Bull of the Day: CEC Entertainment – Bull of the Day
CEC Entertainment, Inc. (CEC) recently delivered a strong first quarter earnings beat as same-store sales increased 1.6%.Management also provided 2013 earnings guidance ahead of consensus, prompting analysts to revise their estimates significantly higher. It is a Zacks Rank #1 (Strong Buy) stock.
Although shares have risen strongly since the Q1 report, valuation still looks reasonable with the stock trading at 13x forward earnings. So there is plenty of room for CEC to continue running higher.
CEC Entertainment and its franchisees operate 566 Chuck E. Cheese's stores located in 47 states and eight foreign countries and territories. Chuck E. Cheese's feature games, rides, play areas, musical and comic robotic entertainment, and several dining options including pizzas.
First Quarter Results
CEC reported first quarter results on May 2. Total revenues rose 3% to $255.3 million, ahead of the consensus of $250.0 million. This was driven by a 1.6% increase in same-store sales.
Meanwhile, total company store operating costs declined 110 basis points to 67.8% of sales. However, the operating profit margin declined 20 basis points to 22.0% of revenue due to higher advertising and general and administrative expenses.
Adjusted earnings per share increased 5% to $1.86, beating the Zacks Consensus Estimate of $1.80. Part of this was driven by a lower share count as the company continued to repurchase its own stock.
Estimates Rising
Following the company's solid Q1 beat, management provided strong guidance for the remainder of 2013. The company said that it expected to earn between $2.80 and $2.95 per share on same-store sales growth of 1.5-2.5%. This prompted analysts to revise their estiamtes significantly higher for both 2013 and 2014, sending the stock to a Zacks Rank #1 (Strong Buy).
The Zacks Consensus Estimate for 2013 jumped from $2.65 before the report to $2.90 after it. And the 2014 consensus jumped from $2.99 to $3.18 over the same period.
Reasonable Valuation
Shares of CEC are up more than 17% since the company's Q1 beat. But the valuation picture still looks reasonable with shares trading at 13x forward earnings, which is in-line with its historical median.
Additionally, its price to sales ratio is only 0.8, below its historical multiple of 1.0.
The Bottom Line
With rising sales and EPS, strong earnings momentum and reasonable valuation, CEC Entertainment offers attractive upside potential.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.
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Bull of the Day: Cabela’s (CAB) – Bull of the Day
Cabela's (CAB) is a retailer proving that providing a unique store experience can still win over customers. This Zacks Rank #1 (Strong Buy) recently blew by its own raised first quarter guidance and the Zacks Consensus Estimate by 18%.Cabela's is still relatively unknown, as it has just 35 stores in the U.S. and Canada. It sells hunting, fishing, and camping merchandise but it is also an "experience."
The larger legacy stores are built like large log cabins and have unique features such as in-house restaurants, some which serve wild boar, trophy animal mounts displayed on indoor mountains and big aquariums filled with fish.
A larger online presence has encouraged customers to seek out its stores. Some customers have been known to drive hundreds of miles just to walk in the front door. New store openings are also a big event. When was the last time you decided to spend your Saturday at a store opening? But at Cabela's, 10,000 to 15,000 people at a store opening is the norm.
More Than Just Guns
Gun and ammunition sales have been running far above the norm for the past six months at all retailers. In some cases, some stores are simply out of stock of ammunition.
There's no doubt that increased gun and ammunition sales has been boosting Cabela's results. But in the first quarter, it wasn't the only segment that saw strong growth.
Same store sales rose 24% in the quarter, but even if you exclude guns and ammunition, same store sales still rose 9% due to strong growth in softgoods, footwear, optics and archery. Same store sales increased in 10 of 13 merchandise subcategories.
Website Finally Gains Some Traction
While the stores are an experience, the company has made great strides in making its website a similar emotional experience.
Direct revenue rose 18.4% to $225.2 million in the first quarter which is a little less than half of the retail store revenue, which came in at $486.7 million in the quarter.
Margins, the key metric for retailers, rose 110 basis points to 35.6% compared to the first quarter of 2012. Margins rose in 11 of 13 subcategories.
