Zacks Equity Research highlights Shanghai Petrochemical (NYSE: SHI) as the Bull of the Day and Embraer Air (NYSE: ERJ) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on McCormick & Schmick (Nasdaq: MSSR) and Caterpillar, Inc. (NYSE: CAT). 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 Shanghai Petrochemical (NYSE: SHI). Shanghai Petrochemical’s exposure to the fast-expanding Chinese economy and strong petrochemical product demand make us confident of strong volume growth. Earnings in the first half of 2007 are positively impacted by the lower crude oil processing costs. We believe this trend will continue in 2007 and improve profitability. Thus, we rate the stock a Buy with a six-month target price of $73.00.
Bear of the Day:
Our Bear of the Day recommendation is for Embraer Air (NYSE: ERJ). We are changing our recommendation on ERJ from Hold to Sell. The Embraer 170/190 line of 70-110 seat jets should continue to be well received by aviation customers, in our view. But this will be partially offset by the growing concern that low-cost carriers plan to add too much capacity, too quickly, to the global air transport system. Additionally, the company’s first and second quarter results were disappointing. We remain concerned over the strength of the Brazilian real, and its effect on the company’s competitiveness. Finally, the complete failure of the Brazilian airports infrastructure will certainly be a problem for the company’s local sales.
Analyst Blog:
We assumed coverage of McCormick & Schmick (Nasdaq: MSSR) in February. The company is well positioned, in our view, to generate high-teens annual EPS growth over the next five years by executing on its business plan to open new units at a rate of 13-15% annually, increase same-store sales at its historical average rate of 2-3%, and expand margins slightly through economies of scale. MSSR is well positioned in the upscale segment of the market, which is less susceptible than the casual dining segment to the impact of rising gas prices and mortgage rates plaguing the less affluent consumer. However, we think the stock's premium multiple fairly reflects its growth opportunities.
Caterpillar, Inc. (NYSE: CAT) reported second quarter EPS of $1.24, well below our estimate at $1.57, due to higher-than-anticipated core operating costs, weak North American machine volumes, and a plunge in on-highway truck engine sales. As a result of the sharp miss in second quarter EPS, we are lowering our FY07 EPS estimate to $5.47 from $5.80. We retain our earnings estimates for quarters three and four. The growth in International markets, driven by the rise in commodity prices generally, should help to offset the persistent weakness in North America. We reiterate our Hold recommendation on shares of CAT.
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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