General Cable Corporation (BGC) a leading global supplier of wire and cable products for the energy, industrial, and communications markets, and its joint venture partner, A. Soriano Corporation (Anscor), made it known earlier today that the company has increased its equity ownership in Phelps Dodge Philippines, Inc. (PDP) from 40% to 60%. PDP is a joint venture established in 1955 by Anscor, a Philippine public holding company with diverse investments, and Phelps Dodge International Corporation (PDIC), a subsidiary of the company which was acquired in the 4Q of 2007. PDP, previously, has reported revenues of about $100M in 2007, and operates one of the largest wire and cable manufacturing facilities in the Philippines with leading market positions supporting the construction sector of the Philippine economy. The current investment complements General Cable’s strategy in the region by providing a platform for further access into the Southeast Asia markets as well as supporting ongoing operations in Australia, the Middle East and South Africa. Additionally, with the sharing of new products and technology from General Cable around the world, PDP expects to infiltrate other sectors of the Philippine wire and cable markets. In the past, General Cable has worked closely with PDIC as partners for more than half a century. The mutual respect and willingness to share ideas have resulted in PDP establishing a leadership position in the Philippines. It now appears that General Cable will make PDP a key part of its platform to further its strategic expansion in the region. By the close of today’s trading session, shares of General Cable were higher on the day, up just over 2%, or $1.31, to close out at $60.85 per share.
General Cable Corporation provides copper, aluminum, and fiber optic wire and cable products in North America and internationally. The company primarily offers low- and medium-voltage distribution cable; high- and extra-high voltage power transmission cable products and installation; and bare overhead conductors to electric utility and power companies, and contractors. It also provides electrical infrastructure, portable cord products, and transportation products and industrial harnesses consisting of wire and cable used for various applications, as well as construction products, such as construction cables, building wire, and flexible cords. In addition, General Cable offers data communication products that include high-bandwidth twisted copper and fiber optic cables, and multi conductor cables for customer premises, local area networks, and telephone company central offices; outside plant telecommunications exchange cable; and other electronic products, such as microphone cables, speaker and television lead wire, and high temperature and shielded electronic wire, as well as fiber-optic submarine cables and hardware, low detection profile cables, turnkey submarine networks, and offshore systems integration. Further, it sells rod mill products comprising continuous cast copper and aluminum rod to other wire and cable manufacturers. The company also provides a network of management, development, design, distribution, marketing assistance, technical support and engineering, and purchasing services to contractors, distributors, and public and private utilities. It also serves power generating stations, original equipment manufacturers, machine builders, shipboard companies, electricians, installation and engineering contractors, do-it-yourself consumers, and telecommunications system operators, as well as marine, mining, oil and gas, and transit/locomotive markets. The company was founded in 1992, employs nearly 12,000 people and is headquartered in Highland Heights, Kentucky.
The company hasn't missed earnings estimates in the past 12 quarters and has a Price to Earnings ratio that is comparable to its peers at 13.65. In the company’s last earnings report, released at the end of April, net income was $65.8M or $1.21 per share, up from $37.8M or $0.71 per share in the prior year quarter. The company's net sales for the 1Q increased 41.6% to $1.57B from $1.01B in the same quarter last year. Looking ahead, for the 2Q, the company anticipates earnings of $1.20 to $1.30 per share on revenues of $1.7B to $1.8B, while six analysts are projecting earnings of $1.39 per share for the quarter on revenues of $1.64B. Earnings for the company should be released some time in either late-July or early-to-mid August. In addition to solid earnings, the company has also been able to post a Return on Equity (ROE) of just over 36%, better than most of its peers. Not only has the company seen steady growth in the last three years, but their earnings are projected to continue to grow well in the future.
General Cable derives its revenues from a broad array of products and services which help them mitigate risk in various industry down-cycles and react to rapid changes in commodity prices. With the boom in energy prices, the firm has benefited from higher margins in their refining, natural gas and oil extraction sales. General Cable also benefited from the destruction of oil rigs following Hurricane Katrina, the rapid expansion in oil exploration worldwide, the international construction boom, and the continual upgrading and return visits from satisfied customers in the various industries, including the highly regulated nuclear industry. During the past twelve months, the stock has reached its all-time high of $84.95, although the stock has retreated since establishing that mark. But with world-wide demand continuing to be strong and barring a global recession, or some sort of accounting irregularity, the stock's fundamentals will remain strong. The barriers to entry in this business are relatively high due to the intellectual property and persistent business models. Additionally, General Cable has been on a buying spree, acquiring numerous competing firms in China and Canada of late and their leadership is unlikely to be supplanted any time soon. Best in class service in partnership with high customer satisfaction in an industry with constrained supply equals substantial pricing power for General Cable.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Monday, June 30, 2008
Friday, June 27, 2008
BetterTrades looks at Ormat Technologies, Inc. - June 27, 2008
Ormat Technologies, Inc. (ORA) announced on Thursday that one of its subsidiaries entered into a supply contract for a new Geothermal Power Plant to be constructed in Turkey. The contract is valued at approximately $16M and that delivery of the equipment is expected to be completed within 16 months from the contract date. The customer, MEGE- Menderes Geothermal Elektrik Uretim, A.S., a private developer and owner of the resource in Turkey, has one operating Geothermal Power Plant that was supplied by Ormat back in 2004. The new power plant significantly contributes to the local authorities' efforts to develop the base load needs, which is the minimum level of demand on an electrical supply system over 24-hours, of Turkey through dependable, indigenous and clean geothermal power, and by optimizing the energy utilization by converting both geothermal steam and brine from geothermal wells into electric power. The new plant will use air-cooled condensers and allow 100% geothermal fluid re-injection, which serves both to sustain the reservoir and to produce electrical power with virtually no environmental impact. Out of the four plants in Turkey, one uses water-cooled condensers and the rest are air-cooled. All utilize the high performance, high efficiency organic turbine developed by Ormat for geothermal and recovered-energy applications. With this new development, Ormat technology maintains its leadership in the creation of electricity from geothermal resources in Turkey, both in mega-watts (MW) and the number of power plants. This new contract marks the fourth order to supply equipment for geothermal power in Turkey and continues the company’s leadership position in creating clean energy both in MW and the number of power plants in the country. With the addition of this plant, Ormat will have increased the amount of MWs it supplies in 20 countries to over 950 MW. This milestone is conveyed as a demonstration of the effectiveness and reliability of Ormat's solutions and it further reinforces the applicability of the firm’s renewable energy solutions to the world electricity markets. By the close of the markets today, shares of Ormat were down on the day, lower by $2.74, or 5.4%, to finish at $48.11 per share.
Ormat is engaged in the geothermal and recovered energy power business. The company designs, develops, builds, owns and operates geothermal recovered energy-based power plants, usually using equipment that it designs and manufactures. Ormat conducts its business activities in two business segments: Electricity and Products. In the Electricity Segment, the company develops, builds, owns and operates geothermal and recovered energy-based power plants in the United States and geothermal power plants in other countries around the world, and sells the electricity generated by these plants. In the Products Segment, Ormat designs, manufactures and sells equipment for geothermal and recovered energy-based electricity generation, remote power units and other power generating units, and provides services relating to the engineering, procurement, construction, operation and maintenance of geothermal and recovered energy power plants. During 2007, revenues from the sale of electricity by Ormat's domestic projects accounted for approximately 76.4% of its total revenues from the sale of electricity, and revenues from the sale of electricity by its foreign projects accounted for approximately 16.7% of its total revenues from the sale of electricity. In the United States, the purchasers of power from the company's projects are typically investor-owned electric utility companies. Outside of the U.S., the purchaser is typically a state-owned utility or distribution company, or a privatized state-owned entity. The company also designs, manufactures and sells power units for geothermal electricity generation, referred to as Ormat Energy Converters (OECs). The company’s customers include contractors, and geothermal plant owners and operators. In addition, the company designs, manufactures and sells power units used to generate electricity from recovered energy or waste heat, which is generated as a residual by-product of gas turbine-driven compressor stations, and a variety of industrial processes, such as cement manufacturing. Ormat designs, manufactures and sells fossil fuel-powered, turbo-generators with a capacity ranging between 200 watts and 5,000 watts. The remote power units supply energy for remote and unmanned installations and along communications lines and cathodic protection along gas and oil pipelines. The company's customers include contractors installing gas pipelines in remote areas.
Geothermal power plants are an almost pollution free source of electricity. Typically they are installed near shallow subsurface sources of steam and/or hot water characterized by faults, seismic activity, earthquakes and volcanoes. The source of geothermal power generation is steam at a temperature of approximately 300 degrees Celsius. To access geothermal steam involves drilling a vertical well to the source. A second well is drilled to the lower water level of the steam source. The steam is directed into a steam turbine which in turn generates electricity. The condensed turbine exhaust is re-injected back into the underground reservoir. There are essentially three types of geothermal power plants used depending on the source. The first type known as a Dry Steam Power Plant, receives super heated steam from a very hot rock subsurface. Because of the temperature, there is no condensed water present and the geothermal steam is fed directly into the steam turbines. The second type known as a Flash Steam Power Plant, pumps hot water from the well into a flash drum where it separates into steam and condensed water. The steam is directed into the turbines and the condensed water re-injected back into the well. The third type known as a Binary Power Plant, does not have enough heat in the pumped hot water, thus the water is directed through a heat exchanger used to vaporize a secondary fluid which in turn drives the steam turbines.
Ormat is the granddaddy of geothermal stocks. As a vertically integrated company, they not only explore and develop their own resources, but they also will contract to manage resources for other developers. Their long history and current profitability makes them the safest pure-play geothermal stock available. They are experts with binary cycle turbines and reservoir management, as well as applying their binary cycle technology to waste heat recovery as well as concentrating solar power experiment. As a geothermal play, the company earns between $0.03 and $0.08 cents per kilowatt hour as this industry has already proven their advanced technology and has become very competitive with coal. One benefit for the company is there are still plenty of unexploited geothermal resources available on the west coast alone, where Ormat happens to be headquartered. Another advantage for the company is that with crude oil hovering around $135 to $140/barrel, alternative energy is very much in focus. Shares of Ormat have gained nearly 50% over the past twelve months and although the stock is now over 8% down from its 52-week high of $57.93, given the promising future for the exploitation of geothermal resources, analysts believe this stock will continue to ride high. Ormat currently trades around $50, which is 47 times the expected earnings for 2008 and 32 times next year's anticipated earnings.
In the company’s 1Q earnings released in May, Ormat posted a profit of $10.1M or $0.24 per share, reversing a year-ago loss of $5.8M or $0.15 per share, while total quarterly revenues, which include revenues from both the Electricity and Products segments, were $69.4M, up 12.3% from $61.7M in the year-ago period. Electricity revenues for the quarter surged 36.3% to $59.5M, helped by an increase in energy generation in the U.S. In sharp contrast, the Products segment's revenues for the quarter plunged 45.4% to $9.9M due to last year's lower products backlog and timing of revenue recognition. Additionally, Ormat's gross margin for the past twelve months is 31.54%, well above the level of its larger rival Calpine Corp. (CPN), which has a gross margin of 15.72%. Similarly, Ormat's operating margin for the past twelve-month period is 19.18%, higher than the industry average of 12.17%. Also, Analysts at RBC Capital Markets maintain their "Outperform" rating on Ormat's stock. In early May, the analysts raised their price target on Ormat to $70 from $65, considering the potential for the company's recovered energy generation units. According to the Geothermal Energy Association, 86 new geothermal power projects are currently underway in 12 states in the U.S, and upon completion of theses projects, U.S. geothermal power capacity is expected to more than double from its current capacity of 2,936 MW to almost 6,304 MW, which will be more than sufficient to meet all the needs of some six million households. In lieu of the increasing demand for geothermal energy, the potential earnings for Ormat could be unlimited.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Ormat is engaged in the geothermal and recovered energy power business. The company designs, develops, builds, owns and operates geothermal recovered energy-based power plants, usually using equipment that it designs and manufactures. Ormat conducts its business activities in two business segments: Electricity and Products. In the Electricity Segment, the company develops, builds, owns and operates geothermal and recovered energy-based power plants in the United States and geothermal power plants in other countries around the world, and sells the electricity generated by these plants. In the Products Segment, Ormat designs, manufactures and sells equipment for geothermal and recovered energy-based electricity generation, remote power units and other power generating units, and provides services relating to the engineering, procurement, construction, operation and maintenance of geothermal and recovered energy power plants. During 2007, revenues from the sale of electricity by Ormat's domestic projects accounted for approximately 76.4% of its total revenues from the sale of electricity, and revenues from the sale of electricity by its foreign projects accounted for approximately 16.7% of its total revenues from the sale of electricity. In the United States, the purchasers of power from the company's projects are typically investor-owned electric utility companies. Outside of the U.S., the purchaser is typically a state-owned utility or distribution company, or a privatized state-owned entity. The company also designs, manufactures and sells power units for geothermal electricity generation, referred to as Ormat Energy Converters (OECs). The company’s customers include contractors, and geothermal plant owners and operators. In addition, the company designs, manufactures and sells power units used to generate electricity from recovered energy or waste heat, which is generated as a residual by-product of gas turbine-driven compressor stations, and a variety of industrial processes, such as cement manufacturing. Ormat designs, manufactures and sells fossil fuel-powered, turbo-generators with a capacity ranging between 200 watts and 5,000 watts. The remote power units supply energy for remote and unmanned installations and along communications lines and cathodic protection along gas and oil pipelines. The company's customers include contractors installing gas pipelines in remote areas.
Geothermal power plants are an almost pollution free source of electricity. Typically they are installed near shallow subsurface sources of steam and/or hot water characterized by faults, seismic activity, earthquakes and volcanoes. The source of geothermal power generation is steam at a temperature of approximately 300 degrees Celsius. To access geothermal steam involves drilling a vertical well to the source. A second well is drilled to the lower water level of the steam source. The steam is directed into a steam turbine which in turn generates electricity. The condensed turbine exhaust is re-injected back into the underground reservoir. There are essentially three types of geothermal power plants used depending on the source. The first type known as a Dry Steam Power Plant, receives super heated steam from a very hot rock subsurface. Because of the temperature, there is no condensed water present and the geothermal steam is fed directly into the steam turbines. The second type known as a Flash Steam Power Plant, pumps hot water from the well into a flash drum where it separates into steam and condensed water. The steam is directed into the turbines and the condensed water re-injected back into the well. The third type known as a Binary Power Plant, does not have enough heat in the pumped hot water, thus the water is directed through a heat exchanger used to vaporize a secondary fluid which in turn drives the steam turbines.
Ormat is the granddaddy of geothermal stocks. As a vertically integrated company, they not only explore and develop their own resources, but they also will contract to manage resources for other developers. Their long history and current profitability makes them the safest pure-play geothermal stock available. They are experts with binary cycle turbines and reservoir management, as well as applying their binary cycle technology to waste heat recovery as well as concentrating solar power experiment. As a geothermal play, the company earns between $0.03 and $0.08 cents per kilowatt hour as this industry has already proven their advanced technology and has become very competitive with coal. One benefit for the company is there are still plenty of unexploited geothermal resources available on the west coast alone, where Ormat happens to be headquartered. Another advantage for the company is that with crude oil hovering around $135 to $140/barrel, alternative energy is very much in focus. Shares of Ormat have gained nearly 50% over the past twelve months and although the stock is now over 8% down from its 52-week high of $57.93, given the promising future for the exploitation of geothermal resources, analysts believe this stock will continue to ride high. Ormat currently trades around $50, which is 47 times the expected earnings for 2008 and 32 times next year's anticipated earnings.
In the company’s 1Q earnings released in May, Ormat posted a profit of $10.1M or $0.24 per share, reversing a year-ago loss of $5.8M or $0.15 per share, while total quarterly revenues, which include revenues from both the Electricity and Products segments, were $69.4M, up 12.3% from $61.7M in the year-ago period. Electricity revenues for the quarter surged 36.3% to $59.5M, helped by an increase in energy generation in the U.S. In sharp contrast, the Products segment's revenues for the quarter plunged 45.4% to $9.9M due to last year's lower products backlog and timing of revenue recognition. Additionally, Ormat's gross margin for the past twelve months is 31.54%, well above the level of its larger rival Calpine Corp. (CPN), which has a gross margin of 15.72%. Similarly, Ormat's operating margin for the past twelve-month period is 19.18%, higher than the industry average of 12.17%. Also, Analysts at RBC Capital Markets maintain their "Outperform" rating on Ormat's stock. In early May, the analysts raised their price target on Ormat to $70 from $65, considering the potential for the company's recovered energy generation units. According to the Geothermal Energy Association, 86 new geothermal power projects are currently underway in 12 states in the U.S, and upon completion of theses projects, U.S. geothermal power capacity is expected to more than double from its current capacity of 2,936 MW to almost 6,304 MW, which will be more than sufficient to meet all the needs of some six million households. In lieu of the increasing demand for geothermal energy, the potential earnings for Ormat could be unlimited.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Thursday, June 26, 2008
BetterTrades looks at AeroVironment Inc. - June 26, 2008
AeroVironment Inc. (AVAV), which makes small, unmanned aircraft for military use, made it known late Tuesday after the market’s close, that the company’s fiscal 4Q profits climbed 15% on am increase in demand. The recent results beat Wall Street predictions, sending AeroVironment shares up $1.36, or 5.5%, to $26.31 in aftermarket trading on Tuesday, after gaining $0.18 to $24.95 by the end of the day’s regular session. For the quarter, AeroVironment earned $6.4M, or $0.30 per share, compared with $5.6M, or $0.27 per share, for the same quarter in 2007. Revenues for the company surged 27% to $64.3M from $50.7M in the year-ago period, while analysts were expecting a profit of $0.27 per share on $59.3M in revenues. Sales at the company's unmanned aircraft systems segment jumped 25% to $56M. For the full year 2008, AeroVironment earned $21.4M, or $1 per share, compared with $20.7M, or $1.22 per share, in 2007, with revenues increasing to $215.7M from $173.7M. Also announced on Tuesday, AeroVironment released the company’s projected fiscal 2009 revenues, which happen to be above current market expectations. The company now expects to post 2009 revenue growth between 20% and 25%, which factors out to be between $258.9M and $270.2M in revenues for the year. Analysts, meanwhile, are expecting AeroVironment to post 2009 yearly revenues of $259.4M. At the conclusion of Thursday’s trading, shares of AVAV dropped 3.2%, or $0.93, to close at $27.71 a share.
AeroVironment, Inc. engages in the design, development and production of unmanned aircraft systems and energy technologies for various industries and governmental agencies. It offers small unmanned aircraft systems (UAS) primarily to organizations within the U.S. Department of Defense, and fast charge systems for electric industrial vehicle batteries to commercial customers. Its small UAS, including Raven, Dragon Eye, Swift, Wasp, and Puma provides tactical reconnaissance, tracking, combat assessment, and geographic data directly to the small tactical unit or individual war fighter. The company's small UAS aircraft wirelessly transmit live video and other information generated by their payload of electro-optical or infrared sensors, enabling the operator to view and capture images on a hand-held ground control unit. AeroVironment's small UAS solutions also include spare equipment, alternative payload modules, batteries, chargers, repairs, and Internet-enabled customer support, as well as refurbishment and replacement services for damaged small UAS. The company also offers PosiCharge fast charge systems that eliminate frequent battery changing by recharging industrial vehicle batteries during scheduled breaks and other times when the vehicle is not in use. Its customers for small unmanned aircraft systems include the U.S. Army, the U.S. Marine Corps, and the U.S. Special Operations Command. The company primarily sells its PosiCharge products through direct sales force in Arizona, California, Georgia, Illinois, Michigan, Missouri, New York, North Carolina, Tennessee, Texas, the United Kingdom, and Germany. AeroVironment was founded in 1971, currently employs nearly 500 workers and is headquartered in Monrovia, California.
