Zacks Equity Research highlights Sempra Energy (NYSE: SRE) as the Bull of the Day and Cost Plus, Inc. (Nasdaq: CPWM) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Johnson & Johnson (NYSE: JNJ) and Diageo, Plc. (NYSE: DEO). Full analysis of all four stocks is available at http://at.zacks.com/?id=2676.
Here is a synopsis of all four stocks:
Bull of the Day:
Our Bull of the Day recommendation is for Sempra Energy (NYSE: SRE). Looking ahead, from a base of stable earnings via customer growth and higher electricity sales, combined with impressive results at Sempra Generation and new solar power contracts, we see consistent earnings power driven by continued profitability at Sempra Commodities. However, we note that the company may face difficulties from a shrinking gas business, higher capital spending and a below industry average dividend yield. Nevertheless, in a valuation call given a discount forward earnings valuation we maintain our BUY recommendation on SRE with a six-month target price of $59.25. Price appreciation to our near-term valuation target, coupled with a sustainable and secure increased quarterly dividend of $0.31 per share based on low projected earnings payouts, represents annualized total return potential of 18.4%.
Bear of the Day:
Our Bear of the Day recommendation is for Cost Plus, Inc. (Nasdaq: CPWM). Cost Plus reported a net loss of $0.81 per share in the second quarter, which was far worse than we expected. Citing difficult economic conditions, management lowered its guidance for the third quarter of fiscal 2007. It expects net loss of $0.73 to $0.80 per share. We believe that the company’s turnaround efforts have failed to deliver any real gains because of the difficult headwinds facing home furnishings retailers. More troubling, however, is that Cost Plus continues to increase its debt to finance its business. In our view, the company’s balance sheet was already on shaky ground, and increased leverage will put additional pressure on the company’s declining profit margins. We believe the company should tighten its belt, stop expanding, and rationalize its business until the housing market shows signs of stabilizing. As a result, we are downgrading CPWM shares from Hold to Sell and expect the shares to move much lower from current levels.
Johnson & Johnson (NYSE: JNJ) is one of the world's largest providers of healthcare products in the consumer, pharmaceutical and medical devices market. It has over 200 operating companies around the world and sells its products in more than 175 countries. J&J has an enormously diverse revenue stream consisting of market-leading products in all three of its business segments. Unfortunately, given the sheer size of the company's top line, J&J also possesses several declining or struggling products. Investment in J&J offers consistency and reliability, but we believe the shares are fairly valued at current levels.
While the recent year-end results were good with organic top-line growth of 7% and EPS growth of 13%, Diageo, Plc. (NYSE: DEO) is still trading at a relatively high multiple compared to the rest of the market. As such, at its current valuation, the risk/reward set-up is balanced. We continue to rate the stock a Hold. Diageo is the world's leading premium drinks company with a collection of beverage brands across the spirits, wine and beer categories. These brands include: Smirnoff, Johnnie Walker, Guinness, Baileys, J&B, Captain Morgan, Cuervo, Tanqueray, and Beaulieu Vineyard and Sterling Vineyards wines.
Get the full analysis of all four stocks by going to http://at.zacks.com/?id=2649.
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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