Wednesday, March 28, 2007

Calls of Note Part 5

Somewhat to my surprise, two firms are out with positive comments on American Commercial (NASDAQ:ACLI), with one calling the stock a table pounding buy:

- Merrill Lynch notes American Commercial Lines shares are down over 20% from their peak in late February on 1Q07 concerns due to soft spot market grain rates and weather delay days. ACLI's shares are currently trading at 15.8x firm's revised 2007 and 12.8x 2008 EPS estimates, below the 16x historical forward P/E for the barge sector, and a discount to the 20x forward multiple for the Jones Act sector. MLCO believes that the pullback represents a buying opportunity and reiterates Buy opinion and $41 price objective.

Harsh winter weather in February caused the Illinois River to freeze over for almost three weeks, resulting in a significant decline in volumes in the month. While the firm estimates that those volumes likely shifted to truck or rail, tonnage in the first three weeks of March rebound sharply, up 28% both year-over-year and above the three-year average.

Firm is lowering 1Q07 EPS estimate from $0.24 to $0.19, and 2007 EPS from $1.92 to $1.90, as an expected recovery in 2H07 did not offset the volume impact from weather in the first quarter.

- Stephens calls ACLI a table pounding buy. Why has the stock pulled back recently? Concerns regarding a difficult Q1 comp are well known at this point, but they believe it has created some confusion in the market. 1) Could the Company miss Q1 and lower '07 guidance? Firm is comfortable with their $0.20 estimate for the quarter (the same as consensus, which has come down recently), but believes the full year cannot be judged on Q1 results (the seasonally weakest quarter, approximately just 10% of annual EPS). In fact, they would point out that management's guidance for '07 ($1.75-$1.95) already factors in a seasonally weak Q1, but also assumes organic growth will be flat.

2) Spot pricing is down y/y. When looking at spot rates on a y/y basis, spot grain rates are down 5% (as a result of the post Hurricane Katrina comps last year). While grain is approximately 30% of the Company's business, the other commodities remain strong, particularly liquid. 3) An increasing short position (approximately 7.5MM shares are now short, representing 12% of shares outstanding, an increase from 6.8MM shares short in January). 4) The CEO recently sold approximately 400,000 shares of stock (diversifying his portfolio). Firm would point out that he still has over 300,000 shares remaining, and they find it highly unlikely that he would sell ahead of a bad quarter.

Maintains Overweight and $50 tgt.

Notablecalls: Not going to call this one outright actionable as there are no price levels of interest anywhere near. Ideally, I see the stock selling off some more after open and then squeezing higher. Let's see if the market can put together such a scenario.

No comments: