Here is what I sent my clients who own the stock:
They had a great quarter, with sales growing double-digit despite weak end markets and EPS zooming as margins improved. This is being driven by strong installation business. It was a clear beat, but the guidance is somewhat muted for their fiscal fourth quarter ending in February. The quarter is a tough comp on the EPS line due to a one-time tax-benefit from a year ago. In any event, the consensus for FY13 won't change.
There were two reasons for near-term caution, though I think that this story is on track longer-term (share gains, operational improvement). First, the large-scale optical business went in reverse, shrinking from a year ago by 5%. Part of this was likely due to Sandy and also it was a tough comp, but this was disappointing. Second, the architectural backlog was flat sequentially, discontinuing a trend of growth. It seems like healthcare facilities may be slowing what had been strong demand.
While I think the long-term story is strong here, the stock has run too far for now in my view, especially in light of some near-term comparison issues. I think we will have a better chance to add, and some of my technical indicators suggest that the pullback could approximate 15% or more. As a reminder, the stock is trading well above our buy price of 19.50, and I don't expect to change that buy price.
This is a black 1. I am reticent to suggest shorting it, as I think that this company is an acquisition candidate, but it might make sense to buy some puts. The stock has had a great run and is subject to profit-taking. The current price reflects a valuation that seems to high to me for now. It's a "nimble short"...
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