Earnings season is about to start, and we are continuing to update price targets, buy/sell ratings, etc. for companies that we currently cover. Today, we have updated several companies. They include Family Dollar (FDO), KB Homes (KBH), Lennar (LEN), 99 Cents Stores Only (NDN), PriceSmart (PSMT) and Sonic (SONC). We cover more than 100 companies in different industries. We have price targets on each company, Buy/Hold/Sell ratings, and scores for growth, profitability, financial health, management and value. The following is an update on our current reports. Full reports can be seen at theoxengroup.com.
The chart below shows new ratings, price targets and buy/sell ranges versus old ones:
FDO – Upgrade From Hold to Buy, Maintain PT at $69
We have kept our price target the same on Family Dollar at $69. The company met our estimates for the quarter, and we have upgraded them as they have moved into our buy range. We believe that Family Dollar is a very good value right now, while we do prefer Dollar General (DG) and Dollar Tree (DLTR) with stronger growth and better profitability. FDO does offer a nice dividend and has upside from its current levels. The stock dropped, however, post-earnings. We believe this has created a solid buying opportunity.
KBH – Maintain at Hold, Increase PT From $8.50 to $11
There is something going on in the housing industry that we are starting to like. Backlogs are growing and new home orders are too. One company that is seeing new home orders grow a lot is KB Homes. The company's latest earnings report was strong with 6% growth in revenue and stronger than expected earnings. Net orders surged 38%, which was a very strong increase for the company. The company outperformed our expectations strongly, and we had to up our expectations. The 11% rise today took the stock out of the Buy range, but it's a good pickup on dips as KBH is in the right direction and already profitable.
LEN – Downgrade From Hold to Sell, Decrease PT From $20.50 to $17
While Lennar did have some good points in its latest earnings, we actually found the earnings to be a disappointment overall. New orders were good and revenue was strong, but the company missed our expectations for income. We had to drop our expectations for the rest of the year as it appears the company's margin is not as strong as we had expected. Additionally, the company saw a strong increase in debt, and they now are leaning on nearly $4B of debt. We see them as one of the weakest financial health firms in the industry, and the story of growth and stabilization is true for a lot of residential construction companies with better financial situations like KBH and DR Horton (DHI).
NDN - Maintain at Hold, Increase PT From $19.50 to $21
PSMT - Maintain at Hold, Decrease PT From $82 to $73
PriceSmart had a pretty disappointing quarter despite strong growth. The company's earnings missed our estimates by about $15M, and we had to reduce our expectations for the rest of the year as margins are getting pressed. The company has higher costs, and we had noted this as an issue for the company for some time. We believe that this is not a Buy until the company gets costs under control as it is eating away at strong growth.
SONC - Maintain at Buy, Decrease PT From $10.50 to $10
Sonic continues to appear undervalued on our radars. The company met expectations for us in the latest report. We did drop the price target slightly on larger than expected tax increases as well as higher capital expenditures. The company continues to be low growth and unappealing in that sense. Yet, this is a company that continues to operate at a fairly attractive future PE. The company is seeing growth in sales again, and we believe they are starting to turn the corner. The company has definitely lagged the turnaround Yum Brands (YUM) and McDonald's (MCD) have seen, but that is mostly from international expansion. The company is a value play, but it could be stuck for awhile without massive growth opportunities.