The Daily Kill Sheet Picking Off Profits One Stock At A Time!

March 28, 2012

Daily Kill Sheet for March 28th, 2012

Filed under: Uncategorized — Administrator @ 9:39 am

Family Dollar (FDO, $59.49) has reported second-quarter earnings of $1.15 a share, $0.02 better than the consensus estimate. The beat was driven by operating leverage due to strong same-store sales (+4.5%). As expected, the gross margin was weak (down 80 basis points) due to increased sales of lower-margined consumables. Even so, the company experienced operating leverage from the strong same-store sales thus SG&A; as a percent of sales dropped 94 basis points and lead to the beat.


Total sales for the quarter increased 8.6% year over year. Comp-store sales increased 4.5%, driven by increased customer traffic, as measured by the number of register transactions, and a slight increase in the average customer transaction value. Sales were strongest in the Consumables and Seasonal and Electronics categories. Inventories jumped 15.4% year over year, above the sales gain for the quarter implying potential for margin pressure ahead.


For the third quarter, the company is guiding earnings to a range of $1.01 – $1.11. The consensus stands at $1.06. Management also guided to +5.0% – +7.0% same-store sales.


For the full year, the company is guiding earnings to a range of $3.55 – $3.75. Their previous guidance was a range of $3.50 – $3.75 and the consensus stands at $3.63.


Management stated that “We are accelerating investments to become more relevant to a broader customer base. In the second half of fiscal 2012, we intend to further expand our assortment in key traffic-driving businesses and introduce new categories to capture a greater share of our customer’s wallet. As a result of these strategic sales-driving initiatives, we now expect that revenues will continue to accelerate throughout the rest of fiscal 2012.

At this juncture, the catalyst we had been looking for has been triggered and the stock is up strongly from where I recommended the trade. Take profits here, for a 9.5% gain.  

March 13, 2012

Daily Kill Sheet For March 13th, 2012

Filed under: Uncategorized — Administrator @ 12:51 pm

Take a look at Bed, Bath & Beyond (BBBY, $62.15) on the short side. The stock has been caught in a tight trading channel since early October that has seen it fluctuate between $58 and $63. The stock seems to be bouncing off the top end of this channel now and offers about a 6.5% return to the bottom of the channel. Given this is a short-term trading opportunity I would put a tight stop at $63.50 in case the stock rallies up and breaks through the channel. I have marked the seven points of the channel in the graph below.

On a fundamental basis, investors were disappointed in December when the company reported an earnings beat that was driven by lower-than-expected taxes, aggressive share repurchase and tight SG&A; controls rather than strong top line growth and gross-margin expansion. Indeed, third-quarter same-store sales came in at +4.1% marking the third quarter of sequential slowing and fifth consecutive quarter of slowing year over year comp-store sales. The gross margin was flat on a year over year basis halting three quarters of year-over-year gross margin expansion. Looking ahead, higher year-over-year gas prices are likely pressuring consumers at a time when BBBY is already facing a tough, (+8.5%) same-store sales comparison. Note, too, that William Sonoma reported last week that their gross margin contracted 100 basis points year over year when they reported their fourth-quarter results. While BBBY and WSM are not perfect mirrors, I find it telling that WSM saw its gross margin contract at the same time that BBBY‘s has flattened. All said, my near-term price target is $58 implying about a 6.5% return from the current quote.

March 12, 2012

Daily Kill Sheet For March 12th. 2012

Filed under: Uncategorized — Administrator @ 9:27 am

Take a look at Arch Coal (ACI, $12.08) for a dead-cat bounce. The stock closed Friday with a bullish engulfing pattern and seems to be bottoming along a long-term support level. The company has been hurt by the warm winter and the large drop in natural gas prices. The low gas prices make coal less competitive as a source for power generation as the electric utilities find it more cost effective to generate electricity with their gas turbine plants. 

ACI has reacted to the lower demand for its product by scaling back production at its higher-cost Appalachian mines. Management remains optimistic about the potential for coking steel though, and is focusing more of its efforts towards the export markets. Over the past few weeks analysts have lowered their estimates to account for the weaker production and at current levels, it’s likely that value investors are sniffing the stock here anticipating a production rebound in 2013. At the current quotation, ACI shares are trading just above a long-term support area that has held since November 2008. Initial resistance sits at $13.25 with a stronger resistance level near $14.50. My near-term target is $13.25 implying a 9.6% return to my target. 
Aside from the bullish engulfing pattern, two of my favorite technical indicators are also signaling a near-term bullish underpinning. The TRIX indicator has just done a bullish crossover, while the Williams %R ratio suggests that the stock is near-term oversold. 

