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.

Home / Markets / Industries / Finance

Wednesday, July 02, 2008

Zacks Bull and Bear of the Day Highlights: Unilever, N.V., Hudson City Bancorp, H&R Block, American Capital Agency and Avanex Corp.

Email this Story | Respond to Editor | Print

Comtex

CHICAGO, Jul 02, 2008 (BUSINESS WIRE) ----Zacks Equity Research highlights Unilever, N.V. (NYSE: UN) as the Bull of the Day and Hudson City Bancorp (Nasdaq: HCBK) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on H&R Block (NYSE: HRB), American Capital Agency Corp. (Nasdaq: AGNC) and Avanex Corporation (Nasdaq: AVNX).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.

Here is a synopsis of all five stocks:

Bull of the Day: Unilever, N.V. (NYSE: UN)

The benefits from the implementation of "Path to Growth," Unilever 2010, One Unilever, and Accelerating Change strategies, and the company's strong cash flows are positives for future prospects. In addition, the simplified management structure should improve operational decisions and the one-to-one equivalence between PLC and NV shares should improve financial transparency. Impressively, positive pricing fully compensated for rising input costs in the first quarter of 2008. The Buy rating is maintained on Unilever New York shares (UN).

Bear of the Day: Hudson City Bancorp (Nasdaq: HCBK)

Even though the shares trade at a discount to the peer median (on a P/E basis), with 67% of the loan portfolio in residential real estate in the New York metropolitan area, considering the industry overhangs, we remain cautious given the current valuations. Our rating remains a Sell, though a weaker one. Our six-month price target of $15.50 per share equates to a negative 11.7% expected total return.

Latest Posts on the Zacks Analyst Blog:

H&R Block (NYSE: HRB)

We are upgrading our rating on shares of H&R Block, Inc. from Sell to Hold following the release of Q4 financial results. Although the fallout from the mortgage business implosion will likely be felt for some time to come, and we continue to have significant concerns regarding other aspects of HRB's business, we believe that negative and positive aspects of the company's outlook are now roughly balanced.

American Capital Agency Corp. (Nasdaq: AGNC)

American Capital Agency's initial public offering (IPO) in May of this year raised net proceeds of $286 million. Shares, originally priced at $20.00 per share, have slipped approximately 17% since the offering. The company is among a handful of new mortgage REITs that will invest exclusively in residential pass through and CMOs that backed are by the U.S. government or government-sponsored agencies.

American Capital Agency has the opportunity to earn good risk-adjusted returns as spreads have widened on agency securities due to the continued problems in residential housing markets. The biggest threat to AGNC near-term is a rise in short-term rates, which we expect as the fed tries to fight inflation. Higher short-term rates will increase the company's costs of funds and make spread investing much less profitable. We maintain our Hold recommendation on the shares.

Avanex Corporation (Nasdaq: AVNX)

Avanex is a leading provider of optical communication solutions. The company posted Q3:FY08 results with strong gross margin performance and sales modestly above expectations leading to a pro forma EPS beat.

Avanex also reported one of its highest design win quarters ever, led by transmission products, and pointed to normalizing market order trends with visibility remaining limited. Going forward, management expects margins to gradually move northwards as new product families are introduced into the revenue stream. The management expects to double its revenues by 2011.

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=2649.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

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.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=2677.

About Zacks

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=4582.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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

Zacks.com
   Mark Vickery 312-265-9380 Visit: www.zacks.com

Copyright Business Wire 2008 **********************************************************************
   As of Saturday, 06-28-2008 23:59, the latest Comtex SmarTrend� Alert, an automated pattern recognition system, indicated an
   UPTREND on 04-28-2008 for AVNX @ $0.85. As of Saturday, 06-28-2008 23:59, the latest Comtex SmarTrend Alert, an automated
   pattern recognition system, indicated a DOWNTREND on 06-24-2008 for HRB @ $21.00. As of Saturday, 06-28-2008 23:59, the latest
   Comtex SmarTrend Alert, an automated pattern recognition system, indicated a DOWNTREND on 06-09-2008 for UN @ $31.78. For
   more information on SmarTrend, contact your market data provider or go to www.mysmartrend.com SmarTrend is a registered trademark
   of Comtex News Network, Inc. Copyright � 2004-2008 Comtex News Network, Inc. All rights reserved.