Wednesday, June 06, 2007

Paperstand (BBBY, HOTT, SWHC)

The WSJ’s ”Heard on the Street” column discusses Bed Bath & Beyond (BBBY), saying that shares of the co now are more reasonably priced and might even attract attention from LBO specialists after its first-ever profit warning. Some say investors should remain on the sidelines, amid a housing slump and worries about the health of the consumer. Just as important, Bed Bath's stores are aging and some longtime fans have been turned off by recent moves, suggesting that Bed Bath may have its work cut out for it trying to return to Street's good graces. "The valuation isn't compelling ... its growth has slowed, its margins contracted during the last 5 qrtrs, and now [sales increases at Bed Bath stores open at least a year] are slipping," says Colin McGranahan, of Sanford C. Bernstein. "As a much more mature co, they are more subject to cyclicality, and that isn't a great story unless the stock is cheaper than it is," he says. Bed Bath now trades at 16.1x estd earnings for the next 12 mo’s, a tad cheaper than the overall mkt. While that is well below the 25 P/E avg of the past 5 years, Bed Bath doesn't have the growth prospects it once had for its flagship stores, and investors have been frustrated with the slow progress in its other businesses, such as its specialty Christmas Tree Shops. Bulls point out that Bed Bath's balance sheet is impressive. It holds about $1bn more cash than debt.

Barron’s Online highlights Smith&Wesson (SWHC), whose stock is up 90% over the past year. Article suggests, it still could go higher. The co’s mgmt team has successfully turned around this once-troubled co by bring big-business skills into a fragmented industry dominated by small, family owned businesses. Now, S&W is introducing new products and entering potentially lucrative new mkts, including the rifle and shotgun mkt that combined is 80% larger than the handgun mkt, which has historically driven the co's fortunes. The co also is working to regain its leadership in the law-enforcement mkt, which it lost years ago by failing to anticipate that lightweight, high-capacity polymer pistols would replace its heavier 6-shot revolvers that had long been standard-issue for 17K US police depts around the country. "The bottom line is 100% profit growth for fiscal ‘08,'' says CEO Mike Golden. "We've added seven points to gross margin and opportunities remain for margin enhancement."

“Inside Scoop” section reports that SAC Capital has racked up shares of Hot Topic (HOTT). SAC disclosed a 5.1% Hot Topic stake, or 2.3m shares, up from the 245K shares it had disclosed at the end of the 1Q. SAC's investment style is difficult to pinpoint b/c it uses a variety of methods to manage its $9.9bn in equity assets, but the hedge fund might be interested in Hot Topic b/c it perceives the stock as undervalued after the price plunge, says Ben Silverman, of Silverman notes that SAC holds several positions in teen-apparel retailers, and seems be shifting those assets around.

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