On May 20, 2013, shares of NRG Energy Inc. (NRG) climbed to a 52-week high of $28.34. A string of high-end investments in solar generation and the acquisition of GenOn Energy primarily lifted the company’s stock to a new high.

NRG Energy boasted of four major solar installations – the Avra Valley Solar Photovoltaic Facility and Agua Caliente Project in Ariz. as well as the California Valley Solar Ranch and Alpine Solar Generating Facility in Calif. – which came into service in 2012.

Meanwhile, the company received contract extensions last year from its clients Houston Technology Center and Washington-based St. Tammany Electric and Claiborne Electric cooperatives for delivery of power services. In addition, the company clinched two new long-term power supply commitments with Comcast and the city of Houston. We believe these contracts will ensure a stable earnings stream.

NRG Energy’s disciplined step to curb emission is evident from its continued pro-environment work on the Big Cajun generating facility in Louisiana. These initiatives enabled NRG Energy to perform well despite the challenges presented by the energy market last year.

With the renewable market dynamics becoming more favorable in the U.S., the company’s unrelenting pursuit of options to expand its solar portfolio will certainly prove to be a key growth driver.

In early 2013, NRG Energy successfully brought online its large-scale 720 megawatt Marsh Landing Generating Station in Antioch as well as the Borrego I Solar Generating Station. Also, it acquired a Gregory cogeneration plant in Corpus Christi, Texas, in agreement with Atlantic Power Corporation, John Hancock Life Insurance Company and Rockland Capital, LLC.

The current valuation also makes the shares of NRG Energy attractive. The forward price/earnings (P/E) multiple of 29.4x is higher than the peer group average of 17.4x, reflecting a premium of 69%. The Zacks Consensus Estimate for 2013 represents a projected increase of 138.7% to 95 cents from year-ago earnings of 40 cents.

Besides NRG Energy, utility stocks that are performing well and hold a Zacks Rank #2 (Buy) include ALLETE Inc. (ALE), Sempra Energy (SRE) and Entergy Corporation (ETR).

Headquartered in Princeton, N.J., NRG Energy together with its subsidiaries operates as an integrated wholesale power generation and retail electricity company.
 

JA Solar Holdings Co. Ltd. (JASO) announced a loss of 85 cents per American Depositary Share (ADS) in its first quarter of 2013, better than the Zacks Consensus Estimate of a loss of $1.01. However, results came far below the year-ago earnings per ADS of $1.03.

The largest solar-cell producer by capacity, JA Solar managed to narrow the loss on a sequential basis backed by record first-quarter shipments that exceeded the company’s forecast. Strong demand in the high average selling price market of Japan led to the growth. Japan accounted for a record 38% of its module shipments in the quarter. During the quarter, the company also increased its foothold in the high-margin markets of Asia-Pacific, the Middle East and Africa.

Quarterly Performance

JA Solar’s revenues in the reported quarter were $270.0 million, comfortably ahead of the Zacks Consensus Estimate of $230.0 million. Also, revenues increased 4.7% from $258.0 million in the first quarter of 2012, and rose marginally from $268.9 million in the fourth quarter of 2012.

Gross profit was $16.1 million, compared with a gross profit of $5.4 million in the year-earlier period and a gross loss of $12.4 million in the fourth quarter of 2012.

Total operating expenses declined 3.9% year over year and 55.6% sequentially to $29.8 million.

Shipments

Total shipments in the reported quarter were 442.7 megawatt (MW), exceeding the high end of the company's forecast of 410 MW to 430 MW. Shipments climbed 20.9% from 366 MW shipped in the year-ago period, but decreased 11.5% from 500 MW in the fourth quarter of 2012.

The Chinese solar-products maker saw declining revenue for six consecutive quarters due to weak demand and a global supply glut of wafer and module, which resulted in cascading average selling prices. However, the company successfully handled it with shipments rising almost 21% year over year in the first quarter.

Financial Condition

JA Solar at the end of the reported quarter had a cash balance of $254.9 million with $44.8 million of total working capital. Total long-term bank borrowings were $623.2 million, of which $451.4 million were due in one year. The total face value of outstanding convertible notes due 2013 was $116.6 million as of Mar 31, 2013.

Guidance

JA Solar expects second-quarter 2013 deliveries between 410 MW and 430 MW. For 2013, the company reaffirmed its total cell and module shipments of 1.7 gigawatt (GW) to 1.9 GW.

Our Take

JA Solar is one of the most cost-efficient solar producers in the world, with a geographically diverse customer base as well as silicon wafer supply agreements in place to feed its production. Positive factors include ongoing expansion programs, improving operating efficiencies, and higher conversion efficiency. JA Solar is steadily expanding its customer base worldwide in several geographic end markets including the U.S., Canada, Italy, Japan, Australia, China and India.

The first-quarter 2013 earnings beat led to a 70.4% jump in JA Solar’s ADSs on May 20, 2013 on the Nasdaq. Other Chinese solar stocks also gained ground with Trina Solar Limited (TSL) jumping 20.4%, First Solar Inc. (FSLR) climbing 9.8%, Suntech Power Holdings Co. Ltd. (STP) increasing 27.3% and Yingli Green Energy Holding Co. Ltd. (YGE) seeing a boost of 13.1%.

JA Solar currently retains a Zacks Rank #2 (Buy).
 

Shares of Magna International Inc. (MGA) hit a new 52-week high of $65.75 on May 20, which is above its previous level of $65.60, and closed at $65.37 on the same date. The closing price represented a solid one-year return of 64.9% and year-to-date return of 28.2%.

Magna International, based in Aurora, Canada, is a leading manufacturer and supplier of automotive components. It has a market cap of $15.25 billion. Average volume of shares traded over the last three months stood at approximately 749.5K.

