No money was injured while filming

When your business hasn’t shown much sign of growth for several years running, maybe it’s time to change strategy. Wal-Mart Stores Inc. (NYSE: WMT) has been trying to grow its business organically for about three or four years now, without much success. The company recently closed an acquisition of a controlling stake in South Africa’s Massmart. But Walmart appears to have missed on a bigger deal.

The New York Post reports this morning that Walmart made an offer of more than $55/share, or $3 billion total, for BJ’s Wholesale Club Inc. (NYSE: BJ) that was rejected.  BJ’s eventually accepted a $2.8 billion offer from two private equity firms, Leonard Green & Partners and CVC Capital Partners.

BJ’s filed a Schedule 14A with the SEC last week in which it detailed the long and winding road to its acquisition by the private equity firms.  The road to the private equity acquisition began on July 1, 2010. By February 2011, BJ’s board had decided to shop itself around and issued a press release indicating that the company wanted to “explore strategic alternatives, including a possible sale of the Company.”

In March, BJ’s board reviewed a list of possible strategic buyers and determined that none “should be solicited in view of the low likelihood that any of them would be interested in pursuing an acquisition” of BJ’s. On April 8th, a firm identified in the file only as “Party A” indicated an interest in acquiring BJ’s for $55-$60/share. According to the Post, Party A is Walmart, although neither Walmart nor BJ’s will confirm this.

The potential deal apparently failed because “The President of Party A stated that Party A was not prepared to agree to significant divestitures if necessary to achieve antitrust clearance for a combination of the Company and Party A.” In BJ’s view, a publicly announced merger agreement that failed for antitrust reasons put BJ’s future business at risk. By the end of April, BJ’s had notified Party A that no agreement was possible. The filing does not mention Party A again, and the private equity deal was announced on June 29th.

Was Party A/Walmart serious or did the retail giant just want a peek under BJ’s kimono? Could a deal have passed Justice Department scrutiny? We’ll never know for sure, but there are good reasons for Walmart to want to acquire BJ’s.

The most important of these is BJ’s presence in and around the large population centers of the northeast US. The company owns 190 stores from Maine to Virginia. Walmart could have doubled its club-store presence in this region if it had been able to acquire BJ’s.

Walmart has 65 supercenters, 30 discount stores, and 16 Sam’s Club stores in New York, while BJ’s has 38. BJ’s club concept competes with Sam’s Club and Costco Wholesale Corp. (NASDAQ: COST), which owns about 425 stores in the US. The Sam’s Club stores have been a solid performer for Walmart and the addition of the BJ’s locations would have been a solid boost to Walmarts revenues and profits.

But, at least for now, it is not to be. Maybe when the private equity firms are ready to flip the BJ’s stores, Walmart can get back in line.

Paul Ausick

The Flame Index started as a research tool in 2008 at the NY Innovation Design Lab (nyidlab). It was used as a general metric to evaluate companies and their risk in the media. Publicly traded Fortune 500 companies are used as a measure to calculate an overall market of negative news and the companies are ranked within that market.

Data and ranking provided by the Flame Index.

Leonard Green is already BJ’s largest shareholder, owning more than 9% of the of the outstanding stock.  The buyout firm’s existing ownership positions in the retail industry include in the Container Store, David’s Bridal, Neiman Marcus and Whole Foods.

The London-based CVC Capital Partners’ prior buyout plays in retailing include: C1000, the Netherlands supermarket chain; Matahari Department Stores in Indonesia; and Cortefiel, the clothing retailer in Spain.

Massachusetts-based BJ’s operates more than 190 warehouse outlets in 15 states, largely on the East Coast.  The company’s current market value is just shy of $2.7 billion, sufficient to rank the “wholesaling club” chain third in the U. S. behind only Costco Wholesale Corporation (NYSE: COST) and Sam’s Club of the Wal-Mart Stores Inc. (NYSE: WMT) organization.

In February, faced with Leonard Green’s equity position and prior buyout overtures, BJ’s Wholesale engaged Morgan Stanley to assist in exploring and evaluating “strategic alternatives” and to facilitate any corporate transactions.

Some industry insiders anticipate that any transaction would likely be completed with a private-equity firm, not another retailer. As early as the second quarter ending July 31, 2010, BJ’s began to achieve significant improvements in its balance sheet. Financial standing for July, 2010 reflect a doubling of the company’s balance sheet cash to $85 million and liquidation of nearly three-fourths of its long-term debt.  Current balance sheet cash likely exceeds $200 million (based on $3.78 cash per share and more than 54 million shares outstanding).  These developments underscore the wholesale club’s appeal to prospective acquirers.

