Zacks Bull and Bear of the Day Highlights: Freeport McMoRan, Pao de Acucar, Safeway and Portfolio Recovery Associates

Business Wire,  Oct 17, 2007  

Tags: Bear, Bull, New York Stock Exchange, Safeway Plc.

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CHICAGO -- Zacks Equity Research highlights Freeport McMoRan Copper & Gold, Inc. (NYSE: FCX) as the Bull of the Day and Pao de Acucar (NYSE: CBD) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Safeway (NYSE: SWY) and Portfolio Recovery Associates (Nasdaq: PRAA). Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.

Here is a synopsis of all four stocks:

Bull of the Day:

Our Bull of the Day recommendation is for Freeport McMoRan Copper & Gold, Inc. (NYSE: FCX). Freeport-McMoRan is engaged in the exploration, development, mining and milling of copper, gold and silver in Indonesia. The company is witnessing strong growth backed by improved productivity and a strong cash flow position. The merger with Phelps Dodge Corporation has positioned the company as the second largest copper producer and the largest publicly traded copper company globally. Hence we maintain our positive outlook on the stock and rate it a Buy. A rise in the prices of copper and gold lead us to raise our six-month target price to $125.00.

Bear of the Day:

Our Bear of the Day recommendation is for Pao de Acucar (NYSE: CBD). We are keeping our Sell recommendation on Companhia Brasileira de Distribuicao, or Pao de Acucar. The company reported weaker-than-expected results for the first and second quarters 2007, including lower margins and disappointing net income. The outlook for the third quarter is not encouraging. Additionally, Sendas Distribuidora's performance remains weak, and the Brazilian Central Bank should stop cutting basic rates in the very short-term due to local inflation pressures. The aggressive expansion of Wal-Mart in Brazil remains a concern.

Analyst Blog:

Safeway's (NYSE: SWY) third quarter earnings of $0.44 per share matched our estimate. We are slightly increasing our 2007 EPS by $0.01 and 2008 EPS estimate by $0.02 to reflect the stabilization of the company's profit margins into next year. We continue to believe Safeway's remodeling efforts, Lifestyle stores, and Blackhawk gift card business are reasons to be bullish on the stock. Even so, we think the stock should track the overall market for the next six months. Safeway shares are trading at 17.3x our 2007 EPS estimate and 15.5x our 2008 EPS estimate. This forward P/E ratio is in line its primary competitors.

Portfolio Recovery Associates (Nasdaq: PRAA) is scheduled to report its 3Q07 financial results in the first week of November. PRAA currently trades at 14.3 times the consensus forward estimate (versus 15.5x at the time of our last report), a 47% premium to the peer group median (versus a 44% premium at that time). On a price-to-book basis, the shares trade at a 36% premium to the peer median, versus a 78% premium in late June. Relative pricing now looks expensive on P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. PRAA's PEG ratio on this basis is 1.30, a 37% premium to the 0.95 median for the peer group (versus a 12% premium previously). On a P/B basis (to which we apply very little weight), the 36% premium continues to look extremely full given an ROE only 14% above median.

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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