Shares of the company started escalating following its improved first-quarter results and promising guidance announced on May 10.

Magna International posted a 7.5% rise in earnings per share to $1.57 in the first quarter of 2013 from $1.46 in the year-ago quarter and outpaced the Zacks Consensus Estimate by 17 cents. Net income increased 7.6% to $369.0 million from $343.0 million in the year-ago quarter.

Revenues went up 9.1% to $8.4 billion, exceeding the Zacks Consensus Estimate of $7.9 billion. The increase was driven by improvement in North American and Rest of World (ROW) production sales as well as higher tooling, engineering and other sales.

For full-year 2013, Magna expects revenues in the External Production segment between $27.2 billion and $28.2 billion, while Complete Vehicle Assembly sales are projected in the range of $2.8 billion to $3.1 billion. These were higher than revenues of $26.0 billion generated from External Production and $2.6 billion from Complete Vehicle Assembly in 2012.

Total revenue of the company is expected between $32.6 billion and $34.0 billion for 2013. It is higher than $30.8 billion generated in 2012.

Currently, shares of Magna International retain a Zacks Rank #2 (Buy). Some other stocks that are performing well in the broader industry where Magna operates include Federal-Mogul Corp. (FDML), Tower International, Inc. (TOWR) and Visteon Corp. (VC). All these companies carry a Zacks Rank #1 (Strong Buy).
 

On May 16, 2013 Grupo TMM (OTC:GTMAY) the Mexican intermodal transportation and logistics Company, released results for its first quarter ended March 31, 2013.

Maritime remains the dominant division at Grupo TMM. The Company's offshore business continued with high utilization and Ports and Terminals reported increased auto exports at Acapulco, particularly South America bound, as well as higher volumes at maintenance and repair.

As a result, Grupo’s consolidated revenue for the first quarter fiscal 2013 was strong at $837.0 million pesos, improving year over year by $27.9 million pesos, from $809.1 million pesos for the comparable quarter of 2012.

The improvement in year over year sales for the segment was primarily due to a 7.9 percent revenue increase at offshore, as a result of higher average daily tariffs, to having two additional vessels in the fleet and to improved utilization, which grew from 92.4 percent in the 2012 first quarter to 95.7 percent in the 2013 reported quarter. Additionally, parcel tanker revenue improved 26.1 percent year over year due to higher volumes, and harbor towage revenue grew 9.3 percent due to an improved revenue mix attributable to the Liquefied Natural Gas, or LNG, services.

Grupo’s Maritime revenue for the first quarter improved nearly 5 percent or by $25.6 million pesos year over year to $554.5 million pesos.

Maritime operating profit for the quarter increased 16.8 percent year over year as a result of revenue increases at offshore and harbor tugs. Operating margin increased to 20.8 percent from 18.6 percent in the 2012 first quarter.

Also worth noting is that Maritime's EBITDA for the 2013 first quarter grew 9.2 percent to $257.4 million pesos compared to $235.8 million pesos in the 2012 first quarter. Likewise, EBITDA margin at Maritime improved in the 2013 first quarter to 46.4 percent compared to 44.6 percent in the 2012 first quarter.

Excluding other income net in both reported periods, consolidated operating profit in the 2013 first quarter was $35.9 million pesos, improving 13.6 percent from $31.6 million pesos in the 2012 first quarter. Other income net was $10.5 million pesos in the 2013 first quarter and mainly included $5.9 million pesos in cash dividends from affiliates and $1.6 million pesos in net tax recoveries. In the 2012 first quarter, other income net of $27.5 million pesos included $28.7 million pesos in cash dividends from affiliates, offset by a $1.3 million peso reserve for expenses associated with an arbitrage at the Maritime division.

Consolidated EBITDA in the 2013 first quarter was $203.7 million pesos compared to $213.6 million pesos in the 2012 first quarter.

The Ports and Terminals segment continued its trend of revenue growth, improving by $20.9 million pesos to $97.7 million pesos. Likewise, the Ports and Terminals segment’s operating profit during the 2013 first quarter increased 37.9 percent compared to the 2012 first quarter, largely due to profit improvements at Acapulco and at maintenance and repair, specifically at the Veracruz, Manzanillo and Altamira facilities.

As of March 31, 2013, TMM's total net debt was $9,891.7 million pesos. The Company paid approximately $395.0 million pesos of its Trust Certificates debt, including a capital prepayment of $5.0 million pesos. Of Grupo TMM’s total debt, only $239.1 million pesos or 2.4 percent is short term.  This compares to $332.6 million pesos or 3.1 percent of total debt being short term as of December 31, 2012.

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Rise in sales and lower merchandise markdowns facilitated Urban Outfitters Inc. (URBN) to post better-than-expected first-quarter fiscal 2014earnings. The quarterly earnings of 32 cents a share surpassed the Zacks Consensus Estimate of 29 cents and jumped 39.1% year over year.  

Sales Performance

Total net sales of Urban Outfitters climbed 14% to $648.2 million during the first quarter, reflecting healthy performance of its Direct-to-Consumer business coupled with sturdy sales through new store openings and double-digit growth at wholesale operations. Despite robust sales results, it missed the Zacks Consensus Estimate of $650 million.

Urban Outfitters’ net sales increased 13.8% to $612 million at the Retail Segment and 16.1% to $36.2 million at the Wholesale Segment. Net sales by brands grew 9.9% to $292.8 million at Urban Outfitters, 12.7% to $265.1 million at Anthropologie and 35.1% to $83.3 million at Free People. Other revenue jumped 21.7% to $7 million.

Comparable retail segment net sales for this Zacks Rank #3 (Hold) stock, including the comparable direct-to-consumer channel, escalated 9%, reflecting robust sales across all brands.

