My Own Analyst

Question on ANV

ANV is getting hammered on a downgrade today. I don't have access to the piece or even a summary of the rationale, so I am a bit hesitant to opine.  The stock is very oversold and printed a nominal 52-week low before bouncing.  I continue to like the name based on what I have read.  Having recently studied NEM in detail, I have a strong appreciation for the domestic focus on ANV.  The earnings estimates for 2014 continue to come down, but suggest massive growth (2.65 is up 90% from 2013).  This is a high-beta name in an out-of-favor sector - these are both understatements.  

Question on CAH

Alan, do you think that CAH has washed out all the weak hands? Is this a good entry point?

A couple of days ago I called it Treasure and suggested on the bad news that 42 area would be support.  The next day, we added it in reasonable size to CG/B.  I don't ordinarily do this (buy a stock not on the watchlist - it is now), but I have followed it for years (in fact, CAH was a test research report I did to land a job in 1999 - interesting trivia).  

The bottom-line in my view is that this fear was partially priced into the stock. The loss of the customer yields an unappreciated benefit:  Lots of cash coming back.  THis can be be deployed into share repurchases.  Even if not, they have a pretty strong balance sheet already.  The company said that it can keep earnings flat despite a loss of a 22% sales customer (though probably only 7% of earnings).  Note that one risk remains - CVS is up for renewal.  They will get this one, but perhaps CVS gets better terms.

While the stock won't bounce right back up, I established a target of 57 based on 15PE...

Why MAKO Slammed

There is an industry conference going on that ends tomorrow.  Apparently Blue Belt, which MAKO is suing (their former sales guy allegedly went there with stolen information), had a decent showing, raising fears that this recently approved by the FDA system could gain traction.  MAKO addressed this on the last call:

 

We’ve seen the importance of our superior technology, the importance of optics business, is a key element of our technology that really enables these surgeons to do the cutting, the soft tissue balancing aspects of our technology, and the fact that we have a platform in place, I think are the key features that allow us, and I think that this has allowed to head start, where we have a 156 systems, 23,000 procedures over 30 peer reviewed articles, and we have created a very robust infrastructure in place to kind of help and support and work out, what we think are the most important pieces of our technology. And finally, I would say Kim, we think that increased competition from our perspective, what it really does is, it expands the visibility of the importance of robotics in orthopedics.

Bad News on TECD

They are restating financials for the past three years, reducing net income by an aggregate of about $8-11mm per year (.20-.25 per share).  While the magnitude isn't so significant, this is really unsettling.  I don't have any details beyond that it relates to vendor accounting in the UK.  I have known the CFO for over a decade and would guess he will lose his job over this.  The stock could sell off more than one might think.  With a 10 PE, it's worth about $2.50, but I could see a move as low as 44 on sentiment and investor caution.

Met-Pro Call

MPR - hints of better times ahead.  No change in my target of 15.  I don't have tremendous confidence and I am feeling "fatigue", but I am sticking with it.  

Early Action

CATO dropped a bomb.  The quarter was fine, but their outlook on EPS is absolutlely horrible.  The one analyst had an estimate of 2.20, but they are guiding 1.64-1.93 based on declining comparable sales (-3 to -1%) and a lower GM.  I have been too optimistic here.  We have had a lot of success in CG/B, but this one is likely to drop to the 24 area, a new low over the past year.  I base this on 10PE plus cash plus looking back to the 22.50-24 support from 2011.

Adding insult to injury, MPR made their EPS but on light sales.  I will report back after the call.

Finally, I expect IRG to be weak today on profit-taking.  There are no big changes there, but the sales in Q1 are weak (not surprising).  I would be a buyer 14.50-15.

 

JOY?

Carlos is asking about JOY, which is down today on CAT report.  I am not sure what to make of JOY - it is very leveraged to China, which looks just horrible in terms of stocks.  I see support 56-57 and resistance at 62.50 and have no strong view.