War is great business and for defense suppliers like AeroVironment it provides an outstanding revenue stream. And if you’re a company like AeroVironment, whose business primarily develops and makes a unique product, now is as good a time as any to be a publicly traded company. Aside from manufacturing the unmanned aircraft, the company also develops quick-charge systems for batteries, which are finding use primarily in the automotive and aviation industries. The company has indicated that it has a healthy stream of contracts in place and new orders are arriving. In September of 2007, AeroVironment announced that the Danish Army Operational Command ordered 12 of its Raven B systems for $2.4M. Additionally, the U.S. Air Force took delivery of its first batch of BATMAV (Battlefield Air Tactical Micro Air Vehicle) aircraft in August of ’07 and AeroVironment has a contract worth up to $45M to provide at least 221 of these systems. With current contracts for its UAVs, AeroVironment currently has a funded backlog of over $61M, with an unfunded backlog of over $450M. This provides solid near term revenue visibility and impressive long term revenue potential, a virtue which makes many of the defense companies so attractive in this uncertain economic environment.
For investors, AeroVironment carries with it a foray of questions, including whether its innovation can bring big returns. Surprisingly, the company’s stock did not crash and burn following its initial public offering in an admittedly shaky stock market in 2007. When the company went public in January of ‘07, analysts and investors appeared to quickly embrace the stock. AeroVironment climbed more than 40% above its January offering price of $17, which in turn opened at $25. The exuberance quickly cooled, however, and the shares fell back to trading mostly in the $20 range since then. As well, the company posts a spotless balance sheet, with over $110M in cash, no debt, and a current ratio of 7.1. The company’s cash pot amounts for more than 20% of the overall market cap, giving AeroVironment the ability to quickly take advantage of acquisitions or other opportunities that would add to the bottom line. Finally, AVAV possesses a very reasonable valuation, trading at less than 20 times 2009 earnings. For a company with solid earnings visibility, a huge potential backlog, a spotless balance sheet, and top line growth exceeding 20%, a 20 multiple appears to be very reasonable. In fact, with the growth environment looking more uncertain today, the visibility of AVAV’s revenue stream should begin to command a premium valuation, giving the possibility for significant margin expansion.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
AeroVironment, Inc. engages in the design, development and production of unmanned aircraft systems and energy technologies for various industries and governmental agencies. It offers small unmanned aircraft systems (UAS) primarily to organizations within the U.S. Department of Defense, and fast charge systems for electric industrial vehicle batteries to commercial customers. Its small UAS, including Raven, Dragon Eye, Swift, Wasp, and Puma provides tactical reconnaissance, tracking, combat assessment, and geographic data directly to the small tactical unit or individual war fighter. The company's small UAS aircraft wirelessly transmit live video and other information generated by their payload of electro-optical or infrared sensors, enabling the operator to view and capture images on a hand-held ground control unit. AeroVironment's small UAS solutions also include spare equipment, alternative payload modules, batteries, chargers, repairs, and Internet-enabled customer support, as well as refurbishment and replacement services for damaged small UAS. The company also offers PosiCharge fast charge systems that eliminate frequent battery changing by recharging industrial vehicle batteries during scheduled breaks and other times when the vehicle is not in use. Its customers for small unmanned aircraft systems include the U.S. Army, the U.S. Marine Corps, and the U.S. Special Operations Command. The company primarily sells its PosiCharge products through direct sales force in Arizona, California, Georgia, Illinois, Michigan, Missouri, New York, North Carolina, Tennessee, Texas, the United Kingdom, and Germany. AeroVironment was founded in 1971, currently employs nearly 500 workers and is headquartered in Monrovia, California.
War is great business and for defense suppliers like AeroVironment it provides an outstanding revenue stream. And if you’re a company like AeroVironment, whose business primarily develops and makes a unique product, now is as good a time as any to be a publicly traded company. Aside from manufacturing the unmanned aircraft, the company also develops quick-charge systems for batteries, which are finding use primarily in the automotive and aviation industries. The company has indicated that it has a healthy stream of contracts in place and new orders are arriving. In September of 2007, AeroVironment announced that the Danish Army Operational Command ordered 12 of its Raven B systems for $2.4M. Additionally, the U.S. Air Force took delivery of its first batch of BATMAV (Battlefield Air Tactical Micro Air Vehicle) aircraft in August of ’07 and AeroVironment has a contract worth up to $45M to provide at least 221 of these systems. With current contracts for its UAVs, AeroVironment currently has a funded backlog of over $61M, with an unfunded backlog of over $450M. This provides solid near term revenue visibility and impressive long term revenue potential, a virtue which makes many of the defense companies so attractive in this uncertain economic environment.
For investors, AeroVironment carries with it a foray of questions, including whether its innovation can bring big returns. Surprisingly, the company’s stock did not crash and burn following its initial public offering in an admittedly shaky stock market in 2007. When the company went public in January of ‘07, analysts and investors appeared to quickly embrace the stock. AeroVironment climbed more than 40% above its January offering price of $17, which in turn opened at $25. The exuberance quickly cooled, however, and the shares fell back to trading mostly in the $20 range since then. As well, the company posts a spotless balance sheet, with over $110M in cash, no debt, and a current ratio of 7.1. The company’s cash pot amounts for more than 20% of the overall market cap, giving AeroVironment the ability to quickly take advantage of acquisitions or other opportunities that would add to the bottom line. Finally, AVAV possesses a very reasonable valuation, trading at less than 20 times 2009 earnings. For a company with solid earnings visibility, a huge potential backlog, a spotless balance sheet, and top line growth exceeding 20%, a 20 multiple appears to be very reasonable. In fact, with the growth environment looking more uncertain today, the visibility of AVAV’s revenue stream should begin to command a premium valuation, giving the possibility for significant margin expansion.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Tuesday, June 24, 2008
BetterTrades looks at Invitrogen Corp. - June 24, 2008
A JPMorgan analyst upgraded shares of Invitrogen Corp. (IVGN) Tuesday, pointing to greater-than-expected possible savings in the company's acquisition of Applied Biosystems, and to decreased risks throughout the company and industry. The analyst upgraded the stock to "Overweight" from "Neutral," stating that Invitrogen is targeting $60M in savings in the first year after the buyout, but he thinks the companies could save $20M more than that. Invitrogen agreed to buy Applera Corp.'s (ABI) Applied Biosystems Group on June 12th, in a deal worth $6.4B, or $38 per Applied Biosystems share. Analysts agree that the deal makes sense because it combines Invitrogen's sample preparation and processing business with Applied Biosystems' detection and analysis unit. Although Invitrogen has struggled with other buyouts in the last few years, the possible savings make the risk worthwhile. While the company forecasts $125M in three-year cost savings, Invitrogen could save even more by reducing shipping costs, and combining research and development and manufacturing. Invitrogen also has the ability to improve sales for its mass spectrometry joint venture, and despite the threat of patent expirations, Applied Biosystems' RT-PCR franchise should continue to post solid growth. Mass spectrometry tools measure the mass and sequence of proteins. RT-PCR products, or real-time polymerase chain reaction systems, can amplify a single copy or a few copies of a piece of DNA. By the close of today’s markets, shares of Invitrogen were slightly lower on the day, finishing down $0.77, or 1.9%, at $39.24.
Invitrogen Corporation engages in the development, manufacture, and marketing of research tools in reagent, kit, and applications forms for the life sciences research, drug discovery, and diagnostics customers, as well as biological products manufacturers. It operates in two segments, BioDiscovery and Cell Systems. The BioDiscovery segment provides molecular biology, cell biology, and drug discovery product lines. The Molecular biology product line includes research tools used in reagent and kit forms that simplify and improve gene acquisition, gene cloning, gene expression, and gene analysis techniques. It also offers various enzymes, nucleic acids, other biochemicals, and reagents; and software that enables analysis and interpretation of genomic, proteomic, and other biomolecular data for application in pharmaceutical, therapeutic, and diagnostic development. In addition, this segment provides antibodies and proteins, and magnetic beads used for biological separation. The Cell Systems segment offers sera, growth factors, cell, and tissue culture media used in life sciences research, as well as in the production of bio-pharmaceuticals and other materials made through cultured cells. It also offers services, which include the creation of stable cell lines and the optimization of production processes used for the production of therapeutic drugs. In addition, this segment manufactures biologics on behalf of its clients for use in clinical trials and for the worldwide commercial market. The company offers its products to the life sciences research market and the biopharmaceutical production market directly, and through distributors or agents in approximately 70 countries. It has a collaboration agreement with BMG LABTECH, Inc. Invitrogen was founded in 1987, currently employs more than 4,300 people and is based in Carlsbad, California.
Invitrogen, which recently approved a two-for-one stock split to be distributed May 27th to shareholders of record as of May 16th, has continued their upward trend after reporting a robust 1Q back in early May. During that quarter, Invitrogen earned $59.7M, or $1.19 per share, compared with profits of $30.3M, or $0.62 per share, during the same period a year ago. Excluding stock option costs, business integration charges and other items, profits totaled $1.55 per share in the latest period, while revenues for the company jumped 13% to $350.2M from $308.7M. The results topped the average estimates of analysts, who expected profits including $0.15 per share of options expenses of $1.13 per share on revenues of $333.2M. Throughout the company, the BioDiscovery unit revenue, which includes cloning and protein expression products, increased 12% to $247M, and the Cell Systems revenue, which includes stem cells and cell culture materials, advanced 16% to $103M. Based on the 1Q results, Invitrogen stated that the company now expects 2008 revenues to increase by a high single-digit percentage, while all 13 covering analysts upped the company’s full-year 2008 forecasts of $4.53 per share to $4.80, and one analyst further increased the projection by $0.01. The quarterly boost also included a 36% year-over-year increase in earnings per share. The company's share price received a nice boost after the release of 1Q results, and was trading near its 52-week high of $49.58; price adjusted for the stock split.
Life sciences companies make genetic analysis tools, antibodies, proteins and other supplies that pharmaceutical and biotech firms use in drug development. The Invitrogen transaction is the industry's largest so far this year, topping Hologic Inc.'s (HOLX) $580M takeover of Third Wave Technologies and Gen-Probe's (GPRO) $334M purchase of Innogenetics. Looking ahead, estimates related to the company’s performance have been climbing higher. Analysts say more deals are likely as life sciences companies look for new ways to increase profit and revenue in the face of efforts by biotech and pharma companies to cut R&D costs. By Invitrogen merging resources, the companies are able to more efficiently focus resources and potentially boost market share for their products. With annual revenues of about $3.5B, the combined firm now dwarfs rival PerkinElmer Inc. (PKI), which had revenues of about $1.79B in 2007, and approaches the size of Laboratory Corp. of America Holdings (LH), which had sales of $4.07B last year. The industry leader, Quest Diagnostics (DGX), reported 2007 revenues of $6.7B. Acquisitions could help companies looking to take advantage of rising growth in genetic analysis, agricultural biotech and forensics markets as companies vie for a larger market share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Invitrogen Corporation engages in the development, manufacture, and marketing of research tools in reagent, kit, and applications forms for the life sciences research, drug discovery, and diagnostics customers, as well as biological products manufacturers. It operates in two segments, BioDiscovery and Cell Systems. The BioDiscovery segment provides molecular biology, cell biology, and drug discovery product lines. The Molecular biology product line includes research tools used in reagent and kit forms that simplify and improve gene acquisition, gene cloning, gene expression, and gene analysis techniques. It also offers various enzymes, nucleic acids, other biochemicals, and reagents; and software that enables analysis and interpretation of genomic, proteomic, and other biomolecular data for application in pharmaceutical, therapeutic, and diagnostic development. In addition, this segment provides antibodies and proteins, and magnetic beads used for biological separation. The Cell Systems segment offers sera, growth factors, cell, and tissue culture media used in life sciences research, as well as in the production of bio-pharmaceuticals and other materials made through cultured cells. It also offers services, which include the creation of stable cell lines and the optimization of production processes used for the production of therapeutic drugs. In addition, this segment manufactures biologics on behalf of its clients for use in clinical trials and for the worldwide commercial market. The company offers its products to the life sciences research market and the biopharmaceutical production market directly, and through distributors or agents in approximately 70 countries. It has a collaboration agreement with BMG LABTECH, Inc. Invitrogen was founded in 1987, currently employs more than 4,300 people and is based in Carlsbad, California.
Invitrogen, which recently approved a two-for-one stock split to be distributed May 27th to shareholders of record as of May 16th, has continued their upward trend after reporting a robust 1Q back in early May. During that quarter, Invitrogen earned $59.7M, or $1.19 per share, compared with profits of $30.3M, or $0.62 per share, during the same period a year ago. Excluding stock option costs, business integration charges and other items, profits totaled $1.55 per share in the latest period, while revenues for the company jumped 13% to $350.2M from $308.7M. The results topped the average estimates of analysts, who expected profits including $0.15 per share of options expenses of $1.13 per share on revenues of $333.2M. Throughout the company, the BioDiscovery unit revenue, which includes cloning and protein expression products, increased 12% to $247M, and the Cell Systems revenue, which includes stem cells and cell culture materials, advanced 16% to $103M. Based on the 1Q results, Invitrogen stated that the company now expects 2008 revenues to increase by a high single-digit percentage, while all 13 covering analysts upped the company’s full-year 2008 forecasts of $4.53 per share to $4.80, and one analyst further increased the projection by $0.01. The quarterly boost also included a 36% year-over-year increase in earnings per share. The company's share price received a nice boost after the release of 1Q results, and was trading near its 52-week high of $49.58; price adjusted for the stock split.
Life sciences companies make genetic analysis tools, antibodies, proteins and other supplies that pharmaceutical and biotech firms use in drug development. The Invitrogen transaction is the industry's largest so far this year, topping Hologic Inc.'s (HOLX) $580M takeover of Third Wave Technologies and Gen-Probe's (GPRO) $334M purchase of Innogenetics. Looking ahead, estimates related to the company’s performance have been climbing higher. Analysts say more deals are likely as life sciences companies look for new ways to increase profit and revenue in the face of efforts by biotech and pharma companies to cut R&D costs. By Invitrogen merging resources, the companies are able to more efficiently focus resources and potentially boost market share for their products. With annual revenues of about $3.5B, the combined firm now dwarfs rival PerkinElmer Inc. (PKI), which had revenues of about $1.79B in 2007, and approaches the size of Laboratory Corp. of America Holdings (LH), which had sales of $4.07B last year. The industry leader, Quest Diagnostics (DGX), reported 2007 revenues of $6.7B. Acquisitions could help companies looking to take advantage of rising growth in genetic analysis, agricultural biotech and forensics markets as companies vie for a larger market share.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Monday, June 23, 2008
BetterTrades looks at Raytheon Co. - June 23, 2008
Raytheon Company (RTN) has been awarded a $76.2M U.S. Army contract to provide mission sustainment and support for the Rapid Aerostat Initial Deployment (RAID) systems that protects U.S. and coalition forces in Operations Enduring Freedom and Iraqi Freedom. Raytheon first developed RAID to meet the military's increasingly critical need for persistent surveillance in Operations Enduring Freedom and Iraqi Freedom. RAID consists of infrared sensor systems elevated on a stationary platform. This capability enables U.S. and coalition forces to respond rapidly to threatening situations. Raytheon IDS will provide engineering services, spares procurement, field service representative training and integrated logistics support services for RAID systems currently deployed. Work will be performed at Raytheon IDS' Integrated Air Defense Center, Andover, Mass., and at the Warfighter Protection Center, Huntsville, Ala. Integrated Defense Systems (IDS) is Raytheon's leader in Joint Battlespace Integration providing affordable, integrated solutions to a broad international and domestic customer base, including the U.S. Missile Defense Agency, the U.S. Armed Forces and the Department of Homeland Security. Raytheon Company, with 2007 sales of $21.3B, is a technology leader specializing in defense, homeland security and other government markets throughout the world. With a history of innovation spanning 86 years, Raytheon provides state-of-the-art electronics, mission systems integration and other capabilities in the areas of sensing; effects; and command, control, communications and intelligence systems, as well as a broad range of mission support services. Also included in today’s news, Raytheon Co. has been awarded an Air Force contract worth nearly $7M to provide Global Positioning System circuit cards that will have improved security functions. By the close of today’s trading session, shares of Raytheon finished lower, falling $0.52, or 0.9%, at $57.37.
Raytheon Company engages in the design, development, manufacture, integration, and support of technological products, services, and solutions for governmental and commercial customers in the United States and internationally. It operates in six segments: Integrated Defense Systems (IDS), Intelligence and Information Systems (IIS), Missile Systems (MS), Network Centric Systems (NCS), Space and Airborne Systems (SAS), and Technical Services (TS). The IDS segment provides ballistic missile defense, including space, air, surface, and subsurface; naval; and maritime and homeland security solutions. The IIS segment provides integrated ground systems for signal and image intelligence; weather and climate systems; command and control solutions for air/space platforms; operations, maintenance, and engineering services; and information technology and homeland security solutions. The MS segment provides weapon systems, including missiles, smart munitions, projectiles, kinetic kill vehicles, and directed energy effectors. The NCS segment provides net-centric mission solutions for network sensors, command and control communications, air traffic management, and homeland security. The SAS segment provides integrated systems and solutions for advanced missions, including surveillance and reconnaissance, precision engagement, unmanned aerial operations, and special force operations and space. The TS segment specializes in counter-proliferation and counter-terrorism, base and range operations, engineering and manufacturing services, and mission support. It primarily serves defense and government electronics, space, information technology, and technical services and support markets. The company was founded in 1922, currently employs more than 72,000 workers and is based in Waltham, Massachusetts.
Raytheon recently announced 1Q results, back in May, which included stellar bookings of $6.5B and a record backlog of $37.7B. 1Q earnings per share of $0.93 beat the consensus estimate by 12% and outpaced the year-prior result. The company noted that the higher earnings can be primarily attributed to increased volume, combined with lower net interest and pension expense. Quarterly net sales reached $5.4B, reflecting an increase of 11% from the year-prior $4.8B. RTN's growth is also evidenced by its return on equity (ROE) of 14.8%, which is slightly above the industry average. The company’s net margin has demonstrated solid growth at a rate of 12%, while the industry average is lower at 8.7%. Also in the 1Q, Raytheon repurchased 5.5 million shares of common stock for $340M, as part of its previously announced share repurchase program. This company has also seen an increase in its dividend as previously reported. The annual dividend was hiked by 10% from $1.02 per share to $1.12. The quarterly cash dividend of $0.28 per share currently translates into dividend yield of 1.9%, which is competitive within its industry as the company operates in an industry that offers little in terms of dividends. The current industry average stands at 0.1%. Commercial aerospace, which suffered in the wake of 9/11, has extended a multi-year rally, with sales expected to grow 5.9% in 2008, to $210.6B
The defense industry looks solid mainly due to the 2008 spending bill that was passed by the House a few weeks ago which stood at $696B compared with $636B in 2007. U.S. defense spending has been on the rise for 10 years, and while a pullout from Iraq would likely have a flattening effect on “emergency” spending, the military is expected to spend heavily to replace equipment. Beyond that, the 2008 election should have little or no affect on core spending until fiscal 2011. The stock market is like a gigantic poker game whereby each player is out for his/her own interests and there’s a tremendous amount of emotions and strategies involved. Secular market trends can last anywhere from several years to a few decades for different markets depending on the social, economic and political conditions at the time. We’ve experienced three major recessions over the past two decades: 1991-8 months; 2001-8 months; and most recently in 2008. The technology boom took us out of the 1991 recession but lead us into a bust that resulted in the 2001 recession; the housing & real estate boom spawned growth out of the 2001 recession but resulted in a bust that created the 2008 recession; what’s going to take us out of the current recession? I believe the answer is industrials, which involves sectors like aerospace & defense, building products, equipment, machinery, road & rail, transportation infrastructure etc.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Raytheon Company engages in the design, development, manufacture, integration, and support of technological products, services, and solutions for governmental and commercial customers in the United States and internationally. It operates in six segments: Integrated Defense Systems (IDS), Intelligence and Information Systems (IIS), Missile Systems (MS), Network Centric Systems (NCS), Space and Airborne Systems (SAS), and Technical Services (TS). The IDS segment provides ballistic missile defense, including space, air, surface, and subsurface; naval; and maritime and homeland security solutions. The IIS segment provides integrated ground systems for signal and image intelligence; weather and climate systems; command and control solutions for air/space platforms; operations, maintenance, and engineering services; and information technology and homeland security solutions. The MS segment provides weapon systems, including missiles, smart munitions, projectiles, kinetic kill vehicles, and directed energy effectors. The NCS segment provides net-centric mission solutions for network sensors, command and control communications, air traffic management, and homeland security. The SAS segment provides integrated systems and solutions for advanced missions, including surveillance and reconnaissance, precision engagement, unmanned aerial operations, and special force operations and space. The TS segment specializes in counter-proliferation and counter-terrorism, base and range operations, engineering and manufacturing services, and mission support. It primarily serves defense and government electronics, space, information technology, and technical services and support markets. The company was founded in 1922, currently employs more than 72,000 workers and is based in Waltham, Massachusetts.
