The Week Ahead: Throw out the rulebook?
Posted
Sep 26 2008, 08:01 PM
by
Andrew Horowitz
Rating:
Next week is going to be tricky as the winners and losers from whatever bailout plan is presented will become more apparent. Yes, there will be some kind of bailout, no matter how distasteful that may seem. Fortunately, there are only a few companies reporting, so any damage from earnings reports will be limited.
To help with deciphering the companies analyzed, we are adding a new component to this feature starting this week as we will include a Positive/Neutral/Negative rating along with the current StockScouter rank. Each week a review of the analysis will be presented as well.
Monday, September 29
Walgreens has been taking a beating as of late. It is no wonder as sales have been slowing into a global recession. EPS growth has also been grinding to a halt as it has become apparent that it is much more difficult to turn a profit in an environment that shows slowing sales and higher costs. Low debt and a PEG ratio of 1 seems to be positive attributes, but it will be very difficult for Walgreens to grow the bottom line for the foreseeable future. The change toward a full service operation has turned into their biggest drag on profitability. Expectations are low, so there will probably be a muted reaction to the earnings release. Analysts are looking for $0.45 on $14.68 billion of revenue.
Horowitz & Company Recommendation: Neutral / StockScouter 5 out of 10
Tuesday, September 30
Pepsi Bottling is the only exciting announcement of the day. Shares have been on a recent uptrend and have recently pulled back toward their 50-day average. Institutional owners are buying of late and while sales have been flat, EPS is growing nicely. The debt ration of 182% is a touch out of whack and that needs to be looked at before entering a position, but First Call is showing analysts expecting earnings per share at $1.04 on $3.8 billion of revenue.
Horowitz & Company Recommendation: Neutral /StockScouter 6 out of 10
Wednesday, October 1
Biotechnology is showing signs of life and one company that may warrant more analysis is Immucor. The company develops, manufactures and sells a complete line of reagents and automated systems used primarily by hospitals, clinical laboratories and blood banks and is holding up well during the latest market correction. EPS growth is showing an impressive 53% and something looks to be brewing if share price and charting patterns are of any consideration. The entire industry appears to be doing well and this may be just the opportune time to start nipping at shares. Analysts are predicating quarterly earnings of $.23 and there is a good amount of short interest that could see a squeeze if numbers come in strong.
Horowitz & Company Recommendation: Positive /StockScouter 7 out of 10
On the other hand, fertilizer companies have been taking it on the chin lately. Potash, Intrepid Potash, Terra Nitrogen and Mosaic have all felt the pain of a global unwinding and deleveraging by hedge funds. It has not been pleasant to watch or be a part of. In fact, I recently stopped out of Mosaic for a slight loss in my Strategy Lab portfolio and would use caution with these positions. If we see a massive bailout, shares should soar. Anything short could be a problem even though sales are accelerating and earnings have been growing. In fact analysts expect EPS to grow by 400% to $2.93 per share on $4 billion of revenue.
Horowitz & Company Recommendation: Neutral /StockScouter 6 out of 10
Thursday, October 2
Note: This is the day the initial short sell restrictions expire. The SEC will probably opt to renew the term if markets are not moving in the right direction as of late.
As with any economic slowdown, there are winners and there are losers. Companies which rotate into favor during tough times are often found in the alcoholic beverage sector. Constellation Brands is reporting and analysts expect an increase in EPS to $0.44 for the most recent period on $966 million of revenue. Shares have recently moved above the 50-day average and consolidating above recent resistance of $22.
Horowitz & Company Recommendation: Neutral /StockScouter 5 out of 10
Friday, October 3
When the economy sours, consumers look for bargains. One of the places they go is Family Dollar Stores. Yet, it seems that if shoppers were clamoring for bargains, the EPS growth rate and sales would be showing a greater positive slope for FDO. Analysts are expecting $0.34 for the period on $1.75 billion of revenue. Technically though, the chart looks solid and there looks to be some buying coming in over the last few months. This may be a name that you would want to consider building a position in.
Horowitz & Company Recommendation: Positive /StockScouter 9 out of 10
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Disclosure: Horowitz & Company managed account clients do not hold positions in securities mentioned as of the publish date.
Andrew Horowitz is a money manager and the founder of Horowitz & Company. He is also the author of the bestselling book, The Disciplined Investor . Check out his latest investment idea or listen in as he hosts, The Disciplined Investor Podcast.
