CHICAGO, May 31, 2011 /PRNewswire/ -- 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: Apple Inc. (Nasdaq: AAPL),
Google Inc. (Nasdaq: GOOG), Nokia Corp. (NYSE: NOK),
Eastman Kodak (NYSE: EK) and California Pizza Kitchen
Inc (Nasdaq: CPKI).
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Here are highlights from Friday's Analyst Blog:
Is Apple Losing Momentum?
Apple Inc. (Nasdaq: AAPL), the most prolific growth story
in the tech industry over the past 12 months, appears to be losing
some steam in recent times as shares have declined approximately
4.0% since the release of its second quarter 2011 results on
April 21, 2011.
Apple reported a stellar second quarter, with earnings per share
of $6.40 beating the Zacks Consensus
Estimate by $1.06 (19.9%) and
increasing 92.2% year over year. Revenues surged 82.7% year over
year to $24.67 billion. The results
were driven by strong iPhone sales, record Macintosh sales and
increased iPad sales, as unit shipments remained robust. For
further details please see Apple Fires All Cylinders in 2Q.
Apple expects revenues of approximately $23.0 billion for the third quarter of 2011,
reflecting a year-over-year increase of approximately 46.4% but a
slight decline of 6.8% sequentially. Although we believe this
guidance is conservative, it is noteworthy that Apple is facing
some headwinds that may prevent its bullish run going forward. Some
of these headwinds are discussed below:
Lack of Innovative Product Launch: After launching
a series of innovative products (iPod, iPhone and iPad)
successfully, Apple has failed to unveil any new innovative
products in recent times (barring iPad 2, which was basically an
upgrade of the original version).
Traditionally, Apple has used the Worldwide Developers
Conference (WWDC) as a launch pad for their newest gadgets and
software. However, the company's last revelations at the WWDC were
iPhone 4 and iOS 4, which were also upgrades.
Moreover, it is rumored that Apple may not unveil any new
upgraded hardware product for its iPhone or iPod at this year's
WWDC, thereby breaking the trend of new product launches at WWDCs.
Apple is expected to launch an upgraded MacBook Air. Apple may also
discuss Mac OS X Lion, its new Macintosh operating system.
Of course, Apple has always maintained the utmost secrecy with
respect to any product launches. Therefore, while it looks at this
point like the pace of innovation is losing steam, we are taking a
cautiously optimistic stand.
Moreover, Apple is entering into the emerging market of cloud
computing through its storage and streaming services. Apple is
expected to unveil the iTunes cloud music store in WWDC, which will
be a new revenue stream (through subscriptions) for Apple over the
long term.
We also believe that data center expansion will allow Apple to
add more value-added features to the iPhone, while assigning the
task of storing and processing applications to the cloud. Transfer
of the storage function to the cloud would also be beneficial for
Apple, since this could lower hardware costs. Device speed would
also increase.
Increasing Competition and Pricing Pressure: Apple
is facing tough competition in most of its revenue segments,
especially in the smartphone and tablet market.
The iPhone is up against cut throat competition from smartphone
makers such as Motorola, Samsung, HTC and LG, which are using
Google Inc.'s (Nasdaq: GOOG) android operating system.
Android being open source has helped Apple's competitors to create
differentiated devices based on the free source code.
We think this feature has helped iPhone competitors pick up
significant market share. According to research firm Gartner, iOS
gained 1.5 percentage points of market share in the first quarter
of calendar year 2011 versus 26.4 percentage points garnered by
Android during the same period.
We believe that Apple is heavily dependent on iPhone sales (50%
of second quarter sales) and the increasing competition will hurt
its top-line going forward. In order to gain market share, these
competitors are offering lower prices compared to iPhone. The
increasing pricing pressure may hurt Apple's margins going
forward.
The iPad is pitted against several new entrants, such as the
Motorola Xoom, HTC Flyer, Research In Motion PlayBook, Hewlett
Packard TouchPad, Dell Streak, Samsung Galaxy Tab, Cisco Cius,
Toshiba SmartPad and Acer Iconia in the tablet market. However, we
believe that Apple has an advantage, as most of these companies
entered the market late. Moreover, products from these companies
have also received mixed reviews as against the iPad, which has
seen resounding success.
Increasing Legal and Regulatory Hurdles: Apple is
entangled in a number of lawsuits against Nokia Corp. (NYSE:
NOK), HTC, Eastman Kodak (NYSE: EK) and Samsung. More
importantly, Apple has received unfavorable verdicts in a couple of
cases at the International Trade Commission (ITC). As ITC has the
authority to block import of products that infringe U.S patents,
the lawsuits could cause a dent in Apple's very sizeable cash
balance. It may have to pay a hefty fine or a recurring license
fee, which will hurt its profitability going forward.
Apple, along with Google, is facing increasing scrutiny from US
and European regulators for their alleged role in infringement of
users' privacy. We believe Apple's iAd business will be impacted by
increased legislation to protect users' privacy. Year to date,
there have been at least five related legislations, three of which
were designed to empower users to turn off tracking.
Conclusion
No doubt, Apple is a great company. But we believe investors are
expecting a lot from the company in the near term. We also believe
the window for growth is getting narrow as the markets get
saturated. Moreover, it's not possible for a company (of Apple's
stature also) to sustain sales growth of approximately 90% in every
quarter, unless it finds a whole new market or revenue
segment.
With a loyal customer base, international expansion, competitive
pricing strategy and a solid cash position, we remain positive on
Apple's long-term growth. However, increasing competition in most
of its major product segments, possible delays in product launch,
higher operating expenses and increasing legal complexities compel
us to maintain our Hold rating over the long term (6-12
months).
Currently, Apple has a Zacks #3 Rank, which implies a Hold
rating in the near term.
Private Firm Buying California Pizza Kitchen
California Pizza Kitchen Inc (Nasdaq: CPKI), a leading
casual dining restaurant chain recently signed a definitive
agreement with San Francisco-based
private investment firm, Golden Gate Capital. As per the deal,
Golden Gate will acquire the
company for approximately $470
million or $18.50 per share in
cash.
The Los Angeles-based pizza
chain began exploring strategic and financial alternatives in
February 2010 and took more than a
year to find a suitor. The offer price is at a 32% premium to the
30-day average price of the share before the search for a
prospective buyer began and 10.7% higher to the closing share price
prior to the day of acquisition announcement. The tender offer is
scheduled to commence by June 8 and
the transaction is expected to be completed in the third quarter of
2011.
However, the completion of the deal is subject to regulatory as
well as shareholders' approvals and other customary closing
conditions. Moreover, possibility of a higher bid emerging is low
and based on the extended length of the company's strategic review;
we believe completion of the deal is imminent.
Post acquisition, the private equity firm, which has a track
record of investments in the restaurant industry will focus on the
overall growth of the company. Earlier, Golden Gate had purchased Romano's Macaroni
Grill in 2008 and On the Border Mexican Grill in March 2010.
Moelis & Company is acting as the financial advisor to
California Pizza Kitchen and Kirkland & Ellis LLP are acting as
Golden Gate's legal advisers with
regard to the transaction.
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