After first-hour trading Friday, June 17, 2011, BJ’s shares which had opened at $49.50, are currently trading at $49.41, up 3.2%.

Jim Berdou

American International Group, Inc. (NYSE: AIG) Started as Buy at Deutsche Bank; Started as Equal-Weight at Barclays.
BJ’s Wholesale Club Inc. (NYSE: BJ) Cut to Equal-Weight at Barclays.
BorgWarner Inc. (NYSE: BWA) Reiterated Outperform at Wells Fargo.
CIENA Corporation (NASDAQ: CIEN) Maintained Outperform but cut target to $37 at Credit Suisse; Reiterated Buy with $30 target at Argus.
Elan Corp. plc (NYSE: ELN) Raised to Buy at UBS.
Embraer S.A. (NYSE: ERJ) Reiterated Strong Buy as Value and as Bull of the Day at Zacks.
Ferrellgas Partners (NYSE: FGP) maintained Underperform as Bear of the Day at Zacks.
3M Co. (NYSE: MMM) Started as Outperform at William Blair.
Macy’s, Inc. (NYSE: M) Raised to Overweight at Barclays.
McDonald’s Corporation (NYSE: MCD) Reiterated Outperform and raised estimates at Credit Suisse.
The Medicines Co. (NASDAQ: MDCO) Raised to Buy with $25 target at Argus.
Nasdaq OMX Group Inc. (NASDAQ: NDAQ) Raised to Buy at Stifel Nicolaus.
Research in Motion Ltd. (NASDAQ: RIMM) Cut to Hold at Citi.
Sealed Air Corporation (NYSE: SEE) Raised to Buy at Jefferies.
Texas Instruments Inc. (NYSE: TXN) Reiterated Buy but cut target to $41 at Gleacher & Co.
UnitedHealth Group, Inc. (NYSE: UNH) Reiterated Outperform and raised target to $69 at Credit Suisse.
United Technologies Corporation (NYSE: UTX) Started as Outperform at William Blair.

Apple Inc. (NASDAQ: AAPL) has reportedly been downgraded this morning by a boutique firm called First Global to a rating of “Market Perform.”

You are invited to join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Urban Outfitters Inc. (NASDAQ: URBN) is due Monday after the close. Thomson Reuters has estimates of $0.25 EPS and $522.05 million in revenues; next quarter estimates are $0.39 EPS and $613.67 million in revenues.  With shares around $32.40, its 52-week trading range is $29.03 to $39.26.

The Home Depot, Inc. (NYSE: HD) is due Tuesday morning and now the bar is going to unofficially be lower after Lowe’s gave a disappointing number. Thomson Reuters has estimates of $0.50 EPS and $17.03 billion in revenues; next quarter estimates are $0.83 EPS and $19.98 billion in revenues.  With shares around $36.95 and down only 0.2% late-Monday, its 52-week trading range is $26.62 to $39.38.

Saks Incorporated (NYSE: SKS) is due Tuesday. Thomson Reuters has estimates of $0.16 EPS and $731.95 million in revenues; next quarter estimates are -$0.13 EPS and $617.21 million in revenues.  With shares around $11.35, its 52-week trading range is $6.60 to $12.97.

The TJX Companies, Inc. (NYSE: TJX) is due on Tuesday and it just hit a new high on Friday. Thomson Reuters has estimates of $0.81 EPS and $5.17 billion in revenues; next quarter estimates are $0.84 EPS and $5.34 billion in revenues.  With shares around $54.45, its new 52-week trading range is $39.56 to $54.94.

Wal-Mart Stores Inc. (NYSE: WMT) reports early on Tuesday morning. Thomson Reuters has estimates of $0.95 EPS and $103.2 billion in revenues; next quarter estimates are $1.08 EPS and $107.69 billion in revenues.  With shares around $56.00, its 52-week trading range is $47.77 to $57.90.

BJ’s Wholesale Club Inc. (NYSE: BJ) is due Wednesday. Thomson Reuters has estimates of $0.56 EPS and $2.81 billion in revenues; next quarter estimates are $0.72 EPS and $2.95 in revenues.  With shares around $51.35, its 52-week trading range is $36.77 to $52.38. What about the merger talk?

