Posts Tagged ‘ Q3 ’

Republic Airways (RJET) Returns to Profitability – The Airlines Aren’t All Disappearing

November 8, 2011
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Republic Airways is an airline holding company based in Indianapolis which owns a number of regional airlines, including; Chatauqua Air, Frontier, Lynx Aviation, Midwest Airlines, Republic Airlines, and Shuttle America. The company also operated fixed-fee flights operated under airline partners such as Delta Connection, United Express and US Air Express. Republic Airways operates in a number of cities which aren’t major airport hubs such as Columbus, Indianapolis, Philadelphia, Pittsburgh and St Louis.

  • Republic reported EPS of $0.40 (ex-special items) which was well ahead of consensus estimates of $0.24.
  • The current quarter marked a return to profitability after two quarters of losses.
  • The market was concerned with near-term liquidity just last month sending the share price to the $2s.
  • The return to profitability today has led to a 56% rally in the shares which now trade at $4.25.
  • Republic’s restructuring programs are making progress as operating margins improved while sale grew 8%.

Based on the current run-rate in earnings, the company will earn over $1 per share and could be set to rally back towards $8 (which is on the low end of many street price targets).

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It’s Getting Real with Whole Foods (WFM) – results are fine but the stock is still very expensive

November 2, 2011
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Whole Foods is a tremendous retail concept and the company is a pioneer in terms of promoting a healthier lifestyle. Whole Foods is also able to do this profitably, much more so than other retailers. It was historically unheard of for a food retailer to achieve a 35% gross margin. Whole Foods earns high margins (for a food retailer) while also growing very fast. The investment community is fully aware of this though (many analysts, the ones that do their own shopping anyway, likely shop at Whole Foods) and the stock has been bid up to a valuation that leaves little room for imperfection.

The current quarter was operationally pretty good. Identical store sales grew by 8.4% which represents the strongest rate of 2-year ident growth post the financial crisis. Gross margins were healthy and increased excluding the LIFO-charge swing, and operating profit grew by over 16%. Whole Foods has paid back all its debt and grew pre-tax profit by 25% as a result. The tax rate was down on the quarter though which along with relatively high general administrative and pre-opening expenses makes the quarter imperfect. Along with the imperfections in the current quarter, Whole Foods also left next year EPS guidance unchanged at a range of: $2.21-$2.26. Priced at over 31x earnings perfection in the current quarter and a guide higher for next year’s earnings were needed to drive the stock higher. Whole Foods shares are down almost 6% in the after-market.

The sell-off in the aftermarket simply reflects some of the premium or luster coming off Whole Foods shares. There will be bidders down below at certain multiples. For perspective, at this time last year, Whole Foods guided to EPS of $1.66-$1.71. The company ultimately earned $1.93 and beat their own guidance by 13%. Perhaps this should be factored in to a certain extent when thinking about what they will actually earn in the next fiscal year relative to the guidance of $2.26.

 

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American Tower (AMT) – Strong Results and REIT coming

November 1, 2011
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American Tower Corp (AMT) owns and operates wireless communication broadcast towers here in the United States. The towers service a number of industries including cellular, paging, and network services. American Tower has been a controversial stock with a high valuation – but enormous potential.  The company is rather leveraged at 4.5x debt-to-ebitda so small swings in results can lead to very big swings in the stock price.

The company had very strong site leasing revenues and relatively balanced growth. AMT  had strong revenues across carriers and conversion towards a REIT looks on trade for early 2012. There will be a shareholder vote on November 11th to approve the REIT status which will come with a large dividend in December 2011. The company has also been buying back shares aggressively. Given all the uncertainty around technology and carrier wars the tower operators provide exposure to the growth in cellular and smart phones while also providing financial leverage to growth in the industry. American Tower’s technicals are also quite good hitting a new high in a tough market.

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Interpublic Group (IPG) – Advertising Spend Growing

October 28, 2011
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Interpublic Group (IPG) is an integrated advertising agency that serves clients of many different type around the world. The company delivers customized advertising and marketing solutions for a variety of different types of advertising campaigns. The company released a very strong quarter and apparently many aspects of traditional media are not dead yet.

Inerpublic’s organic revenues were up 8.7% which was well above Wall Street estimates. One of the big drivers of sales growth was growth in the Asia-Pacific region which was up 15.3%. Margins were higher and the operating margin expanded to 10%. Interpublic was confident on their conference call which is a positive signal as the advertising markets are certainly geared to GDP growth around the world. This is an all-around positive signal for the economy. IPG’s stock price is up 10% today but is till 25% below recent highs earlier in the year.

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Apple (AAPL) – Quarterly Earnings Preview

October 18, 2011
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I expect a monster quarter out of Apple. I believe that Steve Job’s unfortunate death has led to a surge in support for Apple products. The beat is largely expected so the key will be do they beat by “enough” relative to Wall-Street consensus. Here are the past 8 quarters earnings beats relative to the Street:

  • Q3 11 (last quarter):   33%
  • Q2 11:   18%
  • Q1 11:   19%
  • Q4 10:   13%
  • Q3 10:   13%
  • Q2 10:   35%
  • Q1 10:   77%
  • Q4 09:   28%

Probably they need to beat by over 30% for the stock to march higher unabated.

Price targets generally range from $450-$550 for the stock

  • Sales consensus is $29.6B
  • EPS consensus is $7.31
  • EPS estimate range is:  $6.50 to highs of $7.80 or so

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Parker Hannifin (PH) – Super Solid Q3

October 18, 2011
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Parker Hannifin is one of the world’s leading diversified industrial companies. Parker Hannifin (PH) has large businesses in motion control, aerospace, fluid power systems, electromechanical controls, air conditioning, industrial refrigeration and thermal products. Parker reported record third quarter earnings which grew about 20% vs. a year ago. Organic sales growth was +10% which contained 3% from FX and 1% from acquisitions. Parker Hannifin not only had strong sales but grew operating margins to new records of 16.1% with particular strength in the American industrial segment and aerospace.

Parker Hannifin raised earnings guidance from a range of $6.70-$7.50 last quarter up to a new range of $7.25-$7.85 after today’s release. This is above the Wall Street consensus which was still sub $7 going into today. Guidance was raised by 6.3% and is significantly above wall street estimates ($6.96) so this has led to a 3% rally in the shares despite some strength heading into the quarter and a tough tape.

The conference call has just started. I will listen and post some quick thoughts a little later today.

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