Guidance Maintained
If there was one thing disappointing in the first quarter earnings report, it was that Cabela's didn't raise full year earnings guidance. Instead, the company said it was comfortable with external earnings guidance estimates, which includes Zacks.
Analysts are even more bullish since the report. 6 estimates out of 7 have been revised higher for 2013 in the last 30 days, pushing up the Zacks Consensus Estimate to $3.41 from $3.26.
That is earnings growth of 25.3% in 2013. Another 12.7% growth is expected in 2014.
Shares at New Multi-Year High
Shares spiked to new highs on the earnings report.
Despite its new highs, Cabela's trades with a forward P/E of 19.9, which is just under its peers at 20x.
While first quarter was a record quarter and the company was clearly operating on all cylinders, gun and ammunition sales clearly aren't going to stay this hot for forever. The company clearly knows this.
Still, Cabela's expansion strategy has only just begun. Analysts expect double digit square footage growth in both 2013 and 2014.
Cabela's is a retailer with a rare, extremely loyal customer base. Investors looking for a unique retail play should keep it on their short list.
[In full disclosure, the author of this article owns shares of Cabela's.]
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Bull of the Day: Cabela’s (CAB) – Bull of the Day
Cabela's (CAB) is a retailer proving that providing a unique store experience can still win over customers. This Zacks Rank #1 (Strong Buy) recently blew by its own raised first quarter guidance and the Zacks Consensus Estimate by 18%.Cabela's is still relatively unknown, as it has just 35 stores in the U.S. and Canada. It sells hunting, fishing, and camping merchandise but it is also an "experience."
The larger legacy stores are built like large log cabins and have unique features such as in-house restaurants, some which serve wild boar, trophy animal mounts displayed on indoor mountains and big aquariums filled with fish.
A larger online presence has encouraged customers to seek out its stores. Some customers have been known to drive hundreds of miles just to walk in the front door. New store openings are also a big event. When was the last time you decided to spend your Saturday at a store opening? But at Cabela's, 10,000 to 15,000 people at a store opening is the norm.
More Than Just Guns
Gun and ammunition sales have been running far above the norm for the past six months at all retailers. In some cases, some stores are simply out of stock of ammunition.
There's no doubt that increased gun and ammunition sales has been boosting Cabela's results. But in the first quarter, it wasn't the only segment that saw strong growth.
Same store sales rose 24% in the quarter, but even if you exclude guns and ammunition, same store sales still rose 9% due to strong growth in softgoods, footwear, optics and archery. Same store sales increased in 10 of 13 merchandise subcategories.
Website Finally Gains Some Traction
While the stores are an experience, the company has made great strides in making its website a similar emotional experience.
Direct revenue rose 18.4% to $225.2 million in the first quarter which is a little less than half of the retail store revenue, which came in at $486.7 million in the quarter.
Margins, the key metric for retailers, rose 110 basis points to 35.6% compared to the first quarter of 2012. Margins rose in 11 of 13 subcategories.
Guidance Maintained
If there was one thing disappointing in the first quarter earnings report, it was that Cabela's didn't raise full year earnings guidance. Instead, the company said it was comfortable with external earnings guidance estimates, which includes Zacks.
Analysts are even more bullish since the report. 6 estimates out of 7 have been revised higher for 2013 in the last 30 days, pushing up the Zacks Consensus Estimate to $3.41 from $3.26.
That is earnings growth of 25.3% in 2013. Another 12.7% growth is expected in 2014.
Shares at New Multi-Year High
Shares spiked to new highs on the earnings report.
Despite its new highs, Cabela's trades with a forward P/E of 19.9, which is just under its peers at 20x.
While first quarter was a record quarter and the company was clearly operating on all cylinders, gun and ammunition sales clearly aren't going to stay this hot for forever. The company clearly knows this.
Still, Cabela's expansion strategy has only just begun. Analysts expect double digit square footage growth in both 2013 and 2014.
Cabela's is a retailer with a rare, extremely loyal customer base. Investors looking for a unique retail play should keep it on their short list.
[In full disclosure, the author of this article owns shares of Cabela's.]
