Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis includes Air Products (NYSE: APD), DuPont (NYSE: DD), Praxair (NYSE: PX), UnitedHealth Group (NYSE: UNH) and WellPoint (NYSE: WLP). To see the Zacks Industry Rank and the trend in earnings estimates revisions for more than 200 industry groups, visit http://at.zacks.com/?id=3154.
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
Industrial gases are in demand, and that's not just a bunch of hot air.
Last week, both Air Products (NYSE: APD) and Praxair (NYSE: PX) reported bullish first-quarter earnings.
APD earned $1.23 per share, two cents above the average forecast. (It was the company's 12th consecutive earnings surprise.) Revenues rose 13% to $2.6 billion. Gross margins were down fractionally.
PX earned 99 cents per share, four cents higher than expectations. (It was the company's 14th consecutive earnings surprise.) Revenues rose 22% to a record $2.66 billion. Gross margins held steady.
A variety of factors helped both companies:
- Rising oil prices kept demand strong for hydrogen.
- The rally in metals prices, particularly in South America.
- Electronics, especially in Asia.
- Worldwide economic growth.
- The weak dollar.
Both companies are likely to continue increasing sales throughout 2008.
APD expects to achieve double-digit sales and earnings growth. The company raised its fiscal 2008 guidance to a range of $4.95 to $5.05 per share. Following the fiscal second-quarter numbers, nine of the 12 covering brokerage analysts raised their projections to $5.02 per share. A week ago, the average forecast stood at $4.93 per share.
PX guided for full-year revenue growth of 13% to 16% and EPS growth of 13% to 17%. Three-quarters of the 12 covering brokerage analysts raised their projections in response to the new guidance. The consensus earnings estimate of $4.22 is eight cents higher than the average forecast of a month ago. The consensus estimate for 2009 has been revised upwards, as well.
Both APD and PX are Zacks #2 Rank ("buy") stocks and are classified in Chemicals-Diversified. This group includes four Zacks #1 Rank ("strong buy") stocks and eight other Zacks #2 Rank stocks, including DuPont (NYSE: DD).
Moving on…
Multiple brokerage analysts have recently lowered their full-year forecasts on several health insurers, including UnitedHealth Group (NYSE: UNH) and WellPoint (NYSE: WLP).
The revisions followed negative news flow out of the industry group. Medical costs trended higher, partially because this season's flu vaccine was not very effective. The economy is making it more difficult to pass through higher premium costs and thus is creating a drag on membership growth rates. Declining nonfarm payrolls are negative for the industry because so many Americans depend on their employer for health insurance.
UNH missed first-quarter expectations by two cents with profits of 78 cents per share. (It was the second consecutive miss for the insurer.) Operating margins were down both on a year-over-year basis and on a sequential quarterly basis.
UnitedHealth lowered its full-year earnings guidance by 10% to a range of $3.55 to $3.60 per share, following the disappointing report. The company cited both higher medical costs and a decline in membership rates in its commercial business. Almost all of the covering brokerage analysts cut their forecasts in response causing the consensus estimate to fall 34 cents to $3.54 per share.
WLP earned $1.13 per share, five cents below expectations. (It was the second negative earnings surprise in the four quarters.) In early March, the company had slashed its guidance to between $1.16 and $1.26 per share citing higher medical costs and declines in Small Group and Individual membership.
WellPoint cut its full-year guidance for the second time in two months and now anticipates per share earnings of between $5.42 and $5.67. (In late January, the company projected full-year profits of $6.41 per share.) The majority of the 17 covering brokerage analysts further slashed their expectations in recent weeks, causing the consensus earnings estimate to drop to $5.49 per share.
Both UNH and WLP are a Zacks #4 Rank ("sell") stocks.
The interactive Zacks Industry Rank List allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. See the list at http://at.zacks.com/?id=3208.
About Zacks Industry Rank and the Zacks Rank
Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 (“Strong Buy”) to #5 (“Strong Sell”). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.
Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +32%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 129% annually (+5 % vs. +12%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
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Contacts:
Charles Rotblut, CFA
Phone: 312-265-9352
Email: pr@zacks.com
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