Comparable retail segment net sales rose by 6% and 8% at Urban Outfitters and Anthropologie respectively, while it jumped 44% at Free People.

Going forward, Urban Outfitters remains committed to improve comparable-store sales performance, sustain investments in direct-to-consumer business, enhance productivity in existing channels, add new brands and optimize inventory levels.

Margin Performance

Supported by strong sales, gross profit for the quarter soared 17.9% to $238.8 million, whereas gross margin expanded 125 basis points to 36.8%, reflecting lower merchandise markdowns.

Urban Outfitters is optimistic that fiscal 2014 will present considerable opportunity for gross-margin improvement. The company expects to enhance margins by approximately 50 basis points through improvements in brands and lower markdowns.

Operating income marked a significant improvement during the quarter and surged by 37.9% to $73 million, while operating margin escalated 196 basis points to 11.3%.  

Stores Update

During the quarter, it opened 5 new domestic stores, including 2 Anthropologie stores and 3 Free People stores. Internationally, the company opened 1 new Urban Outfitters store in Europe and 1 in Canada.

Urban Outfitters entered into a multi-year agreement with World Co., Ltd for the distribution and marketing of its specialty clothing brand, Free People in Japan. As per the agreement, World Co., Ltd will distribute and market the Free People brand throughout Japan from shop-in-shop locations, direct-to-consumer sites and stand-alone stores. During the quarter, the company opened its first pop-up shop in the Tokyo department store in Shibuya shopping district.

For fiscal 2014, Urban Outfitters plans to open 35-40 new stores, including 16 Urban Outfitters stores, 14 Free People stores, 9 Anthropologie stores.

Other Financial Aspects

Urban Outfitters ended the quarter with cash and cash equivalents of $273.5 million, marketable securities of $214.9 million, and shareholders’ equity of $1,425.9 million. Management expects capital expenditures to be in the range of $190 million – $210 million for fiscal 2014.

Other Stocks to Consider

Until any further upgrade in Urban Outfitters’ Zacks Rank, other well performing stocks in the non-food retail, wholesale sector includes Big 5 Sporting Goods Corp. (BGFV), which carries a Zacks Rank #1 (Strong Buy).  The Gap, Inc. (GPS) and The Buckle, Inc. (BKE), both of which carry a Zacks Rank #2 (Buy) are also worth considering.

Raven Industries Inc. (RAVN) reported first quarter 2014 earnings of 38 cents per share, a 27% drop year over year, which fell short of the Zacks Consensus Estimate of 44 cents per share. Sales declined across the board reflecting the current sluggish growth environment and tough year-over-year comparisons.

Operational Update

Sales decreased 12% year over year to $103.7 million, falling short of the Zacks Consensus Estimate of $113 million. Weakness in the Applied Technology Division, declining demand from U.S. agency customers in Aerostar and a moderated energy market in Engineered Films led to the overall decline.

Cost of sales decreased 10% year over year to $68.8 million. Selling, general and administrative expenses increased 5% year over year to $9.7 million. Operating income decreased 26% year over year to $20.9 million in the quarter.

Segment Performance

Applied Technology: Sales for the segment dipped 5% year over year to $51.2 million reflecting lower demand in the U.S. aftermarkets. Operating income decreased 13% to $19 million from $22 million in the prior-year quarter, driven by lower sales but impacted by expenses for continued investments in research, marketing and product development to drive future growth.

Engineered Films: The segment reported sales of $34.5 million, down 16% year over year. Operating income plunged 48% to $4.7 million due to weak energy markets and  tough year-over-year comparisons.

Aerostar: Sales declined 15% year over year to $21.7 million due to reduced demand from U.S. agency customers and planned declines with avionics customers. However, Aerostar was the lone segment which reported a rise in operating profit to $1.8 million, up 25% from the prior-year quarter helped by gross margin improvements and the integration of Vista Research. .

Financial Position

Raven Industries ended the first quarter of fiscal 2014 with cash and cash equivalents of $51.1 million compared with $49.3 million as of the end of fiscal 2013. Cash flow from operating activities during the reported quarter was $14.9 million compared with $28.2 million in the prior year quarter.

Our Take

Going forward, Raven will benefit from its acquisition of Vista Research. Raven expects to return to historic earnings growth levels in fiscal 2014 driven by benefits from investments made over the last few years, new product developments and expansion.  Raven has several new precision agricultural products that will be launched in the second half of fiscal 2014 and are expected to help drive growth in Applied Technology.

The Aerostar segment will continue to face continued government uncertainty and sluggish demand. Raven is working to offset government uncertainty by expanding proprietary technology revenues including advanced radar systems, high-altitude research balloons and aerostats to international markets. However, margins will also be under pressure due to Raven’s stepped up investments in new initiatives and product development.

South Dakota-based Raven Industries Inc. is an industrial manufacturer providing a variety of products for the agricultural, industrial, construction and military/aerospace markets. Raven operates through four business segments: Engineered Films, Electronic Systems, Applied Technology and Aerostar.

Raven currently holds a short-term Zacks Rank #3 (Hold). Among the other stocks in the same industry, CLARCOR Inc. (CLC), Compass Diversified Holdings (CODI) and Honeywell International Inc. (HON) hold a Zacks Rank #2 (Buy) and are favorable options for investors.

Analog Devices, Inc. (ADI) is set to report third quarter 2013 results on May 21. Last quarter, its results were in line with our expectations. Let’s see how things are shaping up for this announcement.

Growth Factors This Past Quarter

Analog Devices' second-quarter earnings were in line with the Zacks Consensus Estimate of 44 cents. Revenues were down 10.0% sequentially and at the lower end of the management guidance due to weak sales across a wide range of communications infrastructure applications, automotive and industrial segments. Margin expansion was limited due to the change in sales mix, which favored lower-margin products.