Want More of Our Best Recommendations?
Zacks' Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.
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Bull of the Day: Ryder (R) – Bull of the Day
What do you get when you cross the need for efficient, affordable global commerce with an economy that’s sputtering along and corporations trying to cut costs but maintain customer satisfaction?
Logistics outsourcing! (Well that’s one solution at least)
In a nutshell, Ryder’s services can be utilized to save companies money, keep their margins wide, surprise costs minimal and their logistic issues under control. If sales growth is nominal and margins are cherished like a newborn baby, outsourcing is a viable and sometimes necessary option.
If you’re not familiar, Ryder R system is more than just a truck rental company. They are a provider of innovative outsourced transportation, logistics and supply chain solutions globally.
Their Fleet Management Solutions division (FMS) provides leasing, rental and preventive maintenance of trucks, tractors and trailers to commercial customers. Supply Chain Solutions (SCS) manages the movement of freight and related information from the acquisition of raw materials to the delivery of finished products to end-users. SCS also provides dedicated transportation solutions, known as Ryder Dedicated, a turn-key transportation service that combines vehicles, maintenance, drivers, routing and other value-added services.
Riding
Strong Earnings
Ryder recently reported (April 23rd)
a 37% year over year jump in earnings per share to 81 cents, trumping
the Zacks
Consensus estimate by 2 cents. This
latest report marks the 4th earnings beat in a row for the company
at an average of almost 6%.
Even though shares initially moved lower, the stock has been charging higher since for good reason as investors find value in the logistics company; the 2.10% dividend yield doesn’t hurt either.
CEO Robert Sanchez noted that the company “experienced better-than-expected demand for commercial rental in North America with higher utilization on a smaller fleet.” Weak demand in the UK stole a little bit of the jam from their donut, but Ryder still reaffirmed its full-year 2013 earnings forecast of $4.70 to $4.85 per share and sees Q2 EPS of $1.20 to $1.24 per share. The Zacks Consensus is for Q2 EPS of $1.22 and $4.84 in FY2013.
The company also sees continued and increasing strength in their commercial rental divisions as well as strength in used vehicle sales.
After the report we saw several analysts move their estimates and ratings up on the stock, for the current quarter as well as FY2013 and FY2014. Shares are still fairly cheap at just 12 times forward earnings, even though we have seen Ryder at much lower multiples over the past couple years.
There could still be decent upside here if the American economy does indeed continue to improve as FY2014 estimates are still relatively conservative. Of course a boom would be great for the stock, but slow growth also provides impetus for goods to be moved and for companies to keep logistics outsourced; to me, this leaves upside for the shares.
Ryder
and Natural Gas
Just a week ago, AT&T
T
announced a plan to spend $350 million to replace
about 8,000 gasoline-powered service vehicles over five
years. AT&T currently has 5,200 natural gas vans
on the road, or about 7 percent of its fleet.
These same steps are being taken by several large companies including UPS UPS, FedEx FDX and others including Ryder.
Gas (Diesel) consumption in the transportation industry was roughly 400 million gallons of gasoline equivalent last year, double the 200 million in 2005 according to NGVAmerica data. Gasoline demand was 134 billion gallons, according to the EIA.
According to several sources, a fleet owner paying $65,000 more for a long-haul truck engine fueled by liquefied natural gas could see a 20-25% percent rate of return over the life of the vehicle compared to a traditional gas engine.
Ryder has already begun to implement natural gas powered vehicles into its fleet; so if you are a longer term player in the stock, that cost savings should begin to mount up in the coming years.
Natural gas is a “ready-now” viable alternative to traditional petrol and it’s cheaper, (saving truckers as much as $1.50 a gallon), burns cleaner and makes it easier to for manufacturers and operators to meet emissions standards. Infrastructure for nat gas is already on the rise in a big way.
The
Charts
Since the earnings report on
April 23rd,
Ryder shares have been forming an ascending bullish triangle up against
their 50
and 20 day moving averages ($58.28 & $57.87 respectively)
before breaking
out three days ago.
