For Immediate Release
Chicago, IL – November 8, 2010 – Zacks Equity Research highlights W. W. Grainger (GWW) as the Bull of the Day and Jacobs Engineering (JEC) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Ventas Inc. (VTR), Sunrise Senior Living Inc. (SRZ) and Microchip Technology Incorporated (MCHP).
Full analysis of all these stocks is available at http://at.zacks.com/?id=5506.
Here is a synopsis of all five stocks:
Bull of the Day:
W. W. Grainger's (GWW) third quarter adjusted EPS improved 32% year over year to $1.99 and revenues jumped 19% to $1.9 billion, outperforming the respective Zacks Consensus Estimates.
For fiscal 2010, Grainger elevated its sales growth guidance to a range of 14%-15% and its EPS guidance to a range of $6.40 to $6.70. Grainger remains focused on expanding its product offering and has the financial flexibility to further invest in growth opportunities, increase dividends and reinvest capital through share repurchases.
Gradually improving economic activity, market share gains, benefits from growth investments, share repurchases and strategic acquisitions should lead to strong earnings growth in 2010 and 2011. We have upgraded our rating from Neutral to Outperform with a target price at $149.
Bear of the Day:
We downgrade our recommendation on Jacobs Engineering (JEC) from Neutral to Underperform based on the company's continuous decrease in backlog since the beginning of fiscal 2010, which is expected to negatively affect its top-line results in fiscal 2011.
Hence, we reduce our fiscal 2011 estimate by 3 cents. The stock is cyclical in nature, and thus the sluggish economic environment, which has reduced the client's spending power, was the prime reason for the decrease in backlog.
Large investors fear to infuse capital in the unstable market conditions. Moreover, the company faces immense risk as it operates in a highly-competitive environment.
Latest Posts on the Zacks Analyst Blog:
Ventas Beats Estimates
Ventas Inc. (VTR), a leading healthcare real estate investment trust (REIT), reported third quarter 2010 funds from operations (FFO) of $108.9 million or 69 cents per share, compared to $98.3 million or 63 cents in the year-earlier quarter. Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and other non-cash expenses to net income.
Excluding the non-recurring items, adjusted FFO for third quarter 2010 was $115.4 million or 73 cents per share compared to $103.4 million or 66 cents in the year-ago quarter. The recurring FFO per share for the quarter beat the Zacks Consensus Estimate by 2 cents.
The increase in year-over-year FFO was primarily due to rental increases from its triple-net lease portfolio, and higher Net Operating Income (NOI) from its senior living and medical office building (MOB) operating portfolios, partially offset by higher weighted average diluted shares outstanding during the quarter.
Total revenues during the quarter were $264.7 million compared to $234.6 million in the year-earlier quarter. Revenues during the reported quarter were well ahead of the Zacks Consensus Estimate of $254.0 million.
Ventas currently has an operating portfolio of 79 senior housing communities in North Americathat are managed by Sunrise Senior Living Inc. (SRZ). In about 21 of these, Ventas has 100% ownership stake, while in the remaining 58 communities Ventas has a partnership share of 75% to 85% with the balance being owned by Sunrise.
Subsequent to the quarter-end, Ventas acquired full ownership of all the 58 senior living communities from Sunrise, who would continue to manage all 79 communities. With the deal, Ventas has strengthened its position in the senior living segment. The transaction is expected to be completed by fourth quarter 2010. Ventas expects the transaction to be accretive to its fiscal 2011 earnings.
Microchip Tech Beats
Microchip Technology Incorporated (MCHP) reported net revenues of $382.2 million in the second quarter of fiscal 2011, up 7.0% sequentially and 68.7% year-over-year, beating the Zacks Consensus Estimate of $341 million.
Quarter in Detail
Microchip acquired Silicon Storage Technology (SST) this year and decided to sell SST's super flash memory solid state drive, smart card and RF businesses.
Microchip sold solid state drive, smart card and certain older flash memory product lines to Greenline Systems Inc in May of this year. Microchip also licensed certain flash memory products in certain geographic markets of Asia, mainly Taiwan and China to Professional Computer Technology (PCT) in July 2010.
After operating the super flash memory business and RF business (held for sale) for two quarters, Microchip found synergy between SST's RF business and Microchip's wireless controller and analog business. On the memory side, after selling the low margin end of the business to PCT of Taiwan, the company substantially improved margins in that business.
