Category: Articles

Today’s 52 Week Lows

Homebuilders and banks hit the skids again, sounds like a Melloncamp song

NCC National City Corporation
MYL Mylan Laboratories Inc
KBH Kb Home
PHA Pulte Homes Inc
HMB Homebanc Corp Ga
HDL Handleman Company
RSTO Restoration Hardware
RIGL Rigel Pharmaceuticals Inc
REVU Princeton Review Inc
REDE Redenvelope Inc
TRMP Trump Entmt Resorts Inc
IBCP Independent Bank Corp
HTLF Heartland Finl Usa Inc
GFLS Greater Community Bancorp
GCBC Greene County Bancorp Inc
FSNM First State Bancorporation
FMBI First Midwest Bancorp Inc
FFNM First Fed Northn Michigan
FCTR First Charter Corp
FCCO First Cmnty Corp S C
FBTX Franklin Bank Corporation

Articles

American Eagle Out…standing

Post author By ToddSullivan
Post date July 11, 2007

ValuePlays contributor Joe Ponzio takes look into a business that Wall Street rates a “Hold” – American Eagle Outfitters (AEO).

“Shop ae.com for men’s and women’s clothes, shoes, and more.” That’s what their website says. Sounds like a pretty simple business to me – American Eagle Outfitters (AEO) sells clothes, and for roughly $25 a share, you could be in the clothing business as well.

Wall Street doesn’t want you selling clothes. The consensus on AEO is that you should not buy or sell, rather hold (and probably put the rest of your money into their mutual funds).

The Past Ten Years
Over the past ten years, AEO has grown its shareholder equity from $91 million to $1.4 billion – a median rate of 31.6% when you look at various time frames. In addition, it has grown its free cash flow at a median rate of 35.4%. If you look at it from a personal finances standpoint, that is like you doubling your net worth every 2 1/2 years and increasing your monthly savings by 35.4% a year for ten years.

Hey, you’d be rich too.

Management And Money
The company carries almost no long-term debt which is much better than if it were swimming in debt and being choked by interest payments. In addition, it has generated nearly $0.18 a year for every dollar it has invested in the company. Last I checked, business interest rates were not at 18% so AEO is doing a great job of using its (very little) debt to generate additional cash.

What You Are Buying
If you were to buy AEO today, you’d be buying your fair share of its net worth and the future cash it can generate. If the future is anything like the past, an investment in AEO makes a lot of sense…if it can be done at a “fair” or “bargain” price. Assuming it is business as usual at AEO, it is already trading at a bargain price. If AEO plugged along at the rate it has for the past ten years, then slowed to 5% growth for the next ten years, the company is worth about $149 a share. Even with a 50% Margin of Safety, AEO is anything but a “hold”.

What If It’s Not Business As Usual?
Ahhh, the quandary of analyzing a smaller, rapidly growing business. What if AEO can’t sustain its 35.4% growth in free cash flow? Should you be penalized and lose money if management or the company stumbles a bit? Besides, it is impractical to think that any company can grow its cash generation abilities at 35.4% forever.

Let’s say AEO does slow down a bit. In fact, let’s say the next ten years are only half as good as the past ten years. Let’s also say that years 11-20 slow to 5% again. Now what’s the value of AEO? To earn 15% or more on an average annual basis, today’s value of AEO would be about $52.61 a share. With a 50% Margin of Safety – a smart move when buying a smaller, rapidly growing company – AEO becomes attractive at $26.31 a share.

The Buffett-esque Result?
Simple business. Undervalued by more than 50%, assuming much slower growth. Generates a ton of cash without using a lot of capital to do so? What do you think?

So, Will Buffett Buy It?
That’s a different story. AEO only trades about 1.2 million shares a day. For Buffett to “sneak” in, he’d only be able to buy 1% of that, or roughly 12,000 shares every day. Over the course of sixty trading days – the amount of time he has to sneak into a position before he reports it to the SEC…and the rest of the world – he’d only be able to acquire about 720,000 shares, or $18 million worth. An $18 million investment is barely worth his time, considering the size of Berkshire Hathaway.

So no, I don’t expect to see AEO in Berkshire’s swelling portfolio any time soon.

