- Piper Jaffray notes Blue Harbour Group, a hedge fund led by former KKR partner Clifton Robbins, increased its ownership in CSK Auto (NYSE:CAO) to 7.65% following the purchase of one million shares over the past two weeks (paying an average price of $11.62). The group now owns 3.35 million shares. The increased ownership from this investor may spur LBO speculation after the recent activity in hardlines retail. While the valuation appears attractive on many metrics (free cash flow yield of 16.5% on FY06E, EV/FY06 EBITDA of 6.2x), they do not believe that a leveraged buyout is likely in the near term due to an ongoing accounting investigation and soft fundamental trends.
Based on what the firm believes to be an increasingly difficult macro environment, and with two weeks remaining in CSK's 2Q, they are lowering their same-store sales estimate from -1% to -2%. They are also reducing 2Q EPS estimate by $0.03 to $0.36 (consensus at $0.38). Believes that low-income consumers are being pressured by increasing gas prices, rising interest rates, and weak job growth. In firm's view, this may be negatively affecting sales trends, especially as CSK tends to have a more discretionary product mix that is susceptible to trends in low-income consumer spending.
Based on what the firm believes to be an increasingly difficult macro environment, and with two weeks remaining in CSK's 2Q, they are lowering their same-store sales estimate from -1% to -2%. They are also reducing 2Q EPS estimate by $0.03 to $0.36 (consensus at $0.38). Believes that low-income consumers are being pressured by increasing gas prices, rising interest rates, and weak job growth. In firm's view, this may be negatively affecting sales trends, especially as CSK tends to have a more discretionary product mix that is susceptible to trends in low-income consumer spending.
Maintains Mkt Perform but lowers tgt to $12 from $13.
Notablecalls: Not actionable but good to know category.
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