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

July 27, 2012

Daily Kill Sheet For July 27,2012

Filed under: Uncategorized — Administrator @ 10:23 am

I am taking profits in my 7/5 trading buy on Nordstrom’s Inc (JWN, $54.01) for a 5.6% gain. The stock has hit my near-term price target and is now sitting just below a strong technical resistance area. We bought the stock as it just broke through its 200-day moving average. Our near-term catalyst was that the company had just reported better-than-expected June same-store sales and that investor expectations for a strong July comp would push the stock higher. That has now happened, thus its time to take profits.

July 26, 2012

Daily Kill II Position Update: (CAB)

Filed under: Uncategorized — Administrator @ 10:58 am

I am closing out my 7/20 short calls on Cabela’s (CAB, $44.21) and Hibbett Sports (HIBB, $59.24) with a loss of 8.9% and a gain of 2.2%, respectively. Cabela’s reported second-quarter earnings this morning and saw no impact of the mild winter on its earnings or sales growth. Indeed, I expected to see some slowing in the growth rate due to pull forward from the mild winter and it never materialized. With that said, it no longer makes sense to hold our shorts in either position.

Daily Kill Sheet For July 26, 2012…Position Update (PCP)

Filed under: Uncategorized — Administrator @ 10:08 am

Precision Castpartshas reported first-quarter earnings of $2.35 a share, $0.01 worse than the consensus estimate of $2.36.The miss was driven by an unplanned outage of a 29,000-ton press in Houston which impacted both sales and operating income for the last three weeks of production in the quarter. Repairs are expected to extend roughly five weeks into the second quarter. 
Revenues rose 17.6% year over year to $1.97 billion versus the $2.01 billion consensus. Operating income in the first quarter increased by 22.9% year over year, growing to $515.5 million. The overall operating margin increased 120 basis points to 26.2%. 
Segment Results
 The Investment Cast Products: The segment improved year-over-year sales by 9% year over year, to $619.7 million compared to $568.8 million a year ago. Segment operating margin increased 40 basis points to 33.3% of sales, versus 32.9% last year. In the first quarter, contractual material pass-through pricing was approximately $19.2 million, compared to $18.3 million a year ago. Increased base production rates at the OEMs, further ramps in the 787 program, and solid aftermarket demand propelled aerospace sales, which were 11% higher year over year and also continued to show moderate sequential improvement. For the segment’s industrial gas turbine business, spares strength served as the primary driver for sales, with more than 23% growth year over year, while OEM backlogs continued to increase as well.
Forged Products: Sales in the first quarter jumped 13% to $857.2 million from $758.5 million last year, and the operating margin increased 220 basis points to 22.8%. A full quarter of KLAD, Rollmet, Tru-Form, and RathGibson, as well as a small contribution from Dickson/Aerocraft, were included in the first quarter results. Contractual material pass-through pricing was essentially flat with last year, and the decreasing cost of nickel dropped the selling price of external alloy products from the segment’s three primary mills by approximately $10 million year over year. Forged Products aerospace sales increased by 20% in the quarter, spurred by OEM build schedules, solid 787 demand, and the benefit of acquisitions. Deliveries of oil and gas market products improved by 35% year over year and continue to build. During the first quarter, an unplanned outage of the 29,000-ton press in Houston impacted both sales and operating income for the last three weeks of production in the quarter, with the repairs expected to extend roughly five weeks into the second quarter. Despite this unanticipated headwind, the segment delivered strong operating performance by effectively leveraging higher volumes across its high fixed-cost base and continually optimizing metal utilization and yields.
Fastener Products: Sales for the segment increased by 42% in the first quarter, rising to $492.8 million from $348.0 million last year, which included a full quarter of Primus and a partial quarter of sales from Centra. The operating margin for the segment dropped 100 basis points to 29.7%. Base critical aerospace fastener sales showed more than 15% growth year over year due to base aircraft production increases, slowly improving 787 orders, and heightened distribution activity, and the segment’s aerostructures businesses, including the newer acquisitions, are seeing steady top-line improvement as well. Operationally, the base aerospace fastener businesses are starting to drop through solid incremental margins as larger volumes are leveraged across much improved cost structures, and the aerostructures operations are performing beyond initial expectations and driving their margins higher. The slight drop in overall margins for the segment was likely due to the timing of the Centra acquisition as consolidation costs had an immediate impact on the business, while the company only saw a partial addition to the top line.
Overall, no earnings guidance was given in the release, although management made bullish comments about the overall aerospace and power end markets. Management stated that “”The high availability and low cost of natural gas, along with hotter weather, continues to spark our IGT aftermarket sales, as utilities and independent power producers place more demand on the installed base. In addition, we are starting to see some increased orders from OEMs, which, while not at the rates of the mid-2000s, is an encouraging sign. Our oil and gas business will steadily build with the delivery of the Saudi Aramco and ADNOC orders through the back half of this fiscal year and into the next, and we have several other significant projects in the pipeline. The interconnect pipe market remains stable, with sales upside in the latter half of the year.” In regards to aerospace, the CEO noted that “On the aerospace front, the main drivers will be increased narrow-body and wide-body aircraft deliveries and higher 787 build rates. All of our segments are now building airframe and engine components relatively in sync with current base production and Fastener Products orders for the 787 program are gradually aligning with build rates.”
Looking ahead, it’s likely that the unplanned press outage will have some impact on margins during the second quarter. Even so, I expect that the company will contibue to grow earnings at a double-digit pace in the quarter due to the strength in the underlying demand the company is seeing across all of its segments. Although I expect to see some weakness in the shares today due to the unexpected miss, I continue to like the shares at the current quote and recommend continuing to hold the stock here (we bought the stock on May 18th).

