“The Trader” column out saying that the hotel boom may be peaking. Once-laggard hotel stocks have outperformed the mkt as investors catch on to the industry's pricing power, and the mismatch between frenzied demand and sluggish supply. Most sell-side analysts remain bullish, and further gains are possible, but the risk-reward profile has become less compelling. Businesses drive nearly 2/3 of hotel profits, and as Corporate America grapples with slower economic expansion, a less-accommodating credit mkt and record energy costs, greater scrutiny will come to bear on travel budgets. Big-spending financial-services firms, for one, won't be running up as many big hotel bills, and co’s will negotiate hard-to-keep room rates down. "Given that almost all of the YTD RevPAR growth has come from pricing, we expect lower ‘08 rates will have a significant impact," notes Goldman Sachs analyst Steven Kent. HLT, MAR, HOT, OEH.
“The Trader” also highlights Crown Holdings (CCK), saying when the co reports 3Q results Oct. 16, co’s financial outlook will be center-stage, amid worries about stagnant US sales of carbonated soft drinks, smaller crop yields and weakened demand for food cans. Crown is Europe's largest can maker and derives more than a 1/4 of its sales from across the Atlantic, where soggy harvests to the north and droughts to the south now threaten to rain on Crown's parade. The exodus of hedge funds from likely buyout tgts with high cash flow also played a part, and Crown shares have pulled back more than 15% from their July peak. If Crown execs issue a conservative forecast, any stock selling would open a door for longer-term investors. Citigroup analyst Timothy Thein thinks recent concerns have clouded the long-term picture. Many worries are already factored into the stock. "If harvests do come in light this year, it will likely translate into low year-end inventories for food packers and processors," Thein notes. This will drive up prices and encourage farmers to plant more next year, keeping any negative impact short-lived while improving the odds for ‘08. Worries over higher tin-plate costs also may be overblown, since that could make it easier for Crown to raise prices. Slowing soft-drink sales and a recent profit warning from Cott (COT) have also unnerved investors, even though Cott accounts for less than 5% of Crown's operating profits. At about 23, Crown shares trade at about 12x ‘07 FCF, a discount to the 14x for rivals like Ball (BLL). "In a mkt concerned about slowing economies, US dollar weakness, and inflation, Crown's stock should outperform," Thein says.
Barron’s out saying that China’s solar boom loses its luster. LDK Solar (LDK) still looks expensive in light of questions about its accounting for inventory and therefore profits. The shares, already off sharply, could keep heading toward zero. Also mentioned: JASO, STP, TSL, YGE, SOLF and CSIQ.
Investors' worries have created a buying opportunity in Paychex (PAYX) stock. It should return to at least 46 -- about 12% above its current price -- within a year.
In light of expected mid-teens earnings growth in coming years, Cardinal Health (CAH) shares seem cheap, particularly compared with rivals'. Upside potential could be 20% to 45% higher.
Softness in U.S. employment has hurt uniform companies' shares. But the pessimism is overstated. Look for the stocks to rise 15% or so over the next 12 to 18 months. CTAS, GKSR, UNF.
“The Trader” also highlights Crown Holdings (CCK), saying when the co reports 3Q results Oct. 16, co’s financial outlook will be center-stage, amid worries about stagnant US sales of carbonated soft drinks, smaller crop yields and weakened demand for food cans. Crown is Europe's largest can maker and derives more than a 1/4 of its sales from across the Atlantic, where soggy harvests to the north and droughts to the south now threaten to rain on Crown's parade. The exodus of hedge funds from likely buyout tgts with high cash flow also played a part, and Crown shares have pulled back more than 15% from their July peak. If Crown execs issue a conservative forecast, any stock selling would open a door for longer-term investors. Citigroup analyst Timothy Thein thinks recent concerns have clouded the long-term picture. Many worries are already factored into the stock. "If harvests do come in light this year, it will likely translate into low year-end inventories for food packers and processors," Thein notes. This will drive up prices and encourage farmers to plant more next year, keeping any negative impact short-lived while improving the odds for ‘08. Worries over higher tin-plate costs also may be overblown, since that could make it easier for Crown to raise prices. Slowing soft-drink sales and a recent profit warning from Cott (COT) have also unnerved investors, even though Cott accounts for less than 5% of Crown's operating profits. At about 23, Crown shares trade at about 12x ‘07 FCF, a discount to the 14x for rivals like Ball (BLL). "In a mkt concerned about slowing economies, US dollar weakness, and inflation, Crown's stock should outperform," Thein says.
