Daily Archives: February 23, 2008

Home Improvement Earnings War: Lowe’s Versus Home Depot (HD, LOW)

This week will be an important earnings week for building supply and home improvement companies.  We’ll get to see earnings out of Lowe’s Co. (NYSE: LOW) and out of Home Depot (NYSE: HD).

Monday will kick off with earnings out of Lowe’s (NYSE: LOW) and First Call has estimates at $0.25 EPS and $10.63 Billion in revenues.  Estimates for next quarter are $0.41 EPS and $12.6 Billion in revenues, while fiscal January-2009 targets are $1.76 EPS on almost $51 Billion in revenues.

On Tuesday, we’ll see earnings out of Home Depot (NYSE: HD).  First Call has estimates at $0.43 EPS on $18.06 Billion in revenues.  Next quarter estimates are $0.44 EPS on $18.06 Billion, and fiscal January-2009 estimates are $2.12 EPS on $75.4 Billion in revenues.

We want to see which one of these ranks better in various categories.  Lowe’s was recently noted as one of Jim Cramer’s stocks to play in a turnaround.  We recently noted how Home Depot could actually end up one of the surprise winners of our companies we gave DJIA targets for.  These shares have just about equally performed over the last week, while Lowe’s is up more than 5% and Home Depot slightly down over the last 3-months.  Both stocks are down nearly 20% in the last 6-months, and the 30% drop in Lowe’s over the last year is actually a tad "less bad" than Home Depot.  For one year out, the forward P/E ratios are 13.1 for Home Depot and 13.4 for Lowe’s.  As far as consensus analyst average price targets, Home Depot has upside of more than 15% to the approximate $32.10 average price target and Lowe’s has upside of over 17% to the roughly $27.80 average price target.

If there was ever a stock duopoly, you are seeing one here.  The basic numbers are close on all accounts.  Lowe’s is still thought of as a cleaner and sleeker look, but Home Depot still has the size factor going for it.  There was a while that the gains and losses at one came partially at the expense of the other.   

Jon C. Ogg
February 23, 2008

Posted on: February 23, 2008 – 8:29 am in Earnings, Housing, ,

Wells Fargo, One of the Survivors Regardless of Others (WFC)

On Friday, after a potential deal may be struck to save the monolines, we had been pondering the overall recovery of the healthy banks in the sector.  We have covered "the banks that will make it" before, and Wells Fargo (NYSE: WFC) is one that we think will get to be a selective acquirer after the recent malaise.

Then this weekend we saw that Wells Fargo is actually the cover story on Barron’s, and we have noted how Warren Buffett added to his holdings on last look.

We look at Wells Fargo as one of the winners in a crowd of would-be losers.  Its operations were far less leveraged with CDO’s and funny money mortgage operations that have been seen at some many financial houses.  Its management also hasn’t bought into much of the recently crafted three and four letter initial products that are difficult to understand and explain.  While the company has had to add to its loss reserves, it is still one of the healthier names in the sector.  It also has a very competitive yield of 4.2% that would make it seem like a Dog of the Dow member, even though it isn’t a DJIA component.

We actually think that in a financial recovery that will eventually come, analysts will raise their targets AND their ratings on Wells Fargo.  Almost every firm has moved to a cautious rating because of the current issues, and whenever the tide turns the analysts will ultimately turn to the strong names in the group.  The truth is that the banks and financial institutions with the junkier and poorer books that are more speculative will win in the first round of a recovery because of the inherent leverage they have.  But at the end of the day investors will want to have the quality names on their books.

The chart is perhaps soon to be an obstacle in a sector that is still likely going to see more and more bad headlines over the next 30 to 180 days.  The stock is up close to 10% from the first few days of the year and up well over 20% from the January-scare lows.  But its 200-day moving average $32.91 (roughly 5% higher than the $31.44 Friday close) and even if that number keeps drifting slightly lower it may act as a hurdle.

If the bank decides to be an opportunistic acquirer, then of course you could expect some of the normal immediate dilution share pressure.  And that is when you want to give this one your attention.  It’s one of the winners.

Jon C. Ogg
February 23, 2008

Posted on: February 23, 2008 – 8:11 am in Banking, Financial Stocks, , ,

NYSE Short Interest: Bets Against Financial Firms Rises

Short interest in companies traded on the NYSE increased for a number of financial firms based on positions as of February 15. The data compares to numbers on January 31

Shares sold short in Citigroup (NYSE: C) rose 10.9 million shares to 92.8 million. Shares short in Bank of America (NYSE: BAC) moved up 6.3 million to 68.8 million. Shares sold short in Wachovia (NYSE: WB) jumped 16.3 million to 96.8 million. Shares short in Fannie Mae (NYSE: FNM) increased by 8.8 million to 51.8 million.