Raytheon recently announced 1Q results, back in May, which included stellar bookings of $6.5B and a record backlog of $37.7B. 1Q earnings per share of $0.93 beat the consensus estimate by 12% and outpaced the year-prior result. The company noted that the higher earnings can be primarily attributed to increased volume, combined with lower net interest and pension expense. Quarterly net sales reached $5.4B, reflecting an increase of 11% from the year-prior $4.8B. RTN's growth is also evidenced by its return on equity (ROE) of 14.8%, which is slightly above the industry average. The company’s net margin has demonstrated solid growth at a rate of 12%, while the industry average is lower at 8.7%. Also in the 1Q, Raytheon repurchased 5.5 million shares of common stock for $340M, as part of its previously announced share repurchase program. This company has also seen an increase in its dividend as previously reported. The annual dividend was hiked by 10% from $1.02 per share to $1.12. The quarterly cash dividend of $0.28 per share currently translates into dividend yield of 1.9%, which is competitive within its industry as the company operates in an industry that offers little in terms of dividends. The current industry average stands at 0.1%. Commercial aerospace, which suffered in the wake of 9/11, has extended a multi-year rally, with sales expected to grow 5.9% in 2008, to $210.6B
The defense industry looks solid mainly due to the 2008 spending bill that was passed by the House a few weeks ago which stood at $696B compared with $636B in 2007. U.S. defense spending has been on the rise for 10 years, and while a pullout from Iraq would likely have a flattening effect on “emergency” spending, the military is expected to spend heavily to replace equipment. Beyond that, the 2008 election should have little or no affect on core spending until fiscal 2011. The stock market is like a gigantic poker game whereby each player is out for his/her own interests and there’s a tremendous amount of emotions and strategies involved. Secular market trends can last anywhere from several years to a few decades for different markets depending on the social, economic and political conditions at the time. We’ve experienced three major recessions over the past two decades: 1991-8 months; 2001-8 months; and most recently in 2008. The technology boom took us out of the 1991 recession but lead us into a bust that resulted in the 2001 recession; the housing & real estate boom spawned growth out of the 2001 recession but resulted in a bust that created the 2008 recession; what’s going to take us out of the current recession? I believe the answer is industrials, which involves sectors like aerospace & defense, building products, equipment, machinery, road & rail, transportation infrastructure etc.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Friday, June 20, 2008
BetterTrades looks at PolyOne Corp. - June 20, 2008
PolyOne Corp. (POL), which makes specialized polymers for building construction and vehicle manufacturing, on Friday raised its 2Q sales guidance due to strong revenues from a recently acquired business. The company expects their quarterly consolidated sales to increase 7% to 9% compared with the 2Q of 2007, despite challenging demand trends in the North American housing and automotive markets. This projection is slightly higher than the company's original estimate of 6% to 8% sales growth. The 2Q earnings before special items are expected to show modest improvement over the same period a year ago earnings before special items and to increase sequentially from 1Q earnings before special items. Aggregate sales for PolyOne's Specialty platform, including sales from GLS Corporation, are projected to grow nearly 25% in the quarter compared with the 2Q of 2007. GLS was acquired in January 2008 and represents approximately 60% of the Specialty growth for the 2Q, similar to the 1Q of 2008. PolyOne's Specialty platform consists of International Color and Engineered Materials, Specialty Engineered Materials, North American Color and Additives and Specialty Inks and Polymer Systems. Operating income in the aggregate for these businesses is projected to grow significantly from the same period a year ago, reflecting both margin expansion and an increased sales base. 2Q sales for the Performance Products and Solutions platform are expected to decline 6% to 8% compared with the same quarter of 2007. The Performance Products and Solutions platform consists of Geon Performance Polymers, Producer Services and Resin and Intermediates. Operating income for Performance Products and Solutions is anticipated to be slightly above 1Q performance, although significantly below the 2Q of 2007 level. This decrease is due primarily to lower demand in the North American housing, construction and automotive markets compared with the same period a year ago, and margin pressure caused by higher raw material and energy costs not fully offset by increased pricing. By the close of today’s markets, shares of PolyOne posted a gain of $0.45, or 5.9%, to finish at $7.94 a share.
PolyOne Corporation provides specialized polymer materials with operations in thermoplastic compounds, specialty polymer formulations, color and additive systems, thermoplastic resin distribution, and specialty polyvinyl chloride (PVC) vinyl resins. The company has four segments: Vinyl Business, International Color and Engineered Materials, PolyOne Distribution, and Resin and Intermediates. The Vinyl Business segment offers various products and services for vinyl coating, molding, and extrusion processors. It sells vinyl compounds, vinyl resins, and specialty coating materials based on vinyl to various manufacturers of plastic parts and consumer-oriented products, as well as offers materials testing and component analysis, custom compound development, colorant and additive, design assistance, structural analyses, process simulations, and extruder screw design services. The International Color and Engineered Materials segment offers additive master-batches and engineered materials. The PolyOne Distribution segment distributes engineering and commodity grade resins to custom injection molders and extruders. The Resin and Intermediates segment produces PVC resins and vinyl chloride monomer, as well as chlorine and caustic soda. The company also offers colorant and additives master-batches used in injection molding, extrusion, sheet, film, rotational molding, and blow molding in plastics industry; custom plastic compounding services and solutions for processors of thermoplastic materials; and custom-formulated liquid systems that are used in various applications, including vinyl, natural rubber and latex, polyurethane, and silicone. PolyOne also serves building materials, wire and cable, automotive, durable goods, packaging, electrical and electronics, medical, and telecommunications markets. The company sells its products worldwide through direct sales personnel, sales agents, and distributors. The company was founded in 1858, currently employs nearly 5,000 people and is headquartered in Avon Lake, Ohio.
PolyOne is the leader in North America and Europe for polymer compounds and polymer coating systems. The company has set forth four strategic goals that they are looking to reach by 2010. The first, consistent, double-digit income in their core business, second, gross margins of 25 to 35% for specialty businesses, third, 30% of revenue from outside North America, and fourth, a vitality index of 25%, the percentage of total sales attributable to new products, services or markets developed in the last five years. In the company’s 1Q of 2008, international growth rates continue to be strong. Sales in Asia were 12.4% higher over 2007 and sales in Canada were 1.4% higher over 2007. European sales also showed improvement with sales in that geographic area increasing by 16.1% over 2007. For the 1Q of 2008, revenues for the company were $713.7M versus revenues of $657.8M in the 1Q of 2007, an increase of 8.5%. For the year ending 2007, total sales were $2.642B compared to $2.622B for the year ending 2006. Additionally, PolyOne has been able to increase its return on assets (ROA) from 7.5% in 2004, 9.4% in 2005 to 15.5% in 2006. However, PolyOne’s ROA in 2007 stood at 3.9% as the company caused this decrease themselves as they paid down their long-term debt.
Between it and its two competitors, Ferro Corp. (FOE) and Georgia Gulf (GGC), PolyOne is the only company whose return on equity (ROE) was positive in 2007, standing at 1.9%. Despite the company possessing very pertinent valuations, there are risks that the company incurs in today’s economy. One being raw materials such as ethylene and benzene are primary chemicals used in the manufacture of vinyl and engineered resins, and therefore, rising energy prices have an adverse effect on the company’s bottom line. Also, any prolonged slowdown in the housing sector will have an adverse effect on sales, as was the case in the second half of 2006, all of 2007, and the 1Q of 2008. So far, PolyOne has been able to increase its prices to offset costs and lower sales volume but the company cannot continue to sell to its customers at higher prices to counteract the increase in raw material prices. PolyOne can build a sustainable competitive advantage by working together as one corporate entity to capture value through innovative business solutions. This may involve integrating all businesses in the company and working together as one instead of many. By doing so, PolyOne will take advantage of its entire product line to serve all the needs of each individual customer.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
PolyOne Corporation provides specialized polymer materials with operations in thermoplastic compounds, specialty polymer formulations, color and additive systems, thermoplastic resin distribution, and specialty polyvinyl chloride (PVC) vinyl resins. The company has four segments: Vinyl Business, International Color and Engineered Materials, PolyOne Distribution, and Resin and Intermediates. The Vinyl Business segment offers various products and services for vinyl coating, molding, and extrusion processors. It sells vinyl compounds, vinyl resins, and specialty coating materials based on vinyl to various manufacturers of plastic parts and consumer-oriented products, as well as offers materials testing and component analysis, custom compound development, colorant and additive, design assistance, structural analyses, process simulations, and extruder screw design services. The International Color and Engineered Materials segment offers additive master-batches and engineered materials. The PolyOne Distribution segment distributes engineering and commodity grade resins to custom injection molders and extruders. The Resin and Intermediates segment produces PVC resins and vinyl chloride monomer, as well as chlorine and caustic soda. The company also offers colorant and additives master-batches used in injection molding, extrusion, sheet, film, rotational molding, and blow molding in plastics industry; custom plastic compounding services and solutions for processors of thermoplastic materials; and custom-formulated liquid systems that are used in various applications, including vinyl, natural rubber and latex, polyurethane, and silicone. PolyOne also serves building materials, wire and cable, automotive, durable goods, packaging, electrical and electronics, medical, and telecommunications markets. The company sells its products worldwide through direct sales personnel, sales agents, and distributors. The company was founded in 1858, currently employs nearly 5,000 people and is headquartered in Avon Lake, Ohio.
PolyOne is the leader in North America and Europe for polymer compounds and polymer coating systems. The company has set forth four strategic goals that they are looking to reach by 2010. The first, consistent, double-digit income in their core business, second, gross margins of 25 to 35% for specialty businesses, third, 30% of revenue from outside North America, and fourth, a vitality index of 25%, the percentage of total sales attributable to new products, services or markets developed in the last five years. In the company’s 1Q of 2008, international growth rates continue to be strong. Sales in Asia were 12.4% higher over 2007 and sales in Canada were 1.4% higher over 2007. European sales also showed improvement with sales in that geographic area increasing by 16.1% over 2007. For the 1Q of 2008, revenues for the company were $713.7M versus revenues of $657.8M in the 1Q of 2007, an increase of 8.5%. For the year ending 2007, total sales were $2.642B compared to $2.622B for the year ending 2006. Additionally, PolyOne has been able to increase its return on assets (ROA) from 7.5% in 2004, 9.4% in 2005 to 15.5% in 2006. However, PolyOne’s ROA in 2007 stood at 3.9% as the company caused this decrease themselves as they paid down their long-term debt.
Between it and its two competitors, Ferro Corp. (FOE) and Georgia Gulf (GGC), PolyOne is the only company whose return on equity (ROE) was positive in 2007, standing at 1.9%. Despite the company possessing very pertinent valuations, there are risks that the company incurs in today’s economy. One being raw materials such as ethylene and benzene are primary chemicals used in the manufacture of vinyl and engineered resins, and therefore, rising energy prices have an adverse effect on the company’s bottom line. Also, any prolonged slowdown in the housing sector will have an adverse effect on sales, as was the case in the second half of 2006, all of 2007, and the 1Q of 2008. So far, PolyOne has been able to increase its prices to offset costs and lower sales volume but the company cannot continue to sell to its customers at higher prices to counteract the increase in raw material prices. PolyOne can build a sustainable competitive advantage by working together as one corporate entity to capture value through innovative business solutions. This may involve integrating all businesses in the company and working together as one instead of many. By doing so, PolyOne will take advantage of its entire product line to serve all the needs of each individual customer.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Wednesday, June 18, 2008
BetterTrades looks at Panera Bread Co. - June 18, 2008
Panera Bread Co. (PNRA) stock advanced Wednesday after the restaurant chain said it expects to pay significantly less for wheat in the first half of 2009 along with raising their 2Q profit forecast. The company made it known that they have secured contracts that will provide 95% of its wheat at a lower cost. The company stated that they will pay about $10 per bushel for wheat in the first half of 2009. That compares with $15 per bushel in the first six months of 2008. On Tuesday, the price of wheat for July delivery gained $0.2175 to $8.9825 a bushel on the Chicago Board of Trade. That was down from a record of $13.495 per bushel on Feb. 27th. A Piper Jaffray analyst estimates Panera will pay $11 per bushel for wheat in 2009. The lower prices will save the company about $10M, or $0.21 per share. Another analyst, this one from Lehman Brothers proclaimed that for each $1 decrease in the price of wheat will add about $0.07 per share to Panera's profit. And finally, a Cowen and Co. analyst is expecting Panera to pay $13 per bushel in the first half of the year, a benefit of $0.08 per share, along with raising their profit estimate by $0.05 per share, expecting some of the gains to be canceled out by higher energy prices. Also late Tuesday, Panera announced that the company now expects to earn between $0.48 and $0.50 per share in the 2Q, up from an earlier forecast of $0.40 to $0.44 per share. Shares of Panera took off today, adding nearly 6% by the close of the session, gaining $2.55 a share to finish at $48.11.
Panera Bread Company operates retail bakery-cafes and as of December, 2007, the company operated, directly and through area development agreements with 39 franchisee groups, 1,167 bakery-cafes, 501 company-owned and 666 franchise-operated, bakery-cafes, under the Panera Bread and Saint Louis Bread Co. names. Bakery-cafes are principally located in suburban, strip mall and regional mall locations, and operate in 38 states. The menu includes a variety of year-round favorites, complemented by new items introduced seasonally. Panera Bread operates as three business segments: the company-owned, bakery-cafe operations segment; the franchise operations segment, and the fresh dough operations segment. During fiscal year ending December, 2007, Panera opened 148 bakery-cafes, system-wide, 79 company-owned and 69 franchise-operated, bakery-cafes, acquired 36 bakery-cafes from its franchisees, closed eight bakery-cafes, system-wide and sold one company-owned, bakery-cafe to a franchisee. Also, Panera’s fresh dough operations segment, which supplies fresh dough items daily to most company-owned and franchise-operated bakery-cafes, consisted of 23 fresh dough facilities. The company’s restaurant concept focuses on the Specialty Bread/Bakery-Cafe category. Franchise-operated, bakery-cafes follow the same standards for in-store operating standards, product quality, menu, site selection and bakery-cafe construction as do company-owned, bakery-cafes. The franchisees are required to purchase all of their dough products from sources approved by the company. Panera Bread’s fresh dough facility system supplies fresh dough products to substantially all franchise-operated bakery-cafes. Distribution is accomplished through a leased fleet of temperature-controlled trucks operated by the company’s associates.
The firm has developed a reputation for using fresh ingredients and preparing items from scratch in-house. Panera's main competitive advantage is its brand name and the loyalty of its customers. Panera has the highest level of customer loyalty among so-called "fast-casual" restaurant chains. Fast-casual chains are restaurants that offer the speed of fast-food chains and the food quality and atmosphere of more traditional full-service restaurants. Panera's use of fresh and higher-quality ingredients also plays into another key trend, one in which consumers are increasing their desire to eat healthier foods. These people are shying away from unhealthy foods like burgers and fries and moving toward alternatives like natural and organic foods. Panera has several menu items that are lower in fat or cholesterol or use all-natural ingredients. The kind of food Panera serves, that of more healthy and relatively gourmet styles at reasonable prices, is only growing more popular.
Panera has two main growth drivers, growing its base of locations and the company’s growth in sales at existing locations. The company has just begun to tap into international markets, along with planning to open is first stores in Canada this year but yet has no exposure to either the European or Asian markets. Panera has the potential to continue opening upwards of 160 to 180 new stores per year over the next few years. And eventually, the company believes it could have as many as 4,000 U.S. locations without encroaching on existing restaurants. However, growth at existing locations has become more difficult in recent quarters with the company reporting declining comparable store sales growth. Shares of Panera are currently trading at a bargain valuation. The stock sells for less than 19.5 times 2009 earnings and sports a long-term growth rate of 20%; and the company's PEG Ratio is currently less than 1.3, which is atypical for a well-established growth stock. As sales growth recovers, Panera could easily trade up to a PEG Ratio of 1.5, which in turn could send the stock above its 52-week high of $53.45 over the next year or two.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Panera Bread Company operates retail bakery-cafes and as of December, 2007, the company operated, directly and through area development agreements with 39 franchisee groups, 1,167 bakery-cafes, 501 company-owned and 666 franchise-operated, bakery-cafes, under the Panera Bread and Saint Louis Bread Co. names. Bakery-cafes are principally located in suburban, strip mall and regional mall locations, and operate in 38 states. The menu includes a variety of year-round favorites, complemented by new items introduced seasonally. Panera Bread operates as three business segments: the company-owned, bakery-cafe operations segment; the franchise operations segment, and the fresh dough operations segment. During fiscal year ending December, 2007, Panera opened 148 bakery-cafes, system-wide, 79 company-owned and 69 franchise-operated, bakery-cafes, acquired 36 bakery-cafes from its franchisees, closed eight bakery-cafes, system-wide and sold one company-owned, bakery-cafe to a franchisee. Also, Panera’s fresh dough operations segment, which supplies fresh dough items daily to most company-owned and franchise-operated bakery-cafes, consisted of 23 fresh dough facilities. The company’s restaurant concept focuses on the Specialty Bread/Bakery-Cafe category. Franchise-operated, bakery-cafes follow the same standards for in-store operating standards, product quality, menu, site selection and bakery-cafe construction as do company-owned, bakery-cafes. The franchisees are required to purchase all of their dough products from sources approved by the company. Panera Bread’s fresh dough facility system supplies fresh dough products to substantially all franchise-operated bakery-cafes. Distribution is accomplished through a leased fleet of temperature-controlled trucks operated by the company’s associates.
The firm has developed a reputation for using fresh ingredients and preparing items from scratch in-house. Panera's main competitive advantage is its brand name and the loyalty of its customers. Panera has the highest level of customer loyalty among so-called "fast-casual" restaurant chains. Fast-casual chains are restaurants that offer the speed of fast-food chains and the food quality and atmosphere of more traditional full-service restaurants. Panera's use of fresh and higher-quality ingredients also plays into another key trend, one in which consumers are increasing their desire to eat healthier foods. These people are shying away from unhealthy foods like burgers and fries and moving toward alternatives like natural and organic foods. Panera has several menu items that are lower in fat or cholesterol or use all-natural ingredients. The kind of food Panera serves, that of more healthy and relatively gourmet styles at reasonable prices, is only growing more popular.
Panera has two main growth drivers, growing its base of locations and the company’s growth in sales at existing locations. The company has just begun to tap into international markets, along with planning to open is first stores in Canada this year but yet has no exposure to either the European or Asian markets. Panera has the potential to continue opening upwards of 160 to 180 new stores per year over the next few years. And eventually, the company believes it could have as many as 4,000 U.S. locations without encroaching on existing restaurants. However, growth at existing locations has become more difficult in recent quarters with the company reporting declining comparable store sales growth. Shares of Panera are currently trading at a bargain valuation. The stock sells for less than 19.5 times 2009 earnings and sports a long-term growth rate of 20%; and the company's PEG Ratio is currently less than 1.3, which is atypical for a well-established growth stock. As sales growth recovers, Panera could easily trade up to a PEG Ratio of 1.5, which in turn could send the stock above its 52-week high of $53.45 over the next year or two.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Monday, June 16, 2008
BetterTrades looks at DuPont - June 16, 2008
DuPont (DD) made it known earlier today the availability of DuPont Kevlar XP, a new patented technology that provides ballistic and trauma protection in a more comfortable body armor solution. Both DuPont and independent tests show that Kevlar XP consistently stops bullets within the first three layers of a vest designed with a total of 11 layers. The remaining layers of Kevlar XP absorb the energy of the bullet, resulting in less trauma, or backface deformation, to the vest wearer. Based on DuPont experience, significantly more layers are typically required to stop a bullet in other commercially available lightweight technologies. Kevlar XP initially will be available for body armor, but DuPont is already developing additional ballistic applications for the future, as well as products for other industries. Kevlar XP typically provides a 15% reduction in backface deformation and at least a 10% lighter weight vest design against the most challenging National Institute of Justice (NIJ) level IIIA threat, a .44 magnum bullet. Kevlar XP is targeted to the growing global market for ballistic protection, a market DuPont estimates is growing at more than 10% annually, and in which DuPont Kevlar has over 35 years of proven performance. DuPont is responding to growing global needs for increased safety and security by developing new technologies and adding Kevlar fiber capacity. DuPont continues to work closely with body armor manufacturers and end-users to better understand emerging needs and to develop solutions that help to protect more lives from increasing threats. Kevlar XP has been designed to protect those who protect us and is a critical step in DuPont's commitment to launch 1,000 new products that protect people's lives by 2015. DuPont also has committed additional resources toward meeting the growing demand for Kevlar fiber by investing $500M in a multi-phase Kevlar production expansion to be completed in 2010, the company's fifth major investment in seven years. DuPont Kevlar XP is part of the personal protection portfolio within DuPont Advanced Fiber Systems, a business unit of the DuPont Safety & Protection segment. The segment provides innovative products and services that protect people, buildings, critical processes and the environment. In 2007, the segment's revenues totaled $5.6B. By the conclusion of today’s trading session, shares of DD were relatively flat on the day, giving up only $0.07, or 0.1%, at $47.13 a share.
