CHICAGO, July 13, 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: Pfizer Inc. (NYSE: PFE), JPMorgan Chase (NYSE: JPM), Morgan Stanley (NYSE: MS), Yum! Brands Inc. (NYSE: YUM) and McDonald's Corp. (NYSE: MCD).
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Here are highlights from Tuesday's Analyst Blog:
Pfizer May Drop Two Divisions
In a bid to utilize its resources optimally so as to maximize shareholder value, Pfizer Inc. (NYSE: PFE) announced that it will explore options regarding its Animal Health and Nutrition segments. The company may even sell off the units to meet the objective.
Pfizer also stated that it will consider other options such as spinning off the two segments or pursuing separate strategies for each unit. The transaction is not expected to be completed before a year and may even take two years. Consequently, the pharma giant is not expected to provide further updates on the exercise before 2012.
We note that Pfizer currently operates through five operating segments––Primary Care, Specialty Care and Oncology, Established Products and Emerging Markets (EP&EM), Animal Health and Consumer Healthcare and Nutrition. If Pfizer ultimately drops the animal health and nutrition segments, whose combined 2010 revenues stood at $5.5 billion (8% of 2010 revenues at Pfizer), then it will be able to focus more on the other segments particularly the EP&EM unit.
Emerging markets are the most rapidly growing markets in the pharmaceutical space. With many top-selling drugs losing patent protection, off-patent therapies and their generic versions are highly sought after in the emerging markets. Pfizer's blockbuster drug Lipitor for cholesterol management goes off patent in the US in November 2011. Consequently, the move by Pfizer is also aimed at combating the loss of revenues due to the genericization of Lipitor.
While JPMorgan Chase (NYSE: JPM), a leading financial holding company, will help Pfizer evaluate the various options regarding the animal health business, Morgan Stanley (NYSE: MS) and Centerview Partners will do the same for the nutrition business.
Our Recommendation
We currently have a Neutral recommendation on Pfizer, which carries a Zacks #2 Rank (short-term Buy rating). While near-term earnings growth will come in the form of cost cutting and share repurchases, longer-term growth will depend on successful drug development. 2011 should be a catalyst-filled year for the company, which is expecting to present phase III data on several candidates.
Earnings Preview: Yum! Brands
Quick service restaurant company, Yum! Brands Inc. (NYSE: YUM) is slated to release its second quarter 2011 results on July 13, after the closing bell. The current Zacks Consensus Estimate for second quarter earnings is 61 cents per share on revenue of $2,694.0 million.
Yum! Brands has outperformed the Zacks Consensus Estimate three times over the trailing four quarters, with earnings surprises varying in the range of a negative 1.56% to 7.41%. The average earnings surprise was 3.06%. This implies that the company has beaten the Zacks Consensus Estimate by this magnitude over the last four quarters.
Previous Quarter Performance
Kentucky-based Yum! Brands reported first quarter 2011 adjusted earnings of 63 cents per share, which fell short of the Zacks Consensus Estimate by a penny. Earnings increased 7% year over year mainly on the back of strong performance at its China division. On a reported basis, Yum! Brands' quarterly earnings were 54 cents per share, up 10% year over year.
The company reported a 3% year-over-year increase in total revenue to $2,425 million, which surpassed the Zacks Consensus Estimate of $2,379 million. Sales growth was fueled by a 28% increase in the China division, partly offset by 9% and 5% declines in the U.S. and Yum! Restaurants International (YRI) division, respectively.
Estimates Revisions Trend
Estimates for the to-be reported quarter remained unchanged in the last 60 days, implying that the analysts are maintaining their outlook on the stock.
Agreement of Estimate Revisions
In the last 7 days, one out of 18 analysts covering the stock reduced the second quarter estimate while none went for any increment. The movement was same for fiscal 2011 with one analyst cutting the same.
Magnitude of Estimate Revisions
Over the past 60 days, Yum! Brands' estimates for the second quarter did not change. Therefore, the analysts expect the company to report in line. However, the estimate for fiscal 2011 was reduced by a penny in the last 7 days. Currently, the Zacks Consensus Estimates for 2011 is $2.83 per share.
Our Take
We believe, Yum! Brands' performance in the U.S. will depend on the extent to which Taco Bell rebounds. Taco Bell, which accounts for more than 60% of the total U.S. earnings, is presently the most important domestic brand. But negative publicity due to the lawsuit related to the content and quality of its beef products took a toll on its results last quarter.
Another area of observation will be the performance in China, Yum! Brands' major growth market. Although two leading brands of the company –– KFC and Pizza Hut –– offers significant prospects, it will be under competitive pressure from McDonald's Corp. (NYSE: MCD).
Moreover, issues like tough comparisons in China, cost escalation and wage inflation might mute Yum!'s margins in the upcoming quarter. Yum! Brands also expects profits from Japan to be down somewhat due to the impact of the earthquake and tsunami. Yum! Brands currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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