Analog Devices provided a modest outlook for the third quarter, with revenues forecast to increase 4–8% sequentially. ADI expects earnings per share in the range of 49–55 cents, in line with the Zacks Consensus Estimate of 52 cents at the midpoint.

Earnings Whispers?

The Zacks Consensus Estimate for the second quarter stands at 52 cents while that for fiscal 2013 stands at $2.18.

Analog Devices has beaten estimates twice in the last four quarters while meeting estimates in the other two. There were no estimate revisions for both the third quarter and fiscal 2013 over the past 30 days. As a result, the Zacks Consensus Estimate for both periods has remained unchanged.

The chances of a big surprise are unlikely given the lack of catalysts during the quarter. The stock carries a Zacks Rank #3 (Hold).

We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Other stocks that have both a positive earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 are:

Costco Wholesale Corp. (COST), Earnings ESP of +0.98% and Zacks Rank #2 (Buy).

Hasbro Inc (HAS), Earnings ESP of +3.03% and Zacks Rank #2 (Buy)

Web.com Group (WWWW) has an Earnings ESP of +2.38% and a Zacks Rank #3 (Hold).

Cisco Systems Inc. (CSCO) announced that it’s ASR 5000 Series multimedia services platform has been selected by T-Mobile to manage T-Mobile’s mobile data traffic from its new long-term evolution (LTE) network and its 2G/3G networks in the Czech Republic.

Cisco’s ASR 5000 routing platform has the ability to optimize video transmissions while managing traffic efficiently. It is one unified platform that will help T-Mobile solve the complexities of the mobile network. The solution comes with predictive monitoring and a broader range of multimedia services and is expected to be implemented this year.

Thus, T-Mobile will benefit from Cisco’s expertise in network efficiency, which in turn will help itto enhance network speed and connectivity, reduce certain overhead costs and offer innovative services to its customers.

Cisco expects worldwide mobile data traffic to grow 13 times from 2012 to 2017 to a total annual volume of 134 exabytes in 2017, partly due to continued strong growth in the number of mobile Internet connections. Therefore, Internet speed will be a vital factor for the success of any telecom company.

The LTE technology is capable of delivering mobile Internet speeds that are up to 10 times faster than 3G connections, thus allowing customers to stream, download and upload games more efficiently. It has a quicker response and processing time as well.

It supports applications such as Internet Protocol (IP) telephony, mobile web access, gaming services, 3D television, high-definition (HD) mobile TV, video conferencing and cloud computing. It uses the spectrum more efficiently than other technology, creating more space for data traffic and services that can ultimately deliver a better network experience to users.

According to Strategy Analytics, LTE network connections may reach 322 million in 2013 and 1.6 billion by 2017. Further, another report by Juniper Research suggests that 4G LTE revenues may reach $100.0 billion by 2014 worldwide.

Thus, the rapid adoption of LTE technology worldwide owing to the increasing use of smart devices, is compelling network carriers to prioritize technology upgrades as slow Internet speed could increase customer churn. This might prove beneficial for Cisco, given its product portfolio and broad reach across geographies.

Cisco’s third-quarter fiscal 2013 revenues increased 5.2% year over year to $12.2 billion, driven by strength in data center and wireless businesses. Earnings of 48 cents were also higher than the Zacks Consensus Estimate on higher revenues and lower-than-expected operating expenses.

Cisco carries a Zacks Rank #4 (Sell). Stocks worth considering in the sector include Infinera Corp. (INFN), Silicom Ltd Ord (SILC) and STMicroelectronics (STM), all carrying a Zacks Rank #2 (Buy).

Independent refiner Tesoro Corporation (TSO) announced that it has entered into a deal with its affiliate Tesoro Logistics LP (TLLP).

Per the contract, TLLP will buy part of the Carson-based logistic assets of Tesoro – which include six marketing and storage terminal facilities with 224,800 barrels per day of throughput capacity, as well as roughly 6.4 million barrels in total storage capacity. TLLP is expected to pay roughly $640 million for the acquisition, which includes $544 million of cash and the rest in equity.

The cash component is expected to be financed with the borrowings from the revolving credit agreement. The transaction is anticipated to be closed by the second quarter of 2013.

The expected yearly earnings before interest, taxes, depreciation and amortization (EBITDA) from the assets will be $60 to $65 million.

Moreover, TLLP believes that the residual portion of the property of Tesoro, which includes storage facilities, pipelines and marine terminals, will be offered to it for $450 to $550 million, within a year after the initial transaction gets closed.

San Antonio, Texas-based TLLP is a limited partnership, which purchases and possesses logistics properties of crude oil and refined products. The partnership also involves in the operation of the assets.

TLLP currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Two oil and gas production pipeline Master Limited Partnerships (MLP) like Kinder Morgan Management LLC (KMR) and Magellan Midstream Partners LP (MMP) are expected to outperform the broader U.S. equity market over the next one to three months. Both the firms retain a Zacks Rank #2 (Buy).

Evergreen Helicopters, Inc. (“EHI”), a wholly owned subsidiary of Erickson Air-Crane Inc. (EAC), has purchased five aircrafts worth $10.1 million from a third party, which were earlier hired under lease. These aircrafts comprise of two Bell 214STs, two Beechcraft 1900Ds and one Casa 212-CC.

Post-purchase there was no change to the company’s fleet size. It remained at 85 aircrafts, which is a combination of 35 leased and 50 owned aircraft. Besides adding to the asset collateral base, the transaction would eliminate $3.0 million of annual lease expense and $12.2 million of total future lease obligations.