E. I. du Pont de Nemours and Company, DuPont, operates as a science and technology company in various disciplines, including biotechnology, electronics, materials science, safety and security, and synthetic fibers. It operates in five segments: Agriculture & Nutrition, Coatings & Color Technologies, Electronic & Communication Technologies, Performance Materials, and Safety & Protection. The Agriculture & Nutrition segment offers benzene and carbamic acid related intermediates, copper, insect control products, soybeans, soy flake, soy lecithin, and sulfonamides. The Coatings & Color Technologies segment provides automotive finishes, industrial coatings, and titanium dioxide white pigments. The Electronic & Communication Technologies segment offers a range of materials for the electronics industry, flexographic printing and color communication systems, and various fluoropolymer and fluorochemical products. The Performance Materials segment provides thermoplastic and thermoset engineering polymers to fabricate components for mechanical and electrical systems, as well as specialized resins and films used in packaging and industrial applications, sealants and adhesives, sporting goods, and interlayers for laminated safety glass. The Safety & Protection segment offers specialty and industrial chemicals, nonwovens, aramids, and solid surfaces. The company also has interest in two antihypertensive drugs, the Cozaar and Hyzaar; and engages in nonaligned and developmental businesses, such as bio-based materials. It serves transportation, safety and protection, construction, motor vehicle, agricultural, home furnishings, medical, electronics, communications, protective apparel, and nutrition and health markets. The company operates in the United States, Europe, the Asia Pacific, Canada, and Latin America. DuPont was founded in 1802, currently employs more than 60, 000 workers and is headquartered in Wilmington, Delaware.
With the spike in food and commodity prices some companies are actually benefiting from higher food prices and the increase in demand of all things related to food production. DuPont is purely a diversified sector play in that is provides investors with positive returns over the long run as the company boasts a healthy 3.4% dividend yield which, in turn, makes this play both an income and a growth stock. A sustainable dividend will allow DuPont to stave off inflation even if the company’s capital gains are more moderate. Their P/E Ratio of 13.4 is less than the industry average and many of its competitors, combined with a 5-year Price Earnings Growth (PEG) ratio of 1.69 and the stock looks good from a fundamental aspect. Sales in emerging international markets grew 25%, led by Brazil, China, India and Eastern Europe. Given the growing international market and weakening U.S. Dollar, it is a positive sign that DuPont's market share and sales in overseas markets like China and India are gaining momentum. Additionally, Dupont’s competitor, Dow Chemical (DOW), recently increased prices which should allow them to follow suit, allowing them to pass on higher input costs from energy and raw material. Finally, the company has ventured into the solar, or photovoltaic, market which it expects to grow by over 30% over the next several years. This rapidly growing market and technology could provide a key future growth catalyst for the company once the agriculture boom slows down, if it does.
This stock is a solid blue chip stock to have over the long term as it is a well diversified company and a top player in the booming agriculture and food markets. The introduction of new and innovative products across its lines of business, like those targeting the solar energy market, will also help this company in the long run. However, there are risks that involve the stability of earnings for DuPont. These would include, but aren’t limited to, the reduced current and ongoing demand in the U.S. for the company's products sold into construction and motor vehicle markets. Given that the U.S. still accounts for a significant portion of the companies revenues this is a risk, but most U.S. companies are being impacted by the domestic recession which makes having international exposure and sales, like DuPont has, critical for growth. Also, a global slowdown or severe weather disruptions, for farming or agriculture in general, would also have a major impact on this stock, and the whole sector across the board. The company is adversely affected by rising oil and energy prices. For DuPont, raw material and energy cost escalation is expected to significantly outpace the increases experienced in 2007, which was almost double that of 2006’s impacts, so average-range price increases are expected. As long as the cost increases can be passed on to their customers, the company should be able to moderate the impact of rising energy costs.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
E. I. du Pont de Nemours and Company, DuPont, operates as a science and technology company in various disciplines, including biotechnology, electronics, materials science, safety and security, and synthetic fibers. It operates in five segments: Agriculture & Nutrition, Coatings & Color Technologies, Electronic & Communication Technologies, Performance Materials, and Safety & Protection. The Agriculture & Nutrition segment offers benzene and carbamic acid related intermediates, copper, insect control products, soybeans, soy flake, soy lecithin, and sulfonamides. The Coatings & Color Technologies segment provides automotive finishes, industrial coatings, and titanium dioxide white pigments. The Electronic & Communication Technologies segment offers a range of materials for the electronics industry, flexographic printing and color communication systems, and various fluoropolymer and fluorochemical products. The Performance Materials segment provides thermoplastic and thermoset engineering polymers to fabricate components for mechanical and electrical systems, as well as specialized resins and films used in packaging and industrial applications, sealants and adhesives, sporting goods, and interlayers for laminated safety glass. The Safety & Protection segment offers specialty and industrial chemicals, nonwovens, aramids, and solid surfaces. The company also has interest in two antihypertensive drugs, the Cozaar and Hyzaar; and engages in nonaligned and developmental businesses, such as bio-based materials. It serves transportation, safety and protection, construction, motor vehicle, agricultural, home furnishings, medical, electronics, communications, protective apparel, and nutrition and health markets. The company operates in the United States, Europe, the Asia Pacific, Canada, and Latin America. DuPont was founded in 1802, currently employs more than 60, 000 workers and is headquartered in Wilmington, Delaware.
With the spike in food and commodity prices some companies are actually benefiting from higher food prices and the increase in demand of all things related to food production. DuPont is purely a diversified sector play in that is provides investors with positive returns over the long run as the company boasts a healthy 3.4% dividend yield which, in turn, makes this play both an income and a growth stock. A sustainable dividend will allow DuPont to stave off inflation even if the company’s capital gains are more moderate. Their P/E Ratio of 13.4 is less than the industry average and many of its competitors, combined with a 5-year Price Earnings Growth (PEG) ratio of 1.69 and the stock looks good from a fundamental aspect. Sales in emerging international markets grew 25%, led by Brazil, China, India and Eastern Europe. Given the growing international market and weakening U.S. Dollar, it is a positive sign that DuPont's market share and sales in overseas markets like China and India are gaining momentum. Additionally, Dupont’s competitor, Dow Chemical (DOW), recently increased prices which should allow them to follow suit, allowing them to pass on higher input costs from energy and raw material. Finally, the company has ventured into the solar, or photovoltaic, market which it expects to grow by over 30% over the next several years. This rapidly growing market and technology could provide a key future growth catalyst for the company once the agriculture boom slows down, if it does.
This stock is a solid blue chip stock to have over the long term as it is a well diversified company and a top player in the booming agriculture and food markets. The introduction of new and innovative products across its lines of business, like those targeting the solar energy market, will also help this company in the long run. However, there are risks that involve the stability of earnings for DuPont. These would include, but aren’t limited to, the reduced current and ongoing demand in the U.S. for the company's products sold into construction and motor vehicle markets. Given that the U.S. still accounts for a significant portion of the companies revenues this is a risk, but most U.S. companies are being impacted by the domestic recession which makes having international exposure and sales, like DuPont has, critical for growth. Also, a global slowdown or severe weather disruptions, for farming or agriculture in general, would also have a major impact on this stock, and the whole sector across the board. The company is adversely affected by rising oil and energy prices. For DuPont, raw material and energy cost escalation is expected to significantly outpace the increases experienced in 2007, which was almost double that of 2006’s impacts, so average-range price increases are expected. As long as the cost increases can be passed on to their customers, the company should be able to moderate the impact of rising energy costs.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Friday, June 13, 2008
BetterTrades looks at Apollo Group Inc. - June 13, 2008
Shares of Apollo Group Inc. (APOL) soared Friday after an analyst upgraded the stock on the for-profit education company's decision to raise tuition prices. The stock jumped $3.69, or 7.6%, to $52.20 by the end of today’s trading. A First Analysis Securities analyst upgraded the stock to "Overweight" from "Equal Weight," expecting price increases to boost revenue growth and operating income. Price increases should more or less fall straight to the bottom line. On July 1st at the earliest, Phoenix-based Apollo will increase tuition at its University of Phoenix. Tuition for the school will increase about 10% for its associate's degree programs, with increases averaging 4% to 5% for bachelor's and master's degree programs. Apollo will not raise tuition for doctoral programs. The company plans to discuss further these price changes when reporting quarterly results on July 1st. In addition, during the middle of May, Apollo announced that the company is planning on starting a university in Canada. Meritus University has been approved by the New Brunswick Department of Post-Secondary Education in Canada. The school will be based in Fredericton, New Brunswick, offering complete degree programs online to working professionals throughout Canada and abroad. Meritus University will not seek U.S. accreditation. It is a Canadian corporation operating as a wholly owned subsidiary of Apollo NB Holding Co., which in turn is a wholly owned subsidiary of Apollo Group.
Apollo Group, Inc., through its subsidiaries, provides various educational programs and services at high school, college, and graduate levels. Its subsidiaries include University of Phoenix, Inc. (UPX), Institute for Professional Development, Inc. (IPD), The College for Financial Planning Institutes Corporation (CFP), Western International University, Inc. (WIU), and Insight Schools, Inc. (Insight). UPX offers associate's, bachelor's, master's, and doctoral degree programs in business, criminal justice, general studies, health administration, and information technology at 79 local campuses and 117 learning centers in 38 states and in the District of Columbia, Puerto Rico, Canada, Mexico, and the Netherlands. It also offers its educational programs worldwide through its online educational delivery system. IPD provides program development and management consulting services, including degree program design, curriculum development, market research, student recruitment, accounting, and administrative services to regionally accredited private colleges and universities at 21 campuses and 36 learning centers in 23 states. CFP provides financial planning education programs; graduate degree programs in financial planning, financial analysis, and finance; and certification programs in retirement, asset management, and other financial planning areas through its campus in Colorado. WIU offers undergraduate and graduate degree programs at local campuses in Arizona and through various joint educational agreements, in China and India. Insight operates an online high school and engages in the business of servicing cyber high schools and other online education. As of August 31, 2007, the company offered its educational programs and services at 102 campuses and 157 learning centers in 40 states and the District of Columbia; Puerto Rico; Alberta and British Columbia; Canada; Mexico; and the Netherlands. The company was founded in 1973, currently employs more than 36,000 people and is headquartered in Phoenix, Arizona.
With over 310,000 students, Apollo is the largest private postsecondary school in the United States. As the economy has weakened, unemployment has risen. Those out of work usually must obtain new skills and knowledge in order to facilitate a new career in their chosen fields. Changes in the economy requires the new workforce to adapt to the changing times, which should be a boom to education corporations profiting from teaching new skills to this changing workforce trend. This trend doesn’t solely apply to those out of work, as working people tend to flock to adult education companies like Apollo when their wages are not high enough to provide them with a comfortable middle-class lifestyle. Furthermore, in order to be more competitive in the job market, more and more people have decided to pursue online education due to flexibility and affordability. In response to global expansion needs, the formation of a joint venture with Carlye was announced in 2007 to pursue the overseas education market. The Apollo subsidiary will be known as Apollo Global with an 80/20 ownership split with Carlye. Apollo has committed $800M to the project and Caryle’s share is $199M, with Carlye bringing international education services experience, critical relationships, and strategic assets across the global education sector to the table. This is a key benefit given that Apollo has been primarily U.S.-based, and so far its international attempts have been timid at best.
Good management and a focus on quality educational programs have helped Apollo stay ahead of their competitors, and so far have kept them out of the private lending troubles. With a PEG Ratio (5 yr) at 1.29 compared with the industry average, education and training services classification, of 1.21, it is fairly safe to assume that the consensus believes there is further growth ahead for the industry as a whole. With a nearly $9B market cap, Apollo towers over competitors such as Career Education Corp (CECO) whose market cap is $1.5B and DeVry Inc. (DV) at $4.1B. An economy of scale is a competitive advantage in this industry, and the company’s margins and returns far outpace most of its competitors. Apollo’s University of Phoenix is the company’s crown jewel and the envy of the industry. The balance sheet is heavy on cash and light on debt, along with insiders owning a large stake in the company. Despite trending mostly downward since mid-2004, APOL’s share price has only adjusted to reality from a nosebleed valuation rather than enter the deep bargain bin. Slowing growth and some other issues have soured some investors. At a recent price of $52.92, shares are far from the 52 week high of $82.54.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Apollo Group, Inc., through its subsidiaries, provides various educational programs and services at high school, college, and graduate levels. Its subsidiaries include University of Phoenix, Inc. (UPX), Institute for Professional Development, Inc. (IPD), The College for Financial Planning Institutes Corporation (CFP), Western International University, Inc. (WIU), and Insight Schools, Inc. (Insight). UPX offers associate's, bachelor's, master's, and doctoral degree programs in business, criminal justice, general studies, health administration, and information technology at 79 local campuses and 117 learning centers in 38 states and in the District of Columbia, Puerto Rico, Canada, Mexico, and the Netherlands. It also offers its educational programs worldwide through its online educational delivery system. IPD provides program development and management consulting services, including degree program design, curriculum development, market research, student recruitment, accounting, and administrative services to regionally accredited private colleges and universities at 21 campuses and 36 learning centers in 23 states. CFP provides financial planning education programs; graduate degree programs in financial planning, financial analysis, and finance; and certification programs in retirement, asset management, and other financial planning areas through its campus in Colorado. WIU offers undergraduate and graduate degree programs at local campuses in Arizona and through various joint educational agreements, in China and India. Insight operates an online high school and engages in the business of servicing cyber high schools and other online education. As of August 31, 2007, the company offered its educational programs and services at 102 campuses and 157 learning centers in 40 states and the District of Columbia; Puerto Rico; Alberta and British Columbia; Canada; Mexico; and the Netherlands. The company was founded in 1973, currently employs more than 36,000 people and is headquartered in Phoenix, Arizona.
With over 310,000 students, Apollo is the largest private postsecondary school in the United States. As the economy has weakened, unemployment has risen. Those out of work usually must obtain new skills and knowledge in order to facilitate a new career in their chosen fields. Changes in the economy requires the new workforce to adapt to the changing times, which should be a boom to education corporations profiting from teaching new skills to this changing workforce trend. This trend doesn’t solely apply to those out of work, as working people tend to flock to adult education companies like Apollo when their wages are not high enough to provide them with a comfortable middle-class lifestyle. Furthermore, in order to be more competitive in the job market, more and more people have decided to pursue online education due to flexibility and affordability. In response to global expansion needs, the formation of a joint venture with Carlye was announced in 2007 to pursue the overseas education market. The Apollo subsidiary will be known as Apollo Global with an 80/20 ownership split with Carlye. Apollo has committed $800M to the project and Caryle’s share is $199M, with Carlye bringing international education services experience, critical relationships, and strategic assets across the global education sector to the table. This is a key benefit given that Apollo has been primarily U.S.-based, and so far its international attempts have been timid at best.
Good management and a focus on quality educational programs have helped Apollo stay ahead of their competitors, and so far have kept them out of the private lending troubles. With a PEG Ratio (5 yr) at 1.29 compared with the industry average, education and training services classification, of 1.21, it is fairly safe to assume that the consensus believes there is further growth ahead for the industry as a whole. With a nearly $9B market cap, Apollo towers over competitors such as Career Education Corp (CECO) whose market cap is $1.5B and DeVry Inc. (DV) at $4.1B. An economy of scale is a competitive advantage in this industry, and the company’s margins and returns far outpace most of its competitors. Apollo’s University of Phoenix is the company’s crown jewel and the envy of the industry. The balance sheet is heavy on cash and light on debt, along with insiders owning a large stake in the company. Despite trending mostly downward since mid-2004, APOL’s share price has only adjusted to reality from a nosebleed valuation rather than enter the deep bargain bin. Slowing growth and some other issues have soured some investors. At a recent price of $52.92, shares are far from the 52 week high of $82.54.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Thursday, June 12, 2008
BetterTrades looks at Overhill Farms Inc. - June 12, 2008
Back in early May, Overhill Farms, Inc. (OFI) reported record net revenues of $66M for the 2Q which ended March 30th of this year, an increase of $20M or 44% from the $46M reported for the same quarter of fiscal 2007. Net income for the quarter was $3.1M or $0.20 per share, up 263% from the $875,000, or $0.06 per share for the year-ago quarter. Gross profit margins surged to 12.7% in the 2Q compared to 9.1% in the year-earlier period. These gains were attributed to the on-going improvements in manufacturing efficiencies, enhancements in financial and operational controls, and increases in sales prices to customers. By customer category, the company stated that their net revenues for the quarter from retail customers increased by $22.7M, or 80.8%, to $50.8M from the $28.1M reported a year earlier. This increase was largely due to significantly higher volume of products for both a major national-brand food company and for Safeway Inc. (SWY) which were launched in the year-ago quarter. Foodservice net revenues for the most recent quarter declined by $2.7M, or 20.1%, to $10.7M from $13.4M a year earlier. The decline was attributable to softness in the foodservice industry due to a slowing economy and reduced volume from one customer. The company believes the foodservice sector continues to represent a significant opportunity for growth. Airline net revenues increased by $424,000, or 9.4%, to $4.9M for the quarter, from $4.5M a year earlier, due largely to increases in passenger travel. For the six months, ending March 30th as well, the company reported a net income of $4.75M or $0.30 per share, an increase of 95% from the $2.43M or $0.16 per share for the year-earlier period. Revenues for the first six months were $123.2M an increase of $36.7M or 42% from the $86.5M for the first six months of fiscal 2007, while operating income for the latest six months was $10.1M or 8.2% of net revenues, up from $6.2M or 7.2% of net revenues, for the year-earlier period. By the end of Thursday’s trading session, shares of Overhill were slightly lower on the day, down $0.17, or 2.2%, to close at $7.45 a share.
Overhill Farms, Inc. is a value-added manufacturer of frozen food products, including entrees, plated meals, meal components, soups, sauces, poultry, meat and fish specialties, as well as organic and vegetarian offerings. The company provides custom prepared foods to customers, such as Panda Restaurant Group, Inc., Jenny Craig, Inc., American Airlines, Inc., Safeway Inc. and Pinnacle Foods Corporation. Overhill Farms markets its products through both an internal sales force and outside food brokers. The company has served foodservice, retail and airline customers. Overhill Farms leases two manufacturing facilities in Vernon, California. In January 2002, the Company entered into a 10-year lease, with an option for a five-year renewal, for a facility, Plant No. 1, that has been expanded to 170,000 square feet. Most of its home office, manufacturing and warehousing, product development and marketing, and quality control facilities have been consolidated into this single location. The company also maintains a facility, Plant No. 2, primarily for cooking protein. Overhill Farms also leases 7,620 square feet of dry goods storage in Huntington Park, California on a month-to-month basis. The company was founded in 1995, currently employs more than 1,000 workers and continuously competes with Tyson Foods, Inc. (TSN) and ConAgra Foods, Inc (CAG).