July 20, 2012

Daily Kill Sheet For July 20, 2012

Filed under: Uncategorized — Administrator @ 2:28 pm

Take a look at Cabela’s Inc. (CAB, $40.56) and Hibbett Sports (HIBB, $60.57) on the short side. Both stocks are showing double top formations, and both are trading at the high end of their traditional valuation ranges. Over the past few months, we have seen selloffs in numerous other types of discretionary retailers (auto parts retail (ORLY, AAP, AZO); consumer electronics (BBY, HGG, GME); jewelry (NILE, TIF, SIG); housewares (BBBY, WSM)) as well as others such as Ralph Lauren and Nike. I suspect sporting goods could be the next key area to pull back.

Operationally, CAB and HIBB are hitting on all cylinders. Indeed, both companies have beaten the consensus estimate in each of the past four quarters; Cabela’s by at least a nickel per quarter, while HIBB has beaten in each by $0.02 to $0.08. Cabela’s will be reporting earnings next week. While I expect the company to at least match the consensus, any beat below a nickel could be construed as a slowing of trend and the stock could sell off. The mild winter weather experienced earlier in the year has pulled forward sales for many retailers leading to weaker than expected comps during the Spring and there is the potential we will see the same thing in the sporting goods space. If so, top-line expectation may not be matched and with the stocks already trading near the high end of their 10-year average valuation ranges there is little room for sloppy results.

Currently HIBB shares are trading at 1.98x sales, 5.58x book value, 22.9x the consensus estimate and 17.1x cash flow. Over the past three years, while trading at a 52-week high, the stock has average multiples of 1.49x sales, 5.13x book, 22.4x EPS and 16.6x cashflow. Given that HIBB is already trading above all four of those parameters, there is little room for more upside without a guidance increase, in my opinion. Cabela’s, too, is also trading at valuations above the three year average valuation the stock achieved while trading at a 52-week high. If any of you would like to see my valuation spreadsheet to see these figures, shoot me an IM and I will email them to you.

All said, my price targets for CAB and HIBB are $35 and $55, respectively implying returns of 15.8% and 10.1% to my targets. CAB reports on Thursday next week while HIBB reports in mid August. Note that I have shown two charts for each stock below. The first chart for each shows the 5-year chart with the Fibonacci retracements from the 2008 low.

The second chart for each stock shows the six-month chart. I have highlighted the double top in yellow as well as the levels of two other key technical indicators.
The charts for Hibbett Sports are below.

July 18, 2012

Daily Kill Sheet For July 18.2012

Filed under: Uncategorized — Administrator @ 9:29 am

Take a look at Footlocker (FL, $32.95) on the short side. Puma has announced downside guidance this morning based on a slowing in their business…particularly in Europe. While I expect a number of the shoe manufacturer and retailer shares to see weakness this morning in sympathy with Puma, Footlocker shares are particularly interesting given their own first-quarter struggles with their European operations. Indeed, comparable-store sales in Europe were down high single digits in February and if Puma’s and Nike’s results are a telltale, then it’s likely that the second quarter was weak as well.

On a technical basis FL shares look to have formed a double top with the stock trading in line with its late May high. Two of my favorite technical indicators are also signaling that the stock could see some near-term weakness here. To start, the TRIX is poised to do a bearish rollover. In May, the TRIX also signaled the on-coming selloff and did a bearish crossover ahead of a 14.5% decline in the shares. The Williams %R indicator is also signaling that the stock is overbought here.