March 2, 2012

Daily Kill Sheet For March 2nd – Supplemental

Filed under: Uncategorized — Administrator @ 12:40 pm

Just a quick note to close out our January 31st short on  JC Penney (JCP, $38.66) with a 7% gain. We originally played JCP to take advantage of its quick rise after the announcement of the new CEO’s strategy for the company. We figured that after all of the hype, the stock would settle down and give back some of its gain and retest the 1/26 – 1/27 window in its trading range. Although it took approximately two weeks longer than I originally expected, the stock has now gone back and retested the gap in its charts. Thus, we’ll take profits here for a one-month 7% gain.

Daily Kill Sheet For March 2nd, 2012 – February Retail Comps Edition

Filed under: Uncategorized — Administrator @ 7:47 am

February comps came in fairly strong. No surprise given the warm weather throughout the month at a time when the new Spring fashions were hitting the shelves. The early Easter this year should allow the strength to extend into March as well. Even so, the retailers as a group are starting to look a bit extended.

Indeed, out of the 60 retailers I track closely in the monthly commentary over 78% of them are now trading above their 200-day moving average. A number of these stocks have handily beaten the return of the S&P; 500 since the start of the new year as well. For example, while the S&P; 500 is up 9.2% since January 3rd, Under Armour (UA) has jumped 24.7% Coach (COH) is up 24% and Tractor Supply (TSCO) is up 23.7%. Numerous others are also beating the market’s return.

Given the strong run ups by the stocks in such a short time period, many of the stocks are now bumping up against sell-side analysts’ price targets, which force the analysts to make a decision; either keep their rating and increase their price target, or upgrade or downgrade the stock. The spreadsheet I have attached to the email this report was sent with shows the sell-side price targets for 111 retailers by 77 different brokers. Not every broker covers every retailer, however the collection covers a wide spectrum of targets for each stock.

The stocks listed below represent retailers that are nearing (within 4% of the target) at least 5 sell-side analysts’ price targets. Given that the analysts are being forced to make a decision on the stock, I believe these stocks face a greater chance of either having their price targets adjusted or seeing their stock upgraded or downgraded. Nordstrom’s (JWN), for example, was nearing Goldman Sachs price target and the analyst responded by giving her target a token increase (added a dollar). The analyst has the stock rated a Neutral, so the small increase signals that the stock is likely going to stay a Neutral in the near-term as she would have likely upped the target substantially if she were going to upgrade the stock given the limited upside to her increased target ($54). Given I used Nordstrom’s as an example I will start the list with them.

Nordstrom’s

Nordstrom’s Inc. (JWN, $53.77)                            Number Of Brokers Nearing A Decision Point: 9
  —-—-—-x—-—-
$30         $42           $54           $66
           $36               $48                 $60

Broker Rating:
Barclay’s: Equal Weight
BOFA: Underperform
Credit Agricole: Underperform
Goldman Sachs: Neutral (price target changed today)
JP Morgan: Neutral
KeyBanc: Buy
Macquarie: Neutral
Morgan Stanley: Equal Weight.
Sterne Agee: Rating was not listed

Upcoming Comps:

March
April
May
Nordstrom’s
+5.1%
+7.6%
+7.4%

Earnings Trend: Beat the consensus in five out of the past eight quarters. Matched the consensus twice and missed once.

Over the past twenty-four years, the difference between the 52-week high and the 52-week low has averaged 45.7%. The largest spread was in 2008 when the stock dropped 83.7% from its 52-week high. The smallest difference was in 1995, when the spread was only 22%. Year to date Nordstrom’s shares are up 7%.

Coach Inc.

Coach Inc. (COH, $76.74)                            Number Of Brokers Nearing A Decision Point: 11
  —-—-x—-—-—-
$58         $72           $86           $100
            $65               $79                 $93

Broker Rating:
Robert Baird: Rating was not listed.
BOFA: Buy
Credit Suisse: Outperform
JP Morgan: Overweight
KeyBanc: Buy
Miller Tabak: Buy
Nomura: Buy
Piper: Overweight
Sterne Agee: Rating was not listed.
Stifel: Buy
Think: Rating was not listed

Upcoming Comps:

3rd Quarter
4th Quarter
1st Quarter
Coach Inc.
+10.0%
+10.0%
+9.0%

Earnings Trend: Beat the consensus handily for ten consecutive quarters. Has not missed a quarter in at least twenty quarters.

