Ah, my old buddy Revlon, Inc (NYSE: REV)! Actually, that exclamatory statement is full of sarcasm. Revlon, a beauty-products business whose colleagues include Avon Products, Inc. (NYSE: AVP) and The Estee Lauder Companies Inc. (NYSE: EL), is not a buddy of mine. It is a stock that I really have no intention of buying. The company isn't exactly the most attractive one out there at the moment in terms of fundamentals, but it did have a decent cash-flow statement in the third quarter. Let's check out some numbers.
To begin with, revenues didn't see much growth, as they rose about 1%. Reported net income was $0.57 per diluted share versus a net loss of $0.20 per diluted share in the year-ago period. Unfortunately, that doesn't tell the whole tale. You have to strip out a one-time gain from discontinued operations to get the full story. And you're not going to like it once you do. So, the loss from continuing operations becomes $0.30 per diluted share, which was $0.06 wider than the loss in Q3 2007. Yet, the cash-flow statement does offer a bright spot. Positive operational cash flow of almost $44 million was booked over the last nine months. Last year, Revlon used almost $50 million to fund operations over the nine-month period. Some changes in working capital helped out.
Well, even with the better cash-flow scenario, no, I'm not buying the stock. Revlon is still, in my opinion, a long way off from becoming a great investment idea. I'll need to see more robust growth in the top line and a better profit picture. Sure, for the nine-month period, Revlon did generate a profit of $0.04 per diluted share, but I'm still not convinced. As of this writing, the stock was down 23%. I know it's a bad day in the markets and all, but I wouldn't want to align myself with a company that sees that kind of reaction to earnings. Such a pullback doesn't scream value to me when it comes to Revlon.
Disclosure: I don't own any company mentioned; positions can change at any time.
Estee Lauder (NYSE: EL), whose colleagues include Avon Products (NYSE: AVP) and Revlon (NYSE: REV), ended the week on a great note. The stock rallied to a new 52-week high of $52.04 on Friday during the intraday session, and closed only several cents below that price at the end of the day. The catalyst for this stellar stock performance can be traced to the beauty company's earnings report, which was released earlier in the week.
According to SmartMoney, Estee Lauder saw top-line growth of 14% during the company's fiscal fourth quarter, with revenues coming in at roughly $2 billion. The bottom line increased 36% to $0.61 per share. Wall Street was only counting on $0.56 per share. So that's a nice $0.05 per share beat. The revenue number also went beyond expectations.
I like the results, and I like that Estee Lauder has been a particularly strong stock. According to the AOL Finance snapshot taken at the time of this writing, the stock has been up for every time frame (1-month, 1-year, etc.). Putting this fact together with the fundamental results of the quarter yields a situation that should be looked at. I don't like that gross margins declined, but I do find the stock appealing considering how bad the market has been.
Even with the stimulus checks, retail sales numbers for June and July have been nothing to cheer about. And this coming week should provide another look at how things have been shaping up in the apparel and accessories arena. A number of companies are scheduled to release quarterly numbers, from upscale retailer Nordstrom to the parent of discounter TJ Maxx, from hipster Urban Outfitters to global giant Wal-Mart. Here's a look at what Wall Street is anticipating.
Analysts surveyed by Thomson Financial expect the following to report strong earnings growth when compared to the same period of the previous year.
Avon (NYSE: AVP) delivered not a bag of cosmetics to Wall Street, but a batch of growing earnings. Total revenues for the first quarter were up beautifully, rising 14% to $2.5 billion. Earnings per diluted share likewise did the double-digit-increase dance, rocketing 26% to $0.43.
Now, I would have liked the report a lot more if the company had indicated in its cash flow statement that everything was positive -- unfortunately, that was not to be, as operational cash flow was, in fact, negative. Avon needed to use $41 million for its operating activities during the quarter. Well, one thing I can say is that it's a lot less than the cash needed to fund last year's operations -- Avon burned through over $160 million in the comparable period. A check of the latest 10K shows that, while operational cash flow has been decreasing over the last few years, it has remained positive, so since this is the first quarter of the new fiscal year, we can wait to see how cash flow shapes up as the quarters go by.
