RDEA Ardea Biosciences, Inc. (MM)

For Immediate Release

Chicago, IL – April 24, 2012 – Zacks Equity Research highlights UnitedHealth Group ( UNH) as the Bull of the Day and Citi Trends, Inc. ( CTRN) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on AstraZeneca plc ( AZN), Ardea Biosciences, Inc. ( RDEA) and Takeda Pharmaceutical ( TKPYY).

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:

UnitedHealth Group's ( UNH) first quarter earnings came in significantly ahead of the Zacks Consensus Estimates on the back of strong revenue growth at UnitedHealthcare as well as Optum businesses and strong enrollment growth. We are bullish about the company's long-term growth prospects.

UnitedHealth has strengthened its key capabilities to respond to the emerging growth opportunities. These initiatives have been taken to expand its Medicaid and Medicare business, growing the health service business and expanding international operations. Though certain headwinds remain, we believe the company will beat the odds given its diversified business model with leading market share positions in the Commercial, Medicare, and Medicaid markets.

Our six-month target price of $70.00 equates to about 14.1x our earnings estimate for 2012. We view the $0.65 per common share annual dividend as secure, implying an expected return of about 20% over that period. This is consistent with our Outperform recommendation on the shares.

Bear of the Day:

Citi Trends, Inc.'s ( CTRN) falling comparable store sales, coupled with rising cost of goods sold and operating expenses, battered fourth-quarter 2011 results. The company incurred a quarterly loss of $0.18 per share, falling drastically from the year-ago quarter earnings of $0.64 per share. The results, however, bettered the Zacks Consensus Estimate of a loss of $0.20 per share.

Further, due to uncertainty hovering around sales, given the global economic unrest, the company decided not to provide any guidelines unless it finds any near-term catalysts to drive sales. Intense competition from other retailers, seasonal nature of business and risks associated with sourcing merchandise from developing countries may further undermine the company's future growth prospects.

Currently, we are maintaining a long-term Underperform recommendation on the stock. Our target price of $10.00 is based on P/CF (price-to-cash flow) multiple of 8.27x.

Latest Posts on the Zacks Analyst Blog:

AstraZeneca to Buy Ardea Biosciences

AstraZeneca plc ( AZN) announced that it has entered into an agreement to acquire Ardea Biosciences, Inc. ( RDEA) for a consolidated cash value of approximately $1.26 billion or $32 per share. Both AstraZeneca and Ardea’s boards have unanimously supported the deal. The deal is expected to close in second or third quarter of 2012, subject to certain regulatory conditions, which includes approval by Ardea’s shareholders.

Ardea, headquartered in San Diego, CA, is a biotech company. The company primarily develops small-molecule therapeutics for treating serious diseases such as gout and cancer. Ardea‘s lead candidate is lesinurad for the chronic treatment of gout, with US and EU regulatory filings planned for the first half of 2014. The pipeline also includes oncology candidate, BAY 86-9766, and gout candidate, RDEA3170.

On approval, the gout candidates will target a highly lucrative market. We note that the incidence and severity of gout is increasing in the US. The market has a huge unmet need with Takeda Pharmaceutical’s ( TKPYY) Uloric (febuxostat) and allopurinol being two widely-prescribed therapies (xanthine oxidase inhibitors) for the treatment of gout patients. The inhibitors reduce the production of uric acid in the body.

However, the effectiveness of xanthine oxidase inhibitors is limited since only approximately 10% of patients affected by gout are over-excretors of uric acid. Many gout patients fail to respond favorably to these therapies. This should provide lesinurad, which is being evaluated both as add-on and monotherapy, and RDEA3170 the opportunity to capture the gout market share.

Though the source of funds for the Ardea deal were not disclosed, it is possible that the cash balance of $7.6 billion at the end of December 31, 2011, enabled the company to fund the acquisition. Apart from its cash balance, AstraZeneca has committed bank facilities of $3.6 billion at its disposal.

Neutral on AstraZeneca

We are encouraged by the company’s focus on the high-potential emerging markets and are pleased with the company’s effort to drive the bottom line through cost-cutting initiatives and share buybacks.

However, we remain concerned about the generic competition faced by its key products. In 2011, the company lost revenues worth almost $2 billion to generic competition. The weak late-stage pipeline coupled with the slow Brilinta uptake also bothers us. We currently have a Neutral recommendation on AstraZeneca. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

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

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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ASTRAZENECA PLC (AZN): Free Stock Analysis Report
 
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