Zacks Equity Research highlights Edison International (NYSE: EIX) as the Bull of the Day and Telefonos de Mexico, S.A.B. de C.V., or Telmex (NYSE: TMX) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Deckers Outdoor (Nasdaq: DECK), OPNET Technologies, Inc. (Nasdaq: OPNT) and Ingram Micro (NYSE: IM).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.
Here is a synopsis of all five stocks:
Bull of the Day: Edison International (NYSE: EIX)
Edison International reaffirmed 2008 GAAP and core earnings guidance within the range of $3.61 to $4.01 per share. Within this range, Southern California Edison (SCE) and Edison Mission Group (EMG) are expected to be between $2.18 to $2.28 and $1.57 to $1.87 per share, respectively, while the parent company EIX and Other segment is expected to register a loss of $0.14 per share in 2008.
Several issues that previously reduced visibility of the company's long-term prospects have been resolved. These factors include the favorable decision on SCE's general rate case in California and the positive outlook for Edison Mission Energy (EME) following the resolution of its liquidity issues, combined with an improving operating outlook. The resulting positive earnings momentum due to these factors, in our view, will help promote EIX's equity value.
Accordingly, we maintain our BUY recommendation on Edison International common stock with a six-month target price of $37.50. Price appreciation to our near-term valuation, coupled with the stock's $0.305 per share quarterly dividend, which we view as very sustainable and secure given low projected payouts, represents annualized total return potential of 38.4%.
Bear of the Day: Telefonos de Mexico, S.A.B. de C.V., or Telmex (NYSE: TMX)
We are reiterating our Sell recommendation on Telmex. Third quarter 2008 results were disappointing. Net income was down 28% as revenue fell amid stiff competition. Mexican domestic growth has stalled creating fiercely competitive environment, and the company is experiencing price erosion.
The global credit crunch and the recession in the U.S. are also source of great concern, since Mexico and the U.S. have strong economic ties. Lastly, Telmex’s valuation seems excessive when compared to other Latin American operators.
All considered, we are reiterating our current Sell recommendation on TMX. We believe that the stock is going to trade at an EV/2008 EBITDA between 3.5x and 4.0x. Thus, our target price is US$14.25.
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Deckers Outdoor (Nasdaq: DECK)
Deckers Outdoor Corp. is a leading designer, producer and brand manager of innovative, niche footwear. The company reported strong results for the third quarter, easily beating consensus estimates. Management also increased its guidance for full-year 2008. The upside in the third quarter was due to the continued strength in the company's UGG brand.
Even so, we would be careful before getting too bullish on Deckers. While the company's sales growth remains strong, there are concerns that Deckers profit margins have peaked and will move lower in the coming years. Additionally, the global economic slowdown will reduce discretionary spending in the U.S. and abroad, and that will eventually lead to softer sales for Deckers.
OPNET Technologies, Inc. (Nasdaq: OPNT)
OPNET Technologies is a provider of management software for networks and applications. OPNET focuses on analytics rather than managing and reporting, where traditional management tools focus. With its analytical capabilities, OPNET solutions provide powerful modeling tools to rapidly troubleshoot and resolve performance problems and even prevent problems before they occur.
With encouraging results for its first quarter of fiscal year 2009, new license revenue growth has accelerated to its highest levels ever. We believe that changes to OPNET's sales process are paying off, and the company will be able to sustain this level of revenue and post growth going forward.
Ingram Micro (NYSE: IM)
On September 16, Ingram Micro (IM) reduced its outlook for the third quarter, setting its guidance at sales of $8.3-$8.6 billion and EPS of $0.18-$0.23. On October 23, Ingram reported third quarter sales of $8.2 billion and EPS of $0.29. Sales trends remain weak because of slowing global economic growth, but the company's strong cost controls helped it beat its EPS guidance.
Going forward, we expect the company to focus on maintaining its gross profit margins and cutting costs. This strategy will lead to a drop-off in its sales growth in the near term, but it should position the company to benefit when macro headwinds finally subside.
We rate the stock a Hold with target price of $14. Ingram Micro shares trade at 9.7x our 2008 EPS estimate and 8.8x our 2009 EPS estimate. We think shares of IM will track the performance of the S&P 500 over the next six months. Our target price is about 10x our 2009 EPS estimate.
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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.
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