This breakout kept the short term bullish trend alive and shares are now approaching their next resistance level around $61.70, which has been a hard ceiling for the shares over the past month or so.
While shares are slightly overbought here, there is a possibility of a quick breakout above that resistance level ($61.70) and then a 2-4% rally from there being that the Average True Range (ATR) is roughly 3.3% of the stock price and a surge above a major resistance level usually prompts a rally of that magnitude.
Shares also remain in a strong overall bullish trend perched high above their 200 day moving average of $46.77. While it’s good to have the 20 and 50 day averages close below for support, keep in mind that Ryder’s Beta of 1.7 makes it highly correlated to market movement with a slight amplification of that movement.
Look for strong support around the $57.70 level, which is right below the 50 day moving average.
If you are a market timer, look for a down day in the market to try and get a slightly better price. For those of you who are investors, take a peek at their business; Ryder shares might be worth a look and at least part of your allocation if it meets your risk tolerance.
Jared A Levy is one of the most highly sought after traders in the world and a former member of three major stock exchanges. That is why you will frequently see him appear on Fox Business, CNBC and Bloomberg providing his timely insights to other investors. He has written and published two tomes, “Your Options Handbook” and “The Bloomberg Visual Guide to Options”. You can discover more of his insights and recommendations through his two portfolio recommendation services:
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Bull of the Day: CBOE Holdings (CBOE) – Bull of the Day
Although financials continue to lead the market higher, newer segments are taking the reins in Q2. In addition to smaller regional banking institutions, many investors are seeing solid performances out of firms in the exchange business, such as CBOE Holdings (CBOE).
While probably less famous than fellow Chicago-based exchange CME Group (CME), CBOE has been soaring higher for much of 2013 as demand for listed options on securities remains strong. This is especially true in two of the company’s key products; options and futures on the CBOE Volatility Index as well as the S&P 500 Index.
Both of these benchmarks are widely followed by traders and investors alike, and the CBOE’s monopoly position on futures and options trading for these two indexes have been increasingly lucrative. In fact, trading in CBOE index options was up 28% from a year earlier in the recent quarterly release, and these index-based contracts now make up nearly 38% of total trades for the firm.
Given the firm’s nearly unassailable position in these key markets and the high investor demand for the index-based products, good days could continue to be ahead for the company. That is why many analysts have been raising their estimates for CBOE, helping to push the company to a top Zacks Rank of 1 or ‘Strong Buy’.
Estimate Picture
The current quarter estimate picture has been rising, while investors have also seen analysts bump up their current year and next year forecasts for the company as well. Furthermore, there has actually been total agreement on this front, as all new estimates in the past two months have been up with not a single one going lower.
Investors should also note that while expectations might be elevated, the company has beaten out estimates every time in the past four quarters, producing an average surprise of roughly 7.6%. This suggests that the company has no trouble matching high expectations, with big beats being the norm for CBOE.
If that wasn’t enough for investors, it is also worth noting that many analysts are still baking in sizable growth for the firm going forward. Double digit earnings growth (year-over-year) is projected for the current year and next year periods, while the PE is below 20 and the PEG is below 2, meaning that the firm is still a decent value despite the abundant opportunities for growth present for the firm.
Other Factors
This impressive earnings picture is enough to put the CBOE into elite company with a Zacks Rank of 1. However, it is also worth noting that the firm has good company even in its own industry, as the securities exchanges group is currently ranked 75 out of 261 meaning that the industry also has a pretty favorable estimate picture as well.
CBOE is also doing a great job from a profitably standpoint as well. In particular, the net margin is over 30%, while the ROA and ROE are, respectively, 46% and 65%, implying a pretty high level of profitability for the firm.
Lastly, it is important to once again highlight the monopoly like position the company has in the index option market. While many of its competitors have tried to break into this space, they have so far been unsuccessful meaning that the CBOE has tremendous pricing power for these key products.
Bottom Line
CBOE is clearly deserving of its top rank, as analysts are in total agreement about the rosy future of the company. After all, the company has a solid financial position and tremendous profitability, leaving it in a great spot going forward.