Avon competes with companies like Procter & Gamble (NYSE: PG), Revlon (NYSE: REV) and Estee Lauder (NYSE: EL). As I've stated in the past, Procter & Gamble is more my kind of consumer-products business, but I'll give Avon its due since it does have a good product portfolio backing its brand and a devoted base of users. The stock is not too far off from its 52-week high as of this writing, and so long as it can keep sales growing and fight inflationary pressures, it should be a decent long-term bet.
Disclosure: I don't own shares in any of the companies mentioned; positions can change at any time.
Revlon (NYSE: REV) issued a press release concerning its plans for a reverse split as well as some preliminary quarterly results. The reverse split will be based on a 1-for-10 ratio. Well, the company may increase the share price via this method, but it won't make much of a difference in terms of Revlon's potential as an investment.
The stock closed on Friday at $0.99 per share. Let me repeat this -- the stock closed on Friday at $0.99. We are thus talking about a highly speculative equity. Interestingly, if you take a look at the preliminary results, you might believe that Revlon is on the right path. Revlon's management expects a slight dip in terms of net revenues -- the top line will see about $320 million in the quarter versus nearly $329 million in the year-ago period. There will be a net loss of about $5 million this time around versus a net loss of over $35 million last year. Doesn't sound so bad, I suppose, especially when you consider that operating income should come in at $30 million -- that's ten times better than 2007's first quarter. So, would I buy Revlon?
No. I actually owned Revlon stock a few years ago, and I think I essentially broke even when I decided to get the heck out. Revlon has a long way to go before proving to me that it's got a handle on all its problems and that it can get its brand equity back on track. And this reverse stock split means nothing to me, as it doesn't alter the underlying fundamentals. Revlon faces tough competition from other brands, such as Avon (NYSE: AVP), Estee Lauder (NYSE: EL), and products from Procter & Gamble (NYSE: PG), so the company has its work cut out for it.
Disclosure: I don't own shares in any of the companies mentioned here; positions can change at any time.
This post is one of several on business heirs apparent. Let us know in the comments whether you think Aerin Lauder Zinterhofer should take up the reigns of Estee Lauder, and be sure to check out the other heir apparent posts.
A cosmetics empire might seem the ultimate in puffery, the very materialization of vanity. But the venerable empire built by Estee Lauder and her powerhouse son, Leonard, has turned makeup into a very real financial juggernaut. And Aerin Lauder Zinterhofer, Leonard's niece, is not only the public face of the company but also the considerable creative brain of its marketing soul.
As granddaughter of the company's founder, Aerin is surely far-removed from the hardscrabble life that was The Estee Lauder Companies Inc (NYSE: EL) beginnings. She is a child of great wealth and, as such, is the inheritor not just of money and corporate responsibility but also of appearances. Aerin is not just the face of the company, but of a certain sense of style; her choices, from her cutlery to the clothing her two boys wear to (of course) her lip gloss, are signals to a certain subset of the fashion world. Aerin is not just the harbinger of styles, she is a style.
Can one go from being the face of a company to its head? If anyone is positioned to do so, it's Aerin. She didn't just grow up in the center of the fashion world, but in the center of the "old American money" world; her best friends are Lauren duPont and Renee Rockefeller, and they've been teaching her the ways of the powerful since she was a child.
MOST NOTEWORTHY: Thornburg Mortgage, Expedia and Perot Systems were today's noteworthy upgrades:
Jefferies upgraded shares of Thornburg Mortgage Inc Corp (NYSE: TMA) to Buy from Hold as they believe the stock is at an inflection point, characterized by accelerated earnings and dividend growth.
Expedia Inc (NASDAQ: EXPE) was upgraded to Outperform from Neutral at Credit Suisse, as they believe the company is well-positioned to benefit from global e-travel and media opportunities, strong free cash flow, and attractive valuation.
Perot Systems Corporation (NYSE: PER) was upgraded to Sector Perform from Underperform at RBC Capital following its Q4 report.