Joe Ponzio blogs at F Wall Street. He owns a piece of AEO’s business, directly or indirectly.

Tags buffett

Articles

Wal-Mart’s Online Pickup Program A Success

Post author By ToddSullivan
Post date July 11, 2007

Wal-Mart’s (WMT) buy-online-pickup-in-store strategy has reduced customer shipping costs by $5 million while sharply increasing new customer acquisitions and in-store sales the world’s largest retailer reported Tuesday.

In announcing that it is extending the program to more than 3,300 stores in the U.S., Wal-Mart released statistics to show the strategy is working.

Wal-Mart’s approach is different than the traditional approach at retailers like Target (TGT) and JC Penny (JCP) that use the Web to help move in-store merchandise. Walmart.com promotes “tens of thousands of products” that are not available in stores and ships them free to a local Wal-Mart where customers can pick them up.

Since the launch, about one-third of all Walmart.com sales have been placed through Site-to-Store and “more than half-a-million total units have been shipped through Site-to-Store, saving customers more than $5 million in shipping fees.”

Great, but is it growing sales? Wal-Mart said that “more than 50 percent of Site-to-Store orders [came] from new customers who make their first purchase at Walmart.com using the service.” The chain also reported a 20 percent increase in the number of Site-to-Store “customers who spend an additional $60 on purchases in the store when picking up their orders.” Bingo

Wal-Mart also claimed the $345 billion chain reported a weekly gasoline savings of 1,000 gallons and a monthly box reduction of 20,000 “as a result of transportation and packaging efficiencies.”

Increased sales and decreases expenses…very nice indeed..

Articles

TODAY’S UPGRADES / DOWNGRADES

Post author By ToddSullivan
Post date July 11, 2007

Here are this mornings analyst calls

UPGRADES:

Intl Speedway ISCA AG Edwards Sell » Hold
Discover Financial Services DFS Calyon Securities Sell » Neutral
Colonial Properties CLP BMO Capital Markets Underperform » Market Perform
Micron MU WR Hambrecht Hold » Buy
Allscripts MDRX Caris & Company Above Average » Buy
Vulcan Materials VMC Matrix Research Hold » Buy
Rosetta Resources ROSE Matrix Research Buy » Strong Buy
Strayer Education STRA Citigroup Sell » Hold
Equifax EFX JMP Securities Mkt Perform » Mkt Outperform
YUM! Brands YUM UBS Neutral » Buy
Essex Property ESS Lehman Brothers Equal-weight » Overweight
NYSE Euronext NYX Lehman Brothers Equal-weight » Overweight

DOWNGRADES:

Chaparral Steel CHAP\ Ferris Baker Watts Neutral » Sell
Eldorado Gold EGO BMO Capital Markets Outperform » Market Perform
Baldor Electric BEZ AG Edwards Buy » Hold
Atheros Communications ATHR AG Edwards Buy » Hold
Kyphon KYPH Needham & Co Strong Buy » Buy
JA Solar JASO Needham & Co Buy » Hold
Hilton Hotels HLT Stifel Nicolaus Buy » Hold
Taiwan Semi TSM UBS Buy » Neutral
ARM Holdings ARMHY Credit Suisse Outperform » Neutral
Cascade CAE Rodman & Renshaw Mkt Perform » Mkt Underperform
Halliburton HAL RBC Capital Mkts Outperform » Sector Perform
BJ Services BJS RBC Capital Mkts Outperform » Sector Perform
Patterson-UTI PTEN RBC Capital Mkts Outperform » Sector Perform
Nabors Ind NBR RBC Capital Mkts Outperform » Sector Perform
Grey Wolf GW RBC Capital Mkts Outperform » Sector Perform
Key Energy Services KEGS RBC Capital Mkts Outperform » Sector Perform

Articles

Sears Holdings: The Hybrid Retailer

Post author By ToddSullivan
Post date July 11, 2007
5 Comments on Sears Holdings: The Hybrid Retailer

So, Sears Holdings (SHLD) reported sub-par expectations on Tuesday and as I read the various reports and “analyst” comments, something jumped off the page. The first analyst compared Sears to retailers like Target (TGT), JC Penny (JCP), Kohls (KSS) and Macy’s(M). I read the comments and they all seemed legit. Same store sales are down at Sears in excess of the others. This must be bad. Then I read another report and that analyst commented that Sears was in trouble because it’s appliance and “big ticket” items were down like retailers Home Depot (HD) and Lowes (LOW).

