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Honda Motor Company, Big Lots, Oracle, SAP AG and International Business Machines

^{Published on 2010-12-16 07:06:57 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--[ Zacks Equity Research ] highlights: Honda Motor Company(NYSE: [ HMC ]), Big Lots Inc.(NYSE: [ BIG ]), Oracle Corp. (Nasdaq: [ ORCL ]), SAP AG(NYSE: [ SAP ]) and International Business Machines(NYSE: [ IBM ]).

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 ]:

Honda Motor Company(NYSE: [ HMC ]) is expanding its business in Asia, growing its global network to increase efficiency, and introducing new products to satisfy local markets. Furthermore, capacity expansion across the world inspires optimism about Honda's future prospects.

Despite unfavorable currency exchange rates, Honda reported a profit in the second quarter of its fiscal 2011 that was more than double the year-ago level, driven by higher revenues in the Automobile segment. Furthermore, the automaker projected an 86.3% rise in profit to ?500 billion for fiscal 2011.

Therefore, we are upgrading our recommendation on the stock from Underperform to Outperform with a target price of $46. This valuation represents 13.8X our 2011 EPS estimate, well below the peer group average.

[ Bear of the Day ]:

Big Lots Inc.'s(NYSE: [ BIG ]) third-quarter 2010 earnings missed both the Zacks Consensus Estimate and its own outlook. The company also delivered disappointing comparable store sales results, rising marginally by 0.7% as against growth of 2% to 4% forecast by management.

The lower-than-expected third-quarter 2010 results prompted management to lower its earnings outlook. Big Lots now expects fiscal 2010 earnings in the range of $2.75 to $2.81 per share, down from its previous guidance range of $2.82 to $2.90. Following this, a negative sentiment is palpable among the analysts covering the stock, and we are witnessing a fall in the Zacks Consensus Estimates.

Big Lots, which operates in a highly competitive discount retail business, faces stiff competition from other general merchandise, discount, food, arts and crafts, and dollar store retailers. This may result in loss of market share, fall in sales and operating margins.

Latest Posts on the Zacks [ Analyst Blog ]:

Earnings Preview: Oracle

Oracle Corp. (Nasdaq: [ ORCL ]) is expected to report its second quarter fiscal 2011 earnings on December 16, 2010, after market close.

The stock has been trending upward, following the release of the strong quarterly results in September. Oraclea™s shares are currently trading near their 52-week high price.

Recently, a federal jury in California orderedSAP AG(NYSE: [ SAP ]) to pay $1.3 billion, one of the highest amounts ever paid in software piracy, to Oracle as a compensation for copyright infringement. In addition, Oracle wants SAP to pay about $211.6 million in prejudgment interest. This win represents a significant win for Oracle, thereby further driving its share price.

Second-Quarter Outlook

Managementa™s second quarter 2011 guidance, provided during the first quarter earnings call, is in line with the Zacks Consensus Estimate and the Wall Street forecast.

For the second quarter, Oracle expects non-GAAP EPS in constant currency to be in the range of 45 cents to 47 cents. Assuming current exchange, EPS is expected to range from 44 cents to 46 cents. This is up from 39 cents reported in the year-ago quarter.

EPS is slightly above the Zacks Consensus Estimate of 43 cents. Management pointed out that the pipeline for both the software and hardware remains strong.

Oracle expects 3% negative currency effect on license growth rates and 4% negative effect on total revenue growth. Total revenue on a non-GAAP basis is expected to range between 39% and 43% in the second quarter at current exchange rates and 43% to 47% in constant currency. The guidance assumes a non-GAAP tax rate of 28.5%.

New software license revenue growth is expected to range from 6% to 16% at current exchange rates and 9% to 19% in constant currency. Excluding Hardware support revenues, Hardware product revenues are expected to be $1.0 billion to $1.1 billion in constant currency or $1.1 billion to $1.2 billion at current exchange rates.

Management plans to spend $4 billion for research and development in fiscal 2011, which will likely boost the companya™s product offerings.

Estimates Up

The Zacks Consensus Estimate of 43 cents for the fiscal second quarter is samein the last 30 days. The Consensus Estimate for fiscal year 2011 is $1.91 per share.

In the last 30 days, 2 of 17 analysts have made an upward revision to their second quarter 2011 estimates while 3 analysts have raised their estimates for the full year 2011. There were no downward estimate revisions.

With a few analysts raising their estimates for the full year 2011, this is unlikely to have a major impact on the Zacks rank. There is a strong agreement among analysts that results are likely to be in line.

Our Take

Despite foreign exchange headwinds, we expect Oracle to post strong year-over-year earnings growth on the back of an increased demand for software as seen from the companya™s growing revenues generated by new software license sales, which were up in the past four consecutive quarters. Further, Oracle is expected to benefit from the increase in IT corporate spending.

We remain positive on Oraclea™s long-term growth prospects, given its growing hardware business and expect 2011 results to be strongly aided by the Sun acquisition but also remain cautious near term, given the expected integration related issues.

With Sun, Oracle will likely emerge as the foremost player in the database software market, including high-end servers, ahead of International Business Machines(NYSE: [ IBM ]), its primary competitor.

We maintain our long-term Neutral rating at this time since these positives have already been priced into the shares, leaving little room for above-market gains.

Get the full analysis of all these stocks by going to [ http://at.zacks.com/?id=2649 ].

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