CHICAGO, March 15, 2011 /PRNewswire/ -- Zacks Equity
Research highlights: Discover Financial Services (NYSE: DFS)
as the Bull of the Day and Central Garden & Pet Company
(Nasdaq: CENT) as the Bear of the Day. In addition, Zacks Equity
Research provides analysis on Gannett Co. Inc. (NYSE: GCI),
News Corporation (Nasdaq: NWSA) and The New York Times
Company (NYSE: NYT).
(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)
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:
We are upgrading our recommendation on Discover Financial
Services (NYSE: DFS) from Neutral to Outperform based on the
acquisition of Student Loan Corp. that would enhance its already
strong student loan portfolio. Additionally, Discover's fourth
quarter earnings were substantially ahead of the Zacks Consensus
Estimate.
The growth in the loan loss reserve release as well as gains
from the payments business drove the credit card sales volumes. In
addition, higher consumer spending and merchant acceptance also
contributed to the increase. However, the CARD Act and the proposed
limit on debit interchange fees by the Fed, along with
higher-than-expected expenses is expected to hurt the profits of
the company in the future.
Nevertheless, the company's extensive network, sound capital
position and cost containment initiatives will help accentuate
growth over the long term. Our six-month target price of
$26.00 equates to 12.9x our earnings
estimate for 2011. Given the expected annual cash dividend of
$0.08, this price target implies an
expected total return of 20.0% over that period.
Bear of the Day:
Central Garden & Pet Company (Nasdaq: CENT) continued
its loss momentum during the first quarter of 2011. Despite a 4.6%
increase in the top-line, the company delivered a quarterly loss of
$0.16 per share, which was broader
than the Zacks Consensus Estimate loss of $0.10 and the prior-year quarter's loss of
$0.04.
It is to be noted that the company has historically reported
losses in its first quarter due to the cyclic nature of the lawn
and garden category. The company also witnessed a 5.4% drop in the
gross profit with gross margin contracting 310 basis points
primarily due to rising commodity prices along with the change in
the product mix.
Central Garden & Pet is trading at a discount to its peer
group, based on forward earnings estimates. We have a long-term
Underperform recommendation on the stock. Our target price of
$8.25, 9.5X 2011 EPS, reflects this
view.
Latest Posts on the Zacks Analyst Blog:
Risk-Reward Balances for Gannett
With an improvement in the economic environment, the buzz about
advertisers returning to the market is gaining ground. Gannett
Co. Inc. (NYSE: GCI), the diversified media conglomerate, is
expected to benefit from positive trends that are emerging in both
print and digital advertising with advertisers' spending gaining
momentum.
Gannett's fourth-quarter 2010 total revenue grew marginally by
0.4% to $1,461.6 million from the
prior-year quarter, aided by strengthening economies and
advertising gains across Broadcasting and Digital segments.
Although the quarter's revenue fell short of the Zacks Consensus
Estimate of $1,473 million, it showed
an improvement over previously reported quarters. Revenue remained
flat in the third quarter, and had registered a decline of 1.6% and
4.1% in the second and first quarters, respectively.
Publishing advertising revenue fell 5.9% to $722.3 million from the year-ago quarter but
increased sequentially by a sharp 11.7%. Encouragingly, the
broadcasting division is strong and benefits from significant
political advertising. Gannett, the publisher of 82 U.S. dailies,
said that total broadcasting revenue surged 27.1% to $232.8 million during the fourth quarter.
The significant potential risk is the company's high dependence
on advertising revenue, which is influenced by the health of the
economy. To mitigate this, Gannett is adding diverse revenue
streams to hedge against economic cycles.
The company is also adapting to the changing face of the
multiplatform media universe, which currently includes Internet,
mobile, social media networks and outdoor video advertising in its
fold.
To curb shrinking advertising revenue and seek new revenue
avenues, the publishing companies contemplated charging readers for
online content. News International, the subsidiary of News
Corporation (Nasdaq: NWSA) started charging readers for the
online content of The Times of London and Sunday
Times of London from
June 2010.
The New York Times Company (NYSE: NYT), another
diversified media conglomerate, is transmuting its business model
by adding diverse revenue streams, which include a pay-and-read
model for NYTimes.com. It also plans to launch a paid subscription
website, BostonGlobe.com in 2011.
The NYTimes.com subscription based model is slated for launch in
the first quarter of 2011. It also specified that subscribers to
the New York Times' print version will
be able to access online content or articles without shelling out
additional charges.
However, given slow economic resurgence and soft advertising
spending environment, we maintain our long-term Neutral rating on
Gannett with a price target of $16.00. Moreover, the Zacks #3 Rank, which
translates into a short-term Hold recommendation, correlates with
our long-term view.
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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