For Immediate Release
Chicago, IL – November 4, 2010 – Zacks Equity Research highlights Bayer AG (PINK: BAYRY) as the Bull of the Day and Greatbatch, Inc. (NYSE: GB) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Automatic Data Processing (Nasdaq: ADP), Ford (NYSE: F), Caterpillar (NYSE: CAT).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
We are upgrading Bayer AG (PINK: BAYRY) to Outperform from Neutral based on the strong results posted by the company in the third quarter of 2010. All segments performed well in the quarter.
The company earned EUR0.95 (approx. $1.22) in the quarter as against EUR0.78 (approx. $1.00) in the year-ago period. The Material Science segment performed impressively with sales climbing 30.8% due to improved sales of high-tech materials.
In addition, Bayer maintained its positive outlook for 2010. Earnings are expected to improve by more than 15% for 2010. Given the positive outlook, we have upped our earnings estimates for 2010 and 2011 by $0.37 and $0.39 respectively.
We downgrade our recommendation for Greatbatch, Inc. (NYSE: GB) to Underperform following its lower-than-expected third quarter fiscal 2010 results and management's tepid outlook. Both revenues and earnings for the quarter missed the Zacks Consensus Estimate, impacted by the decline in the company's CRM/Neuromodulation business.
Greatbatch has narrowed its fiscal 2010 revenue and operating margin targets based on sluggish market conditions. The company's cost-cutting and restructuring initiatives continue to support margin expansion.
Moreover, Greatbatch has been acquiring complementary businesses to boost top line. However, we feel that operating metrics are expected remain under pressure through 2010 due to a soft CRM market, pricing pressure and foreign exchange headwinds.
Latest Posts on the Zacks Analyst Blog:
ADP Jobs Growth & the New House
The Automatic Data Processing (Nasdaq: ADP) employment survey was a bit better than expected in October. It shows that private sector employment rose by 43,000 last month, above consensus expectations for a 23,000 increase. Also, the September numbers were revised to a loss of just 2,000 jobs rather than the original estimate of a loss of 39,000 jobs.
ADP, as the largest payroll processing firm in the country, is in a very good position to look at the state of the job market. This is evidence of an economy that is growing, but at a very slow pace.
While it is nice to see a better-than-expected increase -- and so far this year the ADP report has consistently been more pessimistic than the BLS report (due out Friday morning) -- it is not even close to the level we need to make a serious dent in the vast army of the unemployed. It is not really even enough to keep up with the growth of the labor force due to population growth.
Results by Category
Small businesses, defined as those with fewer than 50 employees, rose a total of 21,000 jobs in the month. Medium-sized firms, those with between 50 and 499 employees, gained 24,000 jobs. Large firms, with 500 or more employees, dropped 2,000 jobs.
ADP, as the largest payroll processing firm in the country, is in a very good position to look at the state of the job market. This is evidence of an economy that is growing, but at a very slow pace.
While it is nice to see a better-than-expected increase -- and so far this year the ADP report has consistently been more pessimistic than the BLS report (due out Friday morning) -- it is not even close to the level we need to make a serious dent in the vast army of the unemployed. It is not really even enough to keep up with the growth of the labor force due to population growth.
Results by Category
Small businesses, defined as those with fewer than 50 employees, rose a total of 21,000 jobs in the month. Medium-sized firms, those with between 50 and 499 employees, gained 24,000 jobs. Large firms, with 500 or more employees, dropped 2,000 jobs.
Large businesses are a relatively small share of total employment in the country, accounting for just 17.502 million out of a total of 107.056 million private sector jobs in the country. Small business is the largest source of employment at 48.298 million, followed by medium businesses at 41.256 million.
Jobs were lost from the goods producing sector, which fell a total of 34,000 jobs. Overall goods producing industries are not that big a source of jobs in this country -- just 17.424 million (16.3%) in total. Employment in goods producing industries tends to be more volatile than in the service sector, and thus the goods producing industries have an outsized influence on the overall strength of the job market.
Worst hit in the goods producing sector were the small firms which shed 16,000 workers, followed by a loss of 11,000 among the large-sized firms, while the medium-sized goods producing firms dropped 7,000 workers in the month. The goods producing sector is made up of Manufacturing, Construction and Mining.
Good Producing: Construction
The construction industry was again bearing the brunt of the pain, on balance issuing 23,000 more pink slips in the month. The construction industry has been shedding jobs since January 2007 and over that period has shrunk employment by a total of 2.313 million. That is more than one fourth of the total jobs lost in the entire economy since the recession started.
Historically, construction employment (especially residential construction) is one of the first areas to recover when the economy starts to rebound, but that is not happening this time around. With the extraordinary weakness in new home sales in recent months, there is very little reason to believe construction employment is going to pick up anytime soon.
High vacancy rates in most forms of commercial real estate also means that there is not going to be much of a pick up in commercial construction anytime soon. One confirmation of this is the billing index from the American Institute of Architects, which has been below 50 since January 2008 indicating falling work for architects. Commercial construction almost always needs an architect, and there is about a nine month to a year lag between when the architects send out their bills and when construction spending (and hence employment) happens.
Manufacturing
Manufacturing had been a bright spot in this recovery, but in October factory jobs fell for the third month in a row, down 12,000 on top of a decline of 17,000 in September. It now appears that much of the gains in manufacturing employment were due to inventory restocking, which is now largely complete.