With that said, the stock has solid support near the $30 level, which is my near-term target, implying a 9.8% return to my target. The 50-day moving average sits at $30.34 and should also work as a support level. Note too that the stock has a gap in its chart from 6/28 – 6/29 between $29.05 and $29.58 that has never been tested. This, too, lends credence to $30 being a good target level for us here. If the stock were to break through support at $30, I’d look to use the 200-day moving average as my secondary target near $27 a share.

July 12, 2012

Daily Kill Sheet For July 12, 2012

Filed under: Uncategorized — Administrator @ 9:36 am

Take a look at the home builders as a short. Specifically, Toll Brothers (TOL, $28.89), Pulte Homes (PHM, $10.54) and Lennar (LEN, $29.98). All three of these stocks have had a meteoric run this year and are now trading well above realistic valuations…particularly if we are heading into an economic slowdown.

Sure, mortgage rates are low and housing numbers have been positing better year-over-year comparisons over the past few months. Even so, unemployment remains stubbornly high, the economy is showing signs of slowing, many home owners remain underwater on their mortgages and the number of houses that have been foreclosed upon yet haven’t made it to the market yet remains staggeringly high. At this point, the home builders are essentially being valued as if a recovery was the only outcome that could happen here, and that is a dangerous assumption.

Indeed, Toll Brothers shares are up 41.5% since the beginning of the year while Pulte and Lennar shares are up 62.9% and 49.9%, respectively. Given that earnings and cash flows are weak due to where we are in the cycle, it wouldn’t be fair to just value the companies by their current P/E or price to cash flow. Toll Brothers, for example, is trading at 64x the consensus estimate and at about 48x cash flow. Over the past twenty four years, when the company has had earnings, the stock has traded at an average of only 14x earnings while it has been trading at a 52-week high. At the current quote, TOL would need to earn about $2.05 a share to be at that multiple. The current consensus stands at $0.46 while the forward estimate is $0.94, thus its likely that under perfect conditions it would be at least 3 or 4 years before TOL would be anywhere near $2.05 a share…and conditions are far less than perfect as I noted above.

Over the past week, most of the stocks within the industry have begun to roll over and the charts are looking very bearish. Over the past three years, the Spring selling season has been strong but has then slowed on entering the summer months. A similar pattern this year will likely lead to estimate revisions, which could lead to strong corrections in the stocks. While I have only used TOL as an example, the valuation parameters are similar for all three of these stocks.At the current quote, TOL is trading at 1.84x book. Since 1999, the stock has traded below 1.2x book in eleven out of thirteen years. The best time to buy a home builder is when it is trading below book value. TOL has traded below book value in nine of those thirteen years.

All said, I am using TOL, PHM and LEN as short-term trades here only. Thus, my price targets are triggered off of their charts. My near-term price targets are $27 for TOL, $28 for LEN and $9.50 for PHM. This implies returns of $7.0%, 7.1% and 11%, respectively although all three could fall further. The drops I am looking for would take each stock back to just above its 50-day moving average.

July 10, 2012

Daily Kill Sheet For July 10, 2012

Filed under: Uncategorized — Administrator @ 9:34 am

Take a look at Take Two Interactive (TTWO, $9.26) for a trade. The stock has bottomed here and is sitting along long-term support. The company has sequels to two of its blockbusters slated to come out next year, and the stock has a tendency to run in August, likely due to investors anticipating new releases and stronger sales in the upcoming holiday season. Indeed, TTWO shares have rallied strong in August in four of the past five years, only failing to rally in 2008, a year when the market was in a tail spin.

In 2013, Take Two is set to release Grand Theft Auto V and Bioshock Infinite. The Grand Theft Auto franchise has been a huge success for TTWO in the past with its last installment selling over fifteen million copies. Indeed, until recently, Take Two has only been profitable in years when a Grand Theft game has been rolled out. Needless to say investors will likely buy the stock in anticipation of the upcoming release. The Bioshock franchise has also been a strong seller for the company in the past and the upcoming release already has over 200,000 pre-sales say industry insiders.  Aside from these new games, TTWO also has a game called Insane coming out next year and Max Payne 3 and NBA 2K12 games are currently doing well at retail, though neither is expected to be the next “must have” franchise.