All this got me to thinking, what is Sears and how should we set expectations for it? Is it a home improvement retailer like Home Depot, an electronics one like Best Buy (BBY) or a clothing retailer like JC Penny? The answer is neither and all of them.

Sears garners revenue and profits from both the big ticket washers and dryers, lawn and garden equipment, large screen tv’s and electronics and children’s shoes and family photos. Home Depot gets revenue from the former, Best Buy the middle and JC Penny the latter. None of them do all and because of that, we cannot judge and set our expectations for the retail performance of Sears according to our expectations for them, but look at all of them. We must expect the home appliance and electronics sections of Sears to continue to suffer as long as the sector’s major members do. This is not due to a failure of management or “Lampert’s store neglect” (today’s excuse being thrown around in the media) but simply due to “people not buying these items anywhere”.

Clothing. Even thought apparel is turning around at Sears (Land’s End will have a record smashing year and womens and children’s apparel are doing very well) one must sell a whole lot of clothing to make up for the lost sale of a $2000 washer & dryer or TV set. These are issues that JC Penny and Macy’s do not suffer from. It also means that when housing begins it’s turn around, that fact that Sears has turned the tide in clothing retailing will lead to spectacular results as folks begin buying those washers, dryers, refrigerators and TV’s again (they will).

What does this mean? Sears is not necessarily suffering from “bad management” , but “bad expectations”. The people setting the public expectations for Sears are comparing it to other retailers “in total” and not separating out the divisions. Just because Sears is a retailer does not means that because we expect “x” at JC Penny, we should expect the same at Sears. Sears is essentially in a retailing class by itself. It’s Kmart divisions competes with Walmart (WMT), it’s clothing with JC Penny and other clothing retailers, it’s home appliances and lawn equipment with Home Depot and it sells electronics against Best Buy. In order to set our expectations for Sears earnings, we must included expectations for all these areas as they all effect Sears. Currently, way to much comparison is being placed on the clothing retailers and not enough on the home improvement chains.

This is leading to over ambitious expectations for Sears and when they do not deliver, we have events like today. There are pithy headlines about Sears being a “broken retailer” but I have to wonder, did not Target, Home Depot and Best Buy just finish dialing back expectations for the near future? Are they “broken” or is it just a general slowdown for anyone who has significant exposure to those big ticket household items? I think it is the later. Just because Sears is not making excuses, do not be lulled into thinking they are immune from housing.

It is ok though, I will be in the market with Lampert today and we welcome the shares you want to sell.

Tags SHLD

Articles

"Fast Money" Recap For Wednesday

Post author By ToddSullivan
Post date July 11, 2007

Here are yesterday’s results and today’s picks

Today’s Picks

Eric Bolling likes streetTRACKS Gold Shares (GLD). Open $65.61

Karen Finerman would be a buyer of ConocoPhilips (COP). Open $84.12

Pete Najarian likes Biogen Idec (BIIB) because a new buyback should take it much higher. Open $54.51

Jeff Macke recommended Electronic Arts (ERTS) as a trade ahead of its conference(Open $49.44) and said to stay long Activision (ATVI). Open $19.17

Yesterday’s Results

Jeff Macke recommended Hasbro (HAS). Open $36.47 Close $31.63 Loss $.84

Pete Najarian likes EMC Corp. (EMC). Open $18.59 Close $18.72 Gain $.13

Karen Finerman recommended Kraft (KFT). Open $35.01 Close $34.40 Loss $.61

Eric Bolling liked Korea Electric Power (KEP) Open $23.50 Close $23.25 Loss $.25 and Companhia de Bebidas das Americas (ABV). Open $72.92 Close $72.50 Loss $.42

Records:

Since my tracking began on 6/21 (1-1 means one up pick and one down pick)

Adami= 6-4 Gain $30.28
Bolling= 6-5 Loss $5.63
John Najarian= 8-3 Gain $11.74
Macke= 10-6 Gain $5.99
Pete Najarian=3-0 Gain $20.20
Seymore= 1-0 Gain $.35
Finerman= 0-2 Loss $.79

