Goodfellow LLC’s “Stocks in the News”
Smith & Wesson Numbers Shoot Up in Fourth Quarter
(SWHC, $9.74, up 44 cents midday)
Gunmaker Smith & Wesson Holding Corp. reported preliminary fourth quarter numbers, beating earnings estimates, and reflecting huge year-over-year gains. The company also announced that it will buy back $100 million of common stock. “Fears of new gun controls have spurred demand of guns, particularly among first-time buyers,” reports Reuters.
Earnings are projected to grow 190% this year, then fall a little for the next two years. The PE is 8.2.
The stock is on an uptrend, and will meet resistance around $10.50 per share. There’s not enough long-term earnings excitement for investors, nor enough short-term juice for traders.
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Boeing Foresees $6 Billion Annual Revenue Leap with 787 Dreamliner
(BA, $101.87, down 29 cents midday)
With a record backlog of 800 Dreamliner orders to fill, Boeing Company’s production pace will necessarily ramp up dramatically over the next few years. The company intends to use 80% of the increased free cash flow towards dividends and share repurchases, which provides tremendous shareholder value.
Boeing’s earnings are expected to grow 27, 11 and 10 percent in the next three years. The PE is 15.8 and the dividend yield is 1.90%.
The stock broke past resistance in early March and rose 33%, and is now retracing the 2007 high of $106. There’s plenty of time to wait for the share price to correct to $90 before accumulating shares.
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Edwards Lifesciences Patent Lawsuits: One Down, Two to Go
(EW, $70.48, down $1.47 midday)
A German court has determined that Medtronic’s CoreValve product does not infringe Edwards Lifesciences’ patent. Court decisions relating to two additional patent lawsuits are expected in July, and in early 2014. Edwards Lifesciences designs treatments for cardiovascular disease.
Earnings are expected to grow 13, 19, and 15 percent in the next three years. The PE is 23.
The stock has been trading between $61 and $106 for almost three years. Traders could make money by purchasing today, and selling at resistance at $90. But with a high PE and a lackluster chart, buy & hold investors should stay clear.
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Safeway in Agreement to Sell Canadian Operations for $5.7 Billion
(SWY, $24.81, $1.70 up midday)
Safeway Inc. has agreed to sell its Canadian stores to Sobeys. Safeway will receive about $4 billion after taxes and expenses, which will be used to pay down $2 billion in debt, and repurchase shares. Safeway’s long-term debt ratio is high at 60%.
Citi Research has revised its earnings projection for Safeway down to $1.89 per share in 2013, which is down 12% year-over-year. The PE is 13.6, and the dividend yield is 3.11%.
The chart pattern is turning bullish, and the stock is likely to trade between $22 and $27 in the near-term. Citi says, “we see a lack of catalysts to drive significant additional upside in the near term. “ (06/13/13)
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DuPont Guides Earnings Estimates Downward
(DD, $53.61, down 62 cents midday)
E I du Pont de Nemours and Co. has lowered Wall Street’s earnings expectations for the second quarter to about $1.27 vs. consensus $1.36. Unusually cool, wet weather is impacting its Agriculture and Nutrition & Health businesses.
Earnings are expected to grow 16, 14 and 12% in the next three years. The PE is 14, within a five-year range of 10 to 24; and the dividend yield is 3.34%.
DuPont stock has been in a three-year trading range between $40 and $56, narrowing recently toward the mid-50’s. The numbers are attractive but the chart is neutral. (06/13/13)
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H&R Block Reports Fourth Quarter Earnings
(HRB, $28.90, up 27 cents midday)
H&R Block Inc. has announced fourth quarter and full year earnings slightly below consensus estimates, but much better than last year’s numbers. The company gained digital tax return market share, is successfully receiving interest in the sale of its banking operations, and will exit its partnership in 300 Wal-Mart stores.
Earnings are expected to grow 18, 14, and zero percent in the next three years. The dividend yield is 2.81% and the PE is 15.
H&R Block’s stock price had a huge run-up early this year, and is now trading sideways at long-term resistance near $30. (06/13/13)
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Apollo Tyre in Agreement to Buy Cooper Tire & Rubber
(CTB, $34.51, up $9.95 midday)
Cooper Tire & Rubber Co. has agreed to be acquired by Apollo Tyre Ltd. for $35 per share, in an all-cash deal worth $2.5 billion. Apollo Tyre is the largest tire manufacturer in India, though smaller than Cooper Tire.
Shareholders would make more money by selling today near the acquisition price and reinvesting their capital elsewhere, as opposed to waiting for the deal to close around the end of 2013 in the effort to save a stock commission. (o6/12/13)
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Pfizer Wins Patent Lawsuit vs. Teva and Sun Pharmaceutical Companies
(TEVA, $39.34, down 49 cents midday)
“Teva Pharmaceuticals Industries Ltd. and Sun Pharmaceutical Industries Ltd. will pay $2.15 billion to Pfizer Inc. to settle litigation over unauthorized sales of the heartburn drug Protonix,” reports Bloomberg.
Teva’s financial obligation in the patent infringement lawsuit will total $1.6 billion, of which $560 million may be covered by insurance. The company had close to $3 billion in cash at the end of 2012.