At the current quote TTWO is trading at just 7.9x the forward consensus estimate. Note that analysts have EPS dropping next year, likely because TTWO is a March fiscal year earnings reporter and many analysts expect Grand Theft Auto V to be out in early 2013. If Grand Theft isn’t released in January or February next year, then it’s likely that estimates for March 2014 will prove to be too conservative. On a technical basis, TTWO is sitting near a multiple long-term support area, with both the TRIX and Williams %R ratio pointing to the stock being oversold here. My near-term price target for the shares is $13.50, implying about 46% upside to my target. Note that this trade is likely a multi-month hold rather than a trade I am looking to take off after just a few weeks.


July 6, 2012

Daily Kill Sheet For July 6, 2012

Filed under: Uncategorized — Administrator @ 10:20 am

I am taking profits in my 6/19 trading call on Green Mountain Coffee Roasters (GMCR, $24.32) with a 17.5% gain. We initially played the stock for a dead-cat bounce, and we have certainly seen that over the past few weeks. Even so, the company will be reporting earnings next month and EPS visibility remains poor. The company is suffering from the patent expiration on k-cups. While I don’t expect the company’s market share to go to zero, I do think that its share will erode as competitors enter the market. With that said, I’ll take my gains on the bounce here and wait and see how the market share battle unfolds from the sidelines.

July 5, 2012

Daily Kill Sheet For July 5, 2012

Filed under: Uncategorized — Administrator @ 9:19 am

Company
June Comp
Comp Versus Expectations
Comment
Zumiez (ZUMZ)
+8.2%
-40 bps
Decent result off of a tough compare.
Stage Stores (SSI)
+3.3%
+190 bps
Cosmetics, footwear & men’s were strong
Bon-Ton Stores (BONT)
-0.8%
-80 bps
Thin analyst coverage
CATO Stores (CATO)
-10.0%
-1000 bps
2nd-Qtr EPS at low end of previous guidance of $0.53 – $0.57. Consensus $0.59.
TJX Companies (TJX)
+7.0%
+340 bps
Raises 2nd-qtr EPS range to $0.52 – $0.53 from $0.47 – $0.50. Consensus $0.51. Raises Full-year to  $2.31 – $2.39 from $2.27 – $2.37. Consensus $2.42.
Macy’s (M)
+1.2%
-110 bps
Reiterate full-year guidance range of $3.25 – $3.30. Consensus $3.27.
Ross Stores (ROST)
+7.0%
+250 bps
Raises 2nd-qtr EPS guidance to $0.77 – $0.78 from $0.72- $0.75. Consensus $0.77.
Stein Mart (SMRT)
-0.5%
-230 bps
Blaming the weather.
Saks Inc. (SKS)
+6.0%
+180 bps
Shoes, men’s & cosmetics lead the charge.
Target Corp. (TGT)
+2.1%
-70 bps
Reiterates 2nd-qtr guidance of $0.94 – $1.04. Consensus $1.00.
Limited (LTD)
+7.0%
+450 bps
Another solid quarter
Nordstrom’s (JWN)
+8.1%
+390 bps
Another solid month.
Costco (COST)
+3.0%
-100 bps
Currency translation hurt Int’l results by 600 bps.
Wet Seal (WTSLA)
-9.0%
-30 bps
2nd-qtr loss of $0.03 – $0.06. Consensus loss of $0.05.
The Gap Inc. (GPS)
flat
-30 bps
North American comps all positive…International sales a big drag.
Kohl’s (KSS)
-4.2%
-140 bps
2nd-qtr EPS at low end of $0.96 – $1.02 range. Consensus $0.95
Fred’s Inc. (FRED)
-4.0%
-430 bps
2nd-Qtr EPS at low end of previous guidance of $0.15 – $0.17. Consensus $0.16.
The Buckle (BKE)
-2.5%
-250 bps
Weakening trend goes negative.
Take a look at Nordstrom’s (JWN $50.56) for a trade off of its strong June comp numbers. The stock closed above its 200-day moving average on Tuesday thus the good results should help the stock to climb given the strong technical set up. Note, too, that Sak’s reported comp sales were also strong this morning, implying that high-end sales remain a strong spot in retail. At this point, I’m keeping my price target tight, given that the company reports same-store sales monthly. My near-term target is $54, implying about a 6.8% return to my target. My target sits at an area of past support, which is now a resistance point. My target is just above a gap in the stock’s chart (5/10 – 5/11) and just below a second smaller gap.


July 2, 2012

Daily Kill Sheet For July 2, 2012 (II)

Filed under: Uncategorized — Administrator @ 9:40 am

Taking profits in Best Buy (BBY, $22.43 here with a 11.2% gain. The stock has had a good, but volatile run since we originally recommended it on May 9th. Even so, the stock has been moving up on takeover chatter and the company continues to have too much square footage. Thus, I will take profits here and look for a better entry point.

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