For Immediate Release
Chicago, IL – November 5, 2010 – Zacks Equity Research highlights eBay (EBAY) as the Bull of the Day and Range Resources (RRC) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Wal-Mart (WMT), Big Lots (BIG) and Kroger(KR).
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:
eBay (EBAY) is one of the largest online retailers in the world today. The company's third quarter results beat the Zacks Consensus and guidance for the fourth quarter indicates an improving business.
Restructuring of the Marketplaces segment, a focus on buying experience, continued momentum in the Payments segment, a growing presence on the mobile platform and a strong balance sheet indicate improving long-term results.
Although competition continues to heat up and gross margin pressures are likely to continue, we think the positives outweigh the negatives, resulting in improving investor sentiment. Consequently, we are upgrading EBAY shares to Outperform.
Bear of the Day:
Range Resources (RRC) announced record-setting third-quarter 2010 production volume of 503 million cubic feet equivalent per day (MMcfe/d), up 15% from last year and 7% from the second quarter.
While the company's third quarter production increased mainly on the back of solid contribution from its core Marcellus Shale properties, this area is primarily over-pressured and, in some areas, contains rich gas that must be processed further. As such, Range Resources needs more capital as well as new high-pressured lines to gather Marcellus gas.
Although we appreciate Range Resources increasing focus on liquids, natural gas-weighted production and reserves will weigh on the stock. Our Underperform recommendation for Range Resources remains unchanged at this stage. As such, we see little reason for investors to hold this stock. Our $33 price objective reflects a multiple of 9.3x the trailing 12-month cash flow.
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Initial Jobless Claims Rise by 20,000
Initial Claims for Unemployment Insurance rose by 20,000 last week to 457,000. We just can't seem to get out of the “trading range” that initial claims have been in for the last year.
Last week, hopes were raised that we might finally be showing some real progress, as claims fell for the third week in a row and for the seventh time in eight weeks. But this week's numbers put any such celebration on hold.
Since claims can be volatile from week to week, it is better to track the four-week moving average to get a better sense of the trend. It rose by 2,000 to 456,000. After declining sharply in the second half of 2009, the four-week moving average has been stuck in a tight trading range. In mid-August, the weekly number hit 500,000 and threatened to break out to the upside from the range, the decline over the last two and a half months brought us down to 437,000 before this week's reversal.
The vast majority of economists agree that extended unemployment benefits are among the most effective forms of economic stimulus. Although some do worry that by cushioning the blow of unemployment, people might be more reluctant to take a marginal job opportunity, but a below-poverty-level income is not that much of a cushion.
The people who get them tend to spend the money quickly on basic needs. This, in turn, keeps customers coming in the door at Wal-Mart (WMT) and Big Lots (BIG). It means that, at the margin, some people are able to continue to pay their mortgages and thus helps keep the foreclosure crisis from getting even worse than it already is. People can buy food at a Kroger's(KR) rather than having to rely on overstretched food banks.
However, by the time they are well into extended benefits, they might also be spending food stamps as well as the unemployment check at Kroger's. These customers keep the people at Wal-Mart, Big Lots and Kroger's, and of course their competitors, employed. It also keeps the people who make and transport those goods employed as well, although in that case much of the stimulus is lost overseas if the goods are imported.
However it is not clear if the marginal propensity to import is higher for poor (or temporarily poor because they are unemployed) or for the rich. Lots of the stuff on the shelves of Wal-Mart comes from China. On the other hand, the poor are not likely to be buying Swiss watches or German autos.
What is clear is that they will spend it quicker, increasing the velocity of money, than will the rich who will tend to save more of it, particularly if they see the increased income from say a continued tax cut for the highest income people as temporary. The rich are much more likely, in other words, to fit Milton Friedman's “Permanent Income Hypothesis” than are the unemployed, since the rich do not face liquidity constraints.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.
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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BIG LOTS INC (BIG): Free Stock Analysis Report
EBAY INC (EBAY): Free Stock Analysis Report
KROGER CO (KR): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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