For Immediate Release
Chicago, IL - April 25, 2012 - Zacks Equity Research highlights
Intuitive Surgical, Inc.
(
ISRG
) as the Bull of the Day and
Leggett & Platt, Inc.
(
LEG
) as the Bear of the Day. In addition, Zacks Equity Research
provides analysis on
Bank of America Corporation
(
BAC
),
Morgan Stanley
(
MS
) and
Citigroup Inc.
(
C
).
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 upgrade our rating for
Intuitive Surgical, Inc.
(
ISRG
) to Outperform. First quarter earnings per share of $3.50 beat the
Zacks Consensus Estimate. Gynecology and prostatectomy procedures
did well in 2011, as did certain emerging procedures.
Recurring revenue continues to grow as a proportion of sales. In
the interim, the installed base of Intuitive is expanding as more
hospitals feel compelled to upgrade their technology. Overall, a
proper valuation is appropriate given positive factors such as
Intuitive's leading position in robotic surgery, a growing list of
emerging procedures, barriers to entry, sizeable cash balance and
no debt.
We like the company's da Vinci system, particularly its unique
status as an enabler of robotic, minimally invasive surgery. Our
target price of $701 is based on a P/E of 48.2x our fiscal 2012 EPS
estimate.
Bear of the Day
:
Leggett & Platt, Inc.'s
(
LEG
) fourth-quarter 2011 earnings of $0.22 per share were up from the
prior-period level, but we believe it was inorganic growth
primarily spurred by the company's share buyback program. Moreover,
during the quarter, Leggett's gross margin contracted 90 basis
points to 16.7% due to higher input costs.
Further, the company's operating margin shriveled 470 basis
points to 1.5% due to increased selling and administrative
expenses. we believe that intense competition from global and
regional players, volatility in raw material prices and exposure to
adverse foreign currency translations may undermine the company's
future growth prospects and profitability.
Currently, we are maintaining a long-term Underperform
recommendation on the stock. Our target price of $20.00, 15.3x 2012
EPS, reflects this view.
Latest Posts on the Zacks
Analyst Blog
:
Making Sense of Bank Earnings Is Not Easy
Looking at the first quarter 2012 earnings releases of the
major U.S. banks, you can see hefty accounting-related gains or
losses are primarily responsible for the outsized differences
between reported and 'recurring' numbers (as calculated
by analysts and others). In addition, the difficulty in
accounting adjustments and consequently the difference in
calculations results in several 'recurring' numbers.
If we take a look at the big Wall Street firms that reported
last week, we can see that their first quarter numbers were
positively or negatively impacted by certain accounting adjustments
and several one-off items. Though identifying these items was not
difficult, analysts were not in agreement with respect
to interpretation.
Bank of America Corporation
's (
BAC
) first quarter profit declined 68% from the year-ago quarter
because of a $4.8 billion accounting charge. Excluding the charge,
its earnings per share would have been substantially better than
the consensus expectation. We at Zacks recorded the company as
having come out with a big positive surprise, though others
have treated the company's multiple supposedly non-recurring
items differently.
In the case of
Morgan Stanley
(
MS
), on a reported basis, first-quarter loss from continuing
operations came in at 5 cents per share, compared with an income of
51 cents in the year-ago quarter. The deterioration was due to a
hefty accounting-related impact on its revenues during the reported
quarter. But as with BAC, the company's reported numbers turn into
a strong positive surprise once adjusted for these
accounting-related numbers. Excluding the accounting-related
charge, the company posted 27% growth in earnings from continuing
operations.
Citigroup Inc.
's (
C
) 95-cents-a-share earnings came in lower than 99 cents earned in
the year-ago quarter. Accounting charges of $1.3 billion was
included in the result, causing the company to miss the consensus
expectation of $1.01 per share. However, excluding accounting
charges and many other one-off items, the company surpassed the
consensus estimate.
It makes sense to adjust the banks' reported GAAP earnings for
non-recurring items that do not have a direct bearing on its
underlying business. But the process is far from simple. Take the
example of one such accounting adjustment that has been constant in
recent bank earnings: the debit-valuation adjustment (
DVA
).
The DVA relates to the value of the bank's debt during the
period. According to this accounting measure, banks are allowed to
mark some of their debt to market. To simplify, if the market value
of their debt instruments decrease, it can be interpreted as a
decline in liabilities and reported as earnings. The reasoning for
this rule postulates that the bank can realize gains by buying back
its own debt instruments at a lower value. So the bottom line here
is that higher risk of a bank's defaulting on its debt implies
bigger DVA gain.
Most of the firms actually do not buy back their own debt
instruments, but they certainly report DVA gains if they recognize
market value declines. The firms do this by widening credit spreads
in the swaps market. Now, widening credit spreads implies
deterioration in the credit-worthiness of a bank.
So, should the investors be happy with the incremental earnings,
at the cost of worsening credit-worthiness of banks?
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 analysis from Zacks Equity Research about the latest news
and events impacting stocks and the financial markets.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and
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which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150
publicly traded stocks. Our analysts are organized by industry
which gives them keen insights to developments that affect company
profits and stock performance. Recommendations and target prices
are six-month time horizons.
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BANK OF AMER CP (
BAC
): Free Stock Analysis Report
CITIGROUP INC (
C
): Free Stock Analysis Report
INTUITIVE SURG (
ISRG
): Free Stock Analysis Report
LEGGETT & PLATT (
LEG
): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
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