CAH: Trash or Treasure

CAH, which lost WAG contract, is down sharply.  I think that fears of contract loss were in the stock.  The company just came out with guidance for FY14 which incorporates the loss and assumes some cost-savings within the business.  The bottom-line is that the EPS could be flat.  This suggests at 42.73 a PE of 12.3X with about $1 per share of debt.  I think that the stock will see buying and see very big support right here (42-43).  

Treasure

P.S.  I am likely to add this one to CG/B....

ABC/WAG

I am not sure what to make of WAG.  Their management team made some huge mistakes and then announced a potential game-changer deal with European company Alliance Boots, including a two-part merger.  I still don't have a thorough understanding of how the final part of the deal will play out economically, but today's announcement of a distribution deal with ABC (also a watchlist company) tells me that the deal will close.  It includes debt and equity issuance, and my recollection was that the deal structure was front-loaded with favorable economics.  In other words, dessert may have been eaten before the peas and carrots (apologies to peas and carrots fans).  The secret to the game will be to figure this out before it starts to bother other investors.  My guess is that we have another six months or so (i.e. the rest of FY13).

WAG accelerated their earnings call to today and reported a modest beat.  They are getting warrants valued at approximately $300mm for doing the deal with ABC, which also was on favorable terms from what I can tell.  I will report back later if there is anything to say, but, for now, WAG has some tailwinds.  

Weekend Update - Ides Of March Edition

I have spent way too much time talking about  the overall market, but I want to be clear.  We have entered the window in terms of the time-frame where I expect a consolidation to form, but we aren't quite there yet in price.  I think that we are likely to test 1600 on the S&P 500 (and 15K on the DJ).  With the market grinding and not gapping higher, the "overbought" indicators aren't kicking in.  SPY is at just .61, while IWM is at .76.  One thing to keep in mind, though, is that tops only sometimes are obvious right away (like oil in 2008, when it had what is called an "exhaustion gap".  So, while I am "on guard", it seems premature to get too bearish yet.

Looking at the Watchlist ( Download Watchlist031513 ), 71 names closed above the 10dma.  4 names offer 35% or more to my target, including AKAM (50%), ATX (40%), CTCT and INT.  I have a lot of confidence in ATX, little in CTCT and limited in INT.  I am watching AKAM closely - it's interesting with the change in leadership, insider buying and overall weakness in the space (RAX, for instance).  There are several names that I think offer 0 or less return over the next year:  DORM, APOG, FLO, PRIM and CRK (which I may raise after I get a better understanding of financials post-divestiture).

Three stocks moved up more than 10% this week.  Leading the list was MW - disappointed that I didn't have this in Top 20 - went with SCVL instead.  CRK jumped up on the deal that got rid of the assets that they just bought in the Permian.  XEC was up too - they are a big Permian player.  I missed a good chance earlier this year to move into that one.  ISRG was the only 10% decliner.  This is a busted growth story, and I expect sales to slow and the multiple to compress.  The doctors are overusing it for hysterectomies. Names on the watchlist that are oversold 1-2 units include LQDT, VOLC, UNFI, CATO and ISRG.  Looking at the "prospects", ANV is -2.17.  I continue to think BJRI is interesting too at -1.09.  CTRX got hammered - it is -1.05 and cold be good for a trade near 49-50.  There are lots of very overbought stocks on the watchlist - here they are sorted from high to low (and greater than 1.5):  HRL (2.24), BDX, CCC, FLO, JNJ, CFN, AVP.

Looking at the stocks in the models ( Download Positionwatch031513 ), I made a few target changes, raising JNJ (using 17.5 PE now) and RAVN (using 20 PE now).  LQDT is the only really oversold name - I am hoping that it hangs in here after testing its reaction low area of 29.50.  CATO too is a little oversold - we added in CG/B.  Very cheap, no catalyst.  Maybe they get smart like MW and rationalize their assets.  Favorably, only JNJ is significantly overbought.  I might trim this a bit from CG/B as it approaches 80.

This week, we get two earnings reports on model stocks:  WSM (CG/B) on Tuesday (I like this one from a chart perspective) and MPR on Thursday.  ADBE also reports on Tuesday.