Zacks Bull and Bear of the Day Highlights Sears Holding, Progressive, DineEquity, Brinker International and Denny's
CHICAGO, June 1, 2012 /PRNewswire/ -- Zacks Equity Research highlights Sears Holding Corp. (Nasdaq: SHLD) as the Bull of the Day and Progressive Corp. (NYSE: PGR) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onDineEquity Inc. (NYSE: DIN), Brinker International Inc. (NYSE: EAT) and Denny's Corporation (Nasdaq: DENN).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
We have upgraded our long-term recommendation on Sears Holding Corp. (Nasdaq: SHLD) to Outperform, given its efforts to revamp its organizational structure and operating model in order to overcome its sluggish top-line performances and even weaker bottom-line results.
Despite a marginal decline of 2.8% in top line, Sears first-quarter 2012 loss per share narrowed to $0.31 from $1.34 in the prior-year period and fared better than the Zacks Consensus estimate of a loss of $0.59. The improved results were primarily driven by its ongoing cost reduction, inventory management, strengthening liquidity strategies and merchandise initiatives. Moreover, adjusted EBITDA margin expanded 150 basis points to 2.1% from 0.6% in the prior-year quarter.
Apart from this, Sears has been focusing on improving margins through leverage on buying and occupancy expenses. Further, we believe lowering its stake in Sears Canada will strengthen its liquidity position while boosting future growth prospects.
We are downgrading Progressive Corp. (NYSE: PGR) to Underperform from Neutral as the company continues to deliver lower net investment income and incur higher expenses. Progressive's first quarter earnings surpassed the Zacks Consensus Estimate by $0.03 but fell below the year-ago quarter.
Lower net investment gains and higher expenses resulted in lower numbers during the quarter. Considering the state of the economy, we expect significant pressure on underwriting margins and restriction in its top-line growth in the near term.
Our six-month target price of $20.00 equates to 13.8x our earnings estimate for 2012. Combined with $0.41 per share annual dividend this price target implies an expected negative total return of 7.3% over that period. This is consistent with our Underperform recommendation on the shares.
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DineEquity to Divest 33 Applebee's
DineEquity Inc. (NYSE: DIN) recently announced that it has struck a deal with Apple Franchise Capital, LLC to sell 33 company-owned Applebee's restaurants in Missouri and Indiana for about $26 million. The company intends to reduce its financial obligations and shift toward a franchise-based model through this deal. The transaction is expected to close in the third quarter of 2012.
Moreover, on the first day of this month, the company also announced the sale of 39 company-operated Applebee's restaurants in Virginia and expects to clinch this deal also in the third quarter of 2012.
During the first quarter, DineEquity completed the sale of 17 company-operated Applebee's restaurants located in a six-state market around Tennessee, consistent with the company's strategy of becoming highly franchised.
Following the footsteps of other noted restaurant companies in the U.S., DineEquity is also shifting its focus toward franchised operations from company-owned restaurants as a de-risking strategy, given that expansion through franchising is less capital intensive and income is fixed in the form of fee.
DineEquity acquired Applebee's International in November 2007 in a $2 billion leveraged buyout. Since then, the company has sold a total of 342 Applebee's company-operated restaurants.
The sale of company-owned Applebee's restaurants has reduced the debt burden of the company considerably by the use of free cash flow. As of March 31, 2012, the company's long-term debt liability was $1,338.0 million compared with $1,411.4 million as of December 31, 2011. During the quarter, the company reduced its total debt burden by $85.9 million.
At the end of the first quarter, more than 95% of DineEquity's Applebee's and IHOP restaurants were franchised. Upon completion of the pending sale, this percentage will rise to 97%. Although DineEquity's transition to a more franchise-based model will decrease company-owned revenues, this will enhance free cash flow generation by reducing capital employed.
For fiscal 2012, Applebee's franchise plans to open 30 to 40 restaurants, half of which are expected to open in the U.S.
With more than 3,500 Applebee's and IHOP restaurants combined, DineEquity is the largest full-service restaurant company in the world with brands leading in their respective categories of casual and family dining.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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