In May, we told investors to avoid Teva, due to a stagnant chart pattern, falling 2013 earnings, and prospects of an increased tax rate in Israel. With those problems now compounded by this hit to its balance sheet, we would continue to avoid shares in Teva Pharmaceuticals. (06/12/13)
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Ulta Salon Reports Strong First Quarter
(ULTA, $98.77, up $14.64 midday)
Beauty retailer Ulta Salon, Cosmetics & Fragrance, Inc. reported first quarter earnings of 65 cents per share, vs. the consensus estimate of 62 cents, on good revenue growth. Ulta plans to open 125 new stores this year, and dozens of Lancome and Clinique boutiques.
Earnings are expected to grow 24-26% per year for the next three years. The PE is 29.
Ulta’s stock price fell through a medium-term trading range this spring, and launched back towards its highs in today’s trading. Expect the stock to trade between $84 and $102 for a while now. Traders could make money within the trading range, but buy & hold investors should look for growth stocks with more bullish charts. (06/12/13)
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Heads Roll Over Manufacturing Error
Christine Day is stepping down as CEO of Lululemon Athletica Inc. (LULU), maker of much-loved yoga pants, in the wake of a product recall which also cost the Chief Product Officer her job. Morgan Stanley said today, “The CEO exit may imply deep organizational turmoil sometimes seen in high growth businesses. “
We reported on March 19 that the company was forced to recall yoga pants which were too sheer, due to a manufacturing error, and told investors to stay on the sidelines. Expected 2013 earnings growth has since come down from 23% to 8%. The PE is 34.
After reaching new highs yesterday, Lululemon’s stock crashed through several support levels today, down to support at $65. With a CEO search underway and a bearish chart, there is no near-term upside to this stock. (06/11/13)
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Softbank Plays Poker with Dish Over Sprint Purchase
SoftBank Corp. has raised its bid to acquire Sprint Nextel Corp. (S) shares to $7.65 apiece, vs. Dish Network’s (DISH) offer valued at about $7.00 per share in cash and Dish stock. “Sprint says that Dish has until June 18 to make its “best and final” offer,” reports Bloomberg.
Shareholders should wait to see if a Dish Network counteroffer emerges, then sell Sprint shares as they approach the full value of the buyout offer. We don’t recommend that shareholders accept a cash & stock deal, because the tax implications tend to be too complex for most investors, and cost them extra in accounting fees at tax time. To avoid that nightmare, shareholders could sell into the inflated share price right before a Dish deal goes through. When a final offer is presented to shareholders, be ready to make a decision on whether to sell outright, accept Dish’s cash & stock deal, or wait to accept Softbank’s cash offer. (06/11/13)
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Dole CEO Offers to Buy the Company
Dole Food Co. Inc. (DOLE) CEO David Murdock, who owns 40% of Dole, has offered to buy all outstanding shares for $12 per share and also take on the company’s debt obligations. Mr. Murdock previously took the company private in 2003 and took it public again in 2009.
Earnings are expected to fall 10% this year, then climb 48% next year. The PE is 28.
The chart has been decidedly bearish. We advise shareholders to take the money and run, or at least use stop loss orders in case the buyout falls through. (06/11/13)
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Gilead Sciences Receives Drug Approval
The FDA has granted Priority Review to Gilead Sciences’ new drug application for sofosbuvir, which represents a major advance in the treatment of hepatitis C. Sofosbuvir could come to market in early 2014.
Earnings are projected to grow 1%, 48%, and 51% over the next three years. The 2013 PE is 27 and the 2014 PE is 18.
On April 29, we advised holding the stock and waiting on new purchases due to a big price run-up. The stock finally had a pullback, and appears to be doing a double-bounce at $49. Investors probably have through tomorrow to buy the stock below $52 as the price recovers toward a $52-$56 trading range. (06/10/13)
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Thermo Fisher Scientific Shines at Global Conference
Morgan Stanley Research reported today that Thermo Fisher Scientific has “the most significant (and impressive) new product introductions” at this week’s global conference of the American Society for Mass Spectrometry. TMO designs scientific technology, instruments and laboratory equipment.
Earnings growth is expected at 7-9% per year for the next three years, down from projections of 10-11% per year when we reported on TMO in April.
We cautioned investors not to buy in April, due to a big run-up in share price, and our caution is now compounded by slower earnings growth. (06/10/13)
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Comcast Plans to Blanket the Country with WiFi Hotspots
“Comcast announced plans today to create millions of WiFi access points for its customers through a neighborhood hotspot initiative,” reports BusinessWire. Comcast Corp. will give residential customers a free, additional xfinitywifi signal so that other customers visiting homes with xfinitywifi can easily gain internet access.
Wall Street expects Comcast’s earnings to grow 25, 15, and 18% over the next three years. The PE is 17.1 and the dividend yield is 1.9%.
Comcast shares reached new highs this year, then experienced a pullback. The stock seems to be completing a bullish double bottom chart pattern today, and will likely climb immediately from here. Read our research report on Comcast Corp. (06/10/13)
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