Business & Finance
Business and Finance
Business and Finance 
Wed, February 4, 2009
Zacks Bull & Bear of the Day Highlights: CPFL Energia ADR, Dell, Honda Motor Co., TransDigm and Boeing
CHICAGO--([ BUSINESS WIRE ])--Zacks Equity Research picks CPFL Energia (NYSE: CPL) as Bull of the Day and Dell Inc. (Nasdaq: DELL) as Bear of the Day. In addition, the analysts at Zacks Equity Research discuss the latest on Honda Motor Company (NYSE: [ HMC ]), TransDigm Group (NYSE: [ TDG ]) and The Boeing Company (NYSE: [ BA ]).
Full analysis of all these stocks is available at: [ http://at.zacks.com/?id=2678 ]
Bull of the Day
We are maintaining our Buy rating on CPFL Energia (NYSE: CPL). The outlook for the following quarters remains positive, mainly considering the growing demand for electricity and a more relaxed monetary policy in Brazil in spite of the difficult business environment around the world.
We also believe that the tariff correction in 2009 and its solid dividend payout will be positive for the stock. Finally, after the recent sell-off, its valuation is highly attractive again.
At current levels, CPL's ADRs are trading at 7.7x our 2009 revised earnings estimates, well below the industry average. We believe that Brazil's risk and regulatory uncertainties, which are normal in Brazil, are the reason for this large discount. However, the current valuation of CPL is very attractive and its dividend yield is sound and reliable.
Bear of the Day
The rapid decline in corporate profits, highly illiquid capital markets, and the recessionary outlook are likely to dampen corporate capital spending. This is likely to have a major impact on Dell Inc.'s (Nasdaq: DELL) server business.
Added to this is the continued decline in consumer spending as shown by the decrease in sales of PCs and cell phones over recent months. Although Dell has announced plans to cut costs, its marketing model of being the lowest priced supplier to the consumer in a declining market is likely to reduce margins over the coming quarters.
Given the uncertainty of the length of the current world wide recession, we have a low confidence factor on our earnings forecasts over the next two years. Consequently, we maintain our SELL rating with a target price of $8.00 a share.
Recent Analysis from the Analyst Blog
Honda Tries a Unique Approach
Honda Motor Company (NYSE: [ HMC ]) is trying a unique approach to cutting costs by cutting salaries to match declining sales. This is why they are the best car company on the planet, period.
Cuts start at the top management, with 10% pay cuts for directors. Now, managers (the next group lower) are taking a 5% pay cut. This affects 4,800 employees, and is in place until May.
All of the cuts are in Japan, and not overseas, where earnings are hurt by the rising yen. More cuts are likely to follow, but notice how it starts at the top down and not from the bottom up.
TransDigm Report "Remarkable"
TransDigm Group (NYSE: [ TDG ]) reported some remarkable results for its fiscal 2009 first quarter, when compared to the same period last fiscal year. Net sales of $181.3 million were up 11.1% (organic sales growth - which excludes recent acquisitions - was 2.7%). The gross profit margin rose from 54.0% to 57.5%, while SG&A expenses declined from 11.0% of sales to 10.0%. The operating income margin went from 41.0% to 45.7%. And, aided by a lower tax rate of 35.0% versus 36.4%, net income as a percent of sales was 21.8%, up from 16.5%.
The bottom line of all this is that diluted EPS for the quarter were $0.78 versus $0.54, up 44.4%.
Part of the Company's stellar performance can be attributed to the fact that - reacting to the weakening of the commercial aerospace sector - it has already reduced headcount by some 9%, and will lower it further in months to come. Another reason for the improvement in profitability is that it didn't deliver as much lower-margined product destined for The Boeing Company (NYSE: [ BA ]) (commercial) aircraft during the quarter due to the IAM strike at that company. Other contributors included reduced interest expense, because of declining interest rates, and the reinstatement of R&D tax credits.
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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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