Barron’s out saying that China’s solar boom loses its luster. LDK Solar (LDK) still looks expensive in light of questions about its accounting for inventory and therefore profits. The shares, already off sharply, could keep heading toward zero. Also mentioned: JASO, STP, TSL, YGE, SOLF and CSIQ.
Investors' worries have created a buying opportunity in Paychex (PAYX) stock. It should return to at least 46 -- about 12% above its current price -- within a year.
In light of expected mid-teens earnings growth in coming years, Cardinal Health (CAH) shares seem cheap, particularly compared with rivals'. Upside potential could be 20% to 45% higher.
Softness in U.S. employment has hurt uniform companies' shares. But the pessimism is overstated. Look for the stocks to rise 15% or so over the next 12 to 18 months. CTAS, GKSR, UNF.
There's money to be made in shares of prison co’s like GEO Group (GEO), Corrections Corp. (CXW) and Cornell (CRN), despite a recent US Census report intimating that the prison population is growing at 4% annually, not the widely publicized 13% forecast by the Pew Charitable Trusts. The Pew data, by Barrons’ reckoning, are almost certainly more accurate. Although all 3 prison co’s trade at lofty P/E ratios, they look reasonable in light of the prison population's likely growth. Corrections Corp., for example, at its recent price around $25, was trading at about 24x its estd earnings for this year of $1.04 a share. The co's earnings, however, look to be growing around 20% annually, helping to justify the price. If the shares keep their current P/E, the price could jump to $30. GEO trades at 26x estd earnings for this year. Net could well rise by more than 25%, perhaps lifting the shares to $35. Cornell also looks pricey at first glance, trading at 30.5x ‘07 earnings ests. But analysts say that earnings could rebound next year to $1.27 a share, sending the stock up by 40% or more.
God bless the brokerage analyst who has the guts to recommend that his clients sell a stock. And we're not talking a Hold that smells like a Sell, either. We're talking a bonafide Sell. Meet Canaccord Adams analyst Jonathan Dorsheimer, who's got the gumption. Last week, Dorsheimer issued a Sell rating on Cree (CREE). LED lighting technology is all the rage, which might explain why Cree's shares are up about 30% over the past 12mo’s. The stock, now in the high 20s, got dinged a tad last week after Dorsheimer issued a Sell recommendation while traveling in Asia and meeting with co’s in the LED supply chain. After 2wks in Japan, Taiwan and China, Dorsheimer concluded that Cree will miss DecQ earnings and rev tgts. He also predicted that "cracks" will begin to appear when the co reports its SepQ. One problem: Cree is going into business against some of its customers by manufacturing lighting fixtures, rather than just the chips that go inside them. While Dorsheimer concedes that the decision might be good for the long term, he sees it hurting the co's chip sales in the short term. Cree has pledged to the Street that it can keep its chip sales flat while embarking on the new strategy. But after talking to industry sources on the ground in Asia, Dorsheimer is convinced that this is impossible. "I knew that Cree's decision would come with some mkt challenges, as Cree overnight became competitive with the majority of its LED customer base," Dorsheimer told. "However, what I didn't fully appreciate was the timing and magnitude of the potential impact. Based on my extensive meetings here in Asia, I now disagree with mgmt's ability to achieve its goal of maintaining flat LED chip sales over the coming qrtrs."
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