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: Yum! Brands Inc. (NYSE: YUM), Caterpillar Inc. (NYSE: CAT), United Parcel Service, Inc. (NYSE: UPS), Northrop Grumman Corporation (NYSE: NOC) and DuPont (NYSE: DD).
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Here are highlights from Wednesday’s Analyst Blog:
YUM Expanding Rapidly Overseas
Shares of Yum! Brands Inc. (NYSE: YUM) are a great way to gain exposure to China’s booming economy and other fast-growing international markets, while investing in the only stable segment of the restaurant industry. Yum! Brands’ two overseas divisions are expanding rapidly.
China and YRI are on track to grow operating earnings by an average compound annual growth rate (CAGR) of 20% and 10%, respectively, over the next five years. The U.S. operations are also showing signs of revival as same-store sales turned positive in 1Q08. Reinvigorating sales was Taco Bell’s recent product launches, including fruit smoothies and a value menu. KFC U.S. remains Yum’s one weak spot, with an outdated menu. Key to improvement will be its 1H09 launch of a new grilled chicken line, the first step in Yum’s strategy to add healthier and more portable menu items.
Target $78 for CAT
Caterpillar Inc. (NYSE: CAT) reported second quarter EPS of $1.74, above our expectations of $1.52, due to a lower share count, increased price realization, and higher International sales volume. The company remains committed to capacity expansion in growth markets outside the U.S., which positions CAT to increase share in mining and energy-related equipment.
Our FY08 EPS estimate of $6.41— which is above the management’s guidance — assumes 30% revenue growth in the Middle East, Asia Pacific, Latin America, no growth in North America and a share count of 608 million. Our target price is $78.00.
UPS Undervalued
We are continuing our Buy on United Parcel Service, Inc. (NYSE: UPS), as the stock is undervalued, but cutting our target price to $75. UPS reported second quarter EPS of $0.85, in line with earnings guidance provided on June 23. We are decreasing our EPS estimates for 2008 to $3.60 from $4.05, the midpoint of the company’s revised EPS guidance of $3.50 to $3.70, reduced from $3.90 to $4.20, and to $4.15 from $4.65 for 2009.
While the weaker U.S. economy, slowing US volume growth, the shift away from premium products, increased fuel costs and higher interest expenses related to a $6.1-billion pension payment will be earnings drags, rate hikes, expansion into China, recent acquisitions, and share repurchases should propel EPS growth. In January, UPS instituted a two-year, $10-billion share repurchase plan and announced a 7% increase in the dividend.
Bullish Outlook for NOC
Northrop Grumman Corporation (NYSE: NOC) offers a strong program portfolio positioned to take advantage of high growth areas in the defense budget, an improving balance sheet and an ongoing share repurchase program. Favorable projected revenue, the acquisition of Scaled Composites, diversified revenue and earnings streams with strong growth and discounted relative valuation metrics collectively support our bullish outlook for NOC.
Accordingly, we maintain our Buy recommendation on NOC common stock with a six-month target price of $76.00. Price appreciation to our near-term valuation target coupled with the recently increased $0.40 per share quarterly dividend, which we deem secure and sustainable based upon low projected payouts represents 38.9% total return potential.
Agri-Market Boost for DuPont
Growth for DuPont (NYSE: DD) will be driven by non-G7 markets, agricultural chemicals and a focus on key customers and new products. Strong performance in the agricultural products market, emerging markets, pricing actions, favorable currency and productivity is likely to outweigh increasing costs as well as weak auto and housing markets.
The company is focusing on nearly doubling its earnings growth rate. However, slowing demand in U.S. markets is likely to offset growth in agriculture and other markets outside the U.S. This compels us to rate the stock a Hold with a target of $45.00.
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