Zacks Bull and Bear of the Day Highlights: Flagstar, Fred's, St. Jude Medical, NuVasive and Coventry Health Care
Zacks Equity Research
For Immediate Release
Chicago, IL – April 17, 2013 – Zacks Equity Research highlights Flagstar (FBC) as the Bull of the Day and Fred’s (FRED) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on St. Jude Medical Inc. (STJ), NuVasive Inc. (NUVA) and Coventry Health Care Inc. (CVH).
This mortgage lenders and local bank might be worth a look at current prices. The housing market remains resilient and has been a bright spot in an otherwise drab economic backdrop.
While most homebuilders like Toll Brothers and Lennar have been bidding up ahead of their numbers and are trading at relatively high valuations, companies like Flagstar (FBC) are relatively inexpensive on a valuation basis and have seen their share prices cut by over a third.
The nice think about the mortgage play is that you don’t have to worry if customers are buying new or old homes or what the cost of lumber or land is. They simply profit from the transactions, no matter who’s buying; as long as the buyer secures a mortgage of course.
Even though all of Flagstar’s physical branches are in the state of Michigan (They are the largest banking company headquartered in the state), Flagstar has assets of $14.1 billion and along with traditional services, is one of the top-tier mortgage originators in the country and one of the nation's top 15 largest savings banks.
During the last housing boom, Flagstar was one of the top lenders amidst a circle of many who didn’t live to see the revival of the space. Flagstar not only emerged from the great recession (with a few bumps and bruises), but has remained a strong player in the mortgage origination space.
Outside of its home state of Tennessee, you’re not likely to hear the name Fred’s (FRED) tossed around too often when referring to grocery stores or pharmacies. When I Googled “FRED”, I got everything from Barney Rubble’s ole pal to a sheik French jeweler; Fred’s was on page 6 for me.
To be fair, they operate over 700 stores across the southeastern part of the US and I know that they have their loyal following. Heck, there are plenty of lesser known companies that are thriving! But for Fred’s, it’s a matter of the revenue and EPS numbers that just aren’t adding up and competition from the likes of Walmart, Walgreens and others that are making matters worse.
FRED is a Zacks Rank #5 and is ranked as a “sell” overall. Even though the stock yields a 1.8% dividend, this might not be the place you want to park your investment dollars.
Last month, Fred’s posted fourth-quarter fiscal 2012 (quarter ended Feb 2013) earnings of 18 cents per share, missing the Zacks Consensus Estimate by a penny and was the second miss in a row after a 14.3% miss in Q32012.
Earnings declined 30.7% from the prior-year quarter due to the ongoing tough retail environment, challenging results in general merchandise departments and higher operating expenses.
St. Jude Medical Inc. (STJ) is set to report its first-quarter 2013 results before the opening bell on Wednesday, Apr 17. Let us see how things are shaping up prior to the announcement.
In the last quarter, the medical device major posted a 2.22% positive earnings surprise on the back of strategic realignment initiatives to reduce operating expenses. However, organic revenue growth declined.
Factors to Consider this Quarter
New growth drivers such as an innovative product line along with restructuring efforts to streamline the underlying business will likely be accretive for STJ in the long term. The company has received a number of regulatory approvals for its latest offerings as well as initiated a number of clinical trials in the first quarter, which is encouraging.
While St. Jude’s business fundamentals remain strong, we are concerned regarding the uncertainty prevailing at the company’s core implantable cardiac defibrillators (:ICD) business. Domestic sales are likely to remain dampened until the pending disputes involving the warning letter issued by the FDA for its Sylmar facility is resolved. Meanwhile, we expect international revenues to boost overall revenues.
However, we are cognizant about the ongoing stiff global austerity measures and difficult healthcare environment. Further, the Med-Tech medical devices tax is expected to impact margins, beginning this quarter.
Earnings Whispers?
Our proven model does not conclusively show that St. Jude is likely to beat earnings estimate this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. This is not the case here, as you will see below.
Zacks Earnings ESP: The Most Accurate estimate stands at 91 cents, while the Zacks Consensus Estimate is pegged at 92 cents. This comes to a difference of -1.09%.
Zacks Rank #3 (Hold): St. Jude’s Zacks Rank #3 (Hold) lowers the predictive power of ESP. The Zacks Rank #3 together with -1.09% earnings ESP makes surprise prediction difficult.
Other Stocks to Consider
Here are some other companies from the medical sector you may want to consider as our model shows they have the right ingredients to post an earnings beat this quarter:
NuVasive Inc. (NUVA), Earnings ESP of +18.18% and a Zacks Rank #1 (Strong Buy).
Coventry Health Care Inc. (CVH), Earnings ESP of +7.69% and a Zacks Rank #1 (Strong Buy).
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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