The Bull Case for Russ Berrie (RUS)

May.31.06 | About: Kid Brands, (KID)

Russ Berrie and Company, Inc. (NYSE:RUS) and its subsidiaries engage in the design, manufacture, and marketing of gift, and infant and juvenile products to retail stores in the United States and internationally. The company’s gift product lines of approximately 8,600 products are marketed under the brands RUSS and APPLAUSE.

I like RUS for the following reasons:

1. My macro cash flow data on the major indices such as the S&P 500, Dow Jones 30 Industrials and the NASDAQ 100 is predicting that there will be a downturn in earnings on the horizon. I believe that this will start to be reflected in the third or fourth quarters of 2006. Given this scenario I believe that investors should be positioned in those companies which could have positive versus negative comparisions in Q4 of 2006.

2. RUS's cash flow fundamentals have shown significant improvement over the last four quarters. Its cash flow metrics have also gone from a negative to a positive comparison in its last four quarters. The company has increased free cash flow by 381% in its latest twelve months while its free cash yield is at 8.2%, an all time high for the last 16 quarters.

3. RUS's revenue over its most recent 12 months was up 9.1% versus the comparable period. The increase was the first after seven consecutive periods of decline.

4. RUS's highs between 97 and 2005 ranged from $24 in 2005 to $37 in 2002, 2003 and 2004. Its ten year low is $11.07.

In summation, RUS has undergone a significant turnaround and it is not yet reflected in the price of its shares.

Marc Selley ( adds: By looking at and understanding the graphs below you will see what Michael is talking about. Below you can see the 5 year operational cash flow [OPS] chart for Russ Berrie & Co Inc. You can see they have come back after a bad year (click to enlarge):

If you have read our discussions on cash flow investing and understand how to read the graphs you will understand the 5 year chart does not give us a good enough indication of what is taking place within the financial statements and is only the starting point. To learn about these graphs go to our free tutorial.

Next we look at the graph below depicting the last 4 quarters. You can see Russ has the second highest rating of a two. (To understand the ratings you need to read the tutorial mentioned above.)

After looking at the last 4 quarters we need to look at the 20 quarter charts to really understand the business and to look at quarterly trends year over year:

However, the Gurus we all try and follow, including Michael, really only concentrate on the following two graphs. It is these graphs that cause Michael’s picks to outperform the market year after year.

Below is the 5 year free cash flow chart. You can see year over year the free cash [FC] yield (10th line down) is up 8.2% while the free cash margin is at 6.7% and free cash trailing twelve month growth is a staggering 381%:

As stated earlier we need to look at the 20 quarter chart to get the real picture:


Please take the time to read through our tutorial -- it is free and will help you understand why Michael picks the stocks he does every week.