CHICAGO, Oct. 6, 2011 /PRNewswire/ -- Zacks Equity Research highlights Discover Financial Services (NYSE: DFS) as the Bull of the Day and Sara Lee Corp. (NYSE: SLE) as the Bear of the Day. In addition, Zacks Equity Research provides analysis Costco (Nasdaq: COST), Monsanto (NYSE: MON) and Apple (Nasdaq: AAPL).
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Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
Discover Financial Services (NYSE: DFS) third-quarter earnings came in substantially ahead of the Zacks Consensus Estimate, driven by lower loan loss provision, higher transaction and credit card sales volumes, loan loss reserve release growth and record-low delinquency and charge-off rates. Higher consumer spending and merchant acceptance also contributed to the substantial expansion of income across direct banking and payment services segments.
While the SLC acquisition enhanced its already strong student loan portfolio, dividend increment and share buyback further injected optimism. The company's extensive network, sound capital position and cost containment initiatives will help accentuate growth over the long term.
Our six-month target price of $28.00 equates to 7.0x our earnings estimate for 2011. Given the expected annual cash dividend of $0.24, this price target implies an expected total return of 19.2% over that period.
We have downgraded the recommendation of Sara Lee Corp. (NYSE: SLE) to Underperform from Neutral as the company remains under tremendous inflationary pressure, further burdened by severe competition from several branded and private label products. Though the company is making efforts to combat its rising price of coffee and meat by raising prices, we believe that the company has to sacrifice volume in the process.
The company is also undertaking strategic disinvestments to cope with higher expenses. The company is also planning to split itself into two businesses. However, we remain skeptical as the spin-off is subject to clearance from several regulations.
Though Sara Lee's fourth quarter 2011 earnings of $0.20 was decently ahead of the year-ago period and was in line with the Zacks Consensus Estimate, but we do not see any solid ground which can hold the top lines to decent levels.
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ADP Report Better than Expected
The ADP report came in better than expected, with 91K private-sector jobs created in September. The prior-month's tally was modestly revised downwards to 89K from the originally reported 91K level. The ADP report is supposed to provide the market with a preview of the official non-farm payroll monthly numbers from the Bureau of Labor Statistics (BLS). Today's ADP report is broadly in-line with the expectations for private-sector jobs in Friday's BLS report, which is a net positive in these uncertain times.
Overall, the ADP report's track record in foretelling the BLS numbers has been less than solid. Last month we got a paltry 17K private sector jobs number from the BLS when the ADP had reported a much more respectable 91K jobs. We will have to wait till Friday morning to find out how good of a job today's ADP report did.
In corporate news, we had Costco (Nasdaq: COST) come out with better same-store sales growth in its quarterly results, though its top-line barely matched expectations. Higher merchandise costs weighed on margins, but the warehouse-style retailer was able to post an earnings beat when inventory-related charges are excluded.
Monsanto (NYSE: MON) came out with a top- and bottom-line beat in its quarterly results this morning. In other corporate news, I can't help but point out Tuesday's underwhelming output from Apple's (Nasdaq: AAPL) much-anticipated event.
Today's positive ADP report should put the market in a relatively cheery mood for the labor market outlook. There has been no shortage of positive or relatively favorable economic readings in recent days, indicating that the U.S. economic outlook is not really as grim as some of the more bearish calls are making us believe. If Europe can get around to putting its house in order, then we will have the makings of a solid rally in the market. But that is probably asking too much.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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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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