Other significant short stakes:

Largest positions in shares sold short

Company                                               Shares Short

Ford (NYSE: F)                                      216.3 million shares short

Washington Mutual (NYSE: WM)            148,4 million

Countrywide  (NYSE: CFC)                     103.1 million

Wachovia                                                96.8 million

Wells Fargo (NYSE: WFC)                       96.5 million

Citigroup                                                 92.8 million

Qwest (NYSE: Q)                                    92.0 million

AMD (NYSE: AMD)                                 89.8 million

Micron (NYSE: MU)                                 80.6 million

Bank of Amerca                                       68.8 million

Home Depot (NYSE: HD)                          65.2 million

GM (NYSE: GM)                                      63.4 million

EMC (NYSE: EMC)                                  63.2 million

Largest Increases In Short Position

Washington Mutual                                  17.6 million increase

Wachovia                                                16.3 million

Citigroup                                                 10.9 million

CItadel                                                    10.9 million

Freddie Mac (NYSE: FRE)                         9.7 million

Qwest (NYSE:Q)                                       9.6 million

AT&T (NYSE: T)                                        9.5 million

Decrease In Short Interest

Best Buy  (NYSE: BBY)                           19.7 million drop

Rite Aid                                                   19.6 million

Countrywide                                             10.0 million

MBIA (NYSE: MBI)                                    8.5 million

Mirant                                                      7.4 million

Motorola (NYSE: MOT)                              6.5 million

Texas Instrument (NYSE: TXN)                   6.5 million

GE (NYSE:GE)                                         6.5 million

Data from NYSE and WSJ

Douglas A. McIntyre          

Posted on: February 23, 2008 – 8:08 am in Short Interest, , , , , , , , , , , , , , , , , , ,

Life Time Fitness, Health Sacrificed With Weak Consumer (LTM)

If you thought that health and fitness was a secular trend, you wouldn’t know it if you looked at Life Time Fitness Inc. (NYSE: LTM).  The health club operator found itself in a precarious spot Friday.

Life Time’s earnings weren’t a problem, but the guidance is.  Its earnings were in-line at $0.48 EPS as expected and $171.1 million in revenues versus $171.9 million.  The company gave forecasts of $2.05 to $2.08 EPS on revenue of $780 to $800 million for 2008, while First Call had estimates at $2.18 EPS on $806.8 million in revenues.

Shares fell as hard as a 10 pound plate falling off a dumbbell.  It saw a 17% drop to $33.50 Friday, and its intraday low of $30.40 marked a new 52-week low.  This is roughly a 50% haircut from the $65.09 high over the last year.  Now its forward multiple is in-line with the overall market, and its valuation looks OK.  If the growth beyond 2008 slows too much then this will have to be more of a simple earnings play, but all in all this looks fine on the surface for value and GARP investors alike.  We’ll see later on this year if the look on the surface is right or if anything is lurking underneath.

It looks like as the US is slowing and as customers are reviewing their bills, gym memberships at around $1,000 or more per year may get cut some too.  It costs money to stay in good shape.

Jon C. Ogg
February 23, 2008

Posted on: February 23, 2008 – 7:01 am in Earnings Warning,

Can Dell Counter H-P Earnings Thunder? (DELL, HPQ)

Next Thursday we’ll get to see earnings out of Dell Inc. (NASDAQ: DELL). The estimates for the turnaround computer giant from First Call are $0.36 EPS on $16.23 billion in revenues.  Next quarter estimates are $0.35 EPS on $15.86 billion in revenues. Estimates for fiscal Jan-2009 are $1.57 EPS on $65.35 billion in revenues.

Analysts have an average price target north of $29.00 on last look, which would imply a 50% expected price gain if the turnaround comes about.  Interestingly enough, we may finally get to see how much of that monster $10 Billion stock buyback the company has used.  As this is less than 4% off of its 52-week lows it hasn’t helped any so far. Dell Inc.’s 52-week trading range is $18.87 to $30.77.

There is one parallel here… Hewlett-Packard (NYSE: HPQ).  Mark Hurd & Co. isn’t seeing its steady and predictable stock rise like it had for 18-months or so, but its shares reacted quite well to it beating earnings and keeping a solid guidance this week.  Our original pairs-trade upon Michael Dell’s return worked like a champ for a while, but ended up looking more like a chump as the stock has lost one-third of its value.  Dell is not a dead company at all and things aren’t falling apart at the seems.  There have been many changes and we expect more to come in 2008 and even 2009.  But there is pressure to perform now that Rollins has been replaced more than a year now.  Even after the large discounting already seen, Wall Street very likely won’t tolerate any deviance from the continued strong H-P trends that were set up.

Jon C. Ogg
February 23, 2008

Posted on: February 23, 2008 – 6:51 am in Earnings, PC Companies, ,