Sunday, January 13, 2008

Barron's Summary (FWLT run overdone; HGG, TEX, FHN)

“The Trader” column highlights Hhgregg (HGG), whose shares have already tumbled 29% this yr. But the co may not be guilty of anything worse than bad timing. For a start, Hhgregg targets a higher-end clientele that appreciates same-day delivery, installation and some personal coddling. Sales and cash-flow growth have been healthy, and it even raised its forecast in Nov. Exports remain one part of the US economy that is still thriving, and fears about the demise of Hhgregg's rust-belt client base may be overblown. "The Midwest didn't participate in the recent economic boom in equal proportion, and I don't think it'll suffer in a recession to the same extent," says Jeff Lick, of Galt Investments. Analysts expect the co to earn $1 a share in F08, guidance Hhgregg recently affirmed. The street, clearly, is worried about ests for it to earn $1.24 for F09. Also, stock selling could pick up after Jan. 15, after its post-IPO lock-up period expires. But longer-term investors buying after that stand to pick up shares of a well-run, growing co at a discount. At about 9.80, shares trade at 9.8x ‘08 profits. Compared with Best Buy, Hhgregg boasts better growth and higher gross margins, Lick says. Hhgregg should rebound heftily if the consumer slowdown proves shallow. But even in a contraction, Lick thinks it is unlikely that EPS next yr will fall below $1.05.

Barron’s out saying that Foster Wheeler’s (FWLT) surge is overdone and suggests investors taking money off the table. Success has made the shares start to look pricey. They trade at 21x estd ‘08 earnings. Also, this is a cyclical co. Earnings multiples are supposed to contract as profits rise in anticipation of the cycle's downside. But that doesn't appear to be happening. If the cycle runs longer than expected, such exuberance will have been justified. If not, the stock could quickly correct. Foster doesn't give earnings guidance, but has said the engineering and construction business should enjoy organic growth, potentially bolstered by an acquisition in 2008. The co's business backlog may be signaling that the cycle is in the late innings. Investors look to the backlog, though lumpy, to predict future earnings growth. The backlog grew 98% and 47%, respectively, in the 3rd and 4th quarters of '06, and slowed to 25%, 11% and 3% in the 1st, 2nd and 3rd quarters of '07, notes John Rogers, an analyst at DA Davidson.

Barron’s Roundtable members like MDVN and WYN. Fund manager top holdings include JNJ, TV, GSK, IBB, MER and ADM.

Terex (TEX), now around 54, could hit 80 in a yr. If it becomes a takeover candidate, a winning bid might reach $100 a share. "Terex is absurdly cheap vs its peers," says Robert Marcin, of Defiance Asset Mgmt.

At 17.25, First Horizon (FHN) is selling for just under book value owing to mortgage woes. Bulls think the attractive state franchise is worth at least twice that. "I think with the recent announcement [about write-offs], we've finally hit bottom in this stock and it should bounce back," says Jerome Dodson, of Parnassus Investments.

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