Hence, Microchip decided to keep the super flash memory and RF businesses of SST as ongoing businesses of Microchip. Microchip substantially eliminated the excess overhead and reduced the operating expenses of the SST business. The super flash memory and RF divisions of SST added approximately $40 million of revenue in the September 2010 quarter. The restructuring and integration of SST is now complete.
Growth was seen across the board in the quarter, in the four product lines – Microcontrollers, Analog, Serial EEPROM and flash IP licensing (starting from this quarter).
Strength in the Microcontroller business continued to drive revenue growth. Revenues from this business were up 4.7% sequentially and 39.4% year-over-year. All segment of 8-bit micro controller product line recorded strong results. 16-bit micro controller business also achieved another record for quarterly revenue, with strong sequential growth of 22% and up 102% from the year ago quarter.
Microchip stated that new customers and new designs going into production continued to drive significant growth as the number of volume 16-bit customers grew over 3,200. However, 32-bit micro controller product line declined 10.9%.
The Analog business was up 99.8% year-over-year and 11.6% sequentially. Serial EEPROMs business was up 12.5% sequentially. Microchip continues to prioritize capacity to support its proprietary microcontroller and analog product lines. Flash IP licensing generated revenues of $17.3 million, and was up 12.5%. Microchip shipped 48,970 development tools in the quarter.
Excluding stock-based compensation expense and one-time items, gross margins came in at 60.2%, marginally down from 60.3% in the previous quarter. Including the above mentioned items, Microchip generated a gross margin of 58.9%. Operating expenses came in at 24.0% of total sales, down from 24.5% in the previous quarter. Operating margin came in at 36.2%.
Net income from continuing operations came in at $104.8 million or 55 cents compared to a net income of $91.9 million or 47 cents in the previous quarter. Excluding one-time items and stock-based compensation expense, net income came in at 57 cents per share beating the Zacks Consensus Estimate of 54 cents.
Cash Analysis
Microchip generated $156.9 million of cash from operations prior to the payment of dividends of $63.9 million. Capital expenditures were approximately $31.8 million for the September quarter. Microchip ended the quarter with cash and cash equivalents of $1.4 billion, up from $1.3 billion at the end of the previous quarter.
Inventory at the end of the quarter was $166.6 million, up from $128.1 million at the end of the previous quarter due to the inclusion of super flash memory and RF business of SST.
Inventory days (the number of days inventory is held) were approximately 131 days, flat with the prior quarter. Given the industry - wide supply constraints, Microchip continued to aggressively increase its manufacturing output to meet customer demand. Inventory days are forecasted to increase in the December quarter.
Microchip commented that inventory on the company's balance sheet was too low for the past several quarters. The company built some inventory in the quarter to bring the lead times closer to the levels that customers expect. Concurrent with the press release, Microchip announced that it will pay two dividends in the December quarter.
The first dividend of $0.344 per share will be paid on December 2, 2010 to shareholders of record on November 18, 2010. The cash payment associated with this dividend will be approximately $64.1 million.
The second dividend of $0.345 per share will be paid on December 27, 2010 to shareholders of record on December 13, 2010. The cash payment associated with this dividend is expected to be $64.3 million. Microchip decided to pay the March quarter dividend in the December quarter to allow shareholders to take advantage of the lower tax rate that will apply in 2010 compared to what is expected for 2011.
Quarter Ahead
Going forward, management expects net sales for the December quarter to be down between 2% to 8% sequentially due to an industry inventory correction. This implies a revenue guidance of $352 million – $375 million, much better than the Zacks Consensus Estimate of $347 million. Gross margin is projected around 59.1% – 59.3%.
Earnings per share are projected between 55 and 59 cents. SST operations are expected to add approximately 32 cents to Microchip's bottom-line in 2011 and 40 cents in 2012. The better-than-expected results and guidance should lead to noteworthy revisions in earnings estimates by analysts covering the stock.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.
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GRAINGER W W (GWW): Free Stock Analysis Report
JACOBS ENGIN GR (JEC): Free Stock Analysis Report
MICROCHIP TECH (MCHP): Free Stock Analysis Report
SUNRISE SENIOR (SRZ): Free Stock Analysis Report
VENTAS INC (VTR): Free Stock Analysis Report
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