms of weakness across many of the sub-indexes is Real Estate rental and leasing. This is not good news for the publically traded REITs such as Vornado Realty Trust (VNO) and Boston Properties (BXP), but is not a surprise given the overall weakness in Commercial Real Estate.
On the other hand, over the long term, the weak commercial real estate market will allow those with the financial resources to do so to pick up properties at more attractive prices. So for the real estate companies it is a case of short-term pain, and perhaps long-term gain. So far, the stock market has been willing to look over the valley for those stocks.
Redpoint Sitting in the Sweet Spot
Last month, Zacks Small-Cap Research initiated coverage of Redpoint Bio (RPBC) with an Outperform rating and $0.50 price target. Despite the low stock price, we believe that Redpoint is poised for a major breakout based on several key drivers in 2010.
From our point of view, there are three near-term shots on goal, one of which could result in sizable upfront payments to Redpoint.
The first is the licensing of RP44, which Redpoint’s disclosed in January 2010 to be rebaudioside C (Reb-C), a component of the Stevia plant. Redpoint has spent the last eight months securing the intellectual property around RP44, an all-natural sweetness enhancer that has the potential to be a game-changer for sweetening carbonated or non-carbonated beverages.
Until recently, Reb-C has been essentially ignored by the end-user consumer product companies such as Coca-Cola and PepsiCo. All the focus has been on use of another component of the Stevia leaf, rebaudioside A (Reb-A), as a zero calorie sweetener replacement for sugar or high fructose corn syrup.
Stevia (Reb-A), a product that has been used around the world for centuries, received U.S. “generally accepted as safe” (GRAS) clearance in December 2006, and is now one of the fastest-growing alternative sweetener products in the market thanks to its all-natural profile. This has allowed consumer product companies like Coca-Cola and PepsiCo, to market products such as Truvia and PureVia with a significant advantage over artificial sweeteners such as aspartame, saccharin or sucralose.
Red-A is an estimated 300x sweeter than table sugar (sucrose) and has quickly been finding its way into carbonated beverages and sports drinks over the past few years. However, we believe Redpoint is about to change the perception on how to sweeten these products with the introduction of RP44 as a sweetness enhancer.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.
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