Finish Line (FINL - option chain) shares are rising today after the company reported a Q4 profit of $30.5 million, which translates to 55 cents per share. Analysts had been expecting 48 cents EPS. If you think that the stock 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 FINL.
FINL opened this morning at $15.55. So far today, the stock has hit a low of $15.35 and a high of $16.63. As of 11:50, FINL is trading at $16.55 up 1.89 (12.9%). The chart for FINL looks bullish.
Finish Line (FINL) is one of the few companies stepping into the earnings spotlight during this holiday-shortened week, and traders are so far reacting with enthusiasm to the retailer's third-quarter report. Finish Line banked a surprise profit of $6.6 million, or 12 cents per share, much improved from its year-ago loss of $8.8 million, or 16 cents per share.
Revenue for the period dwindled 0.2% to $240.1 million, even as same-store sales rose 1.7%. Gross margin ticked higher to 29.5% from 27%.
Earnings reports continue to dribble in as the quarter winds down. Much of the attention this week will be on homebuilders KB Home (NYSE: KBH) and Lennar Corp. (NYSE: LEN) as investors look for any sign that the housing sector has bottomed (home sales numbers are also due out this week; see below). Analysts surveyed by Thomson Financial anticipate that both companies will report that they narrowed their losses in the most recent quarter.
KB Home's expected $1.25 per share loss, on revenue of $725.5 million, compares to the previous quarter loss of $3.30 and to a year-ago loss of $6.19. However, KB Home's losses in the past few quarters have been deeper than expected. The Los Angeles-based homebuilder's long-range earnings growth forecast is 10.5%, less than the S&P 500. Analysts continue to recommend holding KB Home, and have for at least 120 days. Shares, however, reached a new 52-week high of $31.69 on Friday, and they are up 10.5% year to date.
Lennar is expected to post a loss of 52 cents per share, on revenue of $1.1 billion. That compares to the previous quarter's per-share loss of 76 cents and to a year-ago loss of $3.25. While Lennar also has tended in the past few quarters to miss expectations, the Miami-based company managed a positive surprise in the first quarter of 2008. Lennar's long-range earnings growth forecast is 10.3%, about the same as KB Home's. Analysts also recommend holding Lennar. Friday, shares of Lennar also reached a 52-week high, $27.75, but they are down 6.4% year to date.
It is going to be an interesting week. The Fed and oil will be at odds, and tempers are sure to flare on the trading floors. There are many earnings and eco reports we are looking at, and it is hard to choose which will be front and center. Traders and investors will be closely following every move by the Fed as they will be releasing a policy statement at 2:15 p.m. on Wednesday.
Also, stocks within the homebuilders group will be front and center as a few key players will share their earnings results. Have you seen the charts of these companies lately? Click for a good comparison. And after you take a peek, you may also wonder if they are actually stock charts or ski slopes. So with that as the backdrop, here are a few names that may actually be undercovered and worth a look.
Tuesday, June 24
Anything related to the automobile industry has been under siege of late, and I can't imagine how that will change anytime soon. HB Fuller Co. (NYSE: FUL) is involved in the manufacturing of the industrial performance/adhesive products for the assembly/packaging and automobile markets. The fact that the economy is lagging would lead one to the realization that, unless we see a quick turnaround of epic proportions, the reality of a lower share price will come with the next earnings release. Several down days of late have also had increasing volume, and that is not a good sign for a stock that is beginning to show signs of breaking down. Even so, First Call is showing a $0.45 per share quarterly estimate on $347 million of revenue.
Genesco (NYSE: GCO) closed at $33.06 Thursday, Finish Line (NASDAQ: FINL) closed near an eleven-year low of $3.05.
The chancery court in Nashville, Tennessee found that GCO did not commit fraud in the sale of the company to FINL, and ruled FINL to proceed with the acquisition of GCO.
FINL, with a market cap of $145 million, announced on June 18, 2007 the acquisition of all of GCO outstanding shares for $54.50 in cash.
Goldman Sachs says: "Litigation surrounding the transaction is far from over and completion of the transaction remains uncertain."
GCO overall option implied volatility of 102 is above its 26-week average of 36 according to Track Data, suggesting larger risk.