ADP does not break out mining jobs separately, but given the overall decline in goods producing jobs, and the drops in construction and manufacturing, we can surmise that the number of mining jobs was up 1,000 on the month.
The disparity in the goods producing sector between small and large sized firms is probably related to the differences between construction and manufacturing. There are lots and lots of small construction firms. Most of the major homebuilders like D.R. Horton (DHI) outsource most of their work to smaller subcontractors, and do not directly hire or fire lots of framers and roofers.
Manufacturing, on the other hand, tends to be more dominated by the big household names like Ford (NYSE: F) and Caterpillar (NYSE: CAT). The parts they use tend to be mostly made by medium-sized firms.
The service sector is far larger than goods producing, accounting for 89.632 million jobs or 83.7% of the private sector total. It added 77,000 jobs in September. Of those, 37,000 were added by small-service firms, while medium-sized firms added 31,000 and large service firms gained 9,000. Far more people are employed by small-service firms, (41.950 million) than by either medium-sized firms (33.610 million) or by large firms (14.056 million).
Jobs were lost from the goods producing sector, which fell a total of 34,000 jobs. Overall goods producing industries are not that big a source of jobs in this country -- just 17.424 million (16.3%) in total. Employment in goods producing industries tends to be more volatile than in the service sector, and thus the goods producing industries have an outsized influence on the overall strength of the job market.
Worst hit in the goods producing sector were the small firms which shed 16,000 workers, followed by a loss of 11,000 among the large-sized firms, while the medium-sized goods producing firms dropped 7,000 workers in the month. The goods producing sector is made up of Manufacturing, Construction and Mining.
Good Producing: Construction
The construction industry was again bearing the brunt of the pain, on balance issuing 23,000 more pink slips in the month. The construction industry has been shedding jobs since January 2007 and over that period has shrunk employment by a total of 2.313 million. That is more than one fourth of the total jobs lost in the entire economy since the recession started.
Historically, construction employment (especially residential construction) is one of the first areas to recover when the economy starts to rebound, but that is not happening this time around. With the extraordinary weakness in new home sales in recent months, there is very little reason to believe construction employment is going to pick up anytime soon.
High vacancy rates in most forms of commercial real estate also means that there is not going to be much of a pick up in commercial construction anytime soon. One confirmation of this is the billing index from the American Institute of Architects, which has been below 50 since January 2008 indicating falling work for architects. Commercial construction almost always needs an architect, and there is about a nine month to a year lag between when the architects send out their bills and when construction spending (and hence employment) happens.
Manufacturing
Manufacturing had been a bright spot in this recovery, but in October factory jobs fell for the third month in a row, down 12,000 on top of a decline of 17,000 in September. It now appears that much of the gains in manufacturing employment were due to inventory restocking, which is now largely complete.
ADP does not break out mining jobs separately, but given the overall decline in goods producing jobs, and the drops in construction and manufacturing, we can surmise that the number of mining jobs was up 1,000 on the month.
The disparity in the goods producing sector between small and large sized firms is probably related to the differences between construction and manufacturing. There are lots and lots of small construction firms. Most of the major homebuilders like D.R. Horton (DHI) outsource most of their work to smaller subcontractors, and do not directly hire or fire lots of framers and roofers.
Manufacturing, on the other hand, tends to be more dominated by the big household names like Ford (NYSE: F) and Caterpillar (NYSE: CAT). The parts they use tend to be mostly made by medium-sized firms.
The service sector is far larger than goods producing, accounting for 89.632 million jobs or 83.7% of the private sector total. It added 77,000 jobs in September. Of those, 37,000 were added by small-service firms, while medium-sized firms added 31,000 and large service firms gained 9,000. Far more people are employed by small-service firms, (41.950 million) than by either medium-sized firms (33.610 million) or by large firms (14.056 million).
How the New Congress Changes Things
The new GOP majority in the House of Representatives is going to be less inclined to provide financial assistance to the State and Local governments. After all, such aid made up about one third of the ARRA (or "stimulus plan") that they criticized in the election. And since states are legally not allowed to run operating deficits they either have to raise taxes or cut spending.
Raising taxes is less politically popular right now than cutting spending. For the most part, cutting spending at the State and Local level will mean laying people off. The State and Local cutbacks are a major source of “de-stimulus” that offsets the stimulus from the ARRA on the Federal side.
From the point of view of the overall economy and aggregate demand, it really doesn't matter if the spending is coming from the Federal government or the State government. (It does matter on a couple of other levels, but not in terms of total demand in the economy). Thus, the total amount of stimulus in the economy is much less than is commonly believed. Even so, there is going to be a lot less of it going forward than we have had over the last two years.
The new GOP majority in the House of Representatives is going to be less inclined to provide financial assistance to the State and Local governments. After all, such aid made up about one third of the ARRA (or "stimulus plan") that they criticized in the election. And since states are legally not allowed to run operating deficits they either have to raise taxes or cut spending.
Raising taxes is less politically popular right now than cutting spending. For the most part, cutting spending at the State and Local level will mean laying people off. The State and Local cutbacks are a major source of “de-stimulus” that offsets the stimulus from the ARRA on the Federal side.
From the point of view of the overall economy and aggregate demand, it really doesn't matter if the spending is coming from the Federal government or the State government. (It does matter on a couple of other levels, but not in terms of total demand in the economy). Thus, the total amount of stimulus in the economy is much less than is commonly believed. Even so, there is going to be a lot less of it going forward than we have had over the last two years.
Get the full analysis of all these 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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