Overhill Farms once counted on airline meals for more than a third of its sales. In 2001 management decided to spend some $13M, about 8% of sales at the time, to consolidate its headquarters, product development, warehousing and most manufacturing into a single facility. In the company's fiscal 2003, it paid more than $7M in interest on $45M in long-term debt, for a rate of around 16% and that doesn't include stock-based perks given to lenders. An already slim profit turned into a giant loss. Exactly five years ago Overhill shares went for just $0.40 apiece. Today they're pushing $8 a share. Sales are running at nearly double their 2003 pace, and more importantly, profits returned in 2005 and have multiplied since. Excluding the company's four largest customers: Jenny Craig, Heinz, Panda Express and Safeway, sales increased nearly 30%. In testament to the importance of scale in the packaged-food business, even after subtracting a $1M charge stemming from a meat packer's recall, operating margin improved 4.1 percentage points to 9.6%. Lenders now seem keener on the company. This year's interest expense is seen totaling around $3.8M, or 10% of the company's $38M in long-term debt, down from 16% in 2003. The lone analyst covering Overhill shares from Roth Capital Partners, now foresees profits for this fiscal year ending Sept. 30th more than doubling, to $0.69 a share.
Growth prospects seem bright. Safeway, for example, plans to make its popular organic frozen meals available to other grocers, and has named Overhill as a key supplier. Overhill's airline business, which now makes up less than 5% of total sales, showed a 10% improvement last quarter, suggesting the end of a long decline. Roth Capital's analyst expects a 23% improvement in earnings per share in Overhill's next fiscal year. But even in the current slowdown, Americans are still buying prepared-food products. That's helping food manufacturers bake in some modest revenue and earnings growth. These food companies, part of a broader consumer-staples sector, are considered recession-resistant. They tend to deliver modest-to-decent results, and in tough times, investors flock to them for their dividends and share buy-backs, although Overhill currently does not payout dividends. Food companies face rising energy prices and a fiercely competitive environment. Worse still, the basic ingredients in their foods have become much more expensive in the last few years. But companies have successfully raised prices and cut costs, and Americans have kept eating. The food, beverage and consumer packaged goods industry brings in more than $2 trillion in sales globally each year, the Grocery Manufacturers Association says. Within the sector of food manufacturers, additive makers and specialty suppliers, the group's collective market value is $278B. It's a fiercely competitive market. Supermarkets operate on razor-thin margins and demand the same from the manufacturers whose products line their shelves. And finally, Overhill turned up recently in a search for companies that are defying the broad market's past-year decline by hitting or nearing fresh 52-week high prices. Such new highs tend to worry investors, yet studies show they're more likely than not to be followed by a continuance of market-beating gains.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Overhill Farms, Inc. is a value-added manufacturer of frozen food products, including entrees, plated meals, meal components, soups, sauces, poultry, meat and fish specialties, as well as organic and vegetarian offerings. The company provides custom prepared foods to customers, such as Panda Restaurant Group, Inc., Jenny Craig, Inc., American Airlines, Inc., Safeway Inc. and Pinnacle Foods Corporation. Overhill Farms markets its products through both an internal sales force and outside food brokers. The company has served foodservice, retail and airline customers. Overhill Farms leases two manufacturing facilities in Vernon, California. In January 2002, the Company entered into a 10-year lease, with an option for a five-year renewal, for a facility, Plant No. 1, that has been expanded to 170,000 square feet. Most of its home office, manufacturing and warehousing, product development and marketing, and quality control facilities have been consolidated into this single location. The company also maintains a facility, Plant No. 2, primarily for cooking protein. Overhill Farms also leases 7,620 square feet of dry goods storage in Huntington Park, California on a month-to-month basis. The company was founded in 1995, currently employs more than 1,000 workers and continuously competes with Tyson Foods, Inc. (TSN) and ConAgra Foods, Inc (CAG).
Overhill Farms once counted on airline meals for more than a third of its sales. In 2001 management decided to spend some $13M, about 8% of sales at the time, to consolidate its headquarters, product development, warehousing and most manufacturing into a single facility. In the company's fiscal 2003, it paid more than $7M in interest on $45M in long-term debt, for a rate of around 16% and that doesn't include stock-based perks given to lenders. An already slim profit turned into a giant loss. Exactly five years ago Overhill shares went for just $0.40 apiece. Today they're pushing $8 a share. Sales are running at nearly double their 2003 pace, and more importantly, profits returned in 2005 and have multiplied since. Excluding the company's four largest customers: Jenny Craig, Heinz, Panda Express and Safeway, sales increased nearly 30%. In testament to the importance of scale in the packaged-food business, even after subtracting a $1M charge stemming from a meat packer's recall, operating margin improved 4.1 percentage points to 9.6%. Lenders now seem keener on the company. This year's interest expense is seen totaling around $3.8M, or 10% of the company's $38M in long-term debt, down from 16% in 2003. The lone analyst covering Overhill shares from Roth Capital Partners, now foresees profits for this fiscal year ending Sept. 30th more than doubling, to $0.69 a share.
Growth prospects seem bright. Safeway, for example, plans to make its popular organic frozen meals available to other grocers, and has named Overhill as a key supplier. Overhill's airline business, which now makes up less than 5% of total sales, showed a 10% improvement last quarter, suggesting the end of a long decline. Roth Capital's analyst expects a 23% improvement in earnings per share in Overhill's next fiscal year. But even in the current slowdown, Americans are still buying prepared-food products. That's helping food manufacturers bake in some modest revenue and earnings growth. These food companies, part of a broader consumer-staples sector, are considered recession-resistant. They tend to deliver modest-to-decent results, and in tough times, investors flock to them for their dividends and share buy-backs, although Overhill currently does not payout dividends. Food companies face rising energy prices and a fiercely competitive environment. Worse still, the basic ingredients in their foods have become much more expensive in the last few years. But companies have successfully raised prices and cut costs, and Americans have kept eating. The food, beverage and consumer packaged goods industry brings in more than $2 trillion in sales globally each year, the Grocery Manufacturers Association says. Within the sector of food manufacturers, additive makers and specialty suppliers, the group's collective market value is $278B. It's a fiercely competitive market. Supermarkets operate on razor-thin margins and demand the same from the manufacturers whose products line their shelves. And finally, Overhill turned up recently in a search for companies that are defying the broad market's past-year decline by hitting or nearing fresh 52-week high prices. Such new highs tend to worry investors, yet studies show they're more likely than not to be followed by a continuance of market-beating gains.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Wednesday, June 11, 2008
BetterTrades looks at Korn/Ferry International - June 11, 2008
Korn/Ferry International (KFY), an executive recruitment company, made it known Wednesday that the company’s 4Q earnings surged 16% as the number of executive searches it conducted increased, along with the average billing fee per search. Earnings for the three months climbed to $15.7M, or $0.36 per share, from $13.5M, or $0.30 per share, a year ago. Korn/Ferry noted that its prior-year results were also $0.36 per share excluding previously announced one-time charges, such as a charge for employment contract changes. Total revenues for the firm increased 16% to $220.5M, from $189.8M in the prior year, along with quarterly fee revenues growing 16% to $208.2M, from $179.7M in the 4Q of 2007. Analysts had forecasted 4Q earnings of $0.36 per share on revenues of $210.8M. Compensation and benefits for the company gained 14% to $141.3M. General and administrative expenses, however, did jumped 20% to $31M, which Korn/Ferry attributes to higher rent and utilities, higher bad debt provisions in line with increased accounts receivable balances and advertising and promotional costs. For the full year, earnings jumped 19% to $66.2M, or $1.46 per share, from $55.5M, or $1.30 per share, in fiscal 2007, along with total revenues surging 21% to $835.6M, from $689.2M in the prior year. Analysts were forecasting full-year earnings of $1.46 on revenues of $826M. Korn/Ferry also issued fiscal 1Q guidance on Wednesday, as the company now expects 1Q earnings per share in the range of $0.28 to $0.32 and quarterly fee revenues between $190M and $200M. The high end of the company's estimated profit range met the analysts' average estimate, while its estimated revenue range fell short of the average forecast. Analysts are forecasting 1Q earnings of $0.32 per share on higher revenues of $201.5M. At the close of today’s trading session, shares of Korn/Ferry were lower on the day, down by $0.87, or 5.1%, at $16.06.
Korn/Ferry International is a global provider of talent management solutions that help clients to attract, deploy, develop, retain and reward their talent. The company provides talent management solutions, including executive recruitment, middle-management recruitment and leadership development solutions. Executive search, its principal business, focuses on board level, chief executive and other senior executive positions for clients in the consumer, financial services, industrial, life sciences and technology industries. The company’s multi-tiered portfolio of services includes mid-level search, project recruitment and interim solutions. Its blend of leadership services assists clients with the ongoing assessment and development of their leadership teams. Services include succession planning, management and team development, competency modeling, executive coaching, on-boarding, merger integration, cultural change, integrated talent management, and executive compensation consulting through its wholly owned subsidiary, Executive Compensation Advisors. The company’s executive recruitment services are used to fill executive-level positions, such as board directors, chief executive officers, chief financial officers, chief operating officers, chief information officers and other senior executive officers. Once it is retained by a client to conduct a search, Korn/Ferry assembles a team consisting of consultants with appropriate geographic, industry and functional capability. During the fiscal year of 2007, the company executed more than 9,600 executive recruitment assignments. The company’s 4,742 clients include public and private companies, including 43% of the FORTUNE 500 companies during fiscal 2007. In fiscal 2007, no single client represented more than 2% of fee revenue.
Korn/Ferry, however, focuses on a very small niche of the job market, that of executives, and higher level management. The market for executives and high level management is driven primarily by the creation of new management jobs and increased turnover in management. Factors that influence these two drivers are tighter markets for talent, increases in poaching from other companies, reductions in promotion from within, business creation, and general economic conditions. KFY's business is from multi-nationals, not country domiciled businesses, which means that many of these business’s country growth plans could be harmed by issues in the U.S. Their earnings have historically been cyclically tied to trends in hiring and unemployment rate, and there is no reason to believe that this will not continue into the future. Korn Ferry is a slightly different company than they were previously, as they have more international exposure, a stronger balance sheet, and a more favorable cost structure than at the last turn in the cycle. SG&A expenses as a percent of total sales are much less than they were in past cycles, making the risk of big losses as the cycle turns less likely. Despite talks of cyclical fears in KFY, analysts are still projecting healthy year-over-year increases in profits and revenues for the foreseeable future.
Korn/Ferry has also announced a 22% increase in fee revenue for the 3Q of fiscal 2008.
It seems that in the 3Q, Korn/Ferry could only recoup 77% of these expenses from the client. The downside of this fact is that this discrepancy is equivalent to 20% of net income. And 20% is huge when you talk about margins and investors need to consider this drag on earnings. If hiring in the U.S. slows down, KFY's business will deteriorate, as it has in the past. With that being said, investors should note that there are reasons to believe that this downturn may not be quite as bad as in years past. KFY's sector exposure is buoyed by a healthy basic materials and other significant non-cyclical focus, which could potentially help them weather a storm a bit more. If investors think that the domestic economy is headed down the drain, then KFY could be a relatively low risk trade. KFY's international exposure in emerging economies is still small, and though their international exposure may lessen the blow some, a huge chunk of their business is still U.S. based. Permanent staffing is, and always will be economically cyclical, and although KFY has made strides in reducing its fixed cost structure and global footprint, subsequent downturns are still inevitable.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Korn/Ferry International is a global provider of talent management solutions that help clients to attract, deploy, develop, retain and reward their talent. The company provides talent management solutions, including executive recruitment, middle-management recruitment and leadership development solutions. Executive search, its principal business, focuses on board level, chief executive and other senior executive positions for clients in the consumer, financial services, industrial, life sciences and technology industries. The company’s multi-tiered portfolio of services includes mid-level search, project recruitment and interim solutions. Its blend of leadership services assists clients with the ongoing assessment and development of their leadership teams. Services include succession planning, management and team development, competency modeling, executive coaching, on-boarding, merger integration, cultural change, integrated talent management, and executive compensation consulting through its wholly owned subsidiary, Executive Compensation Advisors. The company’s executive recruitment services are used to fill executive-level positions, such as board directors, chief executive officers, chief financial officers, chief operating officers, chief information officers and other senior executive officers. Once it is retained by a client to conduct a search, Korn/Ferry assembles a team consisting of consultants with appropriate geographic, industry and functional capability. During the fiscal year of 2007, the company executed more than 9,600 executive recruitment assignments. The company’s 4,742 clients include public and private companies, including 43% of the FORTUNE 500 companies during fiscal 2007. In fiscal 2007, no single client represented more than 2% of fee revenue.
Korn/Ferry, however, focuses on a very small niche of the job market, that of executives, and higher level management. The market for executives and high level management is driven primarily by the creation of new management jobs and increased turnover in management. Factors that influence these two drivers are tighter markets for talent, increases in poaching from other companies, reductions in promotion from within, business creation, and general economic conditions. KFY's business is from multi-nationals, not country domiciled businesses, which means that many of these business’s country growth plans could be harmed by issues in the U.S. Their earnings have historically been cyclically tied to trends in hiring and unemployment rate, and there is no reason to believe that this will not continue into the future. Korn Ferry is a slightly different company than they were previously, as they have more international exposure, a stronger balance sheet, and a more favorable cost structure than at the last turn in the cycle. SG&A expenses as a percent of total sales are much less than they were in past cycles, making the risk of big losses as the cycle turns less likely. Despite talks of cyclical fears in KFY, analysts are still projecting healthy year-over-year increases in profits and revenues for the foreseeable future.
Korn/Ferry has also announced a 22% increase in fee revenue for the 3Q of fiscal 2008.
It seems that in the 3Q, Korn/Ferry could only recoup 77% of these expenses from the client. The downside of this fact is that this discrepancy is equivalent to 20% of net income. And 20% is huge when you talk about margins and investors need to consider this drag on earnings. If hiring in the U.S. slows down, KFY's business will deteriorate, as it has in the past. With that being said, investors should note that there are reasons to believe that this downturn may not be quite as bad as in years past. KFY's sector exposure is buoyed by a healthy basic materials and other significant non-cyclical focus, which could potentially help them weather a storm a bit more. If investors think that the domestic economy is headed down the drain, then KFY could be a relatively low risk trade. KFY's international exposure in emerging economies is still small, and though their international exposure may lessen the blow some, a huge chunk of their business is still U.S. based. Permanent staffing is, and always will be economically cyclical, and although KFY has made strides in reducing its fixed cost structure and global footprint, subsequent downturns are still inevitable.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Tuesday, June 10, 2008
BetterTrades looks at The Mosaic Company - June 10, 2008
The Mosaic Company (MOS) announced earlier today that two of three credit rating agencies that rate the company's debt, Fitch Inc., a majority-owned subsidiary of Fimalac, S.A. and Standard and Poor's Ratings Services, a division of The McGraw-Hill Companies, have upgraded Mosaic's unsecured debt ratings to investment grade status. Given these actions, most of the restrictive covenants relating to the company's 7-3/8% senior notes due 2014 and 7-5/8% senior notes due 2016 have fallen away. Since Mosaic's formation in 2004, the company has worked relentlessly to generate cash and pay down debt. Reaching investment grade status is a milestone that will provide Mosaic with access to lower cost funding sources as well as greater flexibility in making financial, investment and operational decisions. Certain covenants relating to the Senior Notes will continue to apply. These continuing covenants include limitations on the company's ability to use assets as security in other transactions, mergers with or into other companies, and sale and leaseback transactions, as well as a requirement that certain subsidiaries guarantee the Senior Notes. A security rating is not a recommendation to buy, sell or hold securities. Although a security rating may be subject to revision or withdrawal at any time by the assigning rating organization, any such revision or withdrawal would not affect the fall away of the covenants relating to the Senior Notes. On the day, shares of Mosaic traded higher by the close, up $3.20, or 2.3%, to finish at $144.21 a share, just off its 52-week trading high of $145.40 reached earlier in the session.
The Mosaic Company engages in the production and marketing of crop nutrient and animal feed products worldwide. It operates in four segments: Phosphates, Potash, Offshore, and Nitrogen. The Phosphates segment produces concentrated phosphate fertilizers, as well as phosphate and potash-based animal feed ingredients. This segment has phosphate mining operations in Florida, as well as phosphate production facilities in Florida and Louisiana. Within the Potash segment, the company mines and processes potash in Canada and throughout the United States. Its potash products are used in the manufacture of mixed crop nutrients and animal feed ingredients, as well as in industrial applications. These products are also used for de-icing, as well as for application as water softener regenerants. The Offshore segment consists of fertilizer blending and bagging facilities, port terminals, and warehouses in certain international countries, as well as owns or has investments in production facilities in Brazil and other countries. The Nitrogen segment produces and distributes nitrogen-based fertilizers and animal feed ingredients in North America. Its principal products include anhydrous ammonia, granular urea, urea and feed grade urea, and urea ammonium nitrate solution. The company markets its products primarily to wholesalers, cooperatives, independent retailers, and national accounts. The Mosaic Company was founded in 2004, currently employs more than 7,000 people and is headquartered in Plymouth, Minnesota.
The agriculture bull market is in full swing and the prospects for the industry keep growing stronger. Agriculture is entrenched in supporting the basic needs of humans and is vital to the sustainability of a growing population. In fact, 45% of the world's workers are employed in agriculture. Recently, prices for crops have skyrocketed as farmers produced less food last year than was consumed, and stockpiles have been drawn down to 30-year lows. The primary demand driver has come from emerging markets including China and India as consumers emerge from poverty and move to a protein-rich diet. Twenty-percent of Asia is living on less than $1 a day and a full 1.5 billion in the region are living on under $2 a day. As incomes rise from the $2 a day level to $10 a day, people tend to initially spend their incomes on more meat, dairy, fruits, and vegetables. Once diets improve, life expectancies will be prolonged and place further strains on food supplies. The overall population picture is also positive with the world population expected to move from 6 billion today to 8 billion by 2030. During that period, world food demand is expected to double according to the World Bank. Government mandates for bio-fuel production have also driven up the values for crops. The 2007 US Energy Bill mandates that 36 billion gallons a year of renewable fuels be produced by 2022, and the European Union has a target for bio-fuels to supply 10% of their fuel needs by 2020. In the US, 30% of this year's corn crop will be siphoned towards ethanol use. Furthermore, farmland across the world has been steadily declining as urbanization, deforestation, and continued population growth take away about 24.7 million acres a year. The US alone is losing about a million acres a year to development. These figures are alarming and raise the question of how the world's growing food demand will be met.
The answer, most likely, lies in genetically modified seeds and also with adequate fertilizer usage. The fertilizer arena presents the most attractive agriculture investment as significant barriers to entry, lack of resource availability, high costs of new plants, and long plant and infrastructure development time make the sector as attractive as oil was several years ago. Fertilizer is necessary to replace the nutrients that crops remove from the soil, and a proper balance of the main three nutrients, nitrogen, phosphate, and potash, is necessary to maximize the yield and quality of crops. Mosaic has had a banner year adding 264% of value and now trading with a market cap of $62B. The company is majority-owned by Cargill along with achieving investment-grade credit ratings for its bonds. Like PotashCorp (POT), Mosaic is one of the few companies with the ability to increase its capacity and plans to do so with a 50% increase by 2020. It may seem like these supply increases will flood the market and erode pricing power, but this is not likely as it will take about five years for these production increases to come on line, and by then demand will already be drastically higher. Mosaic has seen tremendous growth in their business and the stock, which was at $60 in November last year, is down from a recent high of around $143 and trading today just below the $140 mark. Mosaic is in the agriculture/fertilizer business and with bio-diesel becoming increasingly popular, they are not only a play on farming, agriculture and food, but also on energy. This stock trades at around 12-times future earnings and looks like it may have some room to run. The underlying fundamentals of the agriculture industry are very strong and comparable to what oil looked like two or three years ago. This company should and will benefit from the bullish trend and from the multiple growth drivers for many more years, and Mosaic should outperform because of their unique ability to add capacity of a rare good.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
The Mosaic Company engages in the production and marketing of crop nutrient and animal feed products worldwide. It operates in four segments: Phosphates, Potash, Offshore, and Nitrogen. The Phosphates segment produces concentrated phosphate fertilizers, as well as phosphate and potash-based animal feed ingredients. This segment has phosphate mining operations in Florida, as well as phosphate production facilities in Florida and Louisiana. Within the Potash segment, the company mines and processes potash in Canada and throughout the United States. Its potash products are used in the manufacture of mixed crop nutrients and animal feed ingredients, as well as in industrial applications. These products are also used for de-icing, as well as for application as water softener regenerants. The Offshore segment consists of fertilizer blending and bagging facilities, port terminals, and warehouses in certain international countries, as well as owns or has investments in production facilities in Brazil and other countries. The Nitrogen segment produces and distributes nitrogen-based fertilizers and animal feed ingredients in North America. Its principal products include anhydrous ammonia, granular urea, urea and feed grade urea, and urea ammonium nitrate solution. The company markets its products primarily to wholesalers, cooperatives, independent retailers, and national accounts. The Mosaic Company was founded in 2004, currently employs more than 7,000 people and is headquartered in Plymouth, Minnesota.
