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Stock Analyst Update

The Week in Stocks: Lowe's Lets Down the Street (But Not Us)

Plus, Research in Motion stays on track, Barr notches win on Plan B, and more.

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Lowe's (LOW) reported second-quarter results that were spot-on with Morningstar analyst Anthony Chukumba's estimates. While the company reduced its full-year forecast slightly, Chukumba is leaving his fair value estimate unchanged. Net sales increased 12.2% from the year-earlier period, as comparable-store sales rose 3.3%. The comp increase was especially impressive given the negative second-quarter comp reported last week by Lowe's primary rival Home Depot (HD) and the fact that Lowe's was lapping a 6.5% comp jump from the same quarter of last year. Operating margins declined from 11.8% last year to 11.6%, mainly due to a lower gross margin. Chukumba is not surprised to see management reduce its sales and earnings guidance for the year, given the slowing housing market and higher gasoline prices. However, Lowe's wide economic moat and plentiful growth prospects remain intact.
 Full Analyst Report: Lowe's

Research in Motion on Track for Strong Second Half
Morningstar analyst John Slack weighs in on recent strength in Research in Motion (RIMM) shares. The change in sentiment follows on the heels of a slump in the device-makers' stock, which had languished amid concerns about its patent dispute settlement with NTP as well as nagging concerns about burgeoning competition. Despite the recent see-saw, Slack sees compelling signs--such as forthcoming product launches and evidence of high switching costs in the enterprise channel that RIM serves--that the business is tracking according to plan. As such, Slack is leaving his fair value estimate unchanged.
 Full Analyst Report: Research in Motion 

Barr Wins Approval for Over-the-Counter Version of Day-After Pill
Barr Pharmaceutical (BRL) scored an emotional victory in gaining FDA approval for over-the-counter sales of its Plan-B emergency contraceptive. Nevertheless, Morningstar analyst Brian Laegeler is leaving his fair value estimate for the company unchanged, as Plan B constitutes only 2% of Barr's sales. And while over-the-counter sales could double this figure in the near term, Laegeler's projections already account for most of these gains.
 Full Analyst Report: Barr Pharmaceuticals

Rite Aid Expands Footprint
Drugstore chain Rite Aid (RAD) announced Thursday that it has agreed to acquire more than 1,800 Eckerd and Brooks drugstores from The Jean Coutu Group in a transaction valued at $3.4 billion. The addition of the Brooks and Eckerd outlets will give Rite Aid more than 5,000 stores and significantly increase the firm's footprint in the Northeastern United States. Morningstar analyst Mitchell Corwin has placed his fair value estimate for Rite Aid under review while he analyzes the terms of the transaction and implications for the company. In sizing up the deal, Corwin observes that while it appears Rite Aid didn't overpay, the deal was borne out of necessity, as both parties operate underperforming stores and face a difficult road ahead amid stifling competition from bellwethers such as Walgreen (WAG) and CVS (CVS).
 Full Analyst Report: Rite Aid

Oil Driller Todco Shows Its Age
Morningstar analyst Matt Moran takes a closer look at the challenges inherent in operating an aging Gulf of Mexico (GOM) oil-drilling fleet. In particular, Moran highlights Todco's (THE) recent travails, as the driller has struggled to reactivate its cold-stacked rigs, incurring steep cost overruns in the process. Making matters worse, Todco has gambled on the long-term health of the GOM drilling market by trying to revive several older rigs without signed contracts (making it impossible to shift reactivation costs to the operators). Thus, the company has effectively put itself at the mercy of natural-gas prices, backed only by a fleet of outdated assets that aren't adaptable to other drilling opportunities and are likely to sit idle if GOM drilling slows. In short, Moran doesn't like Todco's new eggs-in-one-basket approach.  
 Full Analyst Report: Todco

Jeffrey Ptak has a position in the following securities mentioned above: LOW. Find out about Morningstar’s editorial policies.