CHICAGO, May 4, 2011 /PRNewswire/ -- Zacks Equity Research highlights SurModics Inc. (Nasdaq: SRDX) as the Bull of the Day and Office Depot (NYSE: ODP), the Bear of the Day. In addition, Zacks Equity Research provides analysis on MasterCard (NYSE: MA), Archer Daniels Midland (NYSE: ADM) and Pfizer (NYSE: PFE).
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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:
We are upgrading SurModics Inc. (Nasdaq: SRDX) to Outperform from Neutral following its strong showing in the second quarter of fiscal 2011. Adjusted earnings in the quarter came in at $0.08 per share, well ahead of break-even earnings suggested by the Zacks Consensus Estimate.
Following the strong showing, the company raised its revenues and earnings projections for fiscal 2011. We have also raised our earnings estimates for fiscal 2011 and fiscal 2012. Our fiscal 2011 earnings estimates are within the company's projected range.
The efforts made by the company to revive itself after delivering below-par results in the past few quarters encourage us. Over the last five years, SurModics shares have traded in a range of 14.3x to 65.8x. Our target price of $18.00 is based on 43.9x our fiscal 2012 EPS estimate of $0.41.
Office Depot (NYSE: ODP), which has been persistently losing market share to industry stalwarts, recently posted lower-than-expected first-quarter 2011 results. The underperformance can be traced back to sluggish sales across each business segment that suffered due to lower customer transaction counts and the divestiture of businesses in Japan and Israel.
The company reported a 3.2% drop in the top-line and a break-even bottom-line, with both falling short of the Zacks Consensus Estimates. A sales decline of 3% at the contract channel of the company's North American Business Solutions division following failure to retain customers during the shift to the new purchasing consortium was also a first-quarter event.
Further, we remain cautious about the macroeconomic environment and sluggish job market with small businesses and consumers still remaining watchful on their spending.
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Waiting for the Jobs Reports
With about two-thirds of the reports in, we can safely say that first quarter earnings season has been better than expected, belying pre-season concerns about margins and the impact of Japan. This earnings strength pushed stocks to new highs in recent days. But stocks will need more than just earnings strength to make new highs from here onwards.
The most important catalyst for stocks at this stage will be reassurance on the economic recovery front. And nothing will prove more reassuring than evidence that a labor market recovery is underway. We have a slew of labor market reports coming out this week, with the April non-farm payroll report on Friday capping it all.
While some positive or negative earnings-related moves cannot be ruled out, I would expect stocks to essentially remain in a wait-and-see mode ahead of the Friday jobs report.
We found last week that the economy's growth momentum decelerated in the first quarter. The dominant view in the market at present, with which I agree, is pinning the blame for the slowdown on transitory factors. Estimates for GDP growth rates for the current and subsequent quarters have held up at this stage, with the labor market recovery a key contributing factor in that favorable view. A negative surprise this Friday will materially damage that view.
On the earnings front, while the reports thus far have come ahead of expectations, we still have some way to go before we close the books on the first quarter. We had a solid top- and bottom-line beat from MasterCard (NYSE: MA) this morning. But Archer Daniels Midland (NYSE: ADM) only managed to come inline with earnings expectations, as the agricultural product processor's top-line beat appears to have been offset by margin weakness. Pharma giant Pfizer (NYSE: PFE) beat modestly on EPS, but revenue came below expectations.
More than earnings reports, it is the wait for the Friday jobs report that will drive trading the rest of this week. Stocks will find it difficult to sustain recent gains if we get a negative surprise on Friday.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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