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.
Societe Generale upgraded shares of Credit Suisse (NYSE: CS) to Buy from Sell as they believe the company is the European investment bank investors should own as sentiment gradually improves.
Societe Generale also raised Deutsche Bank (NYSE: DB) to Hold from Sell as they believe it has managed the credit crisis well and that the government bailout of the GSEs will improve investor sentiment.
Citigroup upgraded shares of Kimberly Clark (NYSE: KMB) to Buy from Hold as they expect the company to benefit from falling materials and energy prices. The firm raised their target to $71 from $60.
UST Inc (NYSE: UST) was lifted at Morgan Stanley to Equal Weight from Underweight.
Corning (NYSE: GLW) was upgraded to Overweight from Market Weight at Thomas Weisel.
Analyst downgrades:
Credit Suisse downgraded the U.S. Homebuilders sector to Market Weight from Overweight to reflect deteriorating traffic trends and higher valuations. In addition, the firm cut Toll Brothers (NYSE: TOL), Pulte Homes (NYSE: PHM), D.R. Horton (NYSE: DHI) and KB Home (NYSE: KBH) to Neutral from Outperform.
The Finish Line (NASDAQ: FINL) is a mall-based specialty retailer, offering athletic and casual footwear and sportswear through 699 Finish Line stores in 47 states. Featured brands include Nike, Puma, Jordan, Lacoste and Adidas. The firm also sells urban street wear through 94 Man Alive outlets in 19 states. Foot Locker (NYSE: FL) and The Sports Authority are major competitors.
The firm pleased investors late last month, when it reported fiscal Q1 EPS of two cents and revenues of $287.9 million. Analysts had been looking for a loss of five cents and $281.3 million. In discussing the positive quarter, the CEO cited successful application of strategic merchandising and inventory management programs. B. Riley subsequently upgraded the shares to "buy" and Sterne Agee reiterated its "buy" call.
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
Wall Street seems bent on finishing 2007 on a high note and after yesterday's big selloff following Pakistan's former prime minister and opposition leader Benazir Bhutto's assassination, futures are up this morning, indicating U.S. stocks could start higher.
Yesterday, U.S. stocks tumbled on the assassination news -- fearing further unrest in one of U.S.'s allies in its war on terror in Afghanistan and due to weaker-than-forecast rise in durable-goods orders. The positive consumer confidence report couldn't offset the news. The Dow industrials dropped 192 points, or 1.42%, the Nasdaq Composite fell 47 points, or 1.75%, and the S&P 500 lost 21 points, also 1.42%.
News that could be moving the market this morning include talk of big bank asset sales and later some data that is due out:
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.
On tonight's MAD MONEY on CNBC, Jim Cramer was at Indiana University in another one of his "Back to School" tours. Cramer noted that the bears may be in hibernation because of a Fear in selling stocks because any of the bottom 350 S&P 500 Index stocks are vulnerable to being acquired. They are also scared to miss rate cuts and they don't have the Iranian hostage scare. That is why we were up the last two days. Mark Cuban came on the show tonight.
Cramer's stock pick to look at is Cummins Inc. (NYSE: CMI), the truck engine maker that Cramer says is a Triple Buy. At $145 per share it isn't cheap, but Cramer thinks this one is going up. Those that follow the stock are not behind the company. Cramer said he thought it was a dog too, but he said its business in emissions controls and power generators makes it more attractive. Many have shorted the company and that didn't work because they changed manufacturing changes that are paying off and they are selling very well in Mexico and everywhere else. It has 5 sells, 5 holds, and 1 Buy rating from Wall Street; Cramer thinks it will get upgraded when they keep beating the street estimates.
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).
Quantitative analyst and editor of OTC Insight, Jim Collins sees opportunity in Steve Madden (NASDAQ: SHOO), a shoe designer whose products are distributed through department and specialty stores, its 95 retail shops and its e-commerce site.
Fundamentally, Collins is attracted to a recent new product launch known as the "Design your Own" collection, which lets buyers choose between the size of the heels and the patterns, materials, finishings and colors to customize their own shoes. Collins points out that there are a total of 4,221 possible combinations.
Technically, Collins looks to the stock's very high relative strength ranking of 98 out of 100 as well as its solid score of 'B' for accumulation-distribution. He does caution that the company is exposed to fashion risk, which he notes can be difficult to predict. Despite these risks, he has selected the issue as his latest featured investment.
Validea has an unusual approach to stock selection; editor John Reese assesses companies based on the strategies employed by "legendary investors." In the case of his latest buy, Finish Line (NASDAQ: FINL), the stock was chosen based on the value methodology used by Benjamin Graham (Warren Buffett's mentor) and Peter Lynch.
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..gif){kind=logo}
Genesco
Wall Street seems bent on finishing 2007 on a high note and after yesterday's big selloff following Pakistan's former prime minister and opposition leader Benazir Bhutto's assassination, futures are up this morning, indicating U.S. stocks could start higher.
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