Big Changes For Gabelli's Focus Five Stock Picks (CCJ, DAN, SWX, XXIA, XYL, YHOO)

Southwest Gas Corporation (NYSE: SWX) is at $39.48 and Gabelli has an eye on this one ahead of a pending settlement in Arizona.  It was called “a high-quality gas utility with a solid earnings outlook and low-risk strategy with potential for above-average dividend hikes as it considers moving to more industry-norm payout ratio of 60%, from the 48%…” That would be a substantial move for dividend lovers and would likely lead to higher dividend increases in the next few years.  The company has a pending rate increase request in Arizona where over half of its customer base is. 

Gabelli sees earnings of $2.20 EPS, $2.50 EPS and $2.60 EPS in 2011, 2012, 2013 respectively.   The private market value was put at $62.00 by Gabelli, well above the consensus Thomson Reuters target of $38.50 for the stock.  If Gabelli’s target gets hit there is almost 57% upside.

Ixia (NASDAQ: XXIA) is the next generation wireless pick by Gabelli.  At $11.33 today, its communication infrastructure is attractively valued relative to other companies in the test equipment market. There are several growth drivers: 4G/Long Term Evaluation (LTE), converged IP, and 10/40/100 GB Ethernet Speed.  More network expansion, network updates, and next generation network implementations across wireless, wireline, and converged data centers all remain drivers as well. 

Gabelli expects 2011 revenue, EBITDA, and non-GAAP EPS of $306 million, $56 million, and $0.50 EPS, respectively, and have a five-year annual revenue growth rate of 12.6%. Gabelli’s private market value of $17.00 compares to the Thomson Reuters consensus target of $12.25. If Gabelli’s target gets hit there is 50% upside in Ixia.

Xylem Inc. (NYSE: XYL) is at $26.74 and it is the spin-out of ITT’s water unit.  The interest will eventually be high on this after the dust settles, but we have to wait to see how this one is going to be valued against real earnings ahead.  Gabelli chatted up its organic and order growth of 4% to 6% a year versus 3% to 5% as an industry average, with acquisitions adding 1 to 2 points of growth. 

Gabelli even called Xylem “a highly attractive acquisition candidate for many diversified industrial companies.”  Gabelli went on to project $1.80 EPS in 2011 with a $36 private market value.  Robert W. Baird is so far the only analyst with a formal rating, and that is a “Neutral” rating.  If Gabelli’s target gets hit: over 34% upside.


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