Following is the list of 7 top Mid Cap gainers from Wednesday (Mar 2):
Walter Energy, Inc.
Frontier Oil Corporation
TAM SA (ADR)
TAL International Group, Inc.
Eastman Chemical Company
Here are some of the specifics about these stocks, and what to expect from them going forward:
Xilinx (XLNX) gained 5.63% as JP Morgan analyst upgraded it and a UBS analyst raised his price target for the company. Xilinx’s revenue has been below seasonal levels in the past two quarters due to inventory correction. Historically, inventory correction for XLNX has lasted for 2-3 quarters and therefore it appears most of the correction has already taken place. Further near-term favorable wireless capex trends and a faster than expected secular shift to FPGAs from custom integrated circuits (ASICs) and application-specific standard products (ASSPs) are expected to help XLNX. The stock is expected to outperform going forward.
Walter Energy (WLT) gained 5.26% as it announced its new CEO. Walter Energy said that it would name Western Coal’s CEO Keith Calder as CEO of the combined Walter/ Western company when the two merge. The Walter/ Western deal is expected to be completed on April 1st. Prior to his time at Western coal, Mr. Calder was Managing Director of Rio Tinto’s (RIO) Copper Projects. Although widely expected, this clarity regarding the CEO is still a positive as Walter has been without a permanent CEO for quite some time. Looking forward, the stock appears a good buy in near term. Benchmark met coal settlements are expected to take place in next two weeks. Met coal prices have moved up significantly since the massive floods hit Australia and I don’t think stock is pricing in that properly. The upcoming settlement could act as a catalyst.
Frontier Oil Corporation (FTO), up 4% yesterday, continues to benefit from widening crude differentials because of limited WTI storage capacity in Cushing, OK., and the ramp-up in Mid-Continent production. Last Quarter, FTO's results benefited from rising spreads due to rising global diesel demand and wider crude differentials. The stock has corrected recently after the merger agreement between FTO and HOC was announced. This could be a good buying opportunity; the combined company could potentially command a higher valuation multiple compared with an independent FTO or HOC given its improved economies of scale and higher share trading liquidity.
TAM S.A. (TAM) gained 4% as the Brazilian Civil Aviation Authority (ANAC) approved the merger between LAN and TAM to create the LATAM Airlines Group (LAG). TAM is still trading at a ~9% discount to the implied stock priced based on the share swap ratio of 1 LFL:0.9 TAM. Going forward, the following pending approvals can further act as a catalyst for the stock: Chilean anti-trust commissions, Chilean aviation authority and the Brazilian anti-trust agency.
Watsco, Inc. (WSO) gained 4% as it announced its intention to form a joint venture with Carrier for its distribution network in the northeast U.S.
Although, the current deal is a nice positive for the shares and will be accretive on an annualized basis by about $0.10 per share, the stock looks fairly valued. It’s prudent to book profits if one is already long WSO.
TAL International (TAL) rose ~4% as strong container leasing fundamentals are showing no signs of slowing. Demand for new containers continues to rise and utilization remains at almost “fully utilized” levels, boosting realized revenue and reducing container storage and handling expenses. Also boosting results is strong pricing on new containers and re-pricing opportunities on legacy leases that will provide lift to average per diem rates. Further near term trends are very strong. Historically, 1Q is a slow season; however, TAL indicated in its last conference call that 1Q profit will be up from 4Q due to the ongoing shortage. TAL is attractively valued at current 2012 EV/EBITDA of 6.4x and 2012 P/E of 9.6x, vs. historical multiples of 6.6x and 11.5x. It’s a good opportunity to go long on TAL at this point in the cycle.
Eastman Chemical (EMN) rose 3.72% following a positive investor day. Management outlined its new 2013 EPS target of ~$10, which implies upgrades to consensus of at least 7%. Further, there is a good chance that this target could still prove conservative. Eastman’s shares are likely to outperform as the market digests the new guidance and consensus upgrades follow.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.