Articles

Today’s 52 Week Lows

Post author By ToddSullivan
Post date July 10, 2007

More blood in the streets for homebuilders and regional banks

WBS Webster Financial Corp
WB Wachovia Corp
WAL Western Alliance Bancorp
PHM Pulte Homes Inc
PFS Provident Finl Svcs Inc
LEN Lennar Corporation
KEY KeyCorp (New)
KBH Kb Home
DHI D.R. Horton, Inc
CC Circuit City Stores
BZH Beazer Homes USA, Inc
MTH Meritage Homes Corp
STSA Sterling Financial Corp
SHFL Shuffle Master Inc
CRBC Citizens Banking Corp …
COBZ Cobiz Financial Inc
CHFC Chemical Financial Co
CEBK Central Bancorp Inc Mass
CCBD Community Central Bank
CBSH Commerce Bancshares Inc

Tags CC

Articles

Sears Holdings: If Lampert Is Buying More, Shouldn’t We?

Post author By ToddSullivan
Post date July 10, 2007
5 Comments on Sears Holdings: If Lampert Is Buying More, Shouldn’t We?

So here is the financial nitty gritty. Sears Holdings (SHLD) said this morning it expected quarterly profit of $160 million to $200 million, or $1.06 to $1.32 a share, including special items.

Those special items would be an after-tax gain of about $12 million from bankruptcy-related settlements and total return swap investing activities, Sears expects to earn 98 cents to $1.24 per share. A gain on the total return swaps is good news.Last year in Q2, Sears earned $294 million, or $1.88 a share. Excluding special gains, it earned $272 million, or $1.74 per share.

Sears said it expected to end the second quarter with about $2.8 billion in cash and cash equivalents, excluding Sears Canada, down from $3.1 billion at the end of the first quarter.

In addition, Sears announced a new $1 billion share repurchase authorization in addition to the $121 million worth of shares still available for repurchase under an existing program. Sears said it had bought back about 13.8 million shares for $1.9 billion since the repurchase plan was approved in the third quarter of fiscal 2005. As of July 7, it had about 150.9 million common shares outstanding. On the last 10Q, Sears stated that the had 152,492,175 shares outstanding meaning Lampert has bought 1,592,170 shares since May 25. The new $1 billion program will take 7.1 million shares off the market or 4.7% of shares outstanding. A huge amount? No, but we know, based on past results this plan will be completed and share count reduced.

Should we panic? Sell? Hell no. Why? Sears is tied to the housing market far more than most other clothing retailers. It sells a huge amount of appliances, tools and yard equipment. It is a true mix of a Home Depot (HD) and a Macy’s (M) or JC Penny (JCP). That part of Sears is getting hit hard and it is not a management issue as both Home Depot and Lowes (LOW) are suffering the same fate now. Sears did say that women’s and children’s apparel both showed gains last quarter and the Land’s End division is having a record year. Neither of these are signs of a failing retailer. Rather, Sears is a retailer caught in the unavoidable train wreck that is the US housing market. When housing turns around, and yes it will, you will be left with a retailer that has made huge gains fixing it’s apparel offerings and now will be drawing more shoppers to those stores who are now spending money on their homes. They will also now have vastly different choices for apparel and based on current trends, will be buying them also.

Just as folks are claiming Home Depot and Lowes are undervalued, so to is Sears and for the same reasons. Today’s prices are a sale.

The reported numbers were from results for the nine weeks ended on July 7. The second quarter ends on August 4 and Sears said it did not plan to update its outlook before announcing second-quarter results on or about August 30.

