Zacks Bull and Bear of the Day Highlights: Ryder System, Diamond Foods, DIRECTV, Viacom and Netflix
Zacks Equity Research
For Immediate Release
Chicago, IL – January 10, 2013 – Zacks Equity Research highlights Ryder System (R) as the Bull of the Day and Diamond Foods (DMND) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on DIRECTV (DTV), Viacom, Inc. (VIAB) and Netflix, Inc. (NFLX).
We upgrade our recommendation on Ryder System (R) to Outperform from Neutral. The company's growth trajectory is backed by improvements in lease fleet and used vehicle sales. Further, it is experiencing an improvement in fleet age, implying more renewals and organic fleet growth.
In addition, the company's efforts in deploying a fuel-efficient fleet continue to lead the industry, strengthening its foothold in the rapidly growing market for environment-friendly vehicles. Apart from its organic growth, Ryder also seeks entry into new markets via acquisitions and remains successful in doing so.
Further, Ryder remains committed to its shareholders via dividends and share repurchase. Thus, we remain optimistic on the company's growth prospects.
We have downgraded our long-term recommendation on Diamond Foods (DMND) to Underperform following its dismal first quarter fiscal 2013 results. Its adjusted earnings of $0.23 per share plunged 67.6% from the year-ago quarter, primarily due to weak top-line performance and increased operating expenses as a percentage of sales.
Total sales dipped 10.1% year over year to $258.5 million, and missed the Zacks Consensus Estimate of $274.0 million. The company's performance may also get a hit due to difficulty on its part to secure walnut supplies and repair its ties with growers.
Otherwise, a highly leveraged balance sheet may stop it from taking strategic initiatives. Further, continued macroeconomic headwinds, intense competition, product recalls and fluctuations in raw material prices may undermine the company's future growth prospects and sustainability.
The largest U.S. satellite TV operator DIRECTV (DTV) recently announced solid subscriber addition of nearly 100,000 in the final quarter of fiscal 2012.
Despite generating highest subscriber growth for fiscal 2012, DIRECTV’s U.S. segment reported 20% fall in subscriber growth in the fourth quarter of 2012 as compared with last year's quarter but increased 49% as compared with the fourth quarter of 2011, hence taking its tally to a total 20.081 million subscribers, up 1% on an annualized basis.
Despite generating highest subscriber growth for the fourth quarter of fiscal 2012, DIRECTV’s U.S. segment reported 20% fall in subscriber growth in the reported quarter as compared with the same quarter the year before. However, it increased 49% as compared with the fourth quarter of 2011, hence taking its tally to a total 20.081 million subscribers, up 1% on an annualized basis.
We believe that such massive improvement in subscriber growth is mainly attributable to settlement of service renewal fees with Viacom, and will restore faith of the customers. Moreover, launch of new DVR devices and other value added services may have prompted demand for DIRECTV.
During fiscal 2012, DIRECTV added 196,000 customers as compared with 661900 customers in fiscal 2011.
Dispute with Viacom, Inc. (VIAB) coupled with slowdown in promotional activities due to increasing cost is seen to have reduced customer growth for the U.S. segment in 2012. Moreover, a saturated U.S. market and stiff competition from other pay-TV and online video streaming companies like Netflix, Inc. (NFLX) and Hulu has continuously hurt subscriber growth for the company going forward.
However, DIRECTV’s Latin American segment has continuously posted record subscriber growth mainly driven by lower penetration of the pay-TV market in the region.
Consequently, the rise in renewal fees by nearly 20% may jack up programming expenses of DIRECTV, thereby affecting margins going forward. In order to mitigate such expenses the company has decided to hike rates by 8% from February 7 onwards.
We believe that such increase in rates from next month may impact customer growth for DIRECTV in the first quarter of fiscal 2013.
We are maintaining our long-term Neutral recommendation on DIRECTV. Currently, the stock holds a Zacks Rank #3, implying a short-term Hold rating.
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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