My Own Analyst

Ingredion Follow-Up

I want to see what the analysts do with their 2014 estimates before finalizing my updated target, but I expect it to be near $88.  Gabelli downgraded the name to hold, but BMO reiterated a buy, calling it a "compelling entry" with a 75 target.  

I believe that this is a great example of a stock that was weak for a reason, not unlike CAH after the WAG contract loss.  I had pointed out Argentina as a risk, and the conditions there have been public and deteriorating (hyperinflation).  So, it's not exactly a surprise.  I think that the Brazil and U.S. commentary was disappointing and perhaps not expected.  In any event, after listening to the call, part of me is concerned that the company was just too optimistic or too locked into their guidance, which is troubling, but I also think that 2014 is shaping up for strong growth.  This stock is very cheap.  I would like to see it get back above 64 for technical reasons.  Until then, there is some risk of testing longer-term support 58-60.

INGR Pre-Announce

I thought that INGR was just too cheap.  Now I know why - the earnings weren't achievable.  The company had a pretty big miss and hit to the rest of the outlook.  Q2 will be 1.15-1.20 compared to the expected 1.34.  They cut the full-year outlook even more - 5.10-5.40 vs. 5.86.  This suggests a decline from last year's 5.47.  The company put the blame on conditions in South America.  

Technically, the stock is in an uptrend, but consolidating.  I would like to see it hold 64.  My target will drop a lot, unfortunately, probably to 88 (from 97).

WAG

I am not a huge fan and punted the last piece out of CG/B a while ago, but today's dismal monthly sales report may be a good entry near the rising 150dma...

I see support between 42 and 43.50 - this would fill that gap too.

Rotation

The rotational trade could be big.  Notice how AAPL is climbing hard while XLP is falling.  I just put a FLO short back out - could do HRL as well as a number of other companies.  Perhaps gold or other beaten down parts of the market could benefit too.

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.  

WAG: Rough February

WAG, which is in the CG/B but being held on a tight leash, saw sales in the front-end (non-prescription) fall in February.  This is reall bad news.  One would think that the Express Scripts customers returning and the store re-designs would be helping, but people aren't coming into the stores at the same rate (despite heavy flu activity).  Overall sales for Q1 ending in Feb were $18.6 billion, only slightly less than the $18.9 billion forecast by analysts.  I am waving a yellow flag on this piece of information...

Making Money off of Flu

I mentioned Flu helping LMNX, well BDX and WAG also are getting some benefit.  BDX had a great quarter and raised guidance, mainly from the flu.  WAG reported positive growth thanks to the end of ESRX dispute, but it was helped by the flu season as well.  On these latter two, I remain a bit cautious given how overbought they are.

Peanut Butter and Pork

HRL bought Skippy for $700mm and is suggesting it could add about .15 to FY14 EPS and be modestly accretive this year.  This is a real nice deal for them in my opinion.  It diversifies them while keeping overall margins intact.  Plus, it's a great brand with good international appeal.

I have held on to the small HRL position despite it being the lowest expected return for CG/B, and I am glad (I think so, anyway).  I had recently increased the target, raising my PE multiple to 18 from 17.  With the deal, the target jumps from 37.50 to 41.50, so we're good.

The reason I held onto HRL after adding it in early September at 28.97 in the model was because I felt the market was failing to credit the company for its strong balance sheet.  Its competitors tend to carry debt, but HRL had moved to net cash last year, which is almost unheard of for the industry.  This leaves them at a very reasonable 20% debt to cap ratio.

Fade FLO

Flowers is overdone on this Hostess thing, and now they are going into mediation.  Seems like a low-risk short here to me near 23-23.50

Why Does WAG Lag???

WAG will be excluded from TriCare (Dept of Defense) plan, administered by ESRX.  This is a one-off and not likely the start of a big trend.  I am pissed at the company yet continue to hold it in CG/B because it is very cheap.  The dip allows a reasonable entry for conservative investors near 35.  My one-year target is 48.50.