Thanks to earnings season there is officially a huge disconnect between consumer confidence data and what consumers are actually doing. Consumers may be saying they're fearful but the actual sales numbers and profit margins from earnings season indicate otherwise. In our view it matters more about what a consumer does with their money than what they say and that's why we think now is a great time to review consumer cyclical names that have multiple points of profitability.
The Operating Profit Margin is an operational metric that reviews profitability. This ratio reviews a firm's profitability by deducting all variable costs from the top line sales numbers and seeing how much profit is left at that point. The logic behind the metric is that generally companies can better control variables costs than the economic environment operating in.
The Return on Equity (ROE) is management and profitability metric that reviews how well a company's team is doing at generating profits solely from shareholder equity. The ratio itself provides a rate of return on shareholder equity by dividing net income over shareholder equity. When this metric is broken down into pieces through the extended formula (DuPont) it can also point out firm weaknesses & strengths.
We first looked for consumer cyclical firms that have illustrated strong operating margins (1-year fiscal operating profit margin>15%) in this tough economic environment. From this narrowed list of names we then looked for firms that have a strong twelve month trailing Return on Equity (ROE (TTM)>30%). We did not screen out any firms by market cap.
The list is ranked from highest to lowest by ROE (TTM):
1. Tempur-Pedic International, In. (TPX)
Sector | Consumer Cyclical |
Industry | Home Furnishings & Fixtures |
Market Cap | $4,522M |
Beta | 1.96 |
The firm makes and sells mattresses and pillows. The company’s operating margin is 22.25%. TPX’s ROE (TTM) is 215.62%. The short interest was 18.30% as of 09/30/2011.
2. Intercontinental Hotels Group. (IHG)
Sector | Consumer Cyclical |
Industry | Lodging |
Market Cap | $5,153M |
Beta | 1.57 |
The firm owns, operates, and franchises hotels and resorts around the world. The company’s operating margin is 26.84% .IHG’s ROE (TTM) is 115.23%. The short interest was N/A as of 09/30/2011.
3. Sirius XM Radio Inc. (SIRI)
Sector | Consumer Cyclical |
Industry | Broadcasting - Radio |
Market Cap | $6,749M |
Beta | 2.06 |
The firm is the leader in satellite radio. The company’s operating margin is 16.5%. SIRI’s ROE (TTM) is 70.41%. The short interest was 6.90% as of 09/30/2011.
4. Yum Brands Inc. (YUM)
Sector | Consumer Cyclical |
Industry | Restaurants |
Market Cap | $24,333M |
Beta | 0.86 |
The firm operates multiple quick-service restaurants such as A&W, KFC, Long John Silver's, and more. The company’s operating margin is 15.60%. YUM’s ROE (TTM) is 69.71%. The short interest was 1.40% as of 09/30/2011.
5. Coach, Inc. (COH)
Sector | Consumer Cyclical |
Industry | Luxury Goods |
Market Cap | $17,792M |
Beta | 1.57 |
The firm produces and sells fine accessories and gifts for men and women. The company’s operating margin is 31.38%. COH’s ROE (TTM) is 56.50%. The short interest was 1.70% as of 09/30/2011.
6. Tim Hortons, Inc. (THI)
Sector | Consumer Cyclical |
Industry | Restaurants |
Market Cap | $7,924M |
Beta | 0.68 |
The firm operates and franchises quick-service restaurants. The company’s operating margin is 20.15%. THI’s ROE (TTM) is 53.49%. The short interest was 0.60% as of 09/30/2011.
7. Imax Corporation. (IMAX)
Sector | Consumer Cyclical |
Industry | Media - Diversified |
Market Cap | $1,121M |
Beta | 2.13 |
The firm specializes in digital film based motion picture technologies & theater systems. The company’s operating margin is 20.50 %. IMAX’s ROE (TTM) is 47.13%. The short interest was 5.90% as of 09/30/2011.
8. Priceline.com, Inc. (PCLN)
Sector | Consumer Cyclical |
Industry | Leisure |
Market Cap | $25,137M |
Beta | 1.08 |
The firm offers travel services online. The company’s operating margin is 25.50%. PCLN’s ROE (TTM) is 42.67%. The short interest was N/A as of 09/30/2011.
9. McGraw-Hill Companies, Inc. (MHP)
Sector | Consumer Cyclical |
Industry | Publishing |
Market Cap | $12,684M |
Beta | 1.06 |
The Company is a global information services provider serving the financial services, education and business information markets with a wide range of information products and services. The company’s operating margin is 23.04 %. MHP’s ROE (TTM) is 39.21 %. The short interest was 3.50% as of 09/30/2011.
10. Lululemon Athletica, Inc. (LULU)
Sector | Consumer Cyclical |
Industry | Apparel Stores |
Market Cap | $5,631M |
Beta | 2.73 |
The firm designs and sells technical athletic apparel. The company’s operating margin is 25.35%. LULU’s ROE (TTM) is 38.79%. The short interest was 16.90% as of 09/30/2011.
We hope this list helps investors as they do their own due diligence and research on consumer cyclical companies.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