Dillard’s Inc. (NYSE: DDS) is due Wednesday.  This hit a new 52-week high on Friday morning.  Thomson Reuters has estimates of $0.91 EPS and $1.47 billion in revenues; next quarter estimates are $0.14 EPS and $1.41 billion in revenues.  With shares around $55.20, its 52-week trading range is $19.26 to $56.76.  Valuation appears to be trading at a premium due to a restructuring and compared to peers.

Staples, Inc. (NASDAQ: SPLS) is due to report earnings on Wednesday. Thomson Reuters has estimates of $0.32 EPS and $6.19 billion in revenues; next quarter estimates are $0.25 EPS and $5.75 billion in revenues.  With shares around $20.00, its 52-week trading range is $17.45 to $23.75.

Target Corporation (NYSE: TGT) is due Wednesday. Thomson Reuters has estimates of $0.95 EPS and $16.02 billion in revenues; next quarter estimates are $0.99 EPS and $16.13 billion in revenues.  With shares around $50.50, its 52-week trading range is $48.23 to $60.97.

Dollar Tree, Inc. (NASDAQ: DLTR) reports on Thursday and we’ll hear more about any would-be buyout interest, maybe.  Thomson Reuters has estimates of $0.74 EPS and $1.51 billion in revenues; next quarter estimates are $0.73 EPS and $1.53 billion in revenues.  With shares around $60.50, its 52-week trading range is $39.16 to $61.80 and that high was hit on Friday.

GameStop Corporation (NYSE: GME) is due Thursday and this is up about 30% from its recent lows of just over two months ago. Thomson Reuters has estimates of $0.54 EPS and $2.23 billion in revenues; next quarter estimates are $0.28 EPS and $1.91 billion in revenues.  With shares around $26.50, its 52-week trading range is $17.70 to $27.69. GameStop hit a new 52-week high just on Friday.

Sears Holdings Corporation (NASDAQ: SHLD) reports on Thursday and we think the bar has already been set very low.  It will be hard to use Wal-Mart and Target for a comparison since the problems at Sears are almost endless.  Thomson Reuters has estimates of -$1.12 EPS and next quarter estimates are -$0.54 EPS. With shares around $76.00, its 52-week trading range is $59.21 to $117.04.

As with all earnings reports, these estimates and even these dates may have already changed. 

JON C. OGG

We have compiled more detailed previews on each.  Included are the consensus estimates from Thomson Reuters, current price data and trends of late, and also color on each if appropriate.

J. C. Penney Company, Inc. (NYSE: JCP) is due Monday with earnings.  Thomson Reuters has estimates of $0.25 EPS and $3.95 billion in revenues; next quarter estimates are $0.21 EPS and $4.00 billion in revenues.  With shares around $38.301, its 52-week trading range is $19.42 to $39.73.

Lowe’s Companies Inc. (NYSE: LOW) is due to report on Monday and will act as the preview for Home Depot this week as well.  With all of the lagging home sales, investors are going to want to know if the prior guidance can be lived up to or not.  Thomson Reuters has estimates of $0.37 EPS and $12.56 billion in revenues; next quarter estimates are $0.68 EPS and $14.82 billion in revenues.  With shares around $25.65, its 52-week trading range is $19.35 to $27.45.

Urban Outfitters Inc. (NASDAQ: URBN) is due Monday afternoon. Thomson Reuters has estimates of $0.25 EPS and $522.05 million in revenues; next quarter estimates are $0.39 EPS and $613.67 million in revenues.  With shares around $33.10, its 52-week trading range is $29.03 to $39.26.

Dell Inc. (NASDAQ: DELL) is due Tuesday after the close and may act at least as a mini-preview for H-P later in the week. Thomson Reuters has estimates of $0.43 EPS and $15.4 billion in revenues; next quarter estimates are $0.44 EPS and $16.04 billion in revenues.  With shares around $16.50, its 52-week trading range is $11.34 to $16.80.  The big question is whether or not investors can convince themselves that even if Dell is slow that it is worth buying on a valuation perspective now that shares are close to a 52-week high.

The Home Depot, Inc. (NYSE: HD) is due Tuesday morning and just like Lowe’s will be a sign of what the future of housing is for the secondary and repair market.  Thomson Reuters has estimates of $0.50 EPS and $17.03 billion in revenues; next quarter estimates are $0.83 EPS and $19.98 billion in revenues.  With shares around $36.90, its 52-week trading range is $26.62 to $39.38.

