CHICAGO, Jan. 18, 2011 /PRNewswire/ -- Zacks.com Analyst
Blog features: Vale S.A. (Nasdaq: VALE), Tinto plc.
(NYSE: RIO), BHP Billiton Ltd. (NYSE: BHP), Strayer
Education Inc. (Nasdaq: STRA) and Apollo Group Inc.
(Nasdaq: APOL).
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Here are highlights from Monday's Analyst Blog:
Vale Upgraded to Outperform
We upgrade our rating on Vale S.A. (Nasdaq: VALE) from
Neutral to Outperform based on the rising iron-ore demand in
China, world's largest iron-ore
importer, and the expectations of higher iron-ore price in fiscal
2011.
Iron-ore demand in China is
growing and is expected to behave in the same manner in the medium
term due to its continued economic growth and urbanization.
Currently the total urban population of China is around 500 million and is estimated
to double in the next 15 years.
China's steel consumption is
expected to increase 3.5% in 2011. China is touted to remain the largest consumer
of metals in the future. Hence, the medium-term outlook for the
metal remains encouraging and should have a positive impact on
iron-ore companies like Vale, Rio Tinto plc. (NYSE: RIO),
and BHP Billiton Ltd. (NYSE: BHP).
Decline in Indian exports of iron ore also favors Vale. We
believe that the stock has a significant long-term upside potential
due to the company's position as a low cost metal producer and the
improvement in economic conditions. Vale's huge capital budget of
$24 billion in fiscal 2011 supports
numerous strategic acquisitions, which are likely to be beneficial
in the long run.
Further, Vale reported excellent results during the third
quarter of fiscal 2010 with an EPADS of $1.13 compared with only $0.31 in the year-ago quarter. It also surpassed
the Zacks Consensus Estimate of $1.03.
The reason for the increase was a considerable increase in
prices of metal and minerals, attributable to the huge leap in
metal demand driven by the global economic recovery. With the
expectation of a continued rise in iron-ore demand and prices,
fiscal 2011 estimates went up by 16
cents per share. Thus, the stock also currently retains its
short term "Buy" rating (Zacks #2 Rank).
Bearish on Strayer Education
We recently downgraded our recommendation on Strayer
Education Inc. (Nasdaq: STRA) to Underperform with a price
target of $112.00. Earlier we had a
Neutral rating on the stock. The company also holds a Zacks #5
Rank, which translates into a short-term 'Strong Sell' rating.
The educational institute, which offers degree programs in
business administration, accounting, information technology,
education and criminal justice, witnessed a 20% fall in new student
enrollment for the winter 2011 term compared with a 16% growth
experienced in the same period last year.
Given the decline in new student enrollment for the winter 2011
term, Strayer Education provided four hypothetical situations, but
did not give any official guidance. The for-profit education
company informed that if annual enrollment drops 5%, its revenue
may remain flat or fall 1% and earnings may lie between
$7.50 and $7.70 per share. If
enrollment rises 5%, Strayer Education hinted that revenue may
witness a growth of 9% to 10% and earnings may fall in the range of
$10.10 to $10.30.
The Arlington, Virginia-based
Strayer Education also notified that if enrollment remains flat
with the 2010 level, revenue would register a growth of 4% to 5%
and earnings would be in the range of $8.80
to $9.00 per share.
The company also hinted that if enrollment rises by 13%, revenue
may increase between 17% and 18% and earnings would be in the range
of $11.30 to $11.50 per share, as
projected earlier. The guidance includes a 5% increase in tuition
fees effective January 1, 2011, and
the opening of eight new campuses in 2011.
Following these, a negative sentiment is palpable among the
analysts and we are witnessing a fall in the Zacks Consensus
Estimates. The fourth quarter 2010 and the first quarter 2011
Estimates dropped 2 cents and
40 cents, to $2.64 and $2.63,
respectively, in the last 7 days. Fiscal 2010 and 2011 Estimates
dipped by 2 cents and $1.71, to $9.62 and
$9.21, respectively, in the last 7
days.
The current potential risk looming over the education sector is
the regulation proposed by the Department of Education. The
Department of Education proposed that an educational program could
only qualify for Title IV funds if it helps in achieving gainful
employment, which includes the criteria of loan repayment rate and
debt-to-income ratios.
The company derives a major portion of its revenues from federal
student financial aid programs, the Title IV programs. The
education institutions are also under the scanner due to the rise
in the default rate of student loans. Consequently, for-profit
education companies may witness declines in student
enrollments.
The sector bellwether Apollo Group Inc. (Nasdaq: APOL),
which recently posted first-quarter 2011 results, said that total
degreed enrollment dipped 3.8% compared with the year-ago quarter,
as new degreed enrollment plunged 42.4%. However, the company's
quarterly earnings of $1.63 per share
outpaced the Zacks Consensus Estimate of $1.35, providing some cushion to the stock.
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