Recently, the company posted first quarter 2013 results with earnings and revenues above the Zacks Consensus Estimate. The top-line increase was driven by solid growth in Erickson’s infrastructure construction operation, mainly in the oil and gas sector.

As of Mar 31, 2013, Erickson had cash and cash equivalents of approximately $1.3 million. The company seems to be well utilizing its liquidity position. Recently, the company completed the acquisition of EHI from Evergreen International Aviation, Inc. The transaction payment comprises of $185 million cash, $17.5 million in unsecured promissory notes issued by Erickson Air-Crane and approximately four million convertible preferred shares of Erickson Air-Crane based on an agreed value of $11.85 per share worth $47.5 million. EHI operates a fleet of 65 aircraft of varying rotary-wing and fixed-wing types for a wide range of passenger transport and light, medium and heavy load-carrying missions. Moreover, EHI maintains a global presence with operations in North America, the Middle East, Africa, and Asia-Pacific.

Erickson is also set to acquire the Air Amazonia fleet and operations from HRT Oil & Gas. Besides adding to the product portfolio, these acquisitions will allow Erickson to emerge as a highly diversified, global company with opportunities to generate high-margin growth. The company presently retains a short-term Zacks Rank #1 (Strong Buy).

Other stocks that can also be taken into consideration are Northrop Grumman Corporation (NOC), Wesco Aircraft Holdings, Inc. (WAIR) and B/E Aerospace Inc. (BEAV), all with a Zacks Rank #2 (Buy).

On May 17, 2013 shares of Anadarko Petroleum Corporation (APC) touched a new 52-week high of $90.46. The company’s high-quality exploration programs in the Gulf of Mexico (GoM) and West African prospects drove the stock to a new high. Anadarko recorded earnings surprises in the last four quarters with an average beat of 17.08%.

The company’s notable high-end programs in 2012 that primarily propelled earnings include the oil discoveries in Ghana and Cote d'Ivoire and natural gas discovery in Mozambique. This has helped in expanding the company’s reserve portfolio.

The joint venture agreements for the development of the Lucius project with an undisclosed party and the Salt Creek field project with Linn Energy, LLC were also significant highlights. Successful appraisals in the deepwater GoM and assets in Africa drove the healthy performance at Anadarko Petroleum last year.

The company’s onshore assets in the Wattenberg, Eagleford Shale, Greater Natural Buttes, and the Marcellus Shale basins logged in record production of 100,000 barrels of oil equivalent (BOE) per day at the end of 2012.

Anadarko Petroleum is continuing to tap the resource-rich GoM and African prospects through the first quarter of 2013. Year to date, the company has signed a 12.75% interest sell-off deal with an unnamed entity at its Heidelberg oil play which is expected to release first oil soon. The new Phobos oil discovery in the GoM will further spur returns, going forward.

Meanwhile, the company’s sound financial position backed by robust cash flows has aided Anadarko Petroleum to effectively execute its exploration activities.

The present valuation also makes the shares of Anadarko Petroleum attractive. The forward price/earnings (P/E) multiple of 21.9x is higher than the peer group average of 17.3x, reflecting a premium of 26.6%. In addition, Return on Equity ("ROE") of the company is 8.5%, higher than the peer group average of 8.0%.

Currently Anadarko Petroleum holds a Zacks Rank #3 (Hold). Oil and gas exploration stocks that are well-placed with a Zacks #1 include Abraxas Petroleum Corporation (AXAS), EPL Oil & Gas, Inc. (EPL) and Sandridge Mississippian Trust II (SDR).

Based in The Woodlands, Texas, Anadarko Petroleum Corporation engages in the exploration, development, production, and marketing of natural gas, crude oil, condensate, and natural gas liquids in the United States and internationally.

On May 17, 2013 shares of Noble Energy Inc. (NBL) soared to a new 52-week high of $121.36. The company’s series of property sales and solid exploration ventures thrust the stock to a new high.

The key earnings drivers for Noble Energy were the Leviathan and Tamar prospect in the Eastern Mediterranean and Galapagos in the Gulf of Mexico (GoM). The 15-year long-term natural gas supply commitment to meet rising power demand in Israel proved to be a major turning point for Noble Energy.

Further, the company accrued a sizeable $1.15 billion from its Kansas, Dumbarton and Lochranza, Permian and Mid-Continent asset sales. This allowed Noble Energy the financial flexibility to invest in its growth-centric projects.

Other noteworthy steps that acted as a catalyst were the stake purchase in the Falkland Oil and Gas Limited’s licensed areas of around 10 million acres. Exploration companies like Noble Energy thrive on reserve accretion and escalating exploration options. At the end of 2012, Noble Energy discovered the Big Bend prospect in deepwater GoM.

Going forward, the company’s investments in the new venture exploration program will generate substantial returns.

The recent quarterly dividend increase of 12% to 28 cents per share from 25 cents came on the back of a favorable balance sheet position. This would certainly arrest investors’ confidence in the stock.

The present valuation makes the shares of Noble Energy look attractive. The forward price/earnings (P/E) multiple of 17.9x is lower than the industry average of 19.7x, reflecting a discount of 9.1%. In addition, Return on Equity ("ROE") of the company is 10.8%, higher than the peer group average of 7.1%.

Presently, Noble Energy carries a Zacks Rank #3 (Hold). However, other exploration operators with a Zacks Rank #1 are Abraxas Petroleum Corporation (AXAS), EPL Oil & Gas, Inc. (EPL) and Sandridge Mississippian Trust II (SDR). Based in Houston, Texas, Noble Energy operates internationally and engages in the acquisition, exploration, development, production, and marketing of crude oil, natural gas and natural gas liquids.

