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Priceline.com Inc. (PCLN), Target Corporation (TGT), and AFLAC Incorporated (AFL) had received positive upgrades from analysts recently. In this article, these 3 stocks, which are generating strong cash flow with fair valuation, will be analyzed fundamentally and technically. Investing strategies will also be reviewed.

Priceline.com Inc.

Priceline.com Inc. is an online travel company. PCLN was up 0.94% and closed at $695.62 on March 1, 2013. PCLN had been trading in the range of $553.42-$774.96 in the past 52 weeks. PCLN has a market cap of $34.69B with a beta of 1.28.

On March 1, 2013, Lazard Capital upgraded PCLN from neutral to buy. Analysts have a mean target price of $799.09 and a median target price of $800.00 for PCLN. Analysts, on average, are estimating an EPS of $5.26 with revenue of $1.26B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $38.17 with revenue of $6.42B, which is 22.10% higher than 2012.

There are a few positive factors for PCLN:

  • Higher revenue growth (3 year average) of 32.2 (vs. the industry average of 2.7)
  • Higher operating margin of 34.8% and net margin of 26.8% (vs. the averages of 13.4% and 9.1%)
  • Stronger ROE of 45.5 (vs. the average of 10.1)
  • Lower debt/equity of 0.2 (vs. the average of 0.5)
  • PCLN generates an operating cash flow of $1.79B with a levered free cash flow of $1.40B

Technically, the MACD (12, 26, 9) indicator is showing a bearish trend, but the MACD difference continues to converge. The momentum indicator, RSI (14), is indicating a slightly bullish lean at 55.28. PCLN is currently trading above its 50-day MA of $669.76 and 200-day MA of $640.09. The next resistance is $712.73, the R1 pivot point, followed by $736.34, the R2 pivot point, as seen from the chart below.

(click to enlarge)

Source: StockCharts.com

How to Invest

PCLN is a great long-term holding with a solid balance sheet and strong, consistent growth. For bullish investors, a credit put option spread of May 18, 2013, $620/$640 put can be reviewed. Investors can also review the following ETFs to gain exposure to PCLN:

  • Nasdaq Internet Portfolio (PNQI), 7.32% weighting
  • DJ Internet Index Fund (FDN), 5.13% weighting
  • SPDR MS Technology (MTK), 3.08% weighting

Target Corporation

Target Corporation serves guests at 1,778 stores across the United States and at Target.com. TGT was up 1.86% and closed at $64.13 on March 1, 2013. TGT had been trading in the range of $54.88-$65.80 in the past 52 weeks. TGT has a market cap of $41.38B with a beta of 0.92.

Wells Fargo upgraded TGT from market perform to outperform and raised its valuation range to $73.00 to $78.00 from $61.00 to $65.00. The firm cited:

"(1) Canada dilution is peaking, and operating metrics should improve optically starting in Q2 2013. For example, we estimate earnings growth will go from -7.3% in Q1 2013 to roughly flat in Q2 2013 to +13.2% in Q3 2013. (2) The PFresh grocery remodel program and the 5% REDcard rewards program enhance frequency and customer loyalty, and are still providing a meaningful comp tailwind and built-in growth (we estimate together these initiatives will continue to drive approximately 300bp in comps in 2013, 160bp in 2014, and 140bp in 2015). (3) Target appears to be making a more aggressive push in eCommerce and omni channel given its recent external senior hire from Gilt Groupe (also previously at Amazon), and plans to significantly increase IT related capex this year. We estimate online sales drove 50-70% of the 0.4% comp in Q4. (4) Target is a relatively defensive play in retail given its increasing exposure to consumables (household essentials and food/pet supplies made up 44% of revenue in 2011, up from 32% in 2006) and exposure to the housing recovery (home furnishings/décor and hardlines made up 37% of revenue in 2011)."

Analysts have a mean target price of $70.78 and a median target price of $71.50 for TGT. Analysts are estimating an EPS of $1.09 with revenue of $17.11B for the current quarter ending in April, 2013. For 2013, analysts are projecting an EPS of $4.79 with revenue of $75.99B, which is 3.70% higher than 2012.

There are a few positive factors for TGT:

  • Higher operating margin of 7.5% and net margin of 4.2% (vs. the industry averages of 5.8% and 3.4%)
  • Lower P/E and P/B of 13.9 and 2.5 (vs. the industry averages of 15.2 and 3.2)
  • Lower Forward P/E of 10.1 (vs. the S&P 500's average of 14.0)
  • TGT generates an operating cash flow of $5.32B with a levered free cash flow of $2.22B
  • TGT currently offers an annual dividend yield of 2.25%

Technically, the MACD (12, 26, 9) indicator is showing a bullish trend. RSI (14) is indicating a bullish lean at 62.43. TGT is currently trading above its 50-day MF of $61.13 and 200-day MA of $60.73. The next resistance is $64.84, the R1 pivot point, followed by $66.73, the R2 pivot point, as seen from the chart below.

(click to enlarge)

Source: StockCharts.com

How to Invest

TGT is a solid cash flow stock which offers a reasonable dividend at a reasonable valuation. For bullish investors, a credit put option spread of July 20, 2013 $55/$60 put can be reviewed. Investors can also review the following ETFs to gain exposure to TGT:

  • Market Vectors Retail ETF (RTH), 4.91% weighting
  • Consumer Discretion ETF (VCR), 2.08% weighting
  • Buyback Achievers (PKW), 1.95% weighting

AFLAC Incorporated

AFLAC is the number one provider of guaranteed-renewable insurance in the United States. AFL was up 0.48% and closed at $50.19 on March 1, 2013. AFL had been trading in the range of $38.13-$54.93 in the past 52 weeks. AFL has a market cap of $23.48B with a beta of 1.84.

On March 1, 2013, Evercore Partners upgraded AFL from equal weight to overweight with a price target of $61.00. Analysts have a mean target price of $58.41 and a median target price of $58.00 for AFL. Analysts are estimating an EPS of $1.63 with revenue of $6.18B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $6.38 with revenue of $25.07B, which is 1.20% less than 2012.

There are a few positive factors for AFL:

  • Higher operating margin of 17.0% and net margin of 11.3% (vs. the industry averages of 10.0% and 5.6%)
  • Stronger ROE of 19.4 (vs. the average of 8.0)
  • Lower P/E of 8.2 (vs. the industry average of 19.8)
  • Lower Forward P/E of 7.1 (vs. the S&P 500's average of 14.)
  • AFL currently offers an annual dividend yield of 2.79%

Technically, the MACD (12, 26, 9) indicator is showing a bullish trend. RSI (14) is picking up but still showing a slightly bearish lean at 48.14. AFL is currently trading between its 50-day MA of $51.61 and 200-day MA of $47.03, as seen from the chart below.

(click to enlarge)

Source: StockCharts.com

How to Invest

AFL provides a stable cash flow for income seekers and is currently trading at a reasonable valuation. For bullish investors, a credit put option spread of May 18, 2013, $46/$48 put can be reviewed. Investors can also review the following ETFs to gain exposure to AFL:

  • KBW Insurance Portfolio (KBWI), 7.24% weighting
  • Dow Jones U.S. Insurance Index Fund (IAK), 5.53% weighting

Note: All prices are quoted from the closing of March 1, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Source: 3 Stocks With Recent Positive Upgrades And How To Invest