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In a recent edition of Lighting Round on his Mad Money program, Jim Cramer was bullish on several stocks including Dick's Sporting Goods (DKS), Plum Creek Timber (PCL), and Schlumberger (SLB). In this article I will analyze these stocks and determine if following Cramer's advice makes sense at current levels.

Some basic information about the three selected companies is presented in the table that follows:

Company Basics

DKS

PCL

SLB

Market Cap (Billion)

5.95B

6.59B

90.94B

Stock Performance 5 Yr

67%

4%

-6%

Stock Performance 1 Yr

19%

-4%

-26%

Dividend Yield

1.0%

4.1%

1.6%

SLB is the only large cap stock on the list with a market capitalization of $91 billion. Unfortunately for its shareholders, the stock is down 6% over the last 5 years. DKS on the other hand has provided its shareholders a return of 67% over the same time period compared to a loss of 5.2% in the S&P500 index. PCL has largely been flat with the stock up 4% over the last 5 years and down 4 percent during the last year. PCL does pay a very respectable dividend of 4%.

Next, I evaluated the historical growth rates of revenue, income and EPS, and the projected growth rates. These are summarized in the table shown below:

Growth Rates

DKS

PCL

SLB

Revenue

10 Year

15%

0%

11%

5 Year

6%

-6%

16%

1 Year

7%

-2%

37%

Income

10 Year

21%

-2%

-

5 Year

11%

-9%

6%

1 Year

45%

-9%

17%

EPS

10 Year

16%

-1%

-

5 Year

10%

-7%

4%

1 Year

40%

-9%

9%

Book Value

10 Year

22%

-4%

17%

5 Year

11%

-8%

22%

1 Year

16%

-8%

-7%

Growth Projections

Next Year

15%

23%

23%

Next 5 Year

15%

2%

25%

DKS and SLB have both historically reported strong growth rates over the last 5 and 10 year periods. SLB made a loss in fiscal year 2002 and has been profitable since then. PCL has been a disappointment when it comes to its growth rates with revenue, income and book value all declining during the past 5 years. Going forward, analysts expect robust growth rates from DKS and SLB while PCL will likely match the growth rate of the economy.

Having analyzed the historic and projected growth rates, I looked at the operational metrics such as return on invested capital and capital expenditures as a percentage of sales. The table that follows presents the evaluation results.

Operations

Averages

DKS

PCL

SLB

ROIC

10 Year

15%

6%

14%

5 Year

11%

5%

19%

Last Year

16%

5%

12%

TTM

16%

5%

12%

Capex/Sales

10 Year

4%

14%

11%

5 Year

4%

7%

12%

Last Year

4%

15%

11%

TTM

4%

15%

11%

DKS and PCL have largely maintained their ROIC over the last 10 years. SLB has been a lot more sporadic with a 10 year average ROIC if 14% and a TTM ROIC of 12%. All the companies have done a good job in maintaining their capex as a percentage of sales.

Having developed a good idea about the fundamentals of the 3 companies, the next step was to perform relative valuation. The multiples used in the analysis were based on historical analysis of individual company and industry multiples.

The table below presents the valuation analysis results.

Valuation

DKS

PCL

SLB

Current Yr Proj EPS

$2.79

$1.46

$5.59

EPS Growth Rate

15%

2%

25%

Future EPS (5 Yr)

$4.85

$1.58

$13.50

Expected P/E

19

28

15

Price 5 Yrs Out

$92.14

$44.25

$202.43

Unlevered Beta

1.22

0.8

1.26

D/E Ratio

0%

220%

50%

Current Tax Rate

35%

35%

35%

Levered Beta

1.22

1.94

1.67

Risk Free Rate

2%

2%

2%

Risk Premium

6.00%

6.00%

9.00%

Size Premium

0.74%

0.74%

-0.36%

Cost of Equity

10.1%

14.4%

16.7%

Fair Value

$57.05

$22.58

$93.66

Current Price

$48.95

$40.81

$68.12

% Overvalued

-17%

45%

-37%

As shown in the table above, DKS and SLB are significantly undervalued while PCL trades at a sizeable premium. I would avoid PCL at current levels and would consider opening a position in DKS and SLB.

Disclaimer: Kindly use this article for information purposes only. Please consult your investment advisor before making any investment decision.

Source: Cramer's Lightning Round Picks: 2 To Buy, 1 To Avoid