The agriculture bull market is in full swing and the prospects for the industry keep growing stronger. Agriculture is entrenched in supporting the basic needs of humans and is vital to the sustainability of a growing population. In fact, 45% of the world's workers are employed in agriculture. Recently, prices for crops have skyrocketed as farmers produced less food last year than was consumed, and stockpiles have been drawn down to 30-year lows. The primary demand driver has come from emerging markets including China and India as consumers emerge from poverty and move to a protein-rich diet. Twenty-percent of Asia is living on less than $1 a day and a full 1.5 billion in the region are living on under $2 a day. As incomes rise from the $2 a day level to $10 a day, people tend to initially spend their incomes on more meat, dairy, fruits, and vegetables. Once diets improve, life expectancies will be prolonged and place further strains on food supplies. The overall population picture is also positive with the world population expected to move from 6 billion today to 8 billion by 2030. During that period, world food demand is expected to double according to the World Bank. Government mandates for bio-fuel production have also driven up the values for crops. The 2007 US Energy Bill mandates that 36 billion gallons a year of renewable fuels be produced by 2022, and the European Union has a target for bio-fuels to supply 10% of their fuel needs by 2020. In the US, 30% of this year's corn crop will be siphoned towards ethanol use. Furthermore, farmland across the world has been steadily declining as urbanization, deforestation, and continued population growth take away about 24.7 million acres a year. The US alone is losing about a million acres a year to development. These figures are alarming and raise the question of how the world's growing food demand will be met.
The answer, most likely, lies in genetically modified seeds and also with adequate fertilizer usage. The fertilizer arena presents the most attractive agriculture investment as significant barriers to entry, lack of resource availability, high costs of new plants, and long plant and infrastructure development time make the sector as attractive as oil was several years ago. Fertilizer is necessary to replace the nutrients that crops remove from the soil, and a proper balance of the main three nutrients, nitrogen, phosphate, and potash, is necessary to maximize the yield and quality of crops. Mosaic has had a banner year adding 264% of value and now trading with a market cap of $62B. The company is majority-owned by Cargill along with achieving investment-grade credit ratings for its bonds. Like PotashCorp (POT), Mosaic is one of the few companies with the ability to increase its capacity and plans to do so with a 50% increase by 2020. It may seem like these supply increases will flood the market and erode pricing power, but this is not likely as it will take about five years for these production increases to come on line, and by then demand will already be drastically higher. Mosaic has seen tremendous growth in their business and the stock, which was at $60 in November last year, is down from a recent high of around $143 and trading today just below the $140 mark. Mosaic is in the agriculture/fertilizer business and with bio-diesel becoming increasingly popular, they are not only a play on farming, agriculture and food, but also on energy. This stock trades at around 12-times future earnings and looks like it may have some room to run. The underlying fundamentals of the agriculture industry are very strong and comparable to what oil looked like two or three years ago. This company should and will benefit from the bullish trend and from the multiple growth drivers for many more years, and Mosaic should outperform because of their unique ability to add capacity of a rare good.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Monday, June 09, 2008
BetterTrades looks at Murphy Oil Corp. - June 9, 2008
Analysts disagreed Monday on how much Murphy Oil Corp. (MUR) might gain from its stake in an oilfield in Malaysia, with Goldman Sachs giving a strong recommendation and JPMorgan downgrading the stock. Murphy owns an 80% stake in the Kikeh field and began drawing oil from the area in August 2007. The company will share production with Petronas Carigali, which holds the remaining 20%. The Goldman Sachs analyst upgraded the stock to "Buy" from "Neutral," raising the price target to $115 per share from $105 and placing the stock on a list of recommended securities. The analyst stated that increasing production in the Kikeh field puts the company in position to benefit from record crude prices and could allow it to beat expectations. However, the JPMorgan made it known that high oil prices have allowed Murphy to recover costs in the Kikeh field more quickly than expected. Once the $1.8B in costs has been recovered, the company will begin sharing profits with Petronas Carigali, and Murphy's gains from production will be smaller than Wall Street hopes. The JPMorgan analyst downgraded the stock to "Underweight" from "Neutral," and cut their profit estimates for 2009 and 2010. Shares of El Dorado, Ark.-based Murphy closed at $93.32 Friday and have traded between $56.13 and $99.72 in the past year. The stock reached a high of $99.72 on May 21st. Today, the stock gained another $1.99, or 2.1%, to close at $95.31, only $4.41 off its 52-week high.
Murphy Oil Corporation, incorporated in 1950, is a worldwide oil and gas exploration and production company, with refining and marketing operations in the U.S. and the United Kingdom. Its operations are classified into two business activities: Exploration and Production, and Refining and Marketing. Murphy’s exploration and production activities are subdivided into six geographic segments, including the U.S., Canada, the U.K., Malaysia, Ecuador and all other countries. Murphy’s refining and marketing activities are subdivided into geographic segments for North America and United Kingdom. Murphy exited the gasoline retailing business in Canada by the end of December 2007. The company’s exploration and production business explores for and produces crude oil, natural gas and natural gas liquids worldwide. Its exploration and production management team in Houston, Texas directs the company’s worldwide exploration and production activities. Murphy’s crude oil and natural gas liquids production was produced and sold in the United States, Canada and the United Kingdom. Murphy’s worldwide crude oil, condensate and natural gas liquids production averaged 91,522 barrels per day. The company’s worldwide sales volume of natural gas averaged 61 million cubic feet (mmcf) per day during 2007. Total worldwide production on a barrel of oil equivalent basis, 6,000cf of natural gas equals one barrel of oil, during 2007, was 101,702 barrels per day. In Ecuador, the Company owns a 20% working interest in Block 16, which is operated by Repsol-YPF under a participation contract that expires in January 2012. The company’s net production was about 9,000 barrels of oil per day during 2007. Murphy Oil markets refined products through a network of retail gasoline stations and branded and unbranded wholesale customers in a 23-state area of the Southern and Midwestern United States. Murphy’s retail stations are primarily located in the parking lots of Wal-Mart Super-centers in 20 states and use the brand name Murphy USA. The Company also markets gasoline and other products at stations under the Murphy Express brand.
Since 1986, the average bull market, which consists of a 20% rally preceded by a 20% decline, in oil has lasted 242 calendar days and averaged a gain of 67.85%. The current bull market in oil started on January 18th, 2007, and to its peak, the commodity has rallied 136.47%. That makes the current rally more than double the average in gains and nearly double the average in length. Over this same period of time, shares of Murphy Oil have been up 108%. In the company’s most recent earnings report, released at the end of April, Murphy Oil announced that the company’s net income in the 1Q of 2008 was $409M or $2.14 per share, compared to net income of $110.6M or $0.58 per share in the 1Q of 2007. The larger profits in 2008 compared to 2007 was primarily due to higher crude oil sales prices and sales volumes, which led to improved earnings in the company’s exploration and production business. The 1Q of 2008 also included a $39.9M after-tax gain on sale of all Berkana Energy shares in Canada. Earnings in the company’s refining and marketing business in 2008 were hampered by much tighter refining margins compared to the 2007 quarter.
Murphy’s refining and marketing operations generated income of $10.2M in the 2008 quarter compared to income of $35.7M in the 2007 quarter. In North America, downstream earnings were $1M in 2008 compared to earnings of $34.5M in 2007. North American results were lower in 2008 mostly due to significantly weaker refining margins, which were hurt by higher prices for crude oil feed-stocks. Margins for U.S. retail marketing operations were slightly improved in the 2008 quarter. Refining and marketing operations in the United Kingdom generated income of $9.2M in the 1Q of 2008, compared to income of $1.2M in the same quarter of 2007. Total refinery inputs and petroleum products sold in the U.K. were significantly higher in 2008 than 2007 due to the purchase on December 1st, 2007 of the remaining 70% interest in the Milford Haven, Wales’s refinery. Exploration expense in the 2008 period was $66.5M compared to $48.4M in 2007. Undeveloped leasehold amortization increased $21.1M in 2008, mostly related to acreage acquired at the Tupper natural gas field under development in northeastern British Columbia. Geological and geophysical expenses increased $9.2M in 2008 compared to 2007 due to seismic activities at the Tupper field and in Block P, offshore Malaysia, but these were partially offset by lower seismic costs in the Republic of Congo. Dry hole expense was lower by $14.2M in the 2008 period mostly in the Gulf of Mexico. Murphy Oil is a relatively small company with 189 million shares outstanding, a P/E ratio of 17.19, and based on a forward year P/E of 9.74 and a very attractive projected earnings growth (PEG Ratio) of 0.41. Murphy Oil's stock price has surged 47% over the past year. Oil prices, which are highly volatile and cyclical in nature, are trading at record levels and could be vulnerable to weaker economic conditions. High prices may also create heightened demand for low-cost alternatives, and could thus hurt overall demand for oil and gas products. For those reasons, an analysts’ rating alone cannot tell the whole story, and should only be a part of an investor's overall research.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Murphy Oil Corporation, incorporated in 1950, is a worldwide oil and gas exploration and production company, with refining and marketing operations in the U.S. and the United Kingdom. Its operations are classified into two business activities: Exploration and Production, and Refining and Marketing. Murphy’s exploration and production activities are subdivided into six geographic segments, including the U.S., Canada, the U.K., Malaysia, Ecuador and all other countries. Murphy’s refining and marketing activities are subdivided into geographic segments for North America and United Kingdom. Murphy exited the gasoline retailing business in Canada by the end of December 2007. The company’s exploration and production business explores for and produces crude oil, natural gas and natural gas liquids worldwide. Its exploration and production management team in Houston, Texas directs the company’s worldwide exploration and production activities. Murphy’s crude oil and natural gas liquids production was produced and sold in the United States, Canada and the United Kingdom. Murphy’s worldwide crude oil, condensate and natural gas liquids production averaged 91,522 barrels per day. The company’s worldwide sales volume of natural gas averaged 61 million cubic feet (mmcf) per day during 2007. Total worldwide production on a barrel of oil equivalent basis, 6,000cf of natural gas equals one barrel of oil, during 2007, was 101,702 barrels per day. In Ecuador, the Company owns a 20% working interest in Block 16, which is operated by Repsol-YPF under a participation contract that expires in January 2012. The company’s net production was about 9,000 barrels of oil per day during 2007. Murphy Oil markets refined products through a network of retail gasoline stations and branded and unbranded wholesale customers in a 23-state area of the Southern and Midwestern United States. Murphy’s retail stations are primarily located in the parking lots of Wal-Mart Super-centers in 20 states and use the brand name Murphy USA. The Company also markets gasoline and other products at stations under the Murphy Express brand.
Since 1986, the average bull market, which consists of a 20% rally preceded by a 20% decline, in oil has lasted 242 calendar days and averaged a gain of 67.85%. The current bull market in oil started on January 18th, 2007, and to its peak, the commodity has rallied 136.47%. That makes the current rally more than double the average in gains and nearly double the average in length. Over this same period of time, shares of Murphy Oil have been up 108%. In the company’s most recent earnings report, released at the end of April, Murphy Oil announced that the company’s net income in the 1Q of 2008 was $409M or $2.14 per share, compared to net income of $110.6M or $0.58 per share in the 1Q of 2007. The larger profits in 2008 compared to 2007 was primarily due to higher crude oil sales prices and sales volumes, which led to improved earnings in the company’s exploration and production business. The 1Q of 2008 also included a $39.9M after-tax gain on sale of all Berkana Energy shares in Canada. Earnings in the company’s refining and marketing business in 2008 were hampered by much tighter refining margins compared to the 2007 quarter.
Murphy’s refining and marketing operations generated income of $10.2M in the 2008 quarter compared to income of $35.7M in the 2007 quarter. In North America, downstream earnings were $1M in 2008 compared to earnings of $34.5M in 2007. North American results were lower in 2008 mostly due to significantly weaker refining margins, which were hurt by higher prices for crude oil feed-stocks. Margins for U.S. retail marketing operations were slightly improved in the 2008 quarter. Refining and marketing operations in the United Kingdom generated income of $9.2M in the 1Q of 2008, compared to income of $1.2M in the same quarter of 2007. Total refinery inputs and petroleum products sold in the U.K. were significantly higher in 2008 than 2007 due to the purchase on December 1st, 2007 of the remaining 70% interest in the Milford Haven, Wales’s refinery. Exploration expense in the 2008 period was $66.5M compared to $48.4M in 2007. Undeveloped leasehold amortization increased $21.1M in 2008, mostly related to acreage acquired at the Tupper natural gas field under development in northeastern British Columbia. Geological and geophysical expenses increased $9.2M in 2008 compared to 2007 due to seismic activities at the Tupper field and in Block P, offshore Malaysia, but these were partially offset by lower seismic costs in the Republic of Congo. Dry hole expense was lower by $14.2M in the 2008 period mostly in the Gulf of Mexico. Murphy Oil is a relatively small company with 189 million shares outstanding, a P/E ratio of 17.19, and based on a forward year P/E of 9.74 and a very attractive projected earnings growth (PEG Ratio) of 0.41. Murphy Oil's stock price has surged 47% over the past year. Oil prices, which are highly volatile and cyclical in nature, are trading at record levels and could be vulnerable to weaker economic conditions. High prices may also create heightened demand for low-cost alternatives, and could thus hurt overall demand for oil and gas products. For those reasons, an analysts’ rating alone cannot tell the whole story, and should only be a part of an investor's overall research.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Friday, June 06, 2008
BetterTrades looks at Take-Two Interactive Software Inc. - June 6, 2008
Video game publisher Take-Two Interactive Software Inc. (TTWO) announced after the close Thursday that the company posted a fiscal 2Q profit well above Wall Street's expectations as revenues more than doubled, driven by strong sales of "Grand Theft Auto IV." For the recent quarter, Take-Two earned $98.2M, or $1.29 per share, compared with a loss of $51.2M, or $0.71 per share, in the same period a year earlier. Excluding stock options costs and legal expenses from larger rival Electronic Arts Inc.'s (ERTS) $2B buyout offer, Take-Two earned $1.52 per share in the latest quarter, while revenues jumped to $539.8M from $205.4M. Analysts, on average, expected profits of $1.13 per share, excluding stock options costs and other items, on sales of $499.1M. The quarter's results were fueled by "Grand Theft Auto IV," which went on sale on April 29th, the day before the quarter ended. The game sold 3.6 million copies the day it launched and raked in more than $500M worldwide in the first week. As of May 31st, 11 million copies have been sold into the retail channel, and about 8.5 million to consumers. Take-Two forecasts 3Q earnings, excluding items, between $0.45 and $0.55 per share on sales of $325M to $375M. Analysts are expecting profits of $0.32 per share on revenues of $322.3M. For the 4Q, however, Take-Two forecasted adjusted earnings of $0.10 to $0.20 per share, below the $0.46 per share analysts’ project. For the fiscal year which ends in October, Take-Two's predicts profit of $1.65 to $1.85 per share, excluding items, on sales of $1.4B to $1.5B, while analysts predict earnings of $1.53 per share and $1.41B in revenues. Take-Two shares gained $0.05 to $27.70 in after-hours electronic trading, while the stock earlier closed Thursday’s regular trading up $0.34 at $27.65, a 52-week high. At the conclusion of Friday’s trading, shares of TTWO were down slightly, lower by $0.29, or 1.0%, at $27.36.
Take-Two Interactive Software, Inc., incorporated in 1993, is a global publisher, developer and distributor of interactive entertainment software, hardware and accessories. The company operates in two segments: publishing and distribution. The publishing segment consists of Rockstar Games, 2K Games, 2K Sports and 2K Play publishing labels. The company develops, markets and publishes software titles for gaming and entertainment hardware platforms, including Sony’s Playstation3 (PS3) and PlayStation2 (PS2) computer entertainment systems; Sony’s PSP (PlayStationPortable) (PSP) system; Microsoft’s Xbox 360 (Xbox 360) and Xbox (Xbox) video game and entertainment systems; Nintendo’s Wii (Wii), GameCube, DS (DS) and Game Boy Advance (GBA), and for the personal computers (PC) and Games for Windows. The company’s distribution segment, which includes its Jack of All Games subsidiary, distributes its products, as well as software, hardware and accessories produced by others to retail outlets in North America. In January 2008, the company announced the acquisition of Illusion Softworks, a Central European-based game development studio with operations in Brno and Prague, the Czech Republic. Illusion Softworks will join the company’s 2K Games publishing label as its studio, 2K Czech. Rockstar Games, the publisher of the company’s blockbuster Grand Theft Auto franchise, is focused on creating content and groundbreaking entertainment. Rockstar is also known for developing titles in multiple genres, such as Midnight Club, Max Payne, Rockstar Games Presents Table Tennis, The Warriors, Red Dead Revolver and Bully. During the fiscal year ending in October of 2007, Grand Theft Auto titles accounted for 13.1% of its total net revenue. Most of the company’s third-party developed titles are published by its 2K Games label. 2K Games has secured rights to publish entertainment properties, including The Elder Scrolls IV: Oblivion, The Darkness, Ghost Rider and Fantastic Four: Rise of the Silver Surfer. Take-Two develops most of its 2K Sports software titles through its internal development studios, including the Major League Baseball (MLB) 2K series, NBA 2K series, NHL 2K series, College Hoops 2K series and Top Spin tennis series. 2K Sports label has sports league licenses, including long-term, third-party exclusive licensing relationships with Major League Baseball Properties, the Major League Baseball Players Association and Major League Baseball Advanced Media. 2K Play label focuses on developing and publishing titles for casual and family friendly games. While the majority of its 2K Play titles are developed by third-party developers, it has also developed software titles for its 2K Play label internally, such as Carnival Games and the Deal or No Deal series.
Take Two knew they were going to have a hit on their hands with their new game. The strength of the Grand Theft Auto brand, and increased market expectations caused by development delays, insured it. In the first week on the market, the game sold $500M in total sales at an average price of $83 a game, as international pricing is higher in many markets than the US $59.99 price. Those results represent an unquestionable success both by gaming or general entertainment standards. Comparatively, in the film industry, Spider-Man 3 generated a worldwide opening box office return of $381.70M at the theaters and in the book world, Harry Potter and the Deathly Hallows sold 8.3million copies in the first 24 hours at a cover price of $34.99. At full retail, that translated to $290.4M in revenues. While GTA IV’s numbers are a record, the previous record holder, Halo 3, was only available on a single console (Xbox 360). Follow up retail data being reported is estimating about 60% of the opening sales for GTA IV was for the Xbox 360 platform. Halo 3 moved about 5 million copies during its opening week in late September 2007. 98 days later, as of January 3rd, worldwide sales totals reported were at about 8.1 million units. Mathematically, the opening represented 62% of the estimated 3 month total sales. If a comparable pattern of an opening surge and subsequent slowdown happens with GTA IV’s 6 million unit debut, three months out, totals will be about 9.72 million units.