MOST NOTEWORTHY: GPC Biotech, Akamai, Qwest, Shutterfly and LDK Solar were today's noteworthy downgrades:
GPC Biotech (NASDAQ: GPCB) was downgraded to Sell from Neutral at Goldman, to Sell from Hold at Deutsche Bank and to Underweight from Overweight at Lehman after the company's phase III trial of satraplatin to treat prostate cancer did not meet its primary endpoint.
Deutsche Bank downgraded shares of Akamai Technologies (NASDAQ: AKAM) to Hold from Buy on valuation following the recent rally as they believe concerns around slowing growth, margins and capital efficiency will limit upside.
Qwest Communications (NYSE: Q) was downgraded to Sector Performer from Outperformer at CIBC and to Neutral from Overweight at JP Morgan following the company's disappointing Q3 results.
Jefferies downgraded shares of Shutterfly (NASDAQ: SFLY) following the better-than-expected Q3 results due to valuation.
Piper downgraded shares of LDK Solar (NYSE: LDK) to Market Perform from Outperform, as they expect higher blended poly cost for the company due to tightening scrap poly supply and increased competition.
OTHER DOWNGRADES:
Maxwell Technologies (NASDAQ: MXWL) was downgraded to Underperform from Market Perform at JMP Securities.
UBS downgraded Estee Lauder (NYSE: EL) to Sell from Neutral.
Merrill downgraded CommScope (NYSE: CTV) to Neutral from Buy.
Under Armour (NYSE: UA) was downgraded to Underperform from Market Perform at Raymond James.
RBC Capital downgraded Beckman Coulter (NYSE: BEC) to Sector Perform from Outperform.
Estee Lauder Companies Inc. (NYSE: EL) this morning reported Q1 profit that dropped to $0.20 per share compared to $0.27 in the same quarter a year ago, but the company doubled analysts' expectations of just $0.10 per share. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on EL.
After hitting a one-year high of $52.31 in April, the stock fell to a 52-week low of $38.41 in August. EL opened this morning at $45.00. So far today the stock has hit a low of $44.95 and a high of $47.05. As of 10:40, EL is trading at $45.64, up $2.32 (5.4%). The chart for EL looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just 3 months as long as EL is above $40 at January expiration. Estee Lauder would have to fall by more than 12% before we would start to lose money. Learn more about this type of trade here.
MOST NOTEWORTHY: Lear Corp (LEA) and Tellabs Inc (TLAB) were today's most notable upgrades:
Lear Corp (NYSE: LEA) was upgraded to Neutral from Underperform at Credit Suisse following the $2.31B cash bid from Carl Icahn.
Merrill Lynch upgraded Tellabs Inc (NASDAQ: TLAB) to Buy from Neutral, citing expectations for an improvement in cross-connect demand and margins; the firm expects Tellabs to benefit from AT&T's (NYSE: T) new broadband initiatives, a demand recovery at Cingular, T-Mobile 3G deployment plans and an increase in Sprint/Nextel (NYSE: S) base stations.
OTHER UPGRADES:
JP Morgan upgraded Nvidia Corp (NASDAQ: NVDA) to Overweight from Neutral based on expectations for gross margin upside to be driven by improved unit costs and market share gains in the notebook segment.
Raymond James upgraded shares of AirTran Holdings Inc (NYSE: AAI) to Outperform from Market Perform with a $14 target.
CIBC upgraded Kronos Inc (NASDAQ: KRON) to Sector Outperformer from Sector Perform, with a $46 target, as they find valuation attractive at current levels given their increasing confidence operations are improving.
State Street Corp (NYSE: STT) was upgraded to Equal Weight from Underweight at Morgan Stanley following the news of the Investors Financial Services Corp (NASDAQ: IFIN) acquisition.
Triad Hospitals Inc (NYSE: TRI) was upgraded to Neutral from Sell at Bank of America.
Overstock.com Inc (NASDAQ: OSTK) was upgraded to Neural from Sell at First Albany, as the worst is already reflected in the stock's valuation.