Tags SHLD

Articles

Today’s Upgrades / Downgrades

Post author By ToddSullivan
Post date July 10, 2007
1 Comment on Today’s Upgrades / Downgrades

Here are this mornings calls

UPGRADES:

First Solar FSLR Am Tech/JSA Research Sell » Neutral

Greenbrier Comp GBX Morgan Keegan Underperform » Mkt Perform

Delta Petroleum DPTR AG Edwards Hold » Buy

Take-Two TTWO Soleil Hold » Buy

Dawson Geophys. DWSN Matrix Research Hold » Buy

Principal Financial PFG Bernstein Mkt Perform » Outperform

SK Telecom SKM Citigroup Hold » Buy

United Comm Banks UCBI Sun Trust Rbsn Humphrey Neutral » Buy

Micron MU Jefferies & Co Hold » Buy

Scotts Miracle-Gro SMG JP Morgan Neutral » Overweight

PNM Resources PNM Citigroup Sell » Hold

DIRECTV DTV Citigroup Hold » Buy

DOWNGRADES:

Extreme Networks EXTR Lehman Brothers Overweight » Equal-weight

Darling International Inc DAR Avondale Partners Mkt Outperform » Mkt Perform

Altera ALTR AG Edwards Buy » Hold

Unica UNCA Needham & Co Buy » Hold

Spirit Finance SFC Robert W. Baird Outperform » Neutral

SMSC SMSC Matrix Research Buy » Hold

First Solar FSLR Lazard Capital Buy » Hold

American Science & Engineering ASEI Roth Capital Buy » Hold

Natural Resource NRP Friedman Billings Outperform » Mkt Perform

AMEDISYS AMED BB&T Capital Mkts Buy » Hold

Graco GGG CIBC Wrld Mkts Sector Outperform » Sector Perform

Sempra Energy SRE RBC Capital Mkts Top Pick » Outperform

Articles

Today’s 52 Week Lows

Post author By ToddSullivan
Post date July 9, 2007

Here are the new cellar dwellers. Regional banks are now getting hit

MYL Mylan Laboratories Inc
LXK Lexmark International

SCMF Southern Community Financial Corp
SBBX Sussex Bancorp

REDE Redenvelope Inc
FFSX First Fed Bankshares
FCCO First Community Corp S C
FBNC First Bancorp North Carolina

BOMK Bank Of Mckenney Va
AWBC Americanwest Bancorp
ABVA Alliance Bankshares Corp

Articles

Now Conoco Teaches Home Depot A Lesson

Post author By ToddSullivan
Post date July 9, 2007

Just in case management at Home Depot (HD) did not learn anything about how to announce a buyback, from Best Buy’s (BBY) announced share repurchase, ConocoPhillips (COP) today tried to drive the point home.

ConocoPhillips (COP)approved the repurchase of up to $15 billion of the company’s shares through the end of 2008. This amount includes $2 billion remaining under the $4 billion program previously announced on February 9, 2007. Based upon its current commodity price and operational outlook, ConocoPhillips expects third quarter 2007 purchases of $2 billion to $3 billion, and fourth quarter 2007 purchases of a similar range. Now this is a buyback announcement.

With a market cap of $133 billion, Conoco will take 11% of the company off the market by the end of 2008. They will do this by taking 3% to 4.5% this year and the rest in 2008. Unlike Home Depots “we are going to buy back a lot sometime in the future” announcement, this one gives us the details we need to determine if it is a good one or not. Clearly this is. This is the reason shares have jumped almost 4% since the announcement while the Depot’s were unmoved.

Articles

Today’s Upgrades / Downgrades

Post author By ToddSullivan
Post date July 9, 2007

Here are today’s early analyst calls.

UPGRADES:

National Financial Partners NFP Lehman Brothers Underweight » Overweight

Regal-Beloit RBC KeyBanc Capital Mkts / McDonald Buy » Aggressive Buy

Walgreen WAG Matrix Research Buy » Strong Buy

ScanSource SCSC Matrix Research Hold » Buy

Virage Logic VIRL Needham & Co Hold » Buy

ISIS Pharm ISIS Needham & Co Buy » Strong Buy

Terex TEX Robert W. Baird Neutral » Outperform

Astec Industries ASTE Robert W. Baird Neutral » Outperform

Powerwave PWAV Robert W. Baird Neutral » Outperform

Central Garden CENT Sun Trust Rbsn Humphrey Neutral » Buy

Silgan Holdings SLGN Lehman Brothers Equal-weight » Overweight

Quality Systems QSII Jefferies & Co Hold » Buy

Rush Enterprises RUSHA Bear Stearns Peer Perform » Outperform

Cummins CMI Bear Stearns Peer Perform » Outperform

PACCAR PCAR Bear Stearns Peer Perform » Outperform

Xilinx XLNX Robert W. Baird Neutral » Outperform $30 » $37

Expeditors Intl EXPD Robert W. Baird Neutral » Outperform

Harley-Davidson HOG Robert W. Baird Neutral » Outperform

Regal-Beloit RBC Deutsche Securities Hold » Buy

Weatherford WFT JP Morgan Underweight » Neutra

DOWNGRADES:

