Zacks Bull and Bear of the Day Highlights: TECO,CRAI,LMT,RTN,WMT – Press Releases

Chicago, IL – October 19, 2010 – Zacks Equity Research highlights: TECO Energy (TECO) as the Bull of the Day and CRA International Inc (CRAI) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Lockheed Martin ( LMT), Raytheon Co (RTN) and Wal Mart Stores, Inc (WMT).

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:

TECO Energy (TECO) continues to exhibit stable regulated utility operations, having divested its non-core assets. Strong international coal demand, solid utility cost management and a high dividend yield are other significant attributes.

Furthermore, the company continues to strengthen its balance sheet by repaying debt. However, volatility in fuel prices, uncertainty on regulatory decisions and environmental legislations partially offset the more bullish factors.

Also, we remain cautious regarding the timing of economic recovery in Florida. We see TECO shares performing ahead of the broader market going forward and upgrade our recommendation on the stock to Outperform.

Bear of the Day:

CRA International‘s (NASDAQ: CRAI) third quarter earnings were in line with the Zacks Consensus Estimate, although clients cautious on aggregate spending and a decline in organic revenue are expected to limit the company’s growth.

Overall, near-term visibility remains unclear, given the current volatile market trends. Despite showing some improvement, litigation trend remains sluggish.

Going forward, we remain skeptical about the growth prospects of the company. Hence, we downgrade the stock from Neutral to Underperform.

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Budget Deficit Falling, Not Rising

Outlays for the Pentagon, Social Security, Health and Human Services (mostly Medicare/Medicaid) and the interest on the debt totaled 2.689 Trillion in fiscal 2010. Thus if we kept those as is, and totally eliminated everything else in the budget, we would have still run a budget deficit of $527.2 billion. This all assumes of course that the actions taken to cut spending did not also result in lower tax revenues, which does not seem very likely.

If, for example, we eliminated everything on the list above, the Defense companies like Lockheed Martin (LMT) and Raytheon (RTN) would lose almost all their revenues and have to lay off most of their workers. Neither the companies nor their (former) employees would be paying much in the way of taxes.

To get the deficit back under control, the key is going to be growing the economy, allowing tax revenues to rise while keeping spending under control. Some tax increases are probably needed as well. This, however, is probably not the time for either major spending cuts or big tax increases, particularly tax increases that hit the poor and the middle class.

It is the long-term budget deficits that are the problem. In the short-term we need to be running them. Reducing our military commitments around the world, including getting out of both Iraq and Afghanistan as soon as safely possible would go a long way towards bringing the long-term deficit under control. After all, we spend more on our military than the rest of the world combined, and many of the remaining countries in the top ten of military spending are our allies (the U.K., Germany, France, Israel) not our potential adversaries. On the other hand, when we have troops in the field putting their lives on the line, we owe it to them to not pinch pennies.

The Two Federal Governments

Really there are two sides to the Federal Government, the on-budget side, and the off-budget side. The off-budget side is mostly Social Security, while the on-budget side is everything else the government does, both defense and non-defense.

Social Security has its own dedicated stream of tax revenues: the payroll tax. It is largely paid by the poor and working class. While on paper half of it is paid by the employer, and half shows up on the pay stubs of workers in the form of FICA, in economic reality it is impossible to distinguish who pays how much of it. It is a wedge between what it costs the employer to hire someone, and what that person has available to spend.

In that sense it makes sense to think of it as all being paid by the worker. It is levied on the very first dollar of income, but after someone has earned $106,000, the tax stops and that person gets a nice temporary “raise” in each paycheck. Thus, the vast majority of people pay the tax for the whole year, but CEO’s and Investment bankers are finished paying the tax by the time their New Year’s Eve hangover has cleared up.

Ever since 1982, the Social Security system as been running a surplus, and in the process has built up a trust fund of over $2.5 Trillion. That trust fund is designed to be drawn down as the Baby Boomers retire, and is expected to be depleted by 2037. At that point the Social Security system would be back on a “pay as you go” basis, the way it was from its start during the New Deal until the Greenspan Commission Reforms kicked in (1983). That surplus has been invested in the safest and most conservative investment around — Treasury notes and bonds.

The on-budget side of government has persistently run deficits since the days of the Greenspan Commission (and before). Even the Clinton “surplus” was mostly a function of the big surplus in Social Security.

The on-budget side got very close to being balanced in the late 1990’s, but never quite made it there. The Bush on-budget deficits were FAR larger than is usually reported, since he presided over the period when the build-up in the Social Security trust fund was the largest. That masked the true size of the on-budget deficit, to the tune of about $200 billion per year.

In fiscal 2010, the on-budget deficit was $1.371 Trillion, down $181.6 billion from fiscal 2009.  The off-budget surplus (mostly Social Security) fell by $60 billion or 43.8%, but was still $77 billion. Partly the declining surplus in Social Security is planned. The idea was to collect extra while the Baby Boomers were in their prime earning years and so the funds would be available when they started to retire. Well, now they are starting to retire.

The Baby Boom started in 1946, so the leading edge is turning 64 this year. Older workers when they get laid off have a particularly hard time getting a new job. As a result, many of those who have lost their jobs have decided to take the early retirement option (reduced benefits) since they have little hope of finding a new job (there are only a limited number of Wal-Mart (WMT) greater jobs available). Partly it is just a function of fewer people on payrolls, and thus less payroll tax. In fiscal 2010 off budget revenues fell by 3.4% to $631.7 billion, while outlays rose by 7.3%.

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

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