So if you are looking for a great pick in the financial world, consider CBOE for exposure. It pretty much has a monopoly on two of its key products, and these instruments are only increasing in importance, suggesting that more revenues—and higher earnings—could be ahead for this often-overlooked company.
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Bull of the Day: Private Bancorp (PVTB) – Bull of the Day
The broad financial sector has been a strong performer so far in 2013, as it has been leading the market in the year-to-date timeframe. Furthermore, the space has actually been beating out the S&P 500 from a one year look as well, suggesting a pretty strong trend of outperformance for this key market sector.
However, we have begun to see some new trends develop in this corner of the market during the current earnings season as big banks have been having a bit of trouble. Major banking institutions have been doing quite well on earnings, but have seen sluggish revenues, suggesting that they may have a bit of trouble growing in the near future.
For this reason, it may be time to look elsewhere in the financial sector for better growth candidates, and for firms that are better poised to take advantage of current market trends. And with the domestic economy coming back a bit, investors may want to focus on regional banks like Private Bancorp (PVTB) for their exposure.
PVTB in Focus
While PVTB was beaten down in the financial crisis, the company is now back on track and a tremendous value. The firm has seen a solid start to 2013, as the stock is up about 18% year-to-date, while its PEG ratio is still well below the industry average at just 1.76.
Furthermore, unlike many of its peers in the space, PVTB could see a very strong performance in terms of earnings growth in the near future. Current expectations call for year-over-year growth of nearly 68% for the current quarter, and an impressive 49% growth rate for the current year.
While this might seem like a lofty target to some, it is important to note that analysts seem pretty confident in the firm’s prospects, as all of the recent estimates have gone up. Furthermore, the consensus earnings expectation for the current quarter and next quarter—as well as the current year and next year—have all gone up in the past 30 days.
This suggests that many are feeling even more optimistic about the company in the near term, and that even better days could be ahead for PVTB. This is especially true when investors consider the firm’s recent history when it comes to earnings surprises; it hasn’t missed in the past four quarters and has actually seen a 22% average beat in the trailing four periods.
Thanks to this confluence of factors, the stock has earned itself a Zacks Rank of 1 or ‘Strong Buy’. The company also has a Zacks Recommendation of ‘Outperform’ as well as an industry rank in the top quarter, meaning that both the short and long term picture are looking quite well for this company.
Other Factors
If this impressive earnings picture wasn’t enough for you, there are a couple of other strong points that could sway you to the bull side for this stock. According to the recent earnings report, net revenues for the company showed growth in the year-over-year period, suggesting that PVTB has been able to avoid some of the top-line growth woes that have impacted its larger counterparts.
Furthermore, there were some other encouraging stats from the company such as its non-interest income increasing 11% year-over-year, thanks to more mortgage banking and syndication fees. The firm also said that total loans grew 9% year-over-year, so PVTB has had little trouble expanding its core business either.
Bottom Line
Financials remain a strong sector in the market, and one that continues to lead the way higher in 2013. There are a number of solid choices in the space though, and investors have largely focused on big banks for their exposure.
However, there are a number of smaller companies that could be better growth candidates in the near future, both from an earnings and revenue perspective. One such firm is Private Bancorp, and thanks to their top Zacks Rank and strong revenue growth, they could make for a great pick for financial-focused investors at this time.
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Bull of the Day: Graco (GGG) – Bull of the Day
The industrial companies are hanging in there despite predictions that the end of the cycle is near. Graco Inc. (GGG) recently beat the Zacks Consensus by 15.1%. This Zacks Rank #1 (Strong Buy) is expected to grow earnings in the double digits in both 2013 and in 2014.Graco may not be a household name, but it makes products which influence every day life. It makes fluid-handling equipment and systems, with one of its best known products being the spray gun which is used to apply paint to homes, businesses and cars. But its systems also have other applications including squeezing tomato paste onto millions of frozen pizzas.
Founded in 1926 in Minnesota, the company has survived many different recessions and economic conditions. It is now global, with a diverse worldwide customer base.
Record Sales in Q1
On Apr 24, Graco announced record sales as they jumped 15% compared to a year ago to $269 million, however some of that was driven by the acquisition of Gema powder finishing business in August of 2012.
