Science & Technology
Science and Technology
Science and Technology
Thu, October 7, 2010
American Superconductor, Kirkland, Citigroup, American International Group and Visa
CHICAGO--([ BUSINESS WIRE ])--[ Zacks Equity Research ] highlights: American Superconductor Corporation (Nasdaq: [ AMSC ]) as the Bull of the Day and Kirkland (Nasdaq: [ KIRK ]) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Citigroup (NYSE: [ C ]), American International Group (NYSE [ AIG ]) and Visa (NYSE: [ V ]).
"Expectations of large and increasing deficits in the future could inhibit current household and business spending -- for example, by reducing confidence in the longer-term prospects for the economy or by increasing uncertainty about future tax burdens and government spending -- and thus restrain the recovery."
Full analysis of all these stocks is available at [ http://at.zacks.com/?id=2678 ].
Here is a synopsis of all five stocks:
[ Bull of the Day ]:
American Superconductor Corporation (Nasdaq: [ AMSC ]) is a technology company with products based on clean energy and power distribution. The two primary markets it serves are the rapidly growing areas of wind energy and smart grid infrastructure technology.
A strong backlog of $952 million, a solid financial position, the recent acquisition of Blade Dynamics and growing international operations all add visibility to the growth story of American Superconductor.
In the near-term, the stock is trading at a handsome valuation compared to peers and we believe the company's premium valuation is justified given its strong Chinese exposure. Thus we upgrade our recommendation to Outperform with a target price of $37.00.
[ Bear of the Day ]:
Kirkland's (Nasdaq: [ KIRK ]) reported meager second-quarter 2010 results with earnings of $0.16, which was below the Zacks Consensus Estimate by $0.02. The company's susceptibility to the global economic downturn coupled with stiff competition, severely undermines the company's future growth prospects and profitability.
The global economic environment has been challenging for the past fifteen months. Declining real estate value reduced lending by banks, solvency concerns of major financial institutions, increase in unemployment levels and significant volatility in the global financial markets have negatively impacted the level of consumer spending for discretionary items.
The company's sales are also highly dependent on its ability to anticipate and respond to changing merchandise trends and consumer demands in a timely manner. Any slackness in doing so would spoil the company's image with its customers thereby reducing customer traffic which in turn would finally affect revenues and margins.
Latest Posts on the Zacks [ Analyst Blog ]:
Ben Bernanke on Fiscal Policy
"The budgetary position of the federal government has deteriorated substantially during the past two fiscal years, with the budget deficit averaging 9-1/2 percent of national income during that time. For comparison, the deficit averaged 2 percent of national income for the fiscal years 2005 to 2007, prior to the onset of the recession and financial crisis.
"The recent deterioration was largely the result of a sharp decline in tax revenues brought about by the recession and the subsequent slow recovery, as well as by increases in federal spending needed to alleviate the recession and stabilize the financial system. As a result of these deficits, the accumulated federal debt measured relative to national income has increased to a level not seen since the aftermath of World War II."
In other words, the big increase in the deficit overt the last two years is primarily cyclical, with an added layer from TARP spending. However, it is now clear that the net cost of the TARP is going to be far less than originally feared. Only about $465 billion of the original $700 billion authorized what actually disbursed, and we have already gotten much of that back.
The current estimates are that the ultimate cost of the TARP will be somewhere in the $50 to $60 billion range. To some extent, how big the eventual bill is will depend on the share prices of Citigroup (NYSE: [ C ]), American International Group (NYSE [ AIG ]) and General Motors (will IPO soon, probably with its old GM ticker symbol). If the banking system had been allowed to collapse, the recession would have been far deeper, and as a result the cyclical portion of the deficit would have been much larger. In that sense, at least the TARP has already more than repaid itself.
"For now, the budget deficit has stabilized and, so long as the economy and financial markets continue to recover, it should narrow relative to national income over the next few years. Economic conditions provide little scope for reducing deficits significantly further over the next year or two; indeed, premature fiscal tightening could put the recovery at risk."
This is a very key point. Just go back to the basic GDP accounting framework. Consumers are not spending because their wealth has been devastated by the collapse of the housing bubble, and they need to get their household balance sheets into better shape. Then businesses have no reason to invest to expand output. It doesna™t really matter what the cost of capital is -- if consumers are not going to buy more widgets, it is stupid to invest in more widget-making capacity.
What investment that will take place is generally limited to things that allow you to make the same number of widgets at a lower cost (usually by having fewer people making the widgets). If both consumer spending and business investment are weak, then absent a big improvement in the trade deficit, the only remaining source of spending (and hence GDP growth) is government spending.
Just remember that GDP = C + I +G + (X-M). Those who say that we can grow the economy faster by cutting government spending in this environment simply fail this elementary arithmetic.
"If current policy settings are maintained, and under reasonable assumptions about economic growth, the federal budget will be on an unsustainable path in coming years, with the ratio of federal debt held by the public to national income rising at an increasing pace. Moreover, as the national debt grows, so will the associated interest payments, which in turn will lead to further increases in projected deficits.a
"Expectations of large and increasing deficits in the future could inhibit current household and business spending -- for example, by reducing confidence in the longer-term prospects for the economy or by increasing uncertainty about future tax burdens and government spending -- and thus restrain the recovery."
Here he is talking about the structural budget deficit, not the current deficit. Ia™m not sure that I buy the David Ricardo idea that consumers are businesses look at the debt and say I have to not spend and save because eventually I will have to pay higher taxes to repay the higher debt. When was the last time that the decision you made about say replacing the carpet in the living room was seriously impacted by a calculation of what your tax rate might be ten years from now? Wasna™t the amount of cash you had in the bank, the current level of your take home pay, and how big your credit line on your Visa (NYSE: [ V ]) a much bigger factor in making that decision?
Taken to its logical extreme, this Ricardian equivalence would say that fiscal policy can never influence the economy. This is because any fiscal stimulus (i.e. running a higher budget deficit) would be instantly and 100% offset by countervailing decisions by businesses and consumers. If you get a tax cut today and that tax cut results in a higher budget deficit, then you will save every cent of it because you know you have to pay it back in higher taxes later! Yet when Bush cut taxes dramatically, the savings rate then fell to its lowest level in post war history, by a fairly wide margin.
Get the full analysis of all these stocks by going to [ http://at.zacks.com/?id=2649 ].
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