Recently, ABB Ltd. (ABB) entered into a long-term Preventive Service agreement with China LNG Shipping International Co. Ltd. As per the terms of the agreement, ABB will provide maintenance services to all ABB equipment that are on board the vessels of LNG Shipping. The scope of the agreement includes maintenance of the power generation plant and the entire mechanical as well as electrical system on board.    

Long-term service contracts help improve fleet reliability thereby saving lifecycle costs for a company. This is because such agreements facilitate optimized utilization of the vessel at the lowest maintenance cost possible. The current agreement is for six vessels owned by the Chinese shipping company over the next five years. The contract is effective from Jan 1, 2013.

As per the terms of the agreement, ABB will not only provide complete annual site survey and on-call services for the six vessels but will also provide the shipping company with dry dock service once in two and a half years. Dry docking of vessels is a very important aspect of sea fleet maintenance for shipping companies. Shipping companies during the off-season send their fleet out of operation for complete maintenance and overhauling. Dry docking ensures maximum non-stop services during the on-season.

ABB is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering the environmental impact. The growing global investment in power distribution, both in mature and the emerging markets, is expected to drive momentum for ABB, going forward. Recently, the company has been making strategic acquisitions to further strengthen its position in various emerging areas of the power industry. In the last reported quarter (1Q13), Power Systems revenue was $2.0 billion, up 15% in terms of local currency.   

ABB currently has a Zacks Rank #3 (Hold). However, some other companies operating in the same industry and worth considering at the moment are Quanta Services Inc. (PWR), Willdan Group Inc. (WLDN) and Harris & Harris Group Inc. (TINY), all having a Zacks Rank #2 (Buy).  

Recently, Fluor Corporation (FLR) received a contract from Qatar’s Public Works’ Authority for program management and construction supervision services for the Sharq Crossing. The contract is valued at $185 million and will be booked in Fluor’s second quarter order book under the Industrial & Infrastructure segment. The contract is expected to complete by 2020.   

Sharq Crossing is one of the important infrastructure development plans for Qatar before the 2022 FIFA World Cup. This will be an important link across the Doha Bay to support the run-up for the World Cup event. The project will primarily comprise bridge sections which will be interconnected with an immersed tube tunnel that will create a new passageway underwater across the Doha Bay. The total cost of the Sharq Crossing program is $5 billion.  

Fluor Corporation has a strong presence and brand name in the Middle East, especially in Qatar. Prior to this, Fluor received a FEED (Front-End Engineering and Design) contract jointly from Qatar Petroleum and Royal Dutch Shell plc (RDS-A) for the Al-Karaana Petrochemicals Complex in Ras Laffan Industrial City, Qatar. Fluor will book the contract into the backlog for the first quarter of 2013. However, the contract value is not disclosed.  

In the last reported quarter (1Q13) revenues in the Industrial & Infrastructure segment came in at $3.1 billion versus $3.0 billion a year ago. The marginal improvement was driven by increased contributions from the infrastructure business line. New awards for the segment totaled $2.2 billion in the first quarter, primarily driven by large infrastructure programs, including the Tappan Zee Bridge in New York and the Horseshoe road project in Texas. Backlog at the end of the quarter was $16.0 billion versus $23.3 billion a year ago, mainly due to reduced mining and metals awards over the past year.

Fluor currently has a Zacks Rank #3 (Hold). However, some other companies in the same sector that are worth considering at the moment are Chicago Bridge & Iron (CBI), Quanta Services Inc. (PWR) and Orion Marine Group Inc. (ORN), all having Zacks Rank #2 (Buy).

The U.S. District Judge Jed Rakoff has revoked his earlier order to dismiss a major portion of the lawsuit filed by Brussels based Dexia N.V./S.A against JPMorgan Chase & Co. (JPM). The lawsuit accused JPMorgan of deliberately selling risky mortgage-backed securities (MBS) worth $1.6 billion to Dexia during the housing boom prior to the 2008 financial meltdown.

In justifying the revival of the lawsuit, Rakoff stated that he lacked any jurisdiction under the Edge Act to dismiss the case. Further, citing the ruling of 2nd U.S. Circuit Court of Appeals in New York for American International Group, Inc.’s (AIG) lawsuit against Bank of America Corporation (BAC), Rakoff decided to reverse his decision for the above-mentioned lawsuit.

Now, the trial will resurface in the New York state court, where it began in Jan 2012, when Dexia sued JPMorgan along with its affiliates – The Bear Stearns Companies, Inc and Washington Mutual, Inc. According to the subsidiary of Dexia – FSA Asset Management LLC – the accused clearly knew of the risks associated with the mortgage securities. However, JPMorgan allegedly sold massive quantities of these securities to Dexia to reduce its own exposure.

The Dexia lawsuit attracted media attention after a series of emails were discovered suggesting JPMorgan’s sale of massive quantities of these securities, while being aware of the associated risks.

In Apr 2013, Rakoff had allowed Dexia to proceed with only 5 claims, while dismissing nearly 60 claims. This significantly slashed the potential legal settlement to $5.7 million from $774 million.

Apart from JPMorgan, other banks including BofA and Morgan Stanley (MS) continue to face lawsuits concerning the sale of MBS prior to the economic crisis. In addition, JPMorgan faces a number of other lawsuits alleging legal malfeasance.

Over the last couple of years, JPMorgan has been doling out millions to settle litigations. However, the company’s strong fundamentals continue to act as a catalyst.

JPMorgan currently carries a Zacks Rank #2 (Buy).

A unit of Kinder Morgan Energy Partners, L.P. (KMP), Tennessee Gas Pipeline Company, L.L.C., has inked a binding 20-year firm transportation standard agreement with Japan’s Mitsubishi Corporation.

Per the agreement, Mitsubishi will transport 600,000 dekatherms per day of natural gas designated for the planned Cameron LNG liquefaction facility in Hackberry, La. The facility is scheduled to commence LNG exports in the second half of 2017.