Graco operates in 3 segments: Industrial, Contractor and Lubrication.
Contractor sales were the strongest of the segments jumping 7.8% and up 11% in the Americas on the strength of the U.S. construction market and the recovery of the U.S. housing market.
The Industrial segment started the year slower than anticipated but it did see some strength in the auto market. The Lubrication segment was the weakest segment as revenues slipped 3% due to Asian sales sliding 28% as mining weakened. But Lubrication is just 10% of the company's revenue.
Still, Graco easily beat the Zacks Consensus Estimate by 11 cents. Margins expanded due to manufacturing cost improvements.
Double Digit Earnings Growth Expected
The analysts are bullish on Graco in 2013. 1 estimate for 2013 has already been revised higher in the last week. Earnings are expected to grow 22% in 2013 and another 10.3% in 2014.
These older manufacturing companies are suddenly in vogue with investors. Graco's shares are at 10-year highs. Check out the 2-year chart which shows the recent jump on the earnings beat.
But shares are also pretty pricey, at least historically, It is trading with a forward P/E of 20x, which is higher than its 10-year median of just 16.7.
Still, Graco has been rewarding shareholders with a dividend, currently yielding 1.7%.
If you're looking to invest in an older legacy industrial with income, Graco is one to have on your short list.
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Bull of the Day: Conn’s (CONN) – Bull of the Day
If you've watched the 3-year decline of "big box" appliance and electronics retailer Best Buy (BBY), you may have thought that this is a business model to stay away from. I certainly thought so until I discovered Conn's (CONN), a family-built retailer with over 50 stores in Texas, 6 in Louisiana, and newer footholds in Oklahoma City, Albuquerque, and Tucson.Conn's roots go back to 1890 where it started life as a plumbing company in Beaumont, Texas. In 1934, Carroll Wayne Conn, Sr bought the company and within a few years began selling refrigerators and gas ranges. He didn't become the Sam Walton of appliances, but his legacy built a brand that Texans have come to know and trust.
Now they sell just about everything durable for the home, including entertainment electronics, furniture, mattresses and lawn and garden equipment -- and they've built a loyal customer base doing it with a focus on service and satisfaction. The company was also an early innovator of the in-house financing model in the 1960s.
Sales and Profits Grow With Store Build-Out
Since coming public nearly a decade ago, Conn's has continued to expand, with quarterly revenues averaging over $200 million for the past 5 years. The recent Q4FY2013 sales result topped $250 million for the first time since 2008.
This sales growth is propelled by expansion with new locations built around their HomePlus store concept. Pricing power and margin improvement keep their earnings expanding as well.
The company declared strong results on Apr 3, 2013, with EPS of 54 cents a share that surged 58.8% from the 34 cents earned in the year-ago quarter. Comparable-store sales for the quarter climbed 7%.
And Conn's has outperformed the Zacks Consensus Estimate in 4 out of last 5 quarters, with an average beat of 13.4%.
Revenue from the retail segment increased 9.7% to $208.7 million and retail gross margins expanded 720 basis points to 36.9%. Credit card segment revenue soared 14.5% to $41.6 million.
Buoyed by healthy results, management now projects fiscal 2014 earnings between $2.40 and $2.50 with expected comparable-store sales growth of 3% to 8%.
Following this strong report, analysts have scrambled to raise estimates, taking the first and second quarters of fiscal 2014 (the next 2 quarters) up by 29% and 20% to 54 cents and 59 cents, respectively. For fiscal 2014, the Zacks Consensus Estimate has vaulted nearly 20% in the past two weeks from $2.08 to $2.48 per share.
Here's the visual on this reaction by analysts to catch-up with company growth...
One analyst writes, "Our new estimate assumes Conn’s will complete 15 store remodels and will open 12 new stores this year (+26% YoY growth in square footage). In addition, we now anticipate comps for the full year to be around the high end of the guidance range of 3%-8% versus our prior estimate of low single digits."
