"We are upgrading AZO to Overweight for the following reasons: (1) AZO's accelerated investment into its commercial initiative provides a baseline 3% comp for the medium term (any DIY gain is gravy on top); (2) the company's cost discipline and commitment to maintain leverage to drive the buyback enhances the stock/earnings revision risk-reward (even if 'only a 3 comp'); (3) given these factors we believe valuation remains attractive (relatively and absolutely); and (4) unfavorable discretionary retail stock seasonality is looming and we favor adding exposure to a defensive GARP stock with idiosyncratic topline opportunities and secular (albeit more modest than prior) tailwinds," JPMorgan analysts wrote in a report Tuesday.Shares of AutoZone hit a 52-week high Thursday of $395.12. The stock's 52-week low of $266.25 was set on Aug. 8. AutoZone has a forward P/E of 14.33; the average for specialty retailers is 16.13. For comparison, O'Reilly Automotive (ORLY) has a higher forward P/E of 19.38. Twelve of the 22 analysts who cover AutoZone rated it buy; 10 analysts gave the stock a hold rating. TheStreet Ratings gives AutoZone a B- grade with a buy rating and $498.75 price target. The stock has risen 19.86% year to date.
Watson Pharmaceuticals The drug company acquired Swiss generic drug company Actavis on Wednesday for about $5.6 billion. "We are raising our sales and EPS estimates as well as our price target for WPI shares following the company's announced acquisition of Actavis for $5.6bn with an additional 5.5mm WPI share earn-out," JPMorgan analysts wrote in a report Thursday. "In our view, the Actavis acquisition represents a transformational move for Watson that will solidify the company's US business and significantly propel its international presence. The potential accretion from the deal appears well above our initial estimates (over 30% accretive to 2013 [earnings per share]), Actavis' diversification is greater than we had anticipated and the combined entity offers a number of potential levers for further EPS upside/growth. Along these lines, we are reiterating our [overweight] rating on WPI shares and see the potential for significant further upside from current levels." Shares of Watson Pharmaceuticals hit a 52-week high of $75.95 on Thursday. The stock's 52-week low of $55 was set on Jan. 24. Watson Pharmaceuticals' forward P/E is 11.2; the average for pharmaceutical companies is 22.56. For comparison, Perrigo (PRGO) has a higher forward P/E of 19.27. Seventeen of the 24 analysts who cover Watson Pharmaceuticals rated it buy; seven analysts gave the stock a hold rating. TheStreet Ratings gives Watson Pharmaceuticals an A grade with a buy rating and $82.18 price target. The stock has risen 24.38% year to date.
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