The Zacks Analyst Blog Highlights: Google, Abbott Laboratories, Amgen, Pfizer and Johnson & Johnson

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Jul 15, 2011, 10:16 ET

CHICAGO, July 15, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Google (Nasdaq: GOOG), Abbott Laboratories (NYSE: ABT), Amgen (Nasdaq: AMGN), Pfizer (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ).

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Here are highlights from Thursday's Analyst Blog:

Google Crushed It

Search giant Google (Nasdaq: GOOG) delivered results for the second quarter of 2011 that were much better than expected.

Revenue after traffic acquisition costs rose 36% year-over-year to $6.92 billion, beating the Zacks Consensus Estimate of $6.61 billion. Revenue at Google-owned sites, which accounted for 69% of total revenue, surged 39%. Google's partner sites, which generated 28% of total revenue, saw an increase of 20%.

Approximately 54% of revenue came from outside of the U.S.

Aggregate paid clicks increased 18% year-over-year but fell 2% from the previous quarter. Average cost-per-click rose 12% year-over-year and 6% from the first quarter of 2011. Traffic acquisition costs fell as a percentage of advertising revenue from 26% to 24%.

Meanwhile, adjusted operating income rose 24% year-over-year to $3.32 billion. The operating margin was a very solid 36.7% of total revenue. This number declined, however, from 39.2% in the same quarter in 2010.

Non-GAAP earnings per share was $8.74, a 36% increase year-over-year.

Free cash flow in the quarter was a stellar $2.6 billion. Google had a whopping $39.1 billion in cash, cash equivalents, and marketable securities as of June 30. Its employee headcount jumped 9% quarter-over-quarter to 28,768 full-time employees.

After falling for several weeks, consensus estimates reversed their trend in the last few days and began to rise heading into the number, which is usually a bullish sign.

Expect analysts to revise their estimates significantly higher for Google over the coming days. Shares rose more than 10% after hours.

Earnings Preview: Abbott Labs

Abbott Laboratories (NYSE: ABT) is all set to announce its second quarter 2011 results on July 20, 2011 before the opening bell. The Zacks Consensus Estimate for the second quarter is $1.11, representing a year-over-year increase of 9.9%.

The Zacks Consensus Estimate is within the guidance range of $1.10 to $1.12 provided by the company while releasing its first quarter results. Abbott Labs has surpassed earnings estimates consistently in the last four quarters with a trailing average of 0.96%.

First Quarter 2011 Recap

Abbott reported first quarter earnings of $0.91 per share, a penny above the Zacks Consensus Estimate. Earnings increased 12.3% from the year-earlier period. Higher revenues helped drive results. However, including one-time items, earnings declined 14.1% to $0.55 per share.

First quarter revenues increased 17.4% to $9.0 billion, slightly above the Zacks Consensus Estimate of $8.8 billion. (Read our full coverage of the first quarter 2011 earnings report at Marginal Beat for Abbott Labs).

Agreement of Estimate Revisions

Estimate revisions for Abbott Labs have been scarce over the past month. Over the past 30 days, only 4 analysts covering Abbott Labs have revised their earnings estimates for the second quarter of 2011. While 3 of them have increased their earnings estimates, one has moved in the opposite direction. The annual estimates for 2011 have not been revised by the majority of analysts either. Only 3 of the 22 analysts following Abbott Labs for 2011 have revised their estimates; all of them to the upside.

Concerns like the impact of US health care reform, product recalls, foreign exchange headwinds and EU pricing austerity and generic competition continue to hurt Abbott, but its pharmaceutical products should continue driving growth led by key drug Humira, an anti-inflammatory product.

Humira is quickly becoming the anti-tumor necrosis factor (TNF) drug of choice, gaining sizable market share from Amgen /Pfizer's (Nasdaq: AMGN/NYSE: PFE) Enbrel and Johnson & Johnson's (NYSE: JNJ) Remicade. Currently approved for several indications, we believe Humira has blockbuster potential in the psoriasis indication alone given its first-in-class efficacy and convenient self-administration.

Growing awareness, favorable clinical data, additional indications and expansion into new markets like China and Japan should help the product to continue contributing significantly to the top-line. Abbott expects Humira sales to show double-digit growth (low teens) in 2011.

Moreover, Abbott's growth by acquisition strategy should help the company in expanding its reach further. In addition to acquisitions, Abbott has been utilizing its cash for share repurchases and dividend payouts, thereby increasing shareholder value.

Magnitude of Estimate Revisions

Estimates for the second quarter and also for fiscal 2011 have remained static at $1.11 and $4.61 per share, respectively, in the last 30 days due to the lack of significant estimate revisions by analysts following the stock.

Neutral on Abbott Labs

We currently have a Neutral recommendation on Abbott Labs. The company carries a Zacks #3 Rank (short-term Hold rating). We believe Abbott Labs is weathering the storm relatively well despite facing the challenges mentioned above.

Abbott Labs' strong business segments and contributions from recent acquisitions should help fortify long-term earnings growth. While lead product, Humira, will continue to be a huge growth driver in the next couple of years, we remain concerned about Abbott Labs' dependence on the product. Moreover, the company's pharma pipeline needs to deliver in order to drive long-term growth.

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