Matrix USA upgraded Estee Lauder Co Inc (NYSE: EL) to Hold from Sell based on fundamental trends.
The deals and general craziness of Black Friday have already been well-covered in this space, so I thought it might be interesting to turn your attention to the actual stock reactions. My intentions were simple enough (but aren't they always?): grab a list of retail stocks and calculate the returns from the close on Wednesday, November 22, through this morning. Sorting the list would give a quick (but early) overview of how the Street was reacting to the "day."
I have ample data manipulation tools at my disposal, so I figured this to be an easy task. What I didn't count on was not being able to find what I considered to be a satisfactory list of retail stocks. The lists I found were either too broad or too narrow. I wanted the usual suspects like Best Buy (NYSE:BBY), Wal-Mart Stores, Inc. (NYSE:WMT), and Gap (NYSE:GPS), while also picking up some of the smaller players like Bebe Stores (NASDAQ:BEBE) and Chico's FAS (NYSE:CHS). Additionally I wanted to capture some of the brands like Crocs (NASDAQ:CROX) and dELiA*s (NASDAQ:DLIA), while excluding consumer goods producers and fast food restaurants.
Unable to find a list that suited my (admittedly arbitrary) desires, I began to handpick names and compile a list of 72 stocks. The graph below shows the top and bottom performing stocks through noon today.
Blue Nile (NASDAQ:NILE), Pier One (NYSE:PIR), and Coldwater Creek (NASDAQ:CWTR) are the weakest stocks, while Lowe's (NYSE:LOW), American Eagle Outfitters (NASDAQ:AEOS), and Jo-Ann Stores (NYSE:JAS) are the strongest.
As you can infer from the graph, the bulk of the returns are flat to lower as two of the "best performing" stocks, Aeropostale (NYSE:ARO) and Limited Brands (NYSE:LTD), show a loss. In other words, buying just ahead of Black Friday doesn't seem like it would have been a good short-term trading strategy. Going forward though, I would expect to see some stocks distinguish themselves and separate from the pack. With my list now created (and saved!) it should be much easier to track. If there is interest in this, I can post periodic updates.
Jim Cramer, never one to rest on a single industry segment, discussed the quest for youthfulness tonight on his ever-popular MAD MONEY show.
If you want your body to look like a teenager's but your bank balance to scream "old fogey," Cramer advises that you avoid Bare Escentuals, Inc. (NASDAQ:BARE). He calls it a fad that isn't going anywhere, and says if you own it you should "ring the register." It was spun off by an LBO firm, but now it's too late; the company won't make you money. Cramer had regrets over this one: he didn't tell a caller on Friday to sell, and wished he had.
Better options if you want to capitalize on America's quest for eternal youth? Cramer likes Allergan, Inc. (NYSE:AGN) for its Botox and Medicis Pharmaceutical Corporation (NYSE:MRX) for its competing product. He counselled against the big, luxury names in the space: Avon Products Group (AVP), The Estee Lauder Co. (NYSE:EL) or Revlon, Inc. (NYSE:REV). Cosmetic companies are unreliable to Cramer.
Cramer did say International Flavors & Fragrances Inc. (NYSE:IFF) is a good alternative, even though it is close to a 52-week high. He thinks the company is much better with scents and steady end markets. Soon it will split into two businesses, he says, as it creates sweet ingredients that it sells to large companies like P&G. He said IFF only trades at 16x forward earnings and it has consistent 10% earnings growth. The best pick of the bunch? IFF, Cramer says.
Even with the stimulus checks, retail sales numbers for June and July have been 
A cosmetics empire might seem the ultimate in puffery, the very materialization of vanity. But the venerable empire built by Estee Lauder and her powerhouse son, Leonard, has turned makeup into a very real financial juggernaut. And Aerin Lauder Zinterhofer, Leonard's niece, is not only the public face of the company but also the considerable creative brain of its marketing soul..gif){kind=logo}
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Jim Cramer, never one to rest on a single industry segment, discussed the quest for youthfulness tonight on his ever-popular MAD MONEY show.
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