FINL overall option implied volatility of 155 is above its 26-week average of 85 according to Track Data, suggesting larger risk.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
It's no secret that most mergers and acquisitions fail to create value. The Wall Street Journal's "Manager's Journal" takes a look at a common problem with mergers:
But if the past is a guide, markets will focus on assets, portfolios and business synergies and overlook a key to whether the deal is successful: people.
People issues are often the root of failed deals, our research shows. That is because they are frequently an afterthought in the frenzy of a deal. Dealmakers gather reams of financial, commercial and operational data. But they often pay scant attention to what we call human due diligence -- understanding the culture of an organization, the roles that individuals play, and the capabilities and attitudes of its people.
This is certainly the strategy of Warren Buffett, whose conglomerate Berkshire Hathaway Inc, (NYSE: BRK.A) has grown successfully bu focusing on acquisition with strong management that wants to stay on. Berkshire avoids integration/people problems by integrating new companies as little as possible.
Given the importance of relationships in the outcome of deals, you have to wonder if some of the more conentious buyouts are doomed to fail.
For instance, The Finish Line Inc. (NASDAQ: FINL)'s acquisition of Genesco Inc. (NYSE: GCO): When Genesco reported a bad quarter, Finish Line suggested that it might attempt to back out of the proposed merger agreement. Now lawsuits and rhetorics are flying and shares of Finish Line are scraping 5-year lows. It raises the question: If the merger does end up being completed (Possibly because Finish Line has no choice), will these people be able to work together?
For a list of other deals that could find themselves struggling because of people problems, check out Private Equity Deals that have Hit Snags. In consummation isn't smooth, then integration is unlikely to be a doozie either.
Finish Line's (NASDAQ: FINL) agreement to acquire its larger rival Genesco (NYSE: GCO) appears to be in jeopardy. Last month, Finish Line announced that it was "evaluating its options regarding the agreement after Genesco reported a bad quarter.
Now Genesco has sued Finish Line in an effort to consummate the merger. From the unusually colorful press release announcing the lawsuit:
Commenting on the filing, Genesco Chairman and Chief Executive Officer Hal N. Pennington said, "No more delays by The Finish Line and UBS; no more reservation of rights; no more bankers' putting their pencils down. We want a court of competent jurisdiction to enforce our rights under the Merger Agreement and for The Finish Line and UBS to live up to their obligations."
Genesco (NYSE: GCO) reported disappointing results for its second quarter, and now its agreement to be acquired by Finish Line (NASDAQ: FINL) may be in jeopardy.
Finish Line "issued a statement" regarding Genesco's results. According to the press release, "The Company is disappointed with Genesco's second quarter fiscal 2008 financial results ... the Company is evaluating its options in accordance with the terms of the merger agreement. The Company does not intend to make further comments at this time."
Sounds like it's going try to find a way to back out of the deal. Shareholders for both companies have spoken up about how they feel about that. Genesco has wilted 13% on the news and Finish Line is up more than 12% -- on news that it will consider its options with regard to a previously-announced merger.
It's not yet known whether Finish Line will be able to back out of the deal, and at what cost. But given how positively the Street reacted to the possibility of Finish Line backing out, the management has to be dying to get out of this thing.
After reading Kevin Kelly's stock pick for a volatile market -- Steve Madden (NASDAQ: SHOO) -- I started thinking about all the shoe stocks that have been popping up on my deep value radar of late. A handful of shoe manufacturers and retailers have piqued my interest with low price/book ratios or low price/earnings ratios. Here they are:
Rocky Brands (NASDAQ: RCKY): Rocky owns the ROCKY® brand, along with GEORGIA BOOT®, LEHIGH®, DURANGO, MICHELIN FOOTWEAR and ZUMFOOT and manufactures DICKIES® boots under a licensing deal.
The company disappointed the Street -- actually enraged it -- with its second-quarter results. But the stock trades at a modest price/earnings ratio, and reaffirmed its guidance when it reported the bad quarter. At 0.23 times sales and .60 times book value, this one may be worth scooping out of the bargain bin.