In the gaming industry, April saw $1.23B in retail sales up from $836.6M last year, a 47% increase, while month to month things were a little more measured. April sales showed some seasonal slowdown compared to March. Year to date, the industry is tracking 31% ahead of last year’s record setting pace. Take-Two had a 919.4% increase leading to sales of $199.6M for the month, thanks to the debut late in the month of Grand Theft Auto IV. Since "GTA4" meet with the commercial and critical success that had been so highly anticipated, the company has significantly shifted the balance of power in takeover discussions, or a lack thereof, between Take Two and rival Electronic Arts Inc. (ERTS). EA originally made a $2B or $26 per share offer for Take-Two, a company that has posted losses for more than two straight years. However, that offer was lowered to $25.74 after Take-Two investors approved an incentive plan that granted more stock shares to company executives, increasing the number of shares EA would have to buy. Take-Two had been trading within the $16 to $18 range prior to Electronic Arts’ bid. Take-Two will undoubtedly be asking a much higher price before they would consider a takeover bid for EA. EA is likely trying to put a deal together right now, as time is of the essence in order to subsume the upcoming holiday sales revenues. The odds of this deal going through are diminishing by the day as the value to EA lessens as more revenue is lost. The revenue growth for TTWO is obviously impressive, but cash flow has improved markedly as well. Take Two has commonly traded with price-to-cash flow in the range of 24.13 to 42.78 and at current price levels its only 7.75. It will be very interesting to see if the smash hit release of GTA4 has driven Take-Two out of EA’s price range. But with the value underlying TTWO, it would not be surprising if other suitors knock down their door.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Take-Two Interactive Software, Inc., incorporated in 1993, is a global publisher, developer and distributor of interactive entertainment software, hardware and accessories. The company operates in two segments: publishing and distribution. The publishing segment consists of Rockstar Games, 2K Games, 2K Sports and 2K Play publishing labels. The company develops, markets and publishes software titles for gaming and entertainment hardware platforms, including Sony’s Playstation3 (PS3) and PlayStation2 (PS2) computer entertainment systems; Sony’s PSP (PlayStationPortable) (PSP) system; Microsoft’s Xbox 360 (Xbox 360) and Xbox (Xbox) video game and entertainment systems; Nintendo’s Wii (Wii), GameCube, DS (DS) and Game Boy Advance (GBA), and for the personal computers (PC) and Games for Windows. The company’s distribution segment, which includes its Jack of All Games subsidiary, distributes its products, as well as software, hardware and accessories produced by others to retail outlets in North America. In January 2008, the company announced the acquisition of Illusion Softworks, a Central European-based game development studio with operations in Brno and Prague, the Czech Republic. Illusion Softworks will join the company’s 2K Games publishing label as its studio, 2K Czech. Rockstar Games, the publisher of the company’s blockbuster Grand Theft Auto franchise, is focused on creating content and groundbreaking entertainment. Rockstar is also known for developing titles in multiple genres, such as Midnight Club, Max Payne, Rockstar Games Presents Table Tennis, The Warriors, Red Dead Revolver and Bully. During the fiscal year ending in October of 2007, Grand Theft Auto titles accounted for 13.1% of its total net revenue. Most of the company’s third-party developed titles are published by its 2K Games label. 2K Games has secured rights to publish entertainment properties, including The Elder Scrolls IV: Oblivion, The Darkness, Ghost Rider and Fantastic Four: Rise of the Silver Surfer. Take-Two develops most of its 2K Sports software titles through its internal development studios, including the Major League Baseball (MLB) 2K series, NBA 2K series, NHL 2K series, College Hoops 2K series and Top Spin tennis series. 2K Sports label has sports league licenses, including long-term, third-party exclusive licensing relationships with Major League Baseball Properties, the Major League Baseball Players Association and Major League Baseball Advanced Media. 2K Play label focuses on developing and publishing titles for casual and family friendly games. While the majority of its 2K Play titles are developed by third-party developers, it has also developed software titles for its 2K Play label internally, such as Carnival Games and the Deal or No Deal series.
Take Two knew they were going to have a hit on their hands with their new game. The strength of the Grand Theft Auto brand, and increased market expectations caused by development delays, insured it. In the first week on the market, the game sold $500M in total sales at an average price of $83 a game, as international pricing is higher in many markets than the US $59.99 price. Those results represent an unquestionable success both by gaming or general entertainment standards. Comparatively, in the film industry, Spider-Man 3 generated a worldwide opening box office return of $381.70M at the theaters and in the book world, Harry Potter and the Deathly Hallows sold 8.3million copies in the first 24 hours at a cover price of $34.99. At full retail, that translated to $290.4M in revenues. While GTA IV’s numbers are a record, the previous record holder, Halo 3, was only available on a single console (Xbox 360). Follow up retail data being reported is estimating about 60% of the opening sales for GTA IV was for the Xbox 360 platform. Halo 3 moved about 5 million copies during its opening week in late September 2007. 98 days later, as of January 3rd, worldwide sales totals reported were at about 8.1 million units. Mathematically, the opening represented 62% of the estimated 3 month total sales. If a comparable pattern of an opening surge and subsequent slowdown happens with GTA IV’s 6 million unit debut, three months out, totals will be about 9.72 million units.
In the gaming industry, April saw $1.23B in retail sales up from $836.6M last year, a 47% increase, while month to month things were a little more measured. April sales showed some seasonal slowdown compared to March. Year to date, the industry is tracking 31% ahead of last year’s record setting pace. Take-Two had a 919.4% increase leading to sales of $199.6M for the month, thanks to the debut late in the month of Grand Theft Auto IV. Since "GTA4" meet with the commercial and critical success that had been so highly anticipated, the company has significantly shifted the balance of power in takeover discussions, or a lack thereof, between Take Two and rival Electronic Arts Inc. (ERTS). EA originally made a $2B or $26 per share offer for Take-Two, a company that has posted losses for more than two straight years. However, that offer was lowered to $25.74 after Take-Two investors approved an incentive plan that granted more stock shares to company executives, increasing the number of shares EA would have to buy. Take-Two had been trading within the $16 to $18 range prior to Electronic Arts’ bid. Take-Two will undoubtedly be asking a much higher price before they would consider a takeover bid for EA. EA is likely trying to put a deal together right now, as time is of the essence in order to subsume the upcoming holiday sales revenues. The odds of this deal going through are diminishing by the day as the value to EA lessens as more revenue is lost. The revenue growth for TTWO is obviously impressive, but cash flow has improved markedly as well. Take Two has commonly traded with price-to-cash flow in the range of 24.13 to 42.78 and at current price levels its only 7.75. It will be very interesting to see if the smash hit release of GTA4 has driven Take-Two out of EA’s price range. But with the value underlying TTWO, it would not be surprising if other suitors knock down their door.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Thursday, June 05, 2008
BetterTrades looks at Brown-Forman Corp. - June 5, 2008
Liquor producer Brown-Forman Corp. (BF.B) confirmed Thursday that the company’s 4Q profits jumped 48% on demand for the Jack Daniels and Finlandia brands, an acquisition and a lower tax rate. For the quarter, net income surged to $99.1M, or $0.81 per share, from $66.8M, or $0.54 per share in the prior year’s quarter, while analysts expected profits of $0.69 cents per share. The company said profits increased with growth in consumer demand for the Jack Daniel's brands and Finlandia, especially outside the U.S. The acquisition of the Casa Herradura Brands, along with increases in operating investments in the quarter and the weaker dollar also helped boost profits. A lower tax rate from the settlement of various tax uncertainties added another $0.04 per share to earnings. Revenues for the quarter climbed 12% to $772.3M from $690.8M, as analysts predicted revenues of $751.2M. For the year, net income jumped 13% to $439.8M, or $3.56 per share, from $389.5M, or $3.14 per share in the prior year, along with revenue climbing 17% to $3.28B from $2.81B in 2007. Brown-Forman also announced on Thursday that they expect fiscal 2009 profits to grow between 5% and 12% from 2008, within range of analyst’s estimates, in addition to the company expecting profits between $3.73 and $3.98 per share for the fiscal year ending in April 2009. Analysts are anticipating profits of $3.84 per share for the year. The company claimed that its outlook incorporates expectations for strong international growth, improving trends for both Jack Daniel's and Southern Comfort and "healthy growth" from its newly acquired Casa Herradura brands in the U.S. The company added it will likely benefit from a fiscal 2008 share buyback and lower interest expenses. Brown-Forman added it expects to report a higher tax rate and increases in fuel and raw material costs during the year. Shares took off today, adding $6.35, or 8.7%, to close at $78.47 in trading. The stock has ranged from $61.35 to $79.88 over the past year.
Brown-Forman Corporation, incorporated in 1933, is a diversified producer and marketer of consumer beverage products, including Jack Daniel's and its family of brands, Southern Comfort, Finlandia, Tequila Herradura, el Jimador Tequila, Canadian Mist, Fetzer, Bolla, Sonoma-Cutrer wines and Korbel Champagne. The Company markets and sells various categories of beverage alcohol products, such as Tennessee, Canadian, and Kentucky whiskies; Kentucky bourbon; California sparkling wine; tequila; table wine; liqueurs; vodka; rum; gin, and ready-to-drink products. The Company primarily manufactures, bottle, import, export and market a range of alcoholic beverage brands, which include Jack Daniel's Tennessee Whiskey, Southern Comfort, Jack Daniel's Single Barrel, Southern Comfort and Canadian Mist. The Company’s wine brands are Fetzer, Korbel and Bolla. Its principal export markets are the United Kingdom, Australia, Poland, Germany, Mexico, South Africa, Spain, France, Canada and Japan. Brown-Forman was founded in 1870, currently employs more than 4,000 workers and is based in Louisville, Kentucky.
Brown Forman owns some of the most valuable liquor brands, such as Jack Daniels, Finlandia, and Southern Comfort. The company is the largest American-owned spirits and wine company and sells its 35 brands in more than 135 countries. Their super-premium developing brands, those being Chambord, Woodward Reserve, Sonoma-Cutrer, and Casa Herradura, have super to ultra-premium price points and possess high gross profit margins. These brands represent about 8% of net sales in 2007, but are growing at double digit rates. The company pays a growing dividend and has treated shareholders fairly as the company has been growing underlying earnings about 10% a year. Brown Forman has been quite successful with a brand acquisition strategy which is much easier to do than acquiring whole companies. They have also done a good job in divesting brands and businesses when they feel that they will not meet their future growth targets. Return on invested capital in 2007 was 23.5% and the company has generated returns near 20% over the last five years. While the U.S. accounts for 53% of Brown-Forman's net sales, it's actually declining in importance as sales in other countries carry more weight. International expansion provides a significant portion of the company's growth, something that really hasn't changed over the past decade. Markets outside of the U.S. contributed more than 75% of the growth in net sales in 2007.
With heavy advertising and premium pricing, about $25 for a 3/4 liter bottle, 10.5 million cases of top-seller Jack Daniel's were sold in 2007. The #6 liquor brand in the world, 12 million cases are expected to sell in 2008, with about half of that number overseas. Yet investors sold down BF.B's Class B-shares from $80 last August to $70 because of a slight earnings miss. Investors who are worried about slowing growth are overlooking BF.B's consistent earnings growth record, and double digit projections, a growing worldwide consumer penchant for liquor over beer, and the U.S.’s easing of bourbon advertising restrictions. In addition, there is the iconic celebrity cache and the fact that Class B shares are trading at a P/E Ratio of 23.5 or $3.44/share for fiscal 2008, on par with main competitors like Britain's Diageo and France's Pernod Ricard. Brown-Forman is or may likely become a possible takeover or merger target at a price of around $10 billion, despite the controlling Brown family's pronouncements that they're not interested. One of the few potentially negatives for the company is that there are two share classes. The A shares have all of the voting rights, are very illiquid and are mainly owned by the Brown family. The B shares sell at a discount to the A's and are fairly liquid. Depending on management, this could be a big problem, but the Brown Forman management has treated the B shareholders fairly and has done a great job in building shareholder value.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Brown-Forman Corporation, incorporated in 1933, is a diversified producer and marketer of consumer beverage products, including Jack Daniel's and its family of brands, Southern Comfort, Finlandia, Tequila Herradura, el Jimador Tequila, Canadian Mist, Fetzer, Bolla, Sonoma-Cutrer wines and Korbel Champagne. The Company markets and sells various categories of beverage alcohol products, such as Tennessee, Canadian, and Kentucky whiskies; Kentucky bourbon; California sparkling wine; tequila; table wine; liqueurs; vodka; rum; gin, and ready-to-drink products. The Company primarily manufactures, bottle, import, export and market a range of alcoholic beverage brands, which include Jack Daniel's Tennessee Whiskey, Southern Comfort, Jack Daniel's Single Barrel, Southern Comfort and Canadian Mist. The Company’s wine brands are Fetzer, Korbel and Bolla. Its principal export markets are the United Kingdom, Australia, Poland, Germany, Mexico, South Africa, Spain, France, Canada and Japan. Brown-Forman was founded in 1870, currently employs more than 4,000 workers and is based in Louisville, Kentucky.
Brown Forman owns some of the most valuable liquor brands, such as Jack Daniels, Finlandia, and Southern Comfort. The company is the largest American-owned spirits and wine company and sells its 35 brands in more than 135 countries. Their super-premium developing brands, those being Chambord, Woodward Reserve, Sonoma-Cutrer, and Casa Herradura, have super to ultra-premium price points and possess high gross profit margins. These brands represent about 8% of net sales in 2007, but are growing at double digit rates. The company pays a growing dividend and has treated shareholders fairly as the company has been growing underlying earnings about 10% a year. Brown Forman has been quite successful with a brand acquisition strategy which is much easier to do than acquiring whole companies. They have also done a good job in divesting brands and businesses when they feel that they will not meet their future growth targets. Return on invested capital in 2007 was 23.5% and the company has generated returns near 20% over the last five years. While the U.S. accounts for 53% of Brown-Forman's net sales, it's actually declining in importance as sales in other countries carry more weight. International expansion provides a significant portion of the company's growth, something that really hasn't changed over the past decade. Markets outside of the U.S. contributed more than 75% of the growth in net sales in 2007.
With heavy advertising and premium pricing, about $25 for a 3/4 liter bottle, 10.5 million cases of top-seller Jack Daniel's were sold in 2007. The #6 liquor brand in the world, 12 million cases are expected to sell in 2008, with about half of that number overseas. Yet investors sold down BF.B's Class B-shares from $80 last August to $70 because of a slight earnings miss. Investors who are worried about slowing growth are overlooking BF.B's consistent earnings growth record, and double digit projections, a growing worldwide consumer penchant for liquor over beer, and the U.S.’s easing of bourbon advertising restrictions. In addition, there is the iconic celebrity cache and the fact that Class B shares are trading at a P/E Ratio of 23.5 or $3.44/share for fiscal 2008, on par with main competitors like Britain's Diageo and France's Pernod Ricard. Brown-Forman is or may likely become a possible takeover or merger target at a price of around $10 billion, despite the controlling Brown family's pronouncements that they're not interested. One of the few potentially negatives for the company is that there are two share classes. The A shares have all of the voting rights, are very illiquid and are mainly owned by the Brown family. The B shares sell at a discount to the A's and are fairly liquid. Depending on management, this could be a big problem, but the Brown Forman management has treated the B shareholders fairly and has done a great job in building shareholder value.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Wednesday, June 04, 2008
BetterTrades looks at J.M. Smucker Co. - June 4, 2008
Jams and jellies maker J.M. Smucker Co. (SJM) made a $2.95B bid for more of the breakfast table Wednesday, announcing an all-stock deal for Folgers coffee. Folgers, which dates to a 19th century California family business, has been expanded with gourmet and other specialty lines in recent years. While Folgers has been the nation's No. 1 ground coffee brand and is among Proctor & Gamble’s (PG)"billion-dollar brands" in annual sales, it has faced increased competition from Starbucks and other coffee sellers. In the deal, Smucker will assume about $350M of Folgers' debt in the deal. Smucker will issue a special $5 dividend to Smucker shareholders at a to-be-determined record date, before the acquisition. P&G shareholders will receive about 53.5% of Smucker in a tax-free stock-for-stock acquisition after the dividend. J.M. Smucker Co., based in Orrville, Ohio, just south of Cleveland, expects the acquisition will boost profits by about 9%, excluding the acquisition costs, if it owns the brand for the entire 2009 fiscal year. With the addition of Folgers, Smucker stated that they expect sales to increase nearly double to about $4.7B. Discounting costs from the deal, Smucker said it expects to make $3.45 to $3.50 per share in the fiscal year beginning July 1st. It is not the first deal both companies have done. Smucker in 2002 bought Jif peanut butter and Crisco shortening from P&G in an all-stock deal valued at nearly $1B. The fast-growing Smucker last year bought Eagle Family Food Holdings Inc., a maker of sweetened condensed and evaporated milk. Smucker shares gained 0.2%, or $0.12, to $53.87 in trading Wednesday, as the shares have traded between $42.75 and $64.32 during the past year. P&G shares also advanced, earning $1.04, or 1.6%, to $66.45, as those shares have traded between $60.76 and $75.18 over the past year.
The J.M. Smucker Company, incorporated in 1921, operates principally in one industry, the manufacturing and marketing of branded food products on a worldwide basis, with the majority of the company’s sales being in the United States. Its operations outside the U.S. are principally in Canada although products are exported to other countries as well. Sales outside the U.S. represent approximately 15% of total consolidated company sales during the fiscal year ending in April of 2007. It has two business segments: U.S. retail market and special markets. The company’s U.S. retail market segment consists of over 70% of its net sales. It includes the consumer and consumer oils and baking businesses and represents a large portion of the focus area for the company, which is the sale of branded food products. The special markets segment represents the aggregation of the foodservice, beverage, Canada and international businesses. The principal products of the company, which are sold in both its U.S. retail market segment and special markets segment, are peanut butter, shortening and oils, flour and baking ingredients, fruit spreads, baking mixes and ready-to-spread frostings, fruit and vegetable juices, beverages, dessert toppings, syrups, frozen sandwiches, pickles and condiments, and potato side dishes. With the completion of the Eagle acquisition, the principal products of the company will also include canned milk. In the U.S. retail market segment, the company’s products are primarily sold through brokers to food retailers, food wholesalers, club stores, mass merchandisers, discount stores and military commissaries. In the special markets segment, the company’s products are distributed domestically and in foreign countries through retail channels, foodservice distributors and operators, other food manufacturers, health and natural foods stores and distributors.
J.M. Smucker’s goods are typically sold in the center aisles of supermarkets. Their brands include Jif peanut butter, Crisco shortening/ cooking oil, J.M. Smucker jam and jelly, Pillsbury baking ingredients, and PET evaporated milk. Having been around for over 100 years, it’s safe to say that the business is stable, and J.M. Smucker is still run by the descendants of the original J.M. Smucker. The founding family has operated the company since its inception and the family still owns 8.2% of the stock. Another part of the story is earnings, as the company has been growing nicely. In the last 5 years, they averaged 16% a year while sales ramped at 7.5% a year, on average. Analysts predict future revenues growing by 7% a year, on average, in the next 5, and earnings to improve by 9.5% a year, on average, in the same time. Earnings over the last 3 years have been $2.60, $2.65, and $2.89. Expectations are for $3.10 this year and $3.40 next year. These aren't exciting numbers unless you get stimulated by good, steady growth, the kind that gives comfort in volatile markets. Other numbers that aren't heart racing but solid are Return on Equity (ROE) is 9.75%, the dividend yield is 2.4%, and the dividend payment is 38% of net profits. J.M. Smucker has paid a dividend continuously since 1949. Current assets outnumber current liabilities by more than 3.5-to-1 with $327M of it in cash out of $854M in current assets. The stock has acted very nicely over the last 7 years, steadily moving higher from a base of $15 in 2000 to its recent all-time high of $64.32, set back in late June of 2007. Since then, the stock has fallen off by about 15% from their high.