Big Box Retail 101: Service and Financing
C.W. Conn, Jr. joined his father's company in 1953 after serving in the Korean War. He recognized that customers needed dependable, quality service and founded Conn's repair service and maintenance company, Appliance Parts and Service, in 1962. In 1964 he co-founded Conn Credit Corporation, a consumer credit company, to provide financing to Conn's customers for the purchase of products they needed for their homes.
Mr. Conn, Sr. and Mr. Conn, Jr. were dedicated to their customers and to the idea that consumers should receive value for the dollars they spent on the products they offered in their stores. Their dedication was so strong that they often directed their employees to seek out dissatisfied customers to find what the company could do to make them satisfied customers.
The flexible in-house credit options offered by Conn's allows them to capture more customers, sell higher margin product to consumers with less than perfect credit, and also control approval rates and credit limits. Obviously the company can also capture fees and interest on accounts that are performing. The credit area is also expected to provide strong growth as new stores gain new customers.
Finally, CONN the stock has had quite a run in the past year, moving from $15 to nearly $45 and 7-year highs. And this has pushed the forward P/E to over 16X. While giant competitor Best Buy trades at only 11X, if you want quality, organic growth that builds customer loyalty as a top priority in a very tough business space, consider Conn's on any pullbacks because it can probably support a high teens multiple in an expanding economy with a spirited housing market.
Kevin Cook is a Senior Stock Strategist with Zacks.com
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Bull of the Day: Wisdom Tree (WETF) – Bull of the Day
Wisdom Tree Investments (WETF) has seen some strong net inflows over the past few quarters and has dramatically increased its assets under management of late. As a Zacks Rank #2 (Buy), it is the Bull of the Day.
Inflows For the ETF Industry
One look at the annual net inflows for the ETF Industry and you will see that the growth story is back on. There was $177 billion in net inflows in 2008, but the recession cased that number to slide to $116 billion in 2009. A slight gain was recorded in 2010 with net inflows reaching $118B in 2010 and they stay at that level in 2011. Last year, the industry posted and industry record with $185 billion of net inflows.
2012 Inflows are worth a closer look. The industry saw $53B in 1Q12, followed by $25B in 2Q and then $52B and $55B in quarters three and four respectively. So as the market improved, the industry saw a willingness on the part of investors to move shift their assets from cash. Interestingly, the industry saw a net inflow for fixed income products of $356B with $52B of that coming in the form of ETFS. They noted that equities saw a net outflow of $20B as equity mutual funds saw $153B in redemptions but there was $133B in net inflows for equity ETFs.
Company Description
Wisdom Tree Investments operates as an exchange-traded funds (ETFs) sponsor and asset manager. It offers ETFs in equities, currency, fixed income, and alternatives asset classes. The company also licenses its indexes to third parties for proprietary products, as well as offers a platform to promote the use of Wisdom Tree ETFs in 401(k) plans. It develops index using its fundamentally weighted index methodology. The company was founded in 1985 and is based in New York, New York.
WETF Beats Estimates In Two of Last Three Quarters
Dating back to the June 2012 quarter, has beaten the Zacks Consensus Estimate in two of the last three quarters. The June 2012 quarter saw the company post $0.02, $0.01 ahead of the estimate for a 100% positive earnings surprise. The following quarter saw another one cent beat which translated into a 50% positive earnings surprise.
The most recent quarterly report took place on February first of this year. The company posted revenues of $24M and EPS of $0.04, both were in line with the Zacks Consensus Estimates.
Growing Inflows and AUM
The quarterly net inflows for WETF mimic the results of the broader industry, with a strong 1Q12 followed by a weaker 2Q12. The most likely reason for the slide was the lower equity markets in 2Q12. The following two quarters saw a nice rebound to end the year. For the year 2012, net inflows increased from $3.899B to $4.732B or more than 21%.
Assets under management have been growing at a dramatic pace. In 2009 they stood at $6B and moved to $9.9B in 2010. Another increase pushed the number to $12.2B for 2011 and the company ended the year 2012 with $18.3B in assets under management. That represents an increase of 50% from the prior year.