Mitsubishi will act as the foundation shipper for Tennessee’s Southwest Louisiana Supply Project, which is intended to offer shipping from various supply basins in Ohio, Pennsylvania, Texas and Louisiana to Cameron Interstate Pipeline that connects directly to the Cameron LNG Terminal.

Kinder Morgan is not the owner of Cameron Interstate Pipeline or the Cameron LNG facility. The Southwest Louisiana Supply Project is planned to provide transportation to the booming southwest Louisiana market. The project comprises further interconnections with shale supply, new pipeline laterals and augmentation to Tennessee’s existing pipeline system to facilitate bi-directional flow to the region. Tennessee is likely to carry out a binding open season for additional interest in its project at a later date.

The Tennessee partnership with Mitsubishi will assist the former in expanding its foothold as well as connecting the conventional and shale supply areas from the South Texas Eagle Ford to the Utica and Marcellus in Ohio and Pennsylvania. It will also improve access to the Haynesville shale supply area and the Perryville Hub in Louisiana, making the Southwest Louisiana Supply Project suitable for the latest Mitsubishi-Kinder Morgan tie up for the Cameron LNG facility.

Kinder Morgan carries a Zacks Rank #3 (short-term Hold rating). However, there are other stocks in the oil and gas industry like Dawson Geophysical Company (DWSN), InterOil Corporation (IOC) and Exterran Holdings, Inc. (EXH) that appear more attractive in the short term. All three stocks carry a Zacks Rank #1 (Strong Buy).
 

The U.K. supermajor BP plc (BP) along with its partners Total SA (TOT), Petroleo Brasileiro S.A., or Petrobras (PBR) and Petrogal have emerged as winning bidders for the deepwater acreage in Brazil's National Petroleum Agency's (ANP) eleventh bidding round. This represents the first bidding round held since Dec 2008 and the first under Brazil's new petroleum law.

BP and partners will explore for oil and gas in eight deepwater blocks including FZA-M-57, FZA-M-59, FZA-M-86, FZA-M-88, FZA-M-125, and FAZ-M-127 in the Foz do Amazonas basin, BAR-M-346 in the Barreirinhas basin, and POT-M-764 in the Potiguar basin. Under the Brazilian concession regime, the companies will have the legal right to develop any commercial discovery.

BP will operate block FZA-M-59 with a 70% stake and block BAR-M-346 with a 50% stake. The next step of BP and its partners involves working with ANP to finalize the awards. The signing of the contracts is scheduled for Aug 2013.

The contract award follows BP's re-entry into Brazil’s upstream market in 2011 with its purchase of interests from Devon Energy Corporation (DVN) and acquisition of interests in four Petrobras-operated deepwater blocks in Brazil's equatorial belt in 2012.

Winning these blocks will help BP in achieving its strategy of optimizing its global portfolio and repositioning itself for long-term growth. The energy giant has created a large portfolio of upstream interests in Brazil over the last two years. Currently, the company is aggressively pursuing exploration in this new acreage that presents significant upside potential over the long term.

BP’s presence in Brazil dates back to 1957. The oil giant has significant business interests in the region even after the sale. It operates in Brazil through four businesses – exploration and production (BP Energy do Brasil), biofuels (BP Biocombustíveis), aviation fuel (Air BP) and lubricants (Castrol).

BP carries a Zacks Rank #3 (Hold), which is equivalent to a short-term Hold rating.
 

On May 17, we downgraded our recommendation on Skechers U.S.A., Inc. (SKX) to Neutral with a price target of $22.00. This designer, developer and distributor of footwear for men, women and children in the United States and overseas currently holds a Zacks Rank #4 (Sell).

Why the Downgrade?

The lower-than-expected first-quarter 2013 results compelled us to revise our recommendation. Skechers posted quarterly earnings of 13 cents a share that missed the Zacks’ expectations of 18 cents. Management cited that foreign currency translation loss of $3 million and a credit of $2.5 million to an account that bought a major part of excess toning inventory way back in 2011 hurt the earnings by 8 cents a share.

However, the top line showcased strength. Total net sales surged 28.6% to $451.6 million, reflecting increased demand of products and healthy performance across all revenue channels. Moreover, total revenue outpaced the Zacks Consensus Estimate of $442 million.

With more emphasis on the new line of products, cost containment efforts, inventory management and global distribution platform, the company anticipates sustaining the growth momentum in 2013. The domestic wholesale business marked an elevation of 44%, international business soared 20.7%, retail business sales grew 16.9% and e-Commerce sales rose 24%.

However, Skechers hinted that due to early Easter on Mar 31 this year and back-to-school deliveries going into the third quarter of 2013, second-quarter performance would be soft. Management also projects international business to remain even in the second quarter due to early Easter and booking trends. We observed that the Zacks Consensus Estimate for 2013 dipped by 2 cents to 97 cents in the last 7 days.

Given the pros and cons embedded in the stock we prefer to be on the sidelines at this juncture.

Stocks that Warrant Look

There are certain other stocks in the consumer discretionary sector that warrant a look. These include Zacks Rank #1 (Strong Buy) Iconix Brand Group, Inc. (ICON) as well as Francesca's Holdings Corporation (FRAN) and Deckers Outdoor Corporation (DECK) with a Zacks Rank #2 (Buy). These stocks are expected to continue with their upbeat performances.

The U.S. Energy Department's weekly inventory release showed that crude stockpiles logged an unexpected decrease from their all-time high level, as refiner demand strengthened and production fell. The report further revealed that product inventories – gasoline and distillate – increased from their previous week levels on the back of weak consumption.

The Energy Information Administration (EIA) Petroleum Status Report, containing data of the previous week ending Friday, outlines information regarding the weekly change in petroleum inventories held and produced by the U.S., both locally and abroad.