Komag KOMG Citigroup Buy » Hold

Watsco WSO KeyBanc Capital Mkts / McDonald Aggressive Buy » Buy

IMPAC Mortgage IMH Roth Capital Buy » Hold

Hilton Hotels HLT Matrix Research Buy » Hold

Baidu.com BIDU Citigroup Buy » Hold

McDermott MDR Calyon Securities Buy » Add

Commerce Bancorp CBH Sun Trust Robinson Humphrey Buy » Neutral

Tyco TYC Citigroup Hold » Sell

Ensco ESV Credit Suisse Neutral » Underperform

Eldorado Gold EGO UBS Buy » Neutral

Allied World Assurance AWH Lehman Brothers Overweight » Equal-weight

Ball Corp BLL Banc of America Sec Buy » Neutral

Visicu EICU Jefferies & Co Buy » Hold

Cablevision CVC Deutsche Securities Buy » Hold

Tags davidson

Articles

Another Dow Joint Venture

I do not have may details yet but Dow Chemical’s (DOW) European unit has signed a joint venture agreement with India’s Gujarat Alkalies and Chemicals Ltd to manufacture chlorine-based products at the Gujarat’s Dahej project site in the western state of Gujarat, The Economic Times reported.

A government source refused to divulge any information on the investment and size of the proposed plant, The Economic Times said.

GACL’s managing director Guruprasad Mohapatra announced “Both Dow and GACL have a lot of synergies. We will benefit from Dow’s proven technologies and presence in the globe”

The companies are working on the details of the 50-50 joint venture, which is expected to sell products in India and overseas. Dow will provide the technology for the joint venture.

Again, perfectly in keeping with CEO Andrew Liveris’s “asset light” strategy. He continues to delivery on his stated goals for shareholders as it seems a new joint venture is being announced at least once a month as he move Dow from it’s cyclical commodities business into the specialty chemical area that will giver shareholder steadier returns and diversify earnings.

Tags dow

Articles

Retails Sales Preview: Yawn

Post author By ToddSullivan
Post date July 9, 2007

On Thursday this week retailers are expected to announce June numbers and economists project sales to fall 0.3%, with weaker spending on vehicles, gasoline, building materials and clothing.

In their weekly preview, Brian Bethune and Nigel Gault, U.S. economists for Global Insight wrote, “Consumer spending will conclude the second quarter with a whimper” and Leslie Preston, an economist for CIBC World Markets, said “Consumption is looking anemic”

Macy’s (M), J.C. Penney (JCP), Kohl’s (KSS) and Saks (SKS) all have forecast a decline in June same-store sales. Sears Holdings (SHLD) does not announce numbers.

The assumption seems to be that consumer spending, which jumped at a 4.2% pace in the first quarter, slowed to about a third of that rate in Q2. Excepting the quarter that followed hurricane’s Katrina and Rita, it would be the weakest quarterly spending in more than four years.

The past weeks reports on retail chain store sales were weak and the results showed the slowest growth since the recession ended in late 2001. Further, The International Council of Shopping Centers expects year-over-year growth of 1.5% to 2% for same store sales in June, 1/2 the growth rate seen earlier in the expansion.

Let’s also not forget that last year had the Memorial Day shopping weekend in June and it was in May this year. What we will really need to do is average the two months together to get a more accurate number.

So, what happens? Who cares. Expectations are low so if they do not do well, we expected that. If they surprise to the upside, shares run up on the news. If they completely disappoint, because expectations are not that hight to begin with, the downside is not that far. The perverse reality is that any further downside will only stoke already simmering merger and buyout rumors which will buoy shares, the old “bad news is good news scenario”.

Just sit tight, a lot of people have lost a lot of money over the years betting against the consumer. Will there be a blip sooner or later? Sure, there has to be, but long term, the trend is up.

Tags SHLD, sks

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