WETF Sees Estimates Moving Higher
Aggressive growth investors have to like the every growing earnings story at WETF. The company has seen the Zacks Consensus Estimate for 2013 tick higher every month since October when it was $0.24. The estimate has grown to its current level of $0.35 since that time. Similarly, estimates for 2014 have also moved higher. Over the same time period, the Zacks Consensus Estimate has moved from $0.31 to $0.51. That gives and implied growth rate of 45%, and a number like that can turn a lot of heads.
Valuation
The valuation picture for WETF shows what you would expect to see for a fast growing company with great potential for future earnings. That is code for a high valuation, with the company sporting a 29x multiple of forward earnings compared to a 13x industry average. The key to me is the margin story. The company is posting a pre tax margin of 13% while the industry average is 12.1%, and that advantage flows down to the bottom line. The industry average for net margin over the last twelve months was 5.5% while WETF was able to post 13% net margin. When you can earn more than 2x the industry average, people will pay up if there is growth included.
The Chart
A quick look at the stock chart and you can see that the market has really taken a liking to WETF. The surge in the equity markets in 1Q13 likely drove in plenty of new assets to the ETF sponsor and that should translate into higher revenue and earnings.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout GrowthTrader a trading service that focuses on small cap stocks and also carries a risk limiting strategy.
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Bull of the Day: Plum Creek Timber: (PCL) – Bull of the Day
For many years, housing was a huge drag on the economy, acting as a dark cloud over the broad market. No more is this the case though, as many believe the housing market is back on track, at least evidenced by recent price action and reasonably strong data.
Prices are higher in many markets, while there is actually some optimism over the future in this critical corner of the economy. And with low mortgage rates, steady unemployment, and strong consumer confidence, many believe this trend can continue.
Obviously, this has been great news for homebuilders and mortgage companies, but it has also helped firms that provide resources for home construction, such as timber. Companies that dominate this space have largely flown under the radar—when compared to their homebuilding cousins—but are largely exposed to the same market forces, and have been big winners thanks to the resurgence in housing as well.
One company that occupies this space—and a huge beneficiary of the trend—is Plum Creek Timber Company (PCL). The firm is the second largest private timberland owner in the U.S. and thus often takes its cues from the overall housing market.
This has been great news as of late, as PCL has added about 25% over the past year, and about 14% so far in 2013. Many believe that this trend can certainly continue, especially if housing keeps improving as we get further into Q2.
Estimate Trend
Analysts are also fans of this scenario, as their expectations for the coming quarter have been broadly moving higher. In fact, analysts now expect the firm to earn 32 cents per share this quarter up from 28 cents per share 90 days ago, while the current year estimate has moved up from $1.35 a share to $1.40 a share over the same time period.
This means that analysts are now expecting year-over-year growth of roughly 77% for this quarter, and 50% for the next quarter. Add this onto to predictions of double digit earnings growth for this full year and the next, and investors have a quickly growing company producing an extremely in-demand product.
This has helped to push PCL to a Zacks Rank of 1 or ‘Strong Buy’, suggesting further outperformance in the near term. If that wasn’t enough, the industry is also highly Ranked, just inside the top 13% overall in fact.
Investors should also note that the company has shown a decent history of beating estimates at earnings season, so this quarter may be similar. Two of the last three quarters have shown double digit percentage beats, while the past four quarters average out to a 23% beat.
Other Factors
Clearly, the company has favorable earnings trends and a strong industry behind it. But, the company also sports a huge dividend which could further add to the bullish case for this stock.
PCL actually pays out over 3.2% on an annual basis, a figure that easily crushes broad market payouts. So, even if things don’t pan out this quarter, investors look to be rewarded with a solid level of income that is far higher than what can be found in many other corners of the broader housing market.
Bottom Line
Housing is doing quite well to start 2013 and many homebuilders have soared as a result. However, firms that own timberlands have also been beneficiaries of this trend as they provide the key material for home construction.
These timberland firms, such as PCL, haven’t been as bid up as much though, so they could still be decent values for investors heading into earnings season. So if you missed out on the initial housing surge, consider Plum Creek Timber as an excellent way to get in on the trend now before it is too late.
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