3 Bullish Calls by Cramer

Includes: CLB, DPZ, NFLX
by: Efsinvestment

Jim Cramer has been investigating some companies that have strong upside potentials, interviewing some of their CEOs. He mentioned three companies he finds admirable. I investigated these stocks further, examining them from a fundamental perspective. Here, is a fundamental analysis of these three stocks from Cramer’s Mad Money (Data obtained from Finviz/Morningstar and is current as of July 27):

Domino’s Pizza, Inc. (DPZ): Domino’s Pizza has beaten analyst expectations, increasing sales by 12% and its revenue by 6% in the second quarter of the year. Cramer interviewed the company’s CEO Patrick Doyle. Here is what Doyle said:

What’s driving our growth is the quality of the pizza, the quality of the experience that people are having.

As of the July 27 close, the company has a market capitalization of $1.67 billion, a P/E ratio of 18.43, and a forward P/E ratio of 15.75. Analysts expect the company to have an annual EPS growth of 10.18% in the next five years, which sounds overdone given the -1.73% EPS growth of last five years. Net profit margin last year was 5.73%, while it offers no dividend yield.

SMA50 is 7.51%, whereas SMA200 is 42.09%. Target price is $25.88, which implies a 3.4% decrease potential. ROA is 19.78%, and the stock is currently trading 6.82% lower than its 52-week high. Domino’s Pizza returned approximately 104% in the last twelve months. Although debt-to assets ratio is hovering at extremely dangerous rates, it is decreasing for the last four quarters. The stock had an immense increase between May and June. I believe Domino’s has the potential to be a global player in the fast food business. With a $1.67 billion market capitalization, it is an excellent pick for long-term investors. However, the stock is currently expensive and investors should wait for a pullback.

Core Laboratories NV (CLB): Core Lab reported admirable Q2 results, increasing its revenue by 13.5% and its EPS by 27% compared to Q2 of 2010. However, EPS was only a 2-cent beat. Cramer believes that Core Laboratories will face a minor downfall, saying:

The real reason Core Labs sold off, though, is the same reason why it almost always sells off after earnings: because the stock ran up going into the quarter and became priced for perfection. So when Core Labs then reports results that are not quite perfect, the stock gets hit.

The Amsterdam-based CLB owns a market cap of $4.88 billion, as of July 27. It shows a trailing P/E ratio of 32.9, and a forward P/E ratio of 22.33. Estimated annualized EPS growth for the next five years is 21.05%, which is quite conservative given the 39.62% EPS growth of past 5 years. Net profit margin (19.6%) is well above the industry average (7.9%). Core Laboratories paid a 1.33% dividend yield in 2010.

Analysts expect the company to have a 29.11% EPS growth next year, and earnings increased by 36.95% this quarter. SMA200 is 12.68%, and SMA50 is 0.76%. It is trading 9.37% lower than its 52-week high, whereas the target price indicates a 10.5% upside movement potential. Its O-Metrix score is 3.97, whereas the stock returned 40.9% in the last twelve months. Debt-to assets ratio is having a free fall for the last four years. However, it should not be forgotten that this company is highly vulnerable to oil prices. Average analyst recommendation for the company is 2.10 (1=Buy, 5=Sell). Insiders have been both selling stocks and exercising options for a while. A pullback might create the opportune environment for entry. Recent dividend history of Core Laboratories per share is as follows:

Jul 20, 2011


Apr 26, 2011


Jan 21, 2011


Oct 20, 2010


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Netflix, Inc. (NFLX): Netflix stocks keep falling after the company announced a price increase in its streaming online content services and DVD combo, but Cramer believes that the company did the right thing. Moreover, he thinks that the stock is still undervalued; therefore, investors would better take advantage.

As of the July 27 close, the company was trading at a P/E ratio of 77.42, and a forward P/E ratio of 40.88. It has a market cap of $14.14 billion with no dividend policy. Analysts estimate a 30.62% annualized EPS growth for the next five years. Its profit margin is 8.0%, above the industry average of 3.8%.

Debts are hardly decreasing, while assets are increasing sharply. The stock returned 165% in a year, while it is currently trading 11.27% lower than its 52-week high. Target price is $268.13, which indicates a 0.6% upside potential. Earnings increased by 88.46% this quarter, and 49.35% this year. ROA and ROE are 18.86% and 83.62%, respectively. SMA200 is 22.08%, while SMA50 is 0.13%. Although many investors are worried about the recent price increase, Cramer has faith in the company. Netflix has only a one-star rating from Morningstar. Average P/E ratio is 60. Netflix has to grow by at least 60% to justify its valuation. Analysts' 30% EPS growth estimation is not enough to justify Netflix’s valuation. It is a great company but the stock is over-priced.

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