For Immediate Release
Chicago, IL – November 15, 2011 – Zacks Equity Research
highlights Goodyear Tire & Rubber Company (GT)
as the Bull of the Day and Kellogg Company (K) as
the Bear of the Day. In addition, Zacks Equity Research provides
analysis on Allstate Corp. (ALL),
Berkshire Hathaway-A (BRK.A) and The
Travelers Companies (TRV).
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:
Goodyear Tire & Rubber Company (GT) is one
of the largest tire manufacturing companies around the world. The
company expects to benefit from new product launches and cost
reduction programs. It has targeted $1 billion of gross savings by
2012. The company also expects the global tire industry to continue
to grow in full year 2011.
In the third quarter of 2011, the company's profits jumped to
$0.72 per share from $0.13 per share in the 2010 quarter, which was
also significantly higher than the Zacks Consensus Estimate of
$0.25 per share. Therefore, we have upgraded our recommendation on
the stock from Neutral to Outperform.
Our Outperform recommendation on the stock indicates that it
would perform better than the overall market. Our $17 target price,
7.8X 2011 EPS, reflects this view.
Bear of the Day:
We have downgraded our recommendation on Kellogg
Company (K) to Sell from a Hold on weak third-quarter 2011
earnings of $0.80 per share, which lagged the Zacks Consensus
Estimate by 10.1% and the prior-year earnings by 11%. The results
were driven by weak economic environment, increased cost of goods
sold and increased supply-chain costs due to the reinstatement of
incentive compensation costs.
The company expects these costs to rise for the foreseeable
future. Though the company has shown compelling signs of
improvement in the third quarter, particularly in the top-line
growth, the results seem bleak in the challenging environment.
Thus, the company has reaffirmed its 2011 internal sales guidance
growth in the range of 4% to 5%.
Kellogg lowered its 2011 internal operating profit guidance to a
range of down 2% to 4%. Earnings are also expected to remain
approximately flat for 2012. Moreover, intense competition from
other established players and high debt load undermines the
company's future growth prospects.
Latest Posts on the Zacks Analyst Blog:
Allstate Slips to Underperform
We have downgraded our recommendation on Allstate
Corp. (ALL) to Underperform from Neutral based on its
consistent weak operating performance in the third quarter of 2011,
which raises a question on the current sustainability factor.
Allstate’s third quarter operating earnings per share of 16
cents came in a nickel higher than the Zacks Consensus Estimate of
11 cents but significantly lagged the year-ago quarter’s earnings
of 83 cents. Operating earnings plunged to $84 million from $452
million in the year-ago quarter.
The company’s net income for the reported quarter came in at
$165 million or 32 cents per share, compared with $367 million or
68 cents in the prior-year quarter, reflecting a radical
decline.
Results for the reported quarter reflected higher catastrophe
(CAT) losses that also led to increased claims expenses coupled
with lower average premiums and policies-in-force in
Property-Liability insurance unit and lower investment income.
However, capital management and liquidity were quite impressive
during the reported quarter. This is reflected from stability in
book value per share and combined ratio, excluding the effect of
catastrophes.
As pricing pressures continue to escalate, spreads between
premium growth and loss cost inflation are expected to remain
negative, while claims and operating costs continue to pose a
rising trend, leading to further compression in underlying margins.
Particularly, a weak P&C cycle continues to narrow down the
growth prospects in the Property-Liability segment.
As a result, premium growth remains stunted and the company is
experiencing a decline in underwriting results, policies in force
(PIFs) and new issued applications.
Additionally, given the consistent occurrence of weather-related
events, catastrophe losses surged to $3.75 billion in the first
nine months of 2011, already exceeding from $2.21 billion in 2010
and $2.07 billion in 2009. Escalating losses from catastrophes have
been weighing on the company’s claims and benefits expenses while
also significantly deteriorating the combined ratio, bottom-line
results and cash flows.
Operating cash flow reduced substantially to $1.7 billion from
$3.0 billion, during the first nine months of 2011 and 2010,
respectively. The ongoing sluggish and volatile economic dynamics
besides weakening Allstate’s operating leverage even undermined its
cash and balance sheet position.
Reduced cash flow also restricts the company’s scope for
acquisitions or returning shareholder value. This is also evident
from the latest $1.0 billion share repurchase program, which will
be funded from the planned issue of preferred stock offering and
senior unsecured notes, all worth $1.25 billion, rather than the
company’s free cash. These factors could weaken its competitive
leverage against arch rivals such as Berkshire
Hathaway-A (BRK.A) and The Travelers
Companies (TRV).
Nevertheless, Allstate is well poised to be a long-term gainer
in personal lines, given its scale, pricing sophistication and
product design. Moreover, the acquisition of the third largest
online auto insurance seller in the U.S. – Esurance and Answer
Financial from White Mountains Insurance Group Ltd., in October
2011 for $1.0 billion, will most likely boost online auto sales,
and thereby generate cost synergies in the Property-Liability
segment.
Allstate is also repositioning its product and distribution
portfolio in order to enhance long-term growth. Also, the company
initiated an active role in reducing future CAT losses through the
establishment of an Enterprise Risk and Return Management (ERRM)
system.
Besides, on an immediate basis, Allstate is working vigorously
to maintain standard auto margins, improve returns in homeowners
and Allstate Financial and manage capital aggressively. We expect
these initiatives to support the bottom line in the upcoming
quarters. Even a healthy ratings outlook bodes well for Allstate’s
long-term growth.
Overall, though continued synergies are expected from Allstate’s
industry-leading position, diversification and pricing discipline,
we believe that the current volatile economy will continue to
impact its fundamental growth until the markets regain
momentum.
Consequently, the Zacks Consensus Estimate for the fourth
quarter 2011 earnings is currently pegged at 93 cents a share,
drastically up from 50 cents in the year-ago quarter, expecting a
reduction or elimination in CAT losses. For 2011, however, earnings
are estimated to be 79 cents per share, radically down from $2.84,
given the overall yearly impact of CAT losses.
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.
About the Analyst Blog
Updated throughout every trading day, the Analyst Blog provides
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ALLSTATE CORP (ALL): Free Stock Analysis Report
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis Report
GOODYEAR TIRE (GT): Free Stock Analysis Report
KELLOGG CO (K): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
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