A good investor should always keep track of the latest headlines on each stock he owns. Typically, bad news allows investor to purchase stocks at better prices. In this article, we list stocks that have moved over the last few sessions on news. We have also explained the impact of the news to the company’s fundamentals and valuations.
New Market Corp. (NEU)
Shares of NEU have increased by 5.04% last week. It has reported that it will receive $45 million from Innospec Inc. (IOSP) after the NEU brought two civil actions against the latter. The agreement is that IOSP will pay in cash, promissory note and stock. This is a welcome development for investors of NEU. Management can use this cash to reinvest in the business and increase shareholder wealth. The company has reported improved revenue visibility and margins compared to its performance in the financial crisis. At present, the stock is trading at 42% below its 52-week high.
Despite the run-up, the stock is just trading at 10.44 times forward earnings and carries a 1.40% dividend yield. This is higher than its peers, but in line with Lubrizol Corp. (LZ). LZ is valued at 10.84 times earnings and has a dividend yield of 1.10% and Albemarle Corp. (ALB) at 9.63 times earnings and has a dividend yield of 1.40%. Even IOSP is valued at 7.20 times earnings. The good news is that Moody’s has upgraded its outlook on the company to a positive rating. The credit agency cited improving financial performance as a reason for the upgrade.
PepsiCo Inc. (PEP)
PepsiCo Inc. announced that it has appointed Albert Carey as CEO of PepsiCo Americas Beverages. Carey will directly report to PEP’s chairman and CEO, Indra Nooyi. He has been in the company for 30 years and recently served as CEO of Frito-Lay North America. This management shake-up is an indicator that the company is focused on improving its beverage business in the Americas. Shares of PEP have declined by 4.71% this year. In contrast, competitors Coca-Cola Company (KO) and Dr Pepper Snapple Group (DPS) gained 8.74% and 7.74%, respectively.
The stock is trading at 12.79 times next year’s earnings and has a dividend yield of 3.30%. This is lower than the current valuation of other beverage and food companies. KO trades at 16 times earnings and carries a dividend yield of 2.60%. Another beverage maker, DPS, also trades higher at 12.93 times earnings and has a dividend yield of 3.40%. Historically, PEP trades in the band of 16.17 to 22.48 times earnings. The company pays dividends at 40% of its earnings, but has increased its dividends by 13% for the last 5 years. This is due to higher earnings growth than payout. The company is looking to acquire smaller food companies to add to its increasing food lines. Recently it has acquired acquired Wimm-Bill Foods to boost its line of food products.
Darden Restaurants (DRI)
This Orlando-based restaurant chain has been making public campaigns on healthier food choices. The company is aiming to address the childhood obesity epidemic through reduced calories and sodium in its meals. This is a good sign, as the need for healthier restaurants will be higher in the future. Over the long run, these types of campaigns will gain traction. Shares of DRI fell by 2.65% for the year. Recently, the company issued lower earnings guidance for fiscal year 2012. Analysts expect earnings per share to be around $4.31 for the period. At the current price of $45.61 a share, the stock is trading at 10.58 times next year’s earnings and has a dividend yield of 3.80%.
Its competitors have higher valuations. In fact, both Brinker International Inc. (EAT) and BJ’s Restaurants (BJRI) trades at 13 and 34 times earnings, respectively. Despite the lower valuation of DRI, it has better margins and profitability. It has net profit margins of 6%, better than the 4.60% margins of the sector. Also its return on equity is at 25% above the 13% returns on equity of similar companies. Analysts have a hold rating on the stock. Its target price is pegged at $56 a share, implying a 22% upside from the current levels.
Urban Outfitters Inc. (URBN)
The company reported that its comparable-store sales from its retail business were down in the third quarter. URBN Chief Executive Officer Glen Senk said that he’s wondering whether they have aggressively priced or not. Major research firms have also downgraded their forecasts and their ratings. In fact, research firm Jefferies & Co. and Citi Research have downgraded the stock to “hold.” Jefferies cited that the long-term growth profile of URBN appears uncertain given its lack of exposure to global markets. Analysts expect that next year’s earnings per share will be $1.80, which is 25% higher than this year’s forecasts.
The stock is valued at 13 times next year’s earnings and has a price/earnings to growth ratio at 0.92 times. In contrast, Gap Inc. (GPS) trades at 10.02 times earnings and has a peg of 1.41 times. URBN’s stock has traded between 13.35 to 35.41 times earnings historically. The main challenge of the company is how it can reposition itself to its customers through new product offerings and aggressive marketing. Investors should wait for the next quarter performance of its same stores before they can accumulate the shares.
Francesca’s Holdings Corp. (FRAN)
Jefferies & Co. initiated coverage on FRAN with a buy rating. The research firm has placed the value of FRAN at $32 a share. At the current levels, the implied upside is at 66.30%. It cited that the specialty retailer is groomed to capitalize from value conscious shoppers from its innovative merchandise and locations. The report also noted that the operating margins are high at 20%. This seems to be significantly higher than its competitors like Chico’s FAS Inc. (CHS) and Ann Inc (ANN). For the year, the stock is down by 28.61%. The stock also trades near its IPO price of $17.
The stock trades at 27 times next year’s earnings. This is higher than both CHS and ANN’s valuation. CHS and ANN are valued at 12. 97 and 11.28 times earnings respectively. It seems that the market is excited that the company is opening stores at a rapid pace and believes that it has a room to expand. Jim Cramer mentioned FRAN in the latest Mad Money segment. He said that investors should wait for third-quarter results before getting excited on the stock. He acknowledged that the stock is getting cheaper, as it is now trading below the IPO price.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.