Let’s take a look at analysts’ morning notes.
- Tractor Supply (TSCO): Initiate with buy. Key themes include favourable demographics that are helping to support above-average unit growth, multiple compensation and margin drivers and above average operating margin and earning-per-share growth. These trends plus minimal overlap with key big box competitors and strong vendor relationships are driving above average sales growth that the company is turning into above average operating income growth.
- McDonald’s (MCD): Maintain buy. After the recent pullback, McDonald’s shares now trade closer to the low end of the 5-year trading range despite very good visibility on forward earnings, strong cash flow, best-in-class assets and dominant competitive positioning. McDonald’s core consumer base should also benefit from a macro recovery.
- AT&T(T): Overweight. Its earnings call will likely centre around fourth quarter earnings, yet management’s 2011 commentary is what we believe will drive stock performance in the following weeks. Perhaps most relevant will be management’s 2011 wireless strategy given the arrival of the iPhone at Verizon, the accelerated rollout of the LTE network and the introduction of 4G handsets. Over the course of the year, we see 3 million subsidies or 14.5% of AT&T’s iPhone base, switching to Verizon. The stickiness of the device (i.e. 75% of subs under contract, family/biz plans, early termination fees, buying a new device) and the prospect of a summer High Speed Packet Access package for the iPhone should cap the number of switchers.
- General Electric (GE): Reiterate buy. GE had better than expected results and signs of operational improvement across all businesses. While one quarter is not a trend, one of our key takeaways from Friday is that sentiment on GE seems to have improved markedly. For the first time in years, most questions on the conference call were focused on the prospects for an industrial turnaround, particularly at Energy. We see major upside for the stock this year as investors increasingly focus on its long-term earnings potential.
- Covanta Holding (CVA): Overweight. We are cutting our 2011 earnings-per-share and we believe the company’s 2011 guidance, which it will introduce with year-end results in February (no date set yet) might disappoint with 2011 consensus at $0.71. However, we would not recommend shorting the shares into guidance and we are reiterating our overweight rating because of the company’s significant cash flow which it has been actively redeploying to shareholders. We also expect the company to return additional cash to investors in 2011, so we recommend the investors remain buyers of the stock.
- SunTrust Banks (STI): Hold. We are raising our 2011, 2012 and 2013 estimates to reflect a better revenue outlook. Key to our revisions are higher net interest margin assumptions (thanks to a better deposit mix), a bigger balance sheet, and better performance in its investment banking and capital markets businesses.
- Coach (COH): Reiterate overweight. We believe that Coach can achieve a billion dollars in sales in China by 2015, which would likely add $0.75 in earnings-per-share. Benefits from a new distribution centre in Shanghai (opened in 2010) and the anticipated launch of a Chinese e-commerce site later this year should serve as catalysts to support rapid growth over the next five years.