Many leading funds, including Morgan Stanley, Blackrock Inc., and Fidelity Investments, filed forms 13-D and 13-G (and form 4) with the SEC last week (May 7th to 11th, 2012), indicating that they had amended their ownership in U.S. traded public companies. Based on our analysis, the following are two of the most noteworthy filings in the consumer and retail sectors (three prior articles discussing last week's institutional 5% ownership filings in the basic materials and energy group, telecom group and the tech sector can be accessed by clicking on the above hyperlink), both plunging stocks, but with the first one being accumulated and the second being distributed by major institutional holders (for more info on Forms 13-D and 13-G, and how to interpret that, please refer to the end of this article):
Tempur Pedic Intl Inc. (TPX): TPX is a vertically-integrated manufacturer of temperature sensitive visco-elastic pressure foam mattresses, pillows, and comfortable/ lumbar cushions. On Friday, Morgan Stanley filed SEC Form SC 13G indicating that it holds 3.2 million or 5.0% of outstanding shares, an increase from the 90,778 shares it held at the end of Q1 (March) 2012, making it the fifth largest institutional holder of TPX.
TPX shares took a steep plunge from the mid-$80s, after the stock reported its Q1 (March) on April 19th, in which it reported in-line revenues and missed earnings estimates by a penny (83c v/s 84c), after taking out a $2 million benefit from the resolution of foreign tax matters. Also, the company reaffirmed its prior FY 2012 revenue guidance, but guided earnings down to $3.80-$3.95 v/s $4.06 estimate.
TPX shares had been among the strongest gainers in the consumer sector before the plunge, rising well over 20-fold from the sub-$4 lows in 2008-09, backed by a tripling of earnings from 94c in 2008 in $3.18 in 2011, and huge earnings beats and/or guidance increases almost every quarter recently. It is in this context that the penny miss and the downward guidance was significant in the minds of investors. But as if that wasn't enough, investors got spooked again when on May 7th, the company confirmed that it was discounting by 12%-17% if TEMPUR-Cloud Supreme mattress set.
While some negative reaction was justified, given the earnings miss and downward guidance in a high P/E momentum stock where investors had gotten used to earnings beats and guidance raises every quarter, we do believe that the near 50% haircut to its lows earlier last week was an over-reaction.
We traded in and out of it profitably from the bounce off the lows last week, and continue to believe that shares are attractive below $50, and look to take a position in it once again if it dips significantly below $50. A number of brokers, most notably Raymond James with a Strong Buy last Thursday, and Oppenheimer with a $75 price target last week, have come out in support of the stock. Also, of the fourteen analysts that cover the stock, nine rate it at buy/strong buy, and five at hold, with a mean price target above $80.
Fossil Inc. (FOSL): FOSL designs, develops, markets and distributes fashion accessories worldwide, including fashion watches, handbags, belts, small leather goods, jewelry, and sunglasses. On Wednesday, mega fund Blackrock Inc., the world's largest and most prominent asset manager, with over $3.5 trillion in assets under management, filed SEC Form SC 13G/A indicating that it holds 2.6 million or 4.2% of outstanding shares, a decrease from the 3.2 million shares it held at the end of Q4.
FOSL reported its Q1 (March) last week, on Tuesday, in which it beat earnings estimates by a penny (93c vs. 92c) and missed revenue estimates ($590 million vs. $618 million). However, it was the forward projections that spooked investors, and share have been plunging since the report was released, now down about 50% post-report. Notably, the company guided Q2 earnings to 77c-79c vs. the 94c estimate, while also guiding lower Q2 revenues and FY 2012 annual earnings, citing weakness in its European market as the primary reason for the projected shortfall. The weakness in its European markets further spooked investors, not just in FOSL but also in its peer luxury goods companies, such as apparel, footwear and accessories maker Michael Kors Holdings (KORS) and watch-maker Movado Group (MOV).
After the plunge, FOSL shares now trade at 12-13 forward P/E and 4.4 P/B compared to averages of 14.2 and 1.6 for its peers in the precious metals and jewelry group. Also, a number of brokers have come out in support of the stock after the plunge based on value, most notably Benchmark & Co. that upgraded it to Buy with a $100 price target, well above current prices in the $78 range.
Additional major insider filings last week in the consumer and retail sectors include:
- Francesca's Holdings Corp. (FRAN), that operates a specialty retail chain of women's apparel boutique stores in 38 States targeting fashion-conscious 18 to 35 year olds. Two brokers, mega fund T Rowe Price Associates, with $288 billion in 13-F assets, and mutual fund powerhouse Fidelity Investments, with $492 billion in 13-F assets, filed SEC Form SC 13G's. Specifically, T Rowe Price indicated via its SEC Form SC 13G/A filing that it held 5.8 million or 13.2% of outstanding shares, an increase from the 2.2 million shares it held at the end of Q4. Also, Fidelity Investments indicated via its SEC Form SC 13G filing that it held 6.5 million or 15.0% of outstanding shares, an increase from the 2.0 million shares it held at the end of Q4.
- Goodyear Tire & Rubber (GT), one of the world's largest tire companies and a very well-known worldwide brand as its tires are marketed in almost every country, it manufactures tires, engineered rubber products and rubber-related chemicals for transportation and industrial markets, in which mega fund Wellington Management, with $254 billion in 13-F assets, filed SEC Form SC 13G/A indicating that it held 24.7 million or 10.1% of outstanding shares, an increase from the 21.7 million shares it held at the end of Q4.
- Chipotle Mexican Grill (CMG), an operator of casual Mexican food restaurants in the U.S., Canada and U.K., in which Blackrock Inc. filed SEC Form SC 13G/A indicating that it held 1.46 million or 4.6% of outstanding shares, a decrease from the 1.74 million shares it held at the end of Q4.
- Sirius XM Radio (SIRI), that provides satellite radio services in the U.S. and Canada via approximately 135 channels of commercial-free music, sports, news, talk, traffic and weather on a subscription basis, to more than 22 million subscribers, in which Liberty Media Corp. filed SEC Form SC 13D indicating that it holds 2.96 billion shares, an increase from the 2.59 billion shares it indicated holding in a prior SC 13D filing in September of last year.
Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TPX over the next 72 hours.