Saks Incorporated (NYSE: SKS) reports on Tuesday and the turnaround continues. Thomson Reuters has estimates of $0.16 EPS and $731.95 million in revenues; next quarter estimates are -$0.13 EPS and $617.21 million in revenues.  With shares around $11.50, its 52-week trading range is $6.60 to $12.97.

The TJX Companies, Inc. (NYSE: TJX) reports on Tuesday and its shares just hit a new high on Friday as it continues to fire on all cylinders. Thomson Reuters has estimates of $0.81 EPS and $5.17 billion in revenues; next quarter estimates are $0.84 EPS and $5.34 billion in revenues.  With shares around $54.50, its new 52-week trading range is $39.56 to $54.94.

Same-store sales at Costco Wholesale Corp. (NASDAQ: COST) rose 12% in April, better than the forecast 8.9%. Excluding gasoline, sales rose 6%, again better than estimates of 4.3%.

Target Corp. (NYSE: TGT) reported same-store sales rose by 13.1%, a huge change from last year when sales were down -5.9% for the month of April. The company had been expecting somewhat better performance, and noted customer spending was still cautious. Year-to-date sales are up 2%, compared with last year’s mark of 2.8%.

BJ’s Wholesale Club, Inc. (NYSE: BJ) posted a same-store sales boost of 4.1%, excluding gasoline sales. The number was below analysts’ estimates of 4.9%.

Clothing retailer Limited Brands, Inc. (NYSE: LTD) crushed sales growth expectations of 12.2%, posting a 20% jump in April sales. The company also raised its outlook from a range of $0.26-$0.31, to a new range of $0.37-$0.39, excluding items.

Nordstrom Inc. (NYSE: JWN) posted a same-store sales gain of 7.6%, lower than expectations of 8.1%.

Macy’s Inc. (NYSE: M) reported a same-store boost of 10.8%, compared with expectations of an 8.1% gain. The company also noted a jump of more than 50% in online sales for the month and a 38% boost in the first quarter. Online sales contributed 1.3% of the same-store sales boost of 5.4% for the first quarter of 2011.

There was also some bad news. Teen retailer Aeropostale Inc. (NYSE: ARO) cut its first-quarter profit forecast from $0.35-$0.38 to around $0.20. The company blamed the cut on poor sales and margins. Analysts were expecting EPS of $0.37. Same-store sales for the quarter fell -7%, compared with a gain of 8% in April 2010.

Zumiez Inc. (NASDAQ: ZUMZ) posted a same-store sales gain of 17.5%, beating expectations of a 14% jump. Another teen retailer, Hot Topic Inc. (NASDAQ: HOTT) sales rose 10.5%, much better than estimates of 3.4%.

The good sales report haven’t moved stocks much in the pre-open, with Limited Brands and Macy’s up less than 1%. Aeropostale is down nearly -10%, to $22.99 in a 52-week range of $21.26-$31.31.

Paul Ausick

If you are just seeking an earnings calendar, we highlighted about sixteen of the top earnings with detailed previews we were planning to watch on Monday and Tuesday.

Apple Inc. (NASDAQ: AAPL) may still be somewhat in question but there are two things to watch.  The NASDAQ 100 rebalance will be behind it and there are rumors that a new slate of iMacs will be released early this week.  Shares closed at $350.13 on Friday, making that all but one day with a $350+ closing price this last week.

Berkshire Hathaway Inc. (NYSE: BRK-A; BRK-B) may be in focus a bit still on Monday after the annual shareholder meeting.  The conglomerate disclosed that natural disasters cut its net income in more than half for the first quarter, and we would note that many of those Japan claims may carry over into Q2 and/or beyond.  Buffett said Sokol violated trading ethics and that this was a blow, but he also admitted that mistakes were made by himself in monitoring the situation.  Buffett is expected to give a Monday interview on CNBC, and then hopefully the world will move on past the company.

BJ’s Wholesale Club Inc. (NYSE: BJ) was up last week on word that Apollo was looking at making an acquisition offer.  This company has been in play for some time now and sadly it is getting to the point that a buyer will have to have continued confidence in the economy for years ahead to justify it (at least by our conservative models).  If no additional news is out on this matter on Monday, we would expect to see some of that move from $48 to $51 have to come back in a bit.