The report provides an overview of the level of reserves and their movements, thereby helping investors understand the demand/supply dynamics of petroleum products. It is an indicator of current oil prices and volatility that affect the businesses of the companies engaged in the oil and refining industry.

Analysis of the Data

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 624,000 barrels for the week ending May 10, 2013, following a climb of 230,000 barrels in the previous week.

The analysts surveyed by Platts – the energy information arm of McGraw-Hill Financial Inc. (MHFI) – had expected crude stocks to go up some 300,000 barrels. An uptick in refinery utilization rates, together with lower level of production led to the surprise stockpile drawdown with the world's biggest oil consumer.

However, crude inventories at the Cushing terminal in Oklahoma – the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange – were up 575,000 barrels from the previous week’s level to 49.72 million barrels. Stocks are currently just under the all-time high of 51.86 million barrels reached in January.

Despite the weekly inventory decrease, at 394.89 million barrels, current crude supplies are 3.5% above the year-earlier level, and exceeds the upper limit of the average for this time of the year. The crude supply cover was down from 26.6 days in the previous week to 26.5 days. In the year-ago period, the supply cover was 25.9 days.

Gasoline: Supplies of gasoline were up for the first time in 5 weeks, as domestic consumption weakened and production jumped. This was partially offset by lower imports.

The 2.59 million barrels gain – contrary to analysts’ projections for a 800,000 barrels decrease in supply level – took gasoline stockpiles up to 217.66 million barrels. Following this build, the existing inventory level of the most widely used petroleum product is 6.6% higher than the year-earlier level and is in the top half of the average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) were up 2.30 million barrels last week, above analysts’ expectations for an 800,000 barrels gain in inventory level. The increase in distillate fuel stocks – the fifth in as many weeks – could be attributed to weaker demand and higher production, partially offset by plunging imports.

At 119.86 million barrels, distillate supplies are essentially flat with the year-ago level but are in the lower limit of the average range for this time of the year.

Refinery Rates: Refinery utilization was up 1.0% from the prior week to 88.0%. The analysts were expecting the refinery run rate to increase 0.4% to 87.4%.

Zacks Rank

A bullish data from the EIA generally acts as a positive catalyst for crude prices and buoy producers, such as Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and ConocoPhillips (COP). With an improvement in the companies’ ability to generate positive earnings surprises, they can then move higher from their current Zacks Rank #3 (Hold).
 

Caterpillar Inc. (CAT) announced the resolution of its outstanding issues with Mining Machinery Limited regarding Caterpillar’s acquisition of ERA, including its wholly-owned subsidiary Zhengzhou Siwei Mechanical & Electrical Manufacturing Co., Ltd. (or Siwei). This brings Caterpillar’s embarrassing chapter to a close, which had so far overshadowed the company’s benefits from the acquisition.

Caterpillar still owed $164.5 million for the acquisition of ERA. As part of the agreement between Caterpillar and former directors of ERA and two other interested parties, Caterpillar’s total obligations have been slashed by $135 million to $29.5 million. In exchange, Caterpillar has agreed to end any litigation targeting ERA’s former directors or auditors related to the alleged accounting misconduct.

In a bid to strengthen its presence in the Chinese mining industry, Caterpillar had announced its intention to acquire ERA in Nov 2011. ERA primarily engaged in the design, manufacture and supporting underground coal mining equipment in China through its wholly owned subsidiary, Siwei.

Siwei possesses a manufacturing base of 600,000 square meters in Zhengzhou, Henan province, where it manufactures and sells roof support equipment to underground mining customers in China. In June 2012, Caterpillar closed the deal after receiving a go-ahead from the Ministry of Commerce of the People’s Republic of China (MOFCOM).

However, in Jan 2013, Caterpillar announced that it unearthed accounting misconduct at ERA as well as its subsidiary Siwei The issue first came to the fore when discrepancies were identified between the inventory recorded in Sewer’s accounting records and the actual physical inventory.

An investigation revealed that inappropriate accounting practices had been carried out for a number of years prior to Caterpillar’s acquisition of Siwei. This included improper cost allocation that resulted in overstated profit and also improper revenue recognition practices involving early and, at times unsupported, revenue recognition. As a result Caterpillar has removed the erring senior managers and a new leadership team has been put in place. In this regard, Caterpillar had incurred a goodwill impairment charge of approximately $580 million (87 cents per share) in its fourth quarter 2012 results.

The settlement will eliminate the management distraction caused by the issue and will help Caterpillar realize the targeted benefits from this acquisition. Caterpillar believes that the Siwei acquisition is well aligned with its strategy to expand its role as a leading equipment and solutions provider for the Chinese coal mining industry. Caterpillar continues to systematically strengthen its business in China and remains committed to providing the lowest owning and operating costs in the industry.

Signs of a slowdown in China have triggered concerns lately as it will have a negative effect on infrastructure and construction spending. In its first quarter 2013 results, Caterpillar noted gain of market share in China despite a slowdown in economic growth. Sales of its construction and mining machines were up in the first quarter of 2013 year-over-year even as inventories declined.

Furthermore, the company faces risks from a global economic slowdown and the expansion of big Chinese companies in the international arena. We maintain our Underperform recommendation on Caterpillar given its trimmed outlook for 2013, weak demand for its mining equipment, recent loss of sales momentum, declining backlog and negative impact of the European debt crisis.

Caterpillar currently retains a Zacks Rank #4 (Sell).Other stocks in the industrial products sector with a favorable Zacks Rank are H&E Equipment Services Inc. (HEES), Alamo Group, Inc. (ALG) and CNH Global NV (CNH), all carrying Zacks Rank #2 (Buy).