Finish Line (NASDAQ: FINL): Shares of Finish Line, an operator of mall-based footwear stores, have been getting hammered since the company agreed to acquire its much larger competitor Genesco (NYSE: GCO) for $1.5 billion in cash. Following the deal, the combined entity's balance sheet is going to look like something out of those 1950's horror movies you can get on DVD for a buck at Wal-Mart.
Phoenix Footwear Group (AMEX: PXG): These guys make shoes and work boots under labels including Royal Robbins apparel, the Tommy Bahama, Trotters, SoftWalk, H.S. Trask footwear, Altama boots and Chambers Belt. The stock popped a few weeks ago when the company received a nice Defense Department contract, but has since retreated.
Shoe Pavilion (NASADQ: SHOE): So far, this is one of those turnarounds that, like most turnarounds, isn't really turning around. The company operates discount shoe stores and isn't making any money.
Judging from their stock prices, life has been tough for the second-tier shoe companies -- Perhaps competition and pricing pressure from mass merchandisers is hurting sales and margins. But these stocks look, at least superficially, to be cheap, and may be good contrarian bets.
Tiffany & Co (NYSE: TIF) to report Q4 earnings; conference call at 8:30am. Analysts will evaluate Tiffany's holiday performance, new products and note management's comments on global diamond and jewelry trends.
Boston Scientific Corporation (NYSE: BSX) to hold analyst meeting at 8:30am.
Canon Inc ADR (NYSE: CAJ) to hold shareholder meeting at 10pm.
Tuesday March 27
Goldman Sachs Group Inc (NYSE: GS) to hold shareholder meeting at 9:30am.
McCormick and Company Inc (NYSE: MKC) to report Q1 earnings; conference call at 10am. Analysts will focus on McCormick's consumer segment [largest business], but will also note industrial business line performance, new spices/ingredients and commodity costs.
Wednesday March 28
Teco Energy Inc (NYSE: TE) to provide 2007 outlook; webcast at 8am.
Media Telecommunications & Entertainment Conference 3/28-3/29
Thursday March 29
PDUFA date for Nastech Pharmaceutical Company Inc's (NASDAQ: NSTK) Calcitonin-Salmon Nasal Spray for Osteoporosis.
Friday March 30
Finish Line Inc (NASDAQ: FINL) to report Q4 earnings; conference call at 8:30am. Note that the company issued disappointing guidance earlier this month.
CKE Restaurants Inc (NYSE: CKR), the owner of Carl's Jr. and Hardee's restaurants, to report Q4 earnings; conference call at 9am. Analysts will review the company's same store sales by restaurant chain, average lunch/dinner checks, menu changes and margins. Analysts will also evaluate management's the performance of breakfast offerings, and the company's chain expansion plan.
The Wall Street Journal (subscription required) reported that Kraft Foods Inc (NYSE: KFT), looking to make foreign acquisitions, is giving its international managers more power to engineer deals. Kraft is most interested in acquisitions in Russia, Ukraine, Brazil and Mexico, according to a person familiar with the matter.
According to Barron's Online's (subscription required) "Weekday Trader" column, Corn Products International Inc's (NYSE: CPO) recent 17% drop could be a buying opportunity.
According to the Financial Times (subscription required), Bertelsmann has joined forces with private equity partners to consider a bid for textbook publisher Thomson Corporation (NYSE: TOC). The asking price is about $5B.
OTHER PAPERS:
Several private equity firms, including Kohlberg Kravis Roberts, Bain Capital and Texas Pacific Group, have shown a strong interest in acquiring the beverage arm of Cadbury Schweppes ADS (NYSE: CSG) reported the U.K. Times.
The New York Post reported that WPP Group plc ADS (NASDAQ: WPPGY) has Hollywood ambitions, taking a 6.8% stake in Media Rights Capital, partly owned by talent agency Endeavor.
Investor's Business Daily's "New America" column mentioned shoe maker Sketchers USA Inc (NYSE: SKX) positively, noting that the company's presence has increased significantly in stores like Foot Locker Inc (NYSE: FL) and Finish Line Inc (NASDAQ: FINL).
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Earnings reports continue to dribble in as the quarter winds down. Much of the attention this week will be on homebuilders 
Genesco
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