It’s hard to argue with COH’s strong results. The company is growing both its outlet and full price business here in the U.S. and has a viable international growth strategy, particularly in China. Although the gross margin weakened in the first and second quarters on a year over year basis, sales remained strong and created enough operating leverage for the company to beat expectations.

Although most of the brokers nearing a decision point already have Buys on the stock, I do not expect the stock to be downgraded in the near term. The stock’s current valuation leaves a lot of room for the analysts to raise their price targets without stretching the valuation in my opinion. My 12-month high-end price target is $100. The stock has recently hit a new all-time high and while ideally, I’d like to be a buyer below $72, I recommend selling April $70 puts for $0.90. If one of the analysts who are near a decision point downgrade the stock we could get the stock putted to us at $70. Our costs for the shares would be $69.10. If the shares do not drop to the strike price, we should at a minimum make 1.2% on the position if the puts expire worthless.

Over the past twelve years, the difference between the annual 52-week high and annual the 52-week low has averaged 49.3%. The largest spread was in 2009 when the stock dropped 69.5% from its 52-week high. The smallest difference was in 2005, when the spread was only 33.4%. Year to date Coach shares are up 24%.

Target Corp.

Target Corp. (TGT, $56.76)                            Number Of Brokers Nearing A Decision Point: 6
  —-—-x—-—-—-
$34         $50           $66           $82
            $42               $58                 $74

Broker Rating:
BOFA: Neutral
Buckingham: Buy
ISI Group: Buy
Janney: Neutral
JP Morgan: Neutral
Wall Street Strategies: Rating was not listed.

Upcoming Comps:

March
April
May
Target Corp.
-5.5%
+13.1%
+2.8%

Earnings Trend: Beat the consensus in nine out of the past twelve quarters. Matched the consensus twice and missed once.

Over the past twenty-one years, the difference between the annual 52-week high and the annual 52-week low has averaged 35.2%. The largest spread was in 2008 when the stock dropped 57.0% from its 52-week high. The smallest difference was in 2010, when the spread was only 20.6%. Year to date Target shares are up 9.4%.

Not much to do here, the stock is fairly valued at the current quote. If the company can keep the strong comp performance going, estimates will likely creep up, which could help to raise my projected Hi/Lo range.

Family Dollar

Family Dollar (FDO, $54.55)                            Number Of Brokers Nearing A Decision Point: 4
  —-—-x—-—-—-
$36         $50           $64           $78
            $43               $57                 $71

Broker Rating:
BMO: Market Perform
MKM Partners: Neutral
Nomura: Neutral
Wedbush Morgan: Neutral

Upcoming Comps:

1st Quarter
2nd Quarter
3rd Quarter
Family Dollar
+5.1%
+4.7% +5.6%

Earnings Trend: Beat the consensus in two out of the past four quarters. Matched the consensus once and missed once.

Over the past twenty-four years, the difference between the annual 52-week high and the annual 52-week low has averaged 43.9%. The largest spread was in 1991 when the stock dropped 66.7% from its 52-week high. The smallest difference was in 2006, when the spread was only 30.1%. Year to date Family Dollar shares are down 6.8%.

The stock got hit hard after reporting first-quarter earnings in early January and has just finished retesting the lows from that time period. Although management has stated that gross margins will remain under pressure during the first half of the year, strong comps have given the company operating leverage and SG&A; as a percent of sales has been declining. Looking ahead, the 2nd-quarter consensus estimate sits near the lower end of management’s $1.10 – $1.18 guidance range giving the company a shot to beat expectations. While I do not expect any upgrades in the near term, if the company can beat expectation when they report in April the stock could see an upgrade as estimates move higher. All said, my near-term price target for FDO is $64, implying about 17% upside to my target. My target is based on 15.4x the forward consensus estimate. just slightly above the projected EPS growth rate. With that said, I’d be a buyer near the current quote, with the expectation that the stock will rally a bit here to catch up with the sector as investors figure that the gross margin pressure is already in the stock here (hence the consensus being below the mid point of management’s guidance), but that the potential for operating leverage from a solid comp is not.

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