Just as your pulse is checked during a routine physical, free cash flow is used as an indicator of a company's health. It equals the cash brought in from operations minus the money needed to pay the bills. Think about leftover money in your checking account after you pay this month's bills.

Investors and analysts see this leftover money as a gauge of a company's ability to perform. It is available for transactions such as handing out dividends and working on new products.

Some argue free cash flow is wrongly overshadowed by the emphasis often placed on earnings. Earnings numbers can be manipulated and don't always tell the whole story -- and earnings don't mean much if there's nothing left over after a company pays its expenses. Even if you bring in a six-figure salary, but no money left after paying the bills, are you in great financial shape?

You don't have to be Einstein to figure out free cash flow. To calculate the number, subtract the company's expenditures and dividends from its operating cash flow.

If the free cash flow is written in red ink, it doesn't necessarily signal curtains. This is common for young companies looking to grow. It also could be a result of heavy investments, which in the long run could be worth a standing ovation.

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Tuesday, July 01, 2008

Zacks Analyst Blog Highlights: PeopleSupport, Vonage, Goodyear Tire & Rubber, Hittite Microwave and Plexus Corp.

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CHICAGO, Jul 01, 2008 (BUSINESS WIRE) ----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: PeopleSupport, Inc. (Nasdaq: PSPT), Vonage (NYSE: VG), Goodyear Tire & Rubber Company (NYSE: GT), Hittite Microwave Corp. (Nasdaq: HITT) and Plexus Corp. (Nasdaq: PLXS).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579

Here are highlights from Monday's Analyst Blog:

PeopleSupport Stays a Buy

PeopleSupport, Inc. (Nasdaq: PSPT) is well-positioned to benefit from the fast-growing offshore BPO (business process outsourcing) market. The company's rapid revenue growth and investments production capacity in the Philippines and Costa Rica resulted in a negative earnings surprises and significant near-term margin contraction. The news drove the stock down to reasonable valuation levels as earnings momentum investors exited their stock positions.

PeopleSupport's long-term prospects are still promising despite the loss of the Vonage (NYSE: VG) contract in 2007. The management strengthened the company's position by pursuing industry verticals and expanding geographically. It maintains a strong balance sheet with minimal debt. The stock is rated a Buy.

Gaining Traction at Goodyear Tire

Goodyear Tire & Rubber Company (NYSE: GT) is benefiting from a major restructuring program along with lower raw material costs and improved-selling prices. However, weak tire volumes compel us to rate the shares a Hold with a target of $20, which implies a P/E 6.5x our 2008 EPS estimate.

Goodyear Tire's strength lies in its exposure to the strong heavy-truck market. This helps Goodyear better than its peers in hedging against earnings volatility in the tire industry. Profit margins are expected to improve. The company is cashing in on its well-received new tire designs such as Eagle F1 and expanding its reach in the consumer replacement market, as well as commercial original equipment manufacturer (OEM) and replacement markets in North America.

Hittite Microwave Still Hot

Hittite Microwave Corp. (Nasdaq: HITT) is a leader in integrated circuits, modules and subsystems for wireless communications. The company has a broad product portfolio across a large portion of the frequency spectrum, including radio frequency (RF), microwave and millimeterwave.

Hittite is poised to grow from its international business, focus on new products and deeper penetration into existing customers. The company reported a strong first-quarter and we still expect double-digit revenue growth for the full year. We therefore maintain our Buy rating on the shares.

Plexus Top-Tier in EMS Market

Plexus Corp. (Nasdaq: PLXS) has posted several quarters of strong results, with significantly higher than expected revenue and bookings. Although EPS has not been as strong, much of this is related to a higher tax rate.

We believe that PLXS is among the best positioned in the industry and is poised to grow in the medical segment as well. The company's outlook continues to be strong in spite of macroeconomic concerns, which have yet to affect its customers.

Plexus entered into a financial recapitalization program, under which the company plans to repurchase up to $200 million of its common stock, which we estimate will be accretive to EPS by several cents this year. We maintain a Buy rating on the stock.

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Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

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Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

SOURCE: Zacks.com

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