Intrinsic value has been defined as how much cash can be taken out of each company during its remaining life, which in turn, is a powerful way to measure the value of owning a company. J.M. Smucker’s estimated intrinsic value is about $62.80 per share, with the recent price at $54.69. This is a significant point of differentiation. Without adequate growth in revenue, costs eventually eat away at profitability, diminishing value for owners and shareholders alike. Failure to sufficiently grow revenue, in light of cost increases due to energy, raw materials and foreign exchange fluctuations, can take a hefty toll. J.M. Smucker has been able to negotiate these troubled waters by investing carefully in the growth of their business, avoiding excess debt, and paring non-value adding operations. The road ahead has some bumps for Smucker, even with earnings expected to increase. Much of the problem comes from costs. Management has made a point of saying that raw material costs such as soybean oil, peanuts, milk, corn sweetener, and wheat along with energy expenses will be noticeably higher in fiscal 2009. Price hikes will offset some of these as well as cost-cutting where possible. Last year the company eliminated its low-margin Canadian grain based food service business. That will increase margins going forward. Other positive developments: the company released 40 new products and expanded its distribution of many existing product lines in 2008. Expect more new products and wider distribution.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
The J.M. Smucker Company, incorporated in 1921, operates principally in one industry, the manufacturing and marketing of branded food products on a worldwide basis, with the majority of the company’s sales being in the United States. Its operations outside the U.S. are principally in Canada although products are exported to other countries as well. Sales outside the U.S. represent approximately 15% of total consolidated company sales during the fiscal year ending in April of 2007. It has two business segments: U.S. retail market and special markets. The company’s U.S. retail market segment consists of over 70% of its net sales. It includes the consumer and consumer oils and baking businesses and represents a large portion of the focus area for the company, which is the sale of branded food products. The special markets segment represents the aggregation of the foodservice, beverage, Canada and international businesses. The principal products of the company, which are sold in both its U.S. retail market segment and special markets segment, are peanut butter, shortening and oils, flour and baking ingredients, fruit spreads, baking mixes and ready-to-spread frostings, fruit and vegetable juices, beverages, dessert toppings, syrups, frozen sandwiches, pickles and condiments, and potato side dishes. With the completion of the Eagle acquisition, the principal products of the company will also include canned milk. In the U.S. retail market segment, the company’s products are primarily sold through brokers to food retailers, food wholesalers, club stores, mass merchandisers, discount stores and military commissaries. In the special markets segment, the company’s products are distributed domestically and in foreign countries through retail channels, foodservice distributors and operators, other food manufacturers, health and natural foods stores and distributors.
J.M. Smucker’s goods are typically sold in the center aisles of supermarkets. Their brands include Jif peanut butter, Crisco shortening/ cooking oil, J.M. Smucker jam and jelly, Pillsbury baking ingredients, and PET evaporated milk. Having been around for over 100 years, it’s safe to say that the business is stable, and J.M. Smucker is still run by the descendants of the original J.M. Smucker. The founding family has operated the company since its inception and the family still owns 8.2% of the stock. Another part of the story is earnings, as the company has been growing nicely. In the last 5 years, they averaged 16% a year while sales ramped at 7.5% a year, on average. Analysts predict future revenues growing by 7% a year, on average, in the next 5, and earnings to improve by 9.5% a year, on average, in the same time. Earnings over the last 3 years have been $2.60, $2.65, and $2.89. Expectations are for $3.10 this year and $3.40 next year. These aren't exciting numbers unless you get stimulated by good, steady growth, the kind that gives comfort in volatile markets. Other numbers that aren't heart racing but solid are Return on Equity (ROE) is 9.75%, the dividend yield is 2.4%, and the dividend payment is 38% of net profits. J.M. Smucker has paid a dividend continuously since 1949. Current assets outnumber current liabilities by more than 3.5-to-1 with $327M of it in cash out of $854M in current assets. The stock has acted very nicely over the last 7 years, steadily moving higher from a base of $15 in 2000 to its recent all-time high of $64.32, set back in late June of 2007. Since then, the stock has fallen off by about 15% from their high.
Intrinsic value has been defined as how much cash can be taken out of each company during its remaining life, which in turn, is a powerful way to measure the value of owning a company. J.M. Smucker’s estimated intrinsic value is about $62.80 per share, with the recent price at $54.69. This is a significant point of differentiation. Without adequate growth in revenue, costs eventually eat away at profitability, diminishing value for owners and shareholders alike. Failure to sufficiently grow revenue, in light of cost increases due to energy, raw materials and foreign exchange fluctuations, can take a hefty toll. J.M. Smucker has been able to negotiate these troubled waters by investing carefully in the growth of their business, avoiding excess debt, and paring non-value adding operations. The road ahead has some bumps for Smucker, even with earnings expected to increase. Much of the problem comes from costs. Management has made a point of saying that raw material costs such as soybean oil, peanuts, milk, corn sweetener, and wheat along with energy expenses will be noticeably higher in fiscal 2009. Price hikes will offset some of these as well as cost-cutting where possible. Last year the company eliminated its low-margin Canadian grain based food service business. That will increase margins going forward. Other positive developments: the company released 40 new products and expanded its distribution of many existing product lines in 2008. Expect more new products and wider distribution.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Tuesday, June 03, 2008
BetterTrades looks at Mitcham Industries Inc. - June 3, 2008
Mitcham Industries Inc. (MIND), which leases and sells seismic gear to petroleum companies, made it known after the bell Monday that the company’s fiscal 2009 1Q profits increased 9% on lower costs. For the three months ending April 30th, the company earned $4.3M, or $0.41 per share, compared with $3.9M, or $0.39 per share, during the same period a year earlier. Revenues, for the company, slipped nearly 19% to $18.5M from $23M, while the cost of sales declined by nearly half to $6.9M. Analysts polled, expected profits of $0.38 per share on revenues of $19.7M. Mitcham Industries, also late Monday, reaffirmed its profit and revenue outlook for fiscal 2009. The company expects profits between $1.35 and $1.40 per share on revenues between $78M and $82M, while analysts polled, expect profits of $1.36 per share on revenues of $80.4M. Mitcham also confirmed that the company expects continued growth in its equipment leasing business and for sales of its Seamap product to improve during the year. Mitcham shares slid $1.98, or 9.1%, to $19.85 in after-hours trading Monday, after gaining $0.55, or 2.6%, to close at $21.83 during the regular trading session. As for the stock’s trading performance on Tuesday, shares of Mitcham continued their downward spiral, falling $2.46, or 11.3%, to close at $19.37 a share.
Mitcham Industries, Inc., through its subsidiaries, provides equipment leasing, sales, and service to the seismic industry worldwide. The company leases and sells geophysical and other equipment used primarily by seismic data acquisition contractors to perform seismic data acquisition surveys on land; transition zones, such as marsh and shallow water areas; and marine areas. Its lease pool includes various equipment that are used in seismic data acquisition, including electronic components of land, transition zone, and marine seismic data acquisition systems, geophones and cables, earth vibrators, peripheral equipment, survey, and other equipment. The company also sells equipment, consumables, systems integration, engineering hardware, and software maintenance support services to the seismic, hydrographic, oceanographic, environmental, and defense industries in Southeast Asia and Australia. In addition, it designs, manufactures, and sells various proprietary products for the seismic, hydrographic, and offshore industries. The company's proprietary products include GunLink seismic source acquisition and control systems, which are designed to provide operators of marine seismic surveys precise control of energy sources; and the BuoyLink GPS tracking system used to provide precise positioning of seismic sources and streamers. It offers seismic equipment to the oil and gas industry, seismic contractors, environmental agencies, government agencies, and universities. The company was founded in 1987, currently employs 126 people and is headquartered in Huntsville, Texas.
This company is in the unloved industry of seismic data. While they sell and lease geophysical equipment, this equipment is used to look under the ground and see the make up as this service provides valuable data for the oil and gas industry. With much of the oil deep in the ground it is much more inconsistent using soil samples and older technologies. This equipment will give them the physical makeup, depth and size of the particular densities you are looking for. Buying this company into earnings seems like a good bet, based on last year's financials. Revenues were up 56%, operating income increased 151%, and EPS was up 19% last year, while the company currently gets 70% of their revenues from outside North America. Their leasing equipment segment increased 38% over the last fiscal year, and they acquired $26M in new leasing equipment during that time and $25.5M over the year prior. Half of the leasing equipment acquired last year was obtained in the 4Q, so it didn't add much to the leasing revenues.
On May 29th the stock had a triple top breakout, and the current trend points to a price target of $28.50. This stock looks to be headed for the highs of the beginning of last year. As with many good companies, they have under promised making their earnings very beatable. Over the last four quarters this company has beaten estimates by 30%, 30.8%, 26.3% and 18.5% respectively. The company seems very cheap as it is selling for a PE of 16.89 with 22.5% growth expected for the year. This company has grown 65% a year for the last five and is estimated to grow 15% for the next five. Unless oil bottoms, growth should be much higher than this in the upcoming years, however, this signals the problem with many of these companies as analysts believe that oil is headed lower in the upcoming years with the new production being produced. This company possesses all significant signs for a buy and has very good long term growth ahead. With growing worldwide demand, especially from BRIC (Brazil, Russia, India and China), the overall supply and demand balance of oil presents a bullish outlook for MIND. Between 2006 and 2010, the demand is forecasted to increase almost 3% more than supply, and consumption is forecasted to grow a total of 15%, or 13.6 million barrels per day. With increasing pressure on oil companies to find more oil reserves, Mitcham's technology comes in handy for locating oil & gas deposits in the exploration process.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Mitcham Industries, Inc., through its subsidiaries, provides equipment leasing, sales, and service to the seismic industry worldwide. The company leases and sells geophysical and other equipment used primarily by seismic data acquisition contractors to perform seismic data acquisition surveys on land; transition zones, such as marsh and shallow water areas; and marine areas. Its lease pool includes various equipment that are used in seismic data acquisition, including electronic components of land, transition zone, and marine seismic data acquisition systems, geophones and cables, earth vibrators, peripheral equipment, survey, and other equipment. The company also sells equipment, consumables, systems integration, engineering hardware, and software maintenance support services to the seismic, hydrographic, oceanographic, environmental, and defense industries in Southeast Asia and Australia. In addition, it designs, manufactures, and sells various proprietary products for the seismic, hydrographic, and offshore industries. The company's proprietary products include GunLink seismic source acquisition and control systems, which are designed to provide operators of marine seismic surveys precise control of energy sources; and the BuoyLink GPS tracking system used to provide precise positioning of seismic sources and streamers. It offers seismic equipment to the oil and gas industry, seismic contractors, environmental agencies, government agencies, and universities. The company was founded in 1987, currently employs 126 people and is headquartered in Huntsville, Texas.
This company is in the unloved industry of seismic data. While they sell and lease geophysical equipment, this equipment is used to look under the ground and see the make up as this service provides valuable data for the oil and gas industry. With much of the oil deep in the ground it is much more inconsistent using soil samples and older technologies. This equipment will give them the physical makeup, depth and size of the particular densities you are looking for. Buying this company into earnings seems like a good bet, based on last year's financials. Revenues were up 56%, operating income increased 151%, and EPS was up 19% last year, while the company currently gets 70% of their revenues from outside North America. Their leasing equipment segment increased 38% over the last fiscal year, and they acquired $26M in new leasing equipment during that time and $25.5M over the year prior. Half of the leasing equipment acquired last year was obtained in the 4Q, so it didn't add much to the leasing revenues.
On May 29th the stock had a triple top breakout, and the current trend points to a price target of $28.50. This stock looks to be headed for the highs of the beginning of last year. As with many good companies, they have under promised making their earnings very beatable. Over the last four quarters this company has beaten estimates by 30%, 30.8%, 26.3% and 18.5% respectively. The company seems very cheap as it is selling for a PE of 16.89 with 22.5% growth expected for the year. This company has grown 65% a year for the last five and is estimated to grow 15% for the next five. Unless oil bottoms, growth should be much higher than this in the upcoming years, however, this signals the problem with many of these companies as analysts believe that oil is headed lower in the upcoming years with the new production being produced. This company possesses all significant signs for a buy and has very good long term growth ahead. With growing worldwide demand, especially from BRIC (Brazil, Russia, India and China), the overall supply and demand balance of oil presents a bullish outlook for MIND. Between 2006 and 2010, the demand is forecasted to increase almost 3% more than supply, and consumption is forecasted to grow a total of 15%, or 13.6 million barrels per day. With increasing pressure on oil companies to find more oil reserves, Mitcham's technology comes in handy for locating oil & gas deposits in the exploration process.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Monday, June 02, 2008
BetterTrades looks at Holly Corporation - June 2, 2008
A Deutsche Bank analyst upgraded Holly Corp. (HOC) late Sunday, saying that they still see value in the company despite challenges from higher crude oil prices and tighter margins. The analyst boosted his rating on Holly to "Hold" from "Sell" with a $45 price target, implying that they expect the stock to increase 6% over Friday's $42.45 close. So far this year, the stock has shed 17% of its value. The analyst’s previous "Sell" rating was due in part to Holly's stock price relative to others in the sector, and not because of a negative view of the company. Holly rightly has a high reputation regarding both its assets and its management, and while consolidation would likely help its market share, any accident or any other incident could cause serious harm to the stock. In mid-May, Holly Corp. announced company earnings for the 1Q as the firm posted earnings of $8.6M, or $0.17 per share, down from $67.5M, or $1.22 per share, posted in last year's corresponding quarter. The consensus of Wall Street’s forecasts was for earnings of $0.15 a share. The company's sales totaled $1.5B, up 62% from last year's $925.9M. Rising crude prices have hit oil refiners hard with increasingly thin margins, since gasoline and other products are not keeping pace. Even though Holly is one of the leaders in the industry, its shares have dropped 35% over the past year. That's only half the story though. Holly and its peers have also been hurt by the weakening gasoline demand in the U.S., which is the biggest driver behind independent refiners. Shares of Holly Corp. traded higher on the day, surging up nearly 12%, or $4.95, at $47.40.
Holly Corporation, incorporated in 1947, is an independent petroleum refiner, which produces light products, such as gasoline, diesel fuel and jet fuel. As of December 31st, 2007, the Company owned and operated two refineries consisting of a petroleum refinery in Artesia, New Mexico that is operated in conjunction with crude oil distillation and vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico, collectively known as the Navajo Refinery, and a refinery in Woods Cross, Utah, known as the Woods Cross Refinery. The Company also owns approximately 900 miles of crude oil pipelines located principally in west Texas and New Mexico, along with owning and operating the Holly Asphalt Company, which manufactures and markets asphalt products from various terminals in Arizona and New Mexico. The Holly Corp. also owns a 45% interest in HEP (Holly Energy Partners LP), which includes its 2% general partnership interest, which has logistics assets including approximately 1,700 miles of petroleum product pipelines located in Texas, New Mexico and Oklahoma, including 340 miles of leased pipeline, ten refined product terminals, two refinery truck rack facilities, a refined products tank farm facility, and a 70% interest in Rio Grande. Holly Corporation's refinery operations include the Navajo Refinery and the Woods Cross Refinery, and the principal customers for gasoline include other refiners, convenience store chains, independent marketers, an affiliate of Petroleos Mexicanos (PEMEX), the government-owned energy company of Mexico, and retailers. Diesel fuel is sold to other refiners, truck stop chains, wholesalers and railroads. Jet fuel is sold for military and domestic airline use. Asphalt is sold to governmental entities or contractors, and liquefied petroleum gas (LPG’s) are sold to LPG wholesalers and LPG retailers and carbon black oil is sold for further processing or blended into fuel oil.
Of all the refiners, Holly Corporation appears to be the best firm poised to deliver greater earnings over the next two years. Holly and all the oil refiners have had a dismal year to date as their profit margins have been pummeled by higher oil prices. One reason for the turnaround could result from the high amount of gasoline being imported to the U.S. each year. Last year, we imported 1.6 million barrels per day (bpd). Now we, the U.S., brings in 0.9 million bpd. Some of the decrease is due to weaker demand in the U.S., while a lot is due to the increasing price of refined products abroad. The U.S. will have difficulty supplying its gasoline needs due to global demand, that being a weaker dollar and higher shipping costs, all of which will help HOC and the other refiners. Another input for their profitability could lay in the fact that some refineries have worked hard to be able to process lower grades of oil, those being sour crude and/or heavy crude. These more difficult and less desirable grades are cheaper to buy. Holly has been increasing its capacity to process these and will have greater margins in the future. Holly also sells its sulfur credits on the open market and will, as it did last quarter, surprise the analysts to the upside.
Another contributing factor to the anticipated success of Holly Corp. is that the stock is considered cheap. Their market cap is $2.31B with relatively no debt and $386M in cash. They own 45% of Holly Energy Partners, a net worth of $280M, along with owning an asphalt company as well. That leaves a remaining value of about $1.5B for the two refineries they own, which in retrospect, undervalues this company. It trades at a P/E Ratio of 9 with a PEG Ratio of 0.21. Holly, until the last half of last year, had been a darling of the market with high growth in its profits and earnings. Holy operates those two refineries in Utah and Montana and currently can process 5,000 barrels per day of heavy/sour crude vs. a total capacity of 110,000 barrels per day. This will reach 55,000 in 2010. They also are building a pipeline from their Salt Lake refinery to Las Vegas to deliver refined product to this high growth market, which will be completed in 2009. To achieve this they will be investing substantially more capital than in the past over the next several years. This will negatively affect their free cash flow in the interim. As a result, HOC looks like a stellar investment prospect in 2009 and a toss-up in 2008.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Holly Corporation, incorporated in 1947, is an independent petroleum refiner, which produces light products, such as gasoline, diesel fuel and jet fuel. As of December 31st, 2007, the Company owned and operated two refineries consisting of a petroleum refinery in Artesia, New Mexico that is operated in conjunction with crude oil distillation and vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico, collectively known as the Navajo Refinery, and a refinery in Woods Cross, Utah, known as the Woods Cross Refinery. The Company also owns approximately 900 miles of crude oil pipelines located principally in west Texas and New Mexico, along with owning and operating the Holly Asphalt Company, which manufactures and markets asphalt products from various terminals in Arizona and New Mexico. The Holly Corp. also owns a 45% interest in HEP (Holly Energy Partners LP), which includes its 2% general partnership interest, which has logistics assets including approximately 1,700 miles of petroleum product pipelines located in Texas, New Mexico and Oklahoma, including 340 miles of leased pipeline, ten refined product terminals, two refinery truck rack facilities, a refined products tank farm facility, and a 70% interest in Rio Grande. Holly Corporation's refinery operations include the Navajo Refinery and the Woods Cross Refinery, and the principal customers for gasoline include other refiners, convenience store chains, independent marketers, an affiliate of Petroleos Mexicanos (PEMEX), the government-owned energy company of Mexico, and retailers. Diesel fuel is sold to other refiners, truck stop chains, wholesalers and railroads. Jet fuel is sold for military and domestic airline use. Asphalt is sold to governmental entities or contractors, and liquefied petroleum gas (LPG’s) are sold to LPG wholesalers and LPG retailers and carbon black oil is sold for further processing or blended into fuel oil.
Of all the refiners, Holly Corporation appears to be the best firm poised to deliver greater earnings over the next two years. Holly and all the oil refiners have had a dismal year to date as their profit margins have been pummeled by higher oil prices. One reason for the turnaround could result from the high amount of gasoline being imported to the U.S. each year. Last year, we imported 1.6 million barrels per day (bpd). Now we, the U.S., brings in 0.9 million bpd. Some of the decrease is due to weaker demand in the U.S., while a lot is due to the increasing price of refined products abroad. The U.S. will have difficulty supplying its gasoline needs due to global demand, that being a weaker dollar and higher shipping costs, all of which will help HOC and the other refiners. Another input for their profitability could lay in the fact that some refineries have worked hard to be able to process lower grades of oil, those being sour crude and/or heavy crude. These more difficult and less desirable grades are cheaper to buy. Holly has been increasing its capacity to process these and will have greater margins in the future. Holly also sells its sulfur credits on the open market and will, as it did last quarter, surprise the analysts to the upside.
Another contributing factor to the anticipated success of Holly Corp. is that the stock is considered cheap. Their market cap is $2.31B with relatively no debt and $386M in cash. They own 45% of Holly Energy Partners, a net worth of $280M, along with owning an asphalt company as well. That leaves a remaining value of about $1.5B for the two refineries they own, which in retrospect, undervalues this company. It trades at a P/E Ratio of 9 with a PEG Ratio of 0.21. Holly, until the last half of last year, had been a darling of the market with high growth in its profits and earnings. Holy operates those two refineries in Utah and Montana and currently can process 5,000 barrels per day of heavy/sour crude vs. a total capacity of 110,000 barrels per day. This will reach 55,000 in 2010. They also are building a pipeline from their Salt Lake refinery to Las Vegas to deliver refined product to this high growth market, which will be completed in 2009. To achieve this they will be investing substantially more capital than in the past over the next several years. This will negatively affect their free cash flow in the interim. As a result, HOC looks like a stellar investment prospect in 2009 and a toss-up in 2008.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Subscribe to:
Posts (Atom)
Posts
