2010-06-22 23:04:02 -

Zacks.com Analyst Blog features: Pier 1 Imports Inc. (NYSE: PIR : ), Lockheed Martin Corp. (NYSE: LMT : ), Boeing Co. (NYSE: BA : ), Chevron (NYSE: CVX : ) and Walgreens (NYSE: WAG : ).

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Here are highlights from Monday’s Analyst Blog:



Pier 1 Tops Expectation



Pier 1 Imports Inc. (NYSE: PIR : ) recently reported fiscal 2011 first-quarter net income of $7.7 million, compared to $29.3 million in the prior-year quarter. Earnings per share came in at 7 cents, topping the Zacks Consensus Estimate at a loss of

2 cents, but well below the year-ago earnings of 32 cents per share. The year-over-year decline was primarily caused by a $47.8 million gain on debt repayment in the year-ago period.

During the quarter, Pier 1 recorded an 8.9% growth in net sales to $306.3 million from $281.1 million in the year-ago period. The increase was mainly attributable to a 14.3% growth in comparable store sales, partially offset by the net closure of 23 stores over the past year. The company exited the quarter with 1,050 stores, including 971 stores in the U.S. and 79 stores in Canada.

Gross profit in the quarter rose by 34.9% year-over-year to $114.4 million, while gross margin expanded 720 basis points (bps) to 37.4%.
The strong expansion was primarily driven by reduced clearance activity and vendor and supply chain costs, as well as lower occupancy costs due to reduced store count and rentals in existing stores.

Selling, general and administrative expenses in the quarter fell 4.3% year-over-year to $101.1 million, primarily as a result of reduced lease termination costs. However, higher top-line and robust growth in gross margin more than offset the increase in operating expenses.
Consequently, Pier 1 swung to an operating income of $8.3 million, compared to an operating loss of $26.7 million in the prior year quarter.

Pier 1 ended the quarter with cash and cash equivalents of $204.8 million, compared to $135.8 million in the year-ago quarter. During the quarter, the company generated $10.3 million from operating activities, received $10.6 million from disposal of properties and deployed $6.3 million towards capital expenditure.

Looking ahead, Pier 1 continues to expect opening 3 to 5 stores and shuttering 10 to 15 underperforming stores in fiscal 2011. Moreover, the company plans to utilize $25 million towards capital expenditure in the fiscal year, which would largely be funded from operating cash.

The Zacks Consensus Estimate for Pier 1's fiscal year ending February 2011 is currently 52 cents per share, which has moved up 7 cents over the past month as 5 of 6 covering analysts raised expectations. For the next fiscal year, the Zacks Consensus Estimate has jumped 7 cents over the past month to 68 cents per share, as 3 of 6 covering analysts lifted projections.



Lockheed Targets Missile Defense



Lockheed Martin Corp. (NYSE: LMT : ) recently teamed up with Alaska Aerospace Corp. intending to win the U.S.
Missile Defense Agency's Ground-Based Midcourse Defense (GMD) Development and Sustainment Contract. The Ground-Based Midcourse Defense (GMD) program uses land-based missiles to intercept incoming ballistic missiles.

This is a chance for Lockheed Martin to win back the contract that was awarded to Boeing Co. (NYSE: BA : ) in 1998. Boeing, however, was mainly responsible for system development work. Subsequently, the Missile Defense Agency decided to combine system development and operations & sustainment work for GMD into a single contract. As a result, the Missile Defense Agency on May 14, 2010 issued an amended draft request for proposals. The agency will issue a final request for proposals this summer and award the five-year contract in 2011. Conservative estimates put the total value of the contract to approximately $3 billion.

Lockheed Martin along with Alaska Aerospace will have a better chance at winning the contract with their proven experience. The GMD Development and Sustainment Contract will entail development, manufacturing, test, training, operations and sustainment support. Alaska Aerospace would take care of the operations and maintenance services.

Lockheed Martin is a world leader in systems integration and development of air and missile defense systems and technologies, including the first operational hit-to-kill missile. The company makes significant contributions to most major U.S. missile defense systems and is a part of several global missile defense programs.

Headquartered in Anchorage, Alaska, Alaska Aerospace Corporation provides satellite launch and missile defense services. The State of Alaska established the corporation in 1991 to stimulate the growth of the high-technology aerospace industry.

Headquartered in Bethesda, Maryland, Lockheed Martin is a global security company and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

Lockheed Martin remains a key player within the military space and continues to benefit from strong defense spending. The company's customer base includes the U.S. government, foreign governments and other commercial buyers. Lockheed's traditional defense focus appears strong, with increasing interest from domestic and international customers.

We currently have a long-term "Neutral" recommendation on the Lockheed Martin stock.


CVS, Walgreen Reach Agreement

Recently, CVS Caremark (NYSE: CVS : ) and Walgreens (NYSE: WAG : ) reached an agreement under which Walgreens will participate in CVS’ pharmacy benefit management (PBM) plan. However, financial terms of the new contract were not disclosed.

Earlier this month, Walgreens, with more than 7,500 drugstores, had announced that it will not serve as a pharmacy provider for any new and renewed prescription drug plan awarded to CVS’ PBM segment. At the end of the March quarter, CVS had approximately 7000 retail drug stores.

The settlement of the issue is positive for both CVS and Walgreens as severance of ties would have hampered their revenue growth. Moreover, many patients who fill their prescriptions at Walgreens would have suffered.

This is all the more significant for CVS since it is likely to benefit in the long term from healthcare reform, which is likely to include more than 32 million people under the insurance bracket. Since PBM is aimed at lowering health care costs over the long term, increased coverage would benefit the company.

The reform has eliminated the tax advantage enjoyed by employers related to Retiree Drug Subsidy (RDS) from 2013. This subsidy was let out so that it could act as an incentive for employers to keep offering drug coverage rather than shifting the retirees to Medicare Part D. Although changes are expected to appear gradually, CVS is well positioned to help its clients in determining the future roadmap.

CVS Caremark’s retail growth is based on geographic expansion, while improving operations through efficient product and cost management initiatives. Expansion has been achieved through the construction of new stores and through acquisitions. The company’s strong balance sheet bodes well for acquisitions in addition to rewarding shareholders in the form of share repurchases and regular dividends.

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