Let’s take a look at analysts’ morning notes.
- AnnTaylor (ANN) is a favourite: Based upon stronger than anticipated sales ANN now expects 4Q EPS above consensus of $0.14. Comparable store sales increased 11% including 21% at Ann Taylor and 4% at Loft brands. Strong sales growth was partially offset by gross margin pressure. A lower tax rate drove upside to our Street-high $0.16 estimate which we raise to $0.19. Our thesis rests on continued strong sales growth with very high flow through rates given a relatively fixed expense base. We are buyers here and view ANN as one of our favourite long ideas for 2011.
- New leadership program has raised our EPS estimates for Mattel (MAT): The benefit of the company’s newly announced Global Cost Leadership Program 2 and a lower share count effected by the company’s stock buyback program has made us raise our EPS estimates and price target. Our revenue estimates remain unchanged and represent a solid entertainment year in 2011 driven mainly by Cars 2 but also by continued growth of Mattel’s evergreen brands. Mattel gained market share in 2010 and appears to have good momentum heading into 1H11. Risks remain, in our view, as toy retailers are likely clearing out inventories; however, Mattel appears better positioned than most of its peers at this time.
- Quest Diagnostics (DGX)’ accelerated buyback is a sign of confidence: We consider DGX’s move to accelerate its buyback as a further sign of confidence. While we still believe better execution and more concrete signs of revenue growth will be the most important factors that could alter our fundamental hold opinion on DGX shares, we are taking our estimates and price target up to reflect the size/timing of the buyback. We expect industry-wide volumes to improve in 2011.
- Time Warner (TWX) is solid: Revenue of $7.81 billion came in 5.15 above our estimate and 4.5% above consensus. Film and Networks beat our estimates while publishing was slightly lower. EBIT of $1.42 billion was in line with our estimate and consensus. Time Warner bought back 15 million shares for $484 million since last reported results. The share repurchase authorization has been increased to $5 billion. The company also increased the regular quarterly dividend by 11% to $0.235 per share.
- Visa (V) beat Q1 expectations but still needs work: We believe investors were positioning for a better beat on the quarter given recent spend trends, so combined with the Fed debit overhang, we’d expect the shares to trade off tomorrow. A bright spot in the quarter was non-U.S. credit spend growth, which re-enforces our pair trade recommendation to overweight MasterCard versus V. While management highlighted efforts in Congress to delay implementation of the Durbin Amendment, we believe it’s an uphill battle in the Senate. In addition, the two Fed alternatives on exclusivity create an outcome for the stock that could create a longer-term overhang given V’s dominant signature market share.
- Likes Visa (V): As we had anticipated, V reiterated all aspects of its F11 guidance, including 11-15% GAAP net revenue growth, $900 million in marketing expense, operating margins around 60%, EPS growth 20%, FCF of $3 billion and rebates/incentives of 16%-16.5% of gross revenues. Once there is greater clarity on the Fed’s Durbin rules, we would expect V to be in a better position to provide F12 guidance.
- More growth expected for AvalonBay Communities (AVB): We expect its strategic focus on developments to drive earnings growth over the next two to three years. Additionally, AVB’s diversified portfolio should benefit from strong East Coast markets, as well as the rebound of weaker West Coast markets in 2011. Current valuation, however, reflects this strong earnings outlook. Leasing momentum continued to gain traction in 4Q10 with ongoing development projects all showing solid gains in occupancy.