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The Zacks Analyst Blog Highlights: Caterpillar, Eaton, Roper Industries, Lorillard and 3M

October 25, 2011

CHICAGO, Oct. 25, 2011 /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 Caterpillar (NYSE: CAT). Eaton (NYSE: ETN), Roper Industries (NYSE: ROP), Lorillard (NYSE: LO) and 3M Company (NYSE: MMM).

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Here are highlights from Monday’s Analyst Blog:

Market Remains Optimistic

Market optimism about the European situation refuses to die down despite the delay in the agreement on a comprehensive plan out of the weekend summit meeting. The expectation now is that the plan will be unveiled at another summit meeting on Wednesday. We also have a number of key economic reports on the domestic front coming out this week, with the first read on the third quarter GDP report as the most significant.

Euro-zone leadership appears to be coming around to the realization that the current unsettled situation carries serious risks to their economic outlook in general and their banking sector in particular. The resultant uncertainty is feeding into the broader economy and starting to weigh on consumer and business confidence. This morning’s weak PMI reading is a reflection of this reality.

The market’s optimism about the deal is a vote of confidence of sorts in the nature of the plan currently under discussion between the countries involved, particularly Germany and France. The plan will reportedly provide for bank recapitalizations, further strengthening of the rescue fund, and a major restructuring of Greek debt. The market has long been a looking for a simultaneous tackling of all these inter-related aspects of the problem and appears to be reassured that the leaders are finally coming around to doing that. It is far from clear at this stage if we will have the comprehensive plan on Wednesday. But judging by the market’s reaction thus far, it is not particularly disappointed by the delay.

In economic reports this week, we get the first look at the third quarter GDP report on Thursday, Durable Goods on Wednesday, and the Personal Income and Outlays reading on Friday. Recent positive economic readings have helped bring down recessionary fears and the GDP report may bring growth numbers as high as in the 2.5% to 3% range. This would be a significant improvement over how the economy performed in the first half of the year.

On the earnings front, with almost a quarter of the reports already in, we are seeing a fairly reassuring picture. The growth rates and extent of positive surprises are comparable to what we saw in the last quarter. There is still some tentativeness with respect to estimates for next year, but this will likely improve as the reporting cycle matures.

Of the key earnings reports this morning, we have a solid earnings and revenue beat from Caterpillar (NYSE: CAT). Eaton (NYSE: ETN) came inline with earnings expectations on modestly better than expected revenue, but the company lowered the high end of its earnings guidance. Roper Industries (NYSE: ROP) also came out an earnings and revenue surprise and raised guidance. Lorillard (NYSE: LO), the cigarette maker, missed expectations.

With some of the more exaggerated fears about the domestic economy easing and the earnings season unfolding in a reassuring enough fashion, all eyes are now on Europe. A prompt conclusion to the current round of discussion and the unveiling of a plan will go some way towards lifting market uncertainties.

Earnings Preview: 3M Corp.

3M Company (NYSE: MMM) is slated to release its third-quarter 2011 results on Tuesday, October 25, 2011. The current Zacks Consensus Estimate for third-quarter earnings per share (EPS) is $1.61, representing an annualized growth of 4.90%.

3M’s earnings were in line with the Zacks Consensus Estimate in the last quarter while had outperformed over the previous trailing three quarters with an average positive surprise of 2.76%.

Agreement of Estimate Revisions

In the last 30 days, out of the analysts providing estimates for the stock, three decreased their estimates for the third quarter while one increased its estimate. For 2011, three decreased their estimate and one increased the same while for 2012, five decreased their estimates. None of the analysts have increased their estimate for 2012.

For the third quarter and for 2011, one of the analysts increased its estimate in the last 7 days while one has increased for 2012.

Magnitude of Estimate Revisions

In last 30 days, the earnings estimate for 2011 decreased from $6.21 to $6.19 and for 2012 decreased from $6.78 to $6.65. The estimate for the third quarter remained unchanged at $1.61 in the last 30 days.

In the last 7 days, the earnings estimate for 2011 increased from $6.18 to $6.19 and for 2012 remained unchanged. The estimate for the third quarter increased from $1.60 to $1.61 per share in the last 7 days.

Our Take

The company generated significant free cash flow in second-quarter 2011. A strong cash flow position and continuously expanding sales revenue provide 3M ample resources to expand through acquisition and innovation of new products. 3M is globally recognized for its innovations, supported by some of its well-known brands, such as Nexcare, Post-it, Scotch, Scotch-Brite, and Scotchgard leading the market. We believe that continued capital expenditure with new product launches should bolster its prospects across most end markets.

However, the company’s growth objectives are largely dependent on timing and market acceptance of its new product offerings, including its ability to continually renew its pipeline of new offerings and bring those to the market at acceptable price points.

Further, the results have been impacted by worldwide economic and capital market conditions. Negative consumer sentiment is affecting the retail store traffic. On the corporate side, lower employment levels are negatively reducing office supply purchases in most companies.

Overall, we believe Honeywell is all set to deliver good financial results in the third quarter of 2011. We continue to maintain a Neutral rating on 3M Company for the long term. The company, however, has a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.

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