CHICAGO, June 7, 2012 /PRNewswire/ --Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Office Depot Inc. (NYSE:ODP), Brightpoint Inc. (Nasdaq:CELL), MetroPCS Communications, Inc. (NYSE:PCS), Research In Motion Ltd. (Nasdaq:RIMM) and Nokia Corp. (NYSE:NOK)
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Here are highlights from Wednesday's Analyst Blog:
Office Depot Downgraded to Underperform
Following a dismal first-quarter 2012 top-line performance, we recently downgraded our long-term recommendation on Office Depot Inc. (NYSE:ODP) to Underperform with a price target of $2.00. Earlier, Office Depot had been enjoying a Neutral rating.
Office Depot's total revenue of $2,872.8 million fell short of the Zacks Consensus Estimate of $2,884 million, and decreased approximately 3% on a year-over-year basis. Management had earlier predicted sales to decline between 3% and 4%. However, the quarterly earnings came in at 5 cents a share, in line with the Zacks Consensus Estimate, and marked a sharp increase from a break even in the year-ago quarter.
We believe that the change in the demand for office supplies products and services remains one of the indicators that describe the health of the economy. The economy is still not out of the woods, and amidst such a scenario Office Depot has to walk the tight rope to juggle with unprecedented situation that may hurt its growth prospects.
The underperformance can be traced back to North American Retail and International divisions, where sales were down 8% and 2%, respectively. However, North American Business Solutions division acted as a savior to some extent, with sales rising 3%.
We remain cautious about the macroeconomic environment and sluggish job market. The recovery in the economy is murky. As a result, consumers and small businesses still remain watchful about their spending for big-ticket items such as business machines and other durable products. We observe that the demand for office products is closely tied to the health of the economy.
Management now expects total sales for the second quarter of 2012 to decline 3% from the year-ago quarter, and further hinted that adjusted operating income is expected to decline $20 million to $30 million. Further, Office Depot forecasted that North American Retail division's comparable-store sales would decline in the second quarter, and hinted that International division's sales would fall 4% to 5% in constant currency.
Moreover, due to high exposure to international markets, Office Depot remains prone to currency fluctuations. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the U.S. An increase in price may have an adverse impact on the demand for the products.
Brightpoint Renews MetroPCS Deal
Brightpoint North America L.P, an operating arm of a leading distributor of wireless devices, Brightpoint Inc. (Nasdaq:CELL), recently announced the renewal of its contract with MetroPCS Communications, Inc. (NYSE:PCS) owned MetroPCS Wireless, Inc.
As per the deal, Brightpoint will provide logistic assistance to MetroPCS-owned store, agents and its retail partners all across the U.S. Brightpoint is expected to provide services like receiving of orders from customers and proper delivery of the ordered goods. Additionally, the company will also offer storage as well as customer credit facilities to MetroPCS Wireless customers.
Brightpoint already has a solid supply-chain agreement with large mobile handset developers such as Research In Motion Ltd. (Nasdaq:RIMM), Nokia Corp. (NYSE:NOK), and HTC Corp., Such relationships will further strengthen its network and deliver improved services to its clients.
Recently, Brightpoint is witnessing various challenges as the company reduced its financial forecast for fiscal 2012. This is the second time that the company has lowered its 2012 financial guidance, which was provided at the end of 2011. We believe that loss of a major client in the company's high-margin Logistics segment in the U.S is one of the prime reasons for such defensive guidance. Moreover,global economic volatility and weaker margins on product sales coupled with the recent trend of consolidation among telecom carriers may act as negative catalysts for the company in the long term. We, thus, maintain our long-term Underperform recommendation on Brightpoint Inc.
Currently, Brightpoint Inc. has a Zacks #5 Rank, implying a short-term Strong Sell rating on the stock.
Brightpoint Inc. is a leader in global distribution of wireless devices and the provision of customized logistic services to wireless equipment manufacturers and carriers.
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