Let’s take a look at analysts’ morning notes.
- Strong outlook for Aetna (AET): It may have a new CEO but the positive momentum seen in 2010 appears to be continuing into the new year. Aetna reported fourth-quarter results with earnings that were above our estimates, as well as a penny above the Street consensus. We view the quarter as noisy but sufficiently strong on most metrics to imply a beat. We do note that quality metrics for the report were highlighted by much stronger cash flow. Overall, we view the quarter as just “ok” as the earnings beats was really driven by favourable development and perhaps some additional spending tempered more of the upside. Aetna reported a quarter that was somewhat uneventful, but we believe this will be overshadowed by the strength in the outlook for 2011.
- Cautious on Polo Ralph Lauren (RL): The stock could be volatile near-term amid integration of South Korea, rising cost pressures ahead. That said, RL’s premium pricing offers a margin buffer versus peers as costs rise, Further, recent earnings suggest RL is already leveraging past investments which should support EPS deliverability versus peers this year. We are forecasting 8% growth at Polo’s factory outlet stores in F3Q.
- Likes Fortune Brands (FO): Given its decision to break-up the company, we use a sum-of-parts analysis to value the stock. Given the recent multiple expansion for FO’s peers, we derive a $65 target price for FO. We believe the shares are fairly valued and that upside in the stock is limited as investors await the closure of the proposed split. For the full year, FO expects pro forma EPS growth for 2011 of high-single-digits to high-teens, excluding the separation of the business, which FO now expects to be completed in 2H11. Further, FO expects the markets for each of its businesses to grow at a low-single-digit rate and is targeting FCF in the range of $450-$525 million.
- Cautious on TECO Energy (TE): Earnings were a bit lower than our expectations. We are lowering our 2011, 2012 and 2013 EPS estimates by $0.05/shr across the board. The main driver is more a moderation in the core utility outlook due to lower load expectations this year and not volatility in TECO Coal expectations, although lower coal margins also contribute to our 2011 estimate of $1.35/shr.
- Clorox (CLX) has limited growth potential: Clorox’s Q2 EPS exceeded our expectations but the beat was low quality, in our view, driven by lower selling and admin costs, as well as much higher than expected non-operating income. As expected CLX lowered its FY11 adj. EPS outlook which now stands at $3.85-$4.00. We maintain our EPS estimates including our $3.95 FY11 forecast, which is slightly above the midpoint of CLX’s guidance. We maintain our EW rating, as we continue to believe that Clorox’s skew to lower growth geographies and product categories will limit its growth potential and value expansion.
- Applied Technologies (AVID) in recovery mode: It easily beat 4Q expectations. Video and audio segments, products, and services all exceeded our prior expectations, and the firm seems to be experiencing a broad-based recovery, some of which may be product-cycle driven. We think AVID can now generate a powerful earnings surge on just 5% top-line growth, owing in large part to the leverage to the cost-containment culture that comes from several rounds of restructuring. We think our forecast of $1.19 in CY12 is easily attainable and consensus estimates will continue to bump up.
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