CHICAGO, April 13, 2011 /PRNewswire/ -- Zacks Equity
Research highlights: Discover Financial
Services (NYSE: DFS) as the Bull of the Day
and Kirkland's,
Inc. (Nasdaq: KIRK) the Bear of the Day. In addition,
Zacks Equity Research provides analysis on Fastenal
Co. (Nasdaq: FAST), Endo Pharmaceuticals Holdings
Inc. (Nasdaq: ENDP) and Medical
Systems (Nasdaq: AMMD).
(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)
View Full analysis of all these stocks
Here is a synopsis of all five stocks:
Bull of the Day:
Discover Financial Services (NYSE: DFS) first
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. Recently, Discover also completed
the acquisition of Student Loan Corp., which further enhanced its
already strong student loan portfolio. 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 $29.00 equates to 10.9x our earnings estimate for
2011. Given the expected annual cash dividend of $0.08, this price target implies an expected
total return of 20.4% over that period. This is consistent with our
Outperform recommendation on the shares.
Bear of the Day:
Kirkland's,
Inc. (Nasdaq: KIRK) again reported weak fourth-quarter
2011 results with earnings of $0.70,
which was 35.2% below the prior-year quarter. The company's
susceptibility to the global economic downturn, coupled with stiff
competition, severely undermines the company's future growth
prospects and profitability.
The company expects comparable store sales to be flat or
marginally negative for fiscal 2011. For the first quarter of 2011,
the company expects sales to be in the range of $94 million to $96 million. Comparable same-store
sales are expected to decline in the high single-digit range.
Our long-term Underperform recommendation on the stock indicates
that it would perform well below the broader market. Our target
price of $14.00, 11.3X 2012 EPS,
reflects this view.
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Fastenal Beats Estimates
Fastenal Co. (Nasdaq: FAST) reported a profit of
$79.5 million in the first quarter of
2011, up 42% from $56.0 million in
the year-ago quarter. This translates into earnings of 54 cents per share, which has surpassed the
year-ago earnings of 38 cents per
share by 42.1%. Reported earnings also beat the Zacks Consensus
Estimate of 51 cents per share.
Net sales for the quarter totaled $640.6
million, up 23% year over year driven by an improvement in
sales to the company's manufacturing customers as well as
non-residential construction customers of the company.
Fastenal's first quarter sales also exceeded the Zacks Consensus
Estimate of $626 million. During the
quarter, daily sales to the manufacturing customers increased 15.5%
and that to the non-residential construction customers rose
17.7%.
During the quarter, Fastenal opened 37 stores, leading to a
total of 2,522 stores as of March 31,
2011. The company intends to open 150 to 200 stores during
2011, which is equivalent to an annualized rate of 6.0% to
8.0%.
Fastenal recorded average store sales of $74,400 per month in this quarter versus
$62,700 per month in the first
quarter of 2010. The company aims to push its average store sales
to $125,000 per month going
forward.
Gross profit rose 25.4% to $333.4
million in the quarter from $265.9
million in the prior year. However, gross margin spiked
marginally to 52.0% from 51.1% in the corresponding quarter of
2010.
Endo Pharma Buying American Medical
In a bid to diversify its business and bolster its urology
portfolio, Endo Pharmaceuticals Holdings
Inc. (Nasdaq: ENDP), a US-based specialty
healthcare solutions company which develops branded products and
specialty generics, will purchase American Medical
Systems (Nasdaq: AMMD), a leading pelvic-health devices
provider, for $2.9 billion or
$30.00 per share in cash.
The offer price is 34% above the April 8,
2011, closing price of American Medical. The $2.9 billion consideration includes the
assumption of a $312 million debt by
Endo Pharma. The deal, expected to close in the third quarter of
2011, has been approved by the boards of both companies.
Endo Pharma anticipates the deal to be accretive to its adjusted
earnings with immediate effect following closure. Moreover, the
deal is expected to boost Endo Pharma's 2012 and 2013 adjusted
earnings by $0.60 and $0.80 per share, respectively.
The merger is also expected to result in cost savings of at
least $50 million by 2013. The
synergies relate to procurement, manufacturing and selling, general
and administrative costs. The merged entity is expected to end
2011 with revenues (on an adjusted basis) of approximately
$3 billion. Following the closure of
the deal, approximately 4,000 employees are expected to be employed
in the combined company.
We note that the impending purchase of American Medical is the
fourth major acquisition for Endo Pharma over the last one year.
Endo Pharma completed three major acquisitions in 2010 to bolster
its business. In December 2010, Endo
acquired privately held generic company Qualitest Pharmaceuticals
for $1.2 billion. During 2010, Endo
Pharma also bought Penwest Pharmaceuticals Co. and HealthTronics
Inc., a provider of urology products and services.
We believe that these acquisitions along with the impending
purchase of American Medical are steps towards countering the loss
of revenues due to the generic threat (especially to its lead drug
Lidoderm) hanging over Endo Pharma.
Get the full analysis of all these stocks
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