CNBC’s Jim Cramer analyzed the following 5 stocks on the Tuesday, December 6th episode of "Mad Money." The following is my analysis of his recommendations on a valuation basis. I conclude that Cramer was right on LTD, USB, CMG, PZZI and KOG.
Limited Brands (LTD) - Trading around $44.
Cramer loves this women’s retail stock and gave it a buy recommendation. Limited Brands generated a $0.01 EPS beat on a $0.25 basis. Limited‘s revenue of $2.17B beat estimates by $10M and was a 9.6% year-over-year increase. The retailer announced a November comparable store sales increase of 7%, although net sales dropped 2% to $873M. The 2% drop is due to the company’s sale of its third-party apparel sourcing business at the beginning of the month. Limited Brands is sitting on a cash stockpile of about $1B. Trading at 14.9 times earnings and generating 9.6% quarterly revenue growth, Limited Brands is a value for the money. Competitor Gap is struggling to generate any growth and keep investors happy. Limited Brands said it will initiate a special $2/share dividend for investors. Limited has a 42% gross margin and a 9.2% profit margin, which is an admirable profit margin for retailers. Limited Brands is trading up 40% YTD, so it may be wise to wait for a pullback before picking up shares. Cramer was right about Limited Brands because of its cheap valuation and growth prospects. Investors should do well when invested in this name.
US Bancorp (USB) - Trading around $26.
Notorious for his bearish outlook on bank stocks, Cramer said that US Bancorp is the one bank stock he‘s willing to get behind. Cramer’s charitable trust also owns shares in US Bancorp. Cramer recommended avoiding big international banks and money centers, which are subject to new capital raising standards and are heavily exposed to Europe. These include Citi (C), JPMorgan (JPM), Bank of America (BAC) and Wells Fargo (WFC). On the other hand, many regions don’t have much of the regional banks don’t have enough earnings growth and usually overreach when they attempt to expand via acquisition. First Niagara (FNFG) is a prime example of this. It will be slashing the dividend and announced a large equity offering to pay for its expansion. Cramer said US Bancorp is a super regional in that it is big enough to compete with the big boys, but small enough for acquisitions, loan and deposit growth to have a meaningful impact on the bottom line, which is why it delivered the best 3rd quarter of any bank. US Bancorp generated $0.64 EPS, a $0.02 beat, while it reported $4.8B in revenue, which beat estimates by $90M. Q3 revenue was a 4.5% year-over-year increase. The conservative management team is also a plus. US Bancorp reiterated its targets for the full year, which is the most bullish in the industry. US Bancorp even has a 1.9% dividend yield. Cramer was right about US Bancorp, and could see positive flows from Bank of America and other banks with increasingly tarnished reputations at the retail level.
Chipotle Mexican Grill (CMG) - Trading around $337.
This long-time Cramer-favorite received another buy recommendation. No stranger to the new 52-week high list, Chipotle Mexican Grill is #2 on NPD’s list of the fastest-growing restaurant chains in America. Measured by year-over-year customer growth, Chipotle only trails Five Guys burger chain. Chipotle’s rapid growth and popularity can be attributed to its ability to provide fast food that is also healthy. Aside from its popular namesake restaurant, the company recently opened the first (of what’s sure to be many) ShopHouse Southeast Asian Kitchen restaurant. By no means a cheap stock, Chipotle is only 10 points off its high and trades at 52 times earnings. Chipotle Mexican Grill benefits from not offering franchising opportunities, which means 100% of the proceeds go back to the company. Chipotle is trading up 56% YTD. Critics of the company’s high-flying growth point to the skyrocketing food costs and the fact that one can only open so many stores to prop up growth before the market becomes saturated. Although true, Chipotle is nowhere near market saturation. Cramer was right about Chipotle because of its growth prospects, particularly in the Southeast U.S.
Pizza Inn Holdings (PZZI) - Trading around $6.
Cramer gave Pizza Inn a sell recommendation. While the stock is trading up 64% YTD, the restaurant chain doesn’t have the growth prospects or profit margins of Cramer-favorite Dominos Pizza (DPZ). The size difference between the two pizza makers almost makes it difficult to compare the two. Dominos Pizza has a $1.95B market cap compared to Pizza Inn’s $55.03M market cap. For the sake of diversification, an investor would have to choose between the two. Cramer advises investors to take profits from Papa John’s (PZZA) and buy Dominos Pizza. Although Pizza Inn’s stock trades in the single-digits, it trades at 32.9 times earnings. Pizza Inn has a 4.8% quarterly revenue growth rate and relatively unattractive margins. The pizza company has a 13.71% gross margin, a 6.18% operating margin and a 3.5% profit margin. Papa John’s has 11.9% QRG and trades at 17.86 times earnings. Pizza Inn has the potential to double in price, but the question remains as to how long that could actually take. Dominos Pizza will grow faster and larger then Pizza Inn. Cramer was right about Pizza Inn topping out here.
Kodiak Oil & Gas (KOG) - Trading around $8.
This regional oil and gas company received a buy recommendation from Cramer. Kodiak Oil & Gas agreed to purchase assets in North Dakota’s Williston Basin for $590M in cash and stock. Macquarie cut Kodiak’s shares to Neutral, but the stock got a lift from positive comments out of Credit Suisse. Credit Suisse said it’s raising its price target to $11 from $9. The price target hike is due to an increase in Bakken inventory combined with an accelerated pace of development. In mid-November, Kodiak offered 48.3M shares in a secondary offering at $7.75 per share. Cramer prefers EOG Resources (EOG) and Continental Resources (CLR) to Kodiak Oil & Gas, he thinks Kodiak Oil and Gas is a potential takeover target with solid assets. Kodiak Oil & Gas trades at 60 times earnings and has a 263% quarterly revenue growth rate. This Colorado-based oil company has a 47% profit margin and is trading 37% higher year to date. Acquiring well-performing assets strengthens its position to be as good of a long-term stock to own as it is a takeover target. Cramer was right about Kodiak Oil & Gas because of its takeover potential.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.