Citigroup, Inc. (NYSE: C) closed at $4.59 this week against a 52-week range of $3.53 to $5.15.  This week will mark its last week as a $4 or $5 stock, hopefully forever…. As for its upcoming reverse stock split, Citi gave dates of “effective after the close of trading” on May 6, 2011 and will begin trading split-adjusted at the opening of trading on May 9, 2011.

Ford Motor Co. (NYSE: F) and General Motors Corp. (NYSE: GM) have GM earnings but we first get to see April vehicle sales data on Tuesday.  This can influence the sector, although some of the data may be mostly known now that Ford has reported earnings.

Gen-Probe Inc. (NASDAQ: GPRO) was higher on Friday based on reports that it hired Morgan Stanley to find a buyer.  The AIDS and West Nile drug maker rose over 4% to $82.92 on Friday, but this trades around 35-times this year’s earnings estimates and about 30-times next year’s estimates with a market cap around $4 billion today.

Wal-Mart is actually a very high dividend for retail.  The prior yield was roughly 2.30%.  The new yield is closer to 2.8%.  To get anything like a 3% yield in retail it requires looking at REITs with retail exposure.  Simon Property Group Inc. (NYSE: SPG) has a 3% yield but has a premium valuation along with it.  This gives the income investor perhaps a better feeling in Wal-Mart rather than the other leader.

Costco Wholesale Corp. (NASDAQ: COST) has a dividend yield of only about 1.10% versus Target Corp. (NYSE: TGT) and a dividend yield of 1.90%.

Neither BJ’s Wholesale Club Inc. (NYSE: BJ) nor Sears Holdings Corp. (NASDAQ: SHLD) pay a dividend. If BJ’s does get acquired then that won’t matter.  If the company is not able to close on a sale, then both it and Sears are going to have to consider dividend payouts.

Wal-Mart may still be a dead money stock.  Its move last week may at least pressure other competitors to increase their payouts beyond 2011 as well.  Higher dividend payouts translates to lower capital available for cap-ex and share buybacks.

JON C. OGG

Bloomberg reports that Big Lots has received interest from private equity firms Thomas H. Lee Partners LP and Bain Capital LLC. Private equity firm Leonard Green & Partners LP has agreed to purchase Jo-Ann Stores Inc. (NYSE: JAS) for $1.6 billion. Green has also teamed up with TPG Capital on a $3 billion offer to buy J Crew Group, Inc. (NYSE: JCG).

What makes retail attractive to private equity? Perhaps the biggest component is brand. A strong brand, such as Jo-Ann or J Crew, continues to attract customers, even if sales fall during periods of economic weakness. Once the economy perks up, the thinking goes, consumers will return to their favorite brands.

The good brands also maintain their value and, provided the private equity firm doesn’t screw things up, can be sold again in a few years for a nice profit. Demand among consumers for Jo-Ann and J Crew should continue to be strong.

Let’s not forget about Dollar General Corporation (NYSE: GD) yet.  It is not a takeover candidate and likely will not be.  It was taken by private in a private equity buyout and then was refloated as a public company all over again.  A trend to watch…

But what about Big Lots and BJs? What value do these chains bring to the table that would justify price tags north of $3 billion? In the first place, there’s real estate. Big Lots operates 1,389 stores in 48 states. The company had more than 40.5 million square feet of store space at the end of 2009, with an average of nearly 30,000 square feet per store.

BJ’s operates 189 stores from Maine to Florida. The average store size is 113,000 square feet, and the company owns or leases about 1.7 million square feet of logistics facilities.

Besides real estate, the two retailers do offer some brand power, though not as strong as either Jo-Ann or J Crew. BJ’s operates in large population markets, but with limited geographic reach. Big Lots is spread more widely, but the smallish store size could be problematic.

The bigger problem that Big Lots and BJ’s face is whether or not they can keep their customers as the economy improves. This is a bigger problem for Big Lots because it plays at the very low end of the market. Brand loyalty based price is not a long-term winner.

We looked at other potential acquisitions in the retail space a few weeks ago.  If a private equity firm were indeed looking for a retail play, it seems that either American Eagle Outfitters, Inc. (NYSE: AEO) or Aeropostale, Inc. (NYSE: ARO) could both be had for about the same price as BJ’s or Big Lots and are better deals simply because of brand strength.

Big Lots has given back some yesterday’s gain, at $38.92 in afternoon trading, down from an intra-day high of $39.10.

Paul Ausick