Tenneco, School Specialty, BP, Peabody Energy and Freeport McMoRan

CHICAGO--([ BUSINESS WIRE ])--[ Zacks Equity Research ] highlights Tenneco (NYSE: [ TEN ]) as the Bull of the Day and School Specialty (Nasdaq: [ SCHS ]) the Bear of the Day. In addition, Zacks Equity Research provides analysis on BP (NYSE: [ BP ]), Peabody Energy (NYSE: [ BTU ]) and Freeport McMoRan (NYSE: [ FCX ]).

Full analysis of all these stocks is available at [ http://at.zacks.com/?id=2678 ].

Here is a synopsis of all five stocks:

[ Bull of the Day ]:

Tenneco (NYSE: [ TEN ]) is witnessing revenue improvements and succeeding in reducing cost and restructuring activities. The company has consistently won more commercial vehicle business than anticipated.

Moreover, diversification has also proved to be a major positive. These factors helped the company to outperform the Zacks Consensus Estimate in the most recent quarter by a significant margin of $0.10 per share.

As such, we have upgraded the recommendation on the shares from Neutral to Outperform and set a target price of $28.

[ Bear of the Day ]:

The economic downturn has resulted in an uncertainty in the school districts related to state budget funding levels, which has led to a cautious spending approach. Consequently, School Specialty (Nasdaq: [ SCHS ]) has been registering a sustained decline in the topline.

A continued softness in demand can be seen in both curriculum-based products and supplemental materials. The furniture market has been the worst hit by budget cuts, as school construction and modernization projects have been cancelled or postponed.

Further, the intense competition and seasonality of business undermine the company's future growth prospects. As such, we have an Underperform recommendation on the stock.

Latest Posts on the Zacks [ Analyst Blog ]:

Capacity Utilization Climbs

The May decline in Industrial Production is most likely a result of the ongoing BP (NYSE: [ BP ]) oil disaster in the Gulf of Mexico, and the moratorium on deepwater drilling that resulted from it. Utility output climbed by 4.2% in May (warmer than normal weather leading to more air conditioning). Utility output had been down sharply in the previous two months, falling 1.3% in April and down 6.2% in March (when it was coming off a heating induced spike in February due to the blizzards). Over the last year Utility output is up 4.2%.

Output of finished goods was up 1.1% on the month, after an increase of 0.4% in April and a 0.7% increase in March. Within finished goods, output of consumer goods rose by 1.2%, more than reversing a 0.1% decline in April and much stronger than the 0.4% increase in March. Output of consumer goods is up 6.3% over the last year.

Output of business equipment has been doing even better, climbing 1.3% in May on top of a 1.6% increase in April and a 1.1% increase in March. Relative to a year ago, business equipment output is up 10.1%, but if we annualize the rate of the last three months, output is growing at an annual rate of 17.2%.

That is booming, folks -- or at least climbing rapidly out of the hole. We have seen a nice increase in industrial production, but it remains far below where it was when the recession started, and is actually at about the same level it was at in 2000.

Capacity Utilization

The same report also shows Capacity Utilization, which is to my mind one of the most underappreciated economic statistics around. Effectively, it is the employment rate for physical capital. The overall rate of capacity utilization rose to 74.7% from 73.7% in April and 73.1% in March. A year ago it stood at 68.5%, and it hit a record low of 68.3% in June of 2009.

As a good rule of thumb, when the economy is healthy, total capacity utilization should be near 80.0%. The long-term average rate is 80.6%. If it gets up close to 85% it is a serious sign that the economy is overheating and that inflation will soon be a very serious issue. That is a signal that the Fed needs to raise interest rates to cool the economy down (and is also a good time for the government to be cutting spending or raising taxes to bring down the deficit/debt).

A total capacity utilization rate of 75% is usually associated with a pretty severe recession. The worst level ever recorded (unfortunately the data only goes back to 1967) prior to the Great Recession was 70.9% in December 1983.

While capacity utilization has made a very strong comeback -- and has been up in every month since June, except for February when it was unchanged -- it is still approximately at the same level it was at the worst points of the 2001 and 1974 recessions, and far below the worst points of the 1970, 1980 and 1990 downturns. The year-over-year increase in capacity utilization has also been aided by a 1.3% decline in overall capacity. If some factories and mines are shut down and dismantled, it is that much easier to run the remaining ones at a higher rate.

Like the industrial production numbers, the capacity utilization numbers can be distorted by Utilities and the weather. Thus, just looking at factory utilization is instructive. Like the overall rate, it has staged a strong comeback, but is much lower than the overall rate at just 71.5%. That is a nice gain from the 70.8% level last month and the 70.1% level in March, as well as being well above the 65.3% level a year ago.

It is however, not a healthy level. The long-term average level is 79.2%. Overall factory capacity has declined by 1.4% over the last year, which has aided the recovery in utilization levels. Mine utilization is very healthy at 90.6%, although that is down a tick from 90.7% last month -- but up from 81.9% a year ago, and well above the long term average level of 87.5%.

As mining is a very operationally leveraged industry, it is good news for mining firms with significant U.S. operations like Peabody Energy (NYSE: [ BTU ]) and Freeport McMoRan (NYSE: [ FCX ]). Utility output jumped to 81.0% in May from 77.3% in April, and is above the 79.2% level of a year ago, but well below its long-term average rate of 86.6%. Unlike factories and mines, the nationa�s utility capacity is actually growing, up 1.9% from a year ago.

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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Tenneco, School Specialty, BP, Peabody Energy and Freeport McMoRan