Top 5 Small Cap Gainers Yesterday and What to Expect Now

by: Rash Menaria

Following is the list of top 5 small cap gainers from Thursday (Feb 24).



% Change

McGrath RentCorp



Employers Holdings



Sturm, Ruger & Company



Lawson Products, Inc.



Lithia Motors, Inc.



Here are some of the specifics on what’s causing these stocks to move and what to expect from them going forward, individually:

McGrath RentCorp (MGRC)

McGrath reported 4Q10 EPS of $0.52 (+40% y/y), which was significantly better than consensus estimates of $0.37. Rental revenue y/y growth improved for the 4th consecutive quarter to 18% in 4Q, driven primarily by Adler Tank Rentals and TRS-RenTelco, with Modular showing signs of stabilization. McGrath expects 10% 2011 revenue growth with positive contribution from each segment, driven by regional expansion and new business initiatives (e.g. portable storage). The company’s performance is impressive and its stock price may continue to outperform going forward.

Employers Holdings (EIG)

EIG reported EPS of $0.24, ahead of the consensus estimates of $0.17. Revenue at $104.1 mn was also better than the Street mean of $97.4 million. The company’s result indicates that the workers’ comp segment is turning and that EIG is well-positioned to benefit from improving conditions. This quarter showed the first evidence in the company's results of the recovery in the economy that has taken place over the past 12-18 months, as well as the company-specific efforts to grow revenues and decrease expenses. This trend is likely to continue and the stock looks attractive at 0.9x book

Sturm, Ruger & Company (RGR)

Sturm, Ruger & Company reported 4Q10 earnings of $0.30 per share vs. $0.28 per share consensus. Sales of $64.1 million were also ahead of $62.5 million consensus. Unit backlog remained strong with RGR's unit backlog growing +7.0% Q/Q to 106.6K. However, its dollar backlog rose a much more modest +2.3% Q/Q to $34.9M. This implies a 4.7% decline in ASP of backlog units and is likely indicative of a more price competitive environment. Going forward it appears that the competitive market (particularly in concealed carry/self defense) is becoming increasingly more challenging, which could create a headwind for RGR in the coming quarters. It’s best to avoid the stock as of now.

Lawson Products, Inc. (LAWS)

Lawson products was up 6.5% Thursday. The stock price has seen a sharp correction (~16%) over last few days after its quarterly results disappointed investors. Yesterday rally was likely just a pull back so not much can be made of it.

Lithia Motors, Inc. (LAD)

LAD reported Q4 EPS of $0.21 versus the $0.12 consensus. The beat reflects strong and much better than expected new and used vehicle comps of 33% and 24%. Q4 results are a clear indication that LAD is participating in the auto retail segment’s recovery and that it is executing at a high level with both the top and bottom line beating expectations. LAD is a well-run retailer with significant operating leverage that is underappreciated by the market. It’s likely to outperform in near to medium term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.