Here's your game plan for how to trade Thursday's 5 market movers now. The day's major movers included lululemon (LULU), Men's Wearhouse (MW), Apple (AAPL), Facebook (FB), Navistar (NAV) and Google (GOOG). With regard to Apple, Google and Facebook, the move has been more of a week long trend, but with each in the news Thursday, some discernment and forecasting should prove useful here as well.
Lululemon dropped nearly 9% Thursday, as investors looked past the company's stellar quarterly results toward its softer forecast for the coming year. I analyzed LULU just prior to this article and produced a detailed report valuing the company at a 12.5% discount to its current price. That said, I produced a thumbnail valuation using Growth at a Reasonable Price (GARP) reasoning to generate a one-year price target of $70, representing 9.6% appreciation from the current price. See my detailed analysis of LULU here.
Men's Wearhouse dropped 19% Thursday, after the company fell short on its EPS results and produced a soft forward outlook to boot. The company reported sales growth of 1.1%, short of its own expectations for growth of 2.0% to 2.5%. The weakness was solely attributed to the company's K&G segment, which experienced a comparable store sales decline. The timing of the roll-out of corporate uniform orders impacted results, but the company expects to make up for it before the close of the year. Like LULU, Men's Wearhouse saw higher inventory levels against the prior year, attributed to corporate strategy.
MW's EPS of $0.52 fell short of its own forecast for $0.53 to $0.54, and was under the Street's $0.55 view. It is one thing to miss the analysts' view, but to fall short of your own forecast will almost always strike a double-whammy against a stock. Then on top of that, the company's Q2 EPS forecast for $1.12 to $1.13 was deeply short of Wall Street's $1.22 consensus estimate.
The company did reaffirm its full year expectation for $2.70 to $2.78, based on calendar play and varied ordering patterns. The company is lowering its K&G expectations, but hopes to offset it via merchandise and marketing changes to its Men's Wearhouse stores. In measuring valuation here, I'm going to look toward the lower end of the EPS range, thus valuing MW at 10.7X that figure.
Analysts project 5-year EPS growth of 8.3% for MW, giving it a PEG ratio of 1.29X. I'm not sure the company deserves a PEG ratio much above 1.0X given its latest news, but I suppose it's due to its 13%+ projected growth for this year. If we value the company by the 8.3% growth forecast, and use a $3.00 EPS estimate for FY 14 (Jan.), which is conservative versus the consensus estimate for $3.17, and apply a 1.29X PEG ratio, we get a target price of $32. That's 10.9% appreciation potential, and so I would offer the same advice provided for LULU. As an analyst I would rate it a hold at this point, given the support of other valuation metrics.
Apple has been in the news all week. The latest information to reach the wire was about the company's move to stop Samsung from selling its Galaxy S III Smartphone in the U.S. due to alleged intellectual property infringement. On Thursday, Samsung said it would vigorously defend itself against Apple's court request. The new Galaxy is already on sale in Europe and would precede the new iPhone to the U.S. market if not stopped by this move. Apple is also reportedly planning to remove Google maps from its products, just as Google rolls out 3D mapping. Of course, the company competes with Android phones, and so would prefer not to help Google.
Apple's CEO, Tim Cook, just interviewed at the annual All Things Digital Conference, raising a stir about the new iPhone and about the company's progress on some new and exciting products. All these reports have reignited excitement about AAPL shares, which had retraced ground from its 52-week high of $644. The shares are still 11% down from there. I'm working on an in-depth analysis regarding AAPL, and so do not want to give you too much on valuation here. I will say that I think AAPL has not topped out, and that it can sustain growth. Thus, I'll say that I do not believe its deeply discounted PEG ratio is appropriate, and I like the shares here.
The Nasdaq OMX Group (NDAQ) is offering a $40 million compensation plan for financial organizations due to its trouble handling volume related to the massive interest in the Facebook IPO. Facebook's share decline since is of course well documented, and the shares dropped another 1.9% Thursday to close at $26.31, almost 42% below their short-lived top of $45. The company's market cap is now at $56 billion and change, leading some to venture a whisper about a possible value opportunity. Like Apple, I'm working on a detailed study of Facebook and other social media stocks, so I'll keep it short here. I believe what would stop the bleeding for Facebook would be a nicely timed action and press release to spur excitement about the opportunity again. Here I am providing free consulting for billionaires once more…
Navistar International was down sharply 28% Thursday after shocking the market, but closed down 14% on the day. The company reported a Q2 loss of $1.99 per share before warranty charges, versus analysts' expectations for earnings of $0.69, based on Factset data. The company also cut its forward outlook and announced staffing changes, shaking up the perspective of the market.
Navistar said customers had shied away due to an Environmental Protection Agency investigation of its new heavy duty engine. The company faces a hefty fee estimated at $2,000 per engine if the EPA decides against it. Without an expert understanding of the company's engine question, I wouldn't dare venture to own the stock at almost any valuation. My sense tells me that the depth of the dive had something to do with that type of broad feeling amongst investors, but I suspect an analyst or expert view added some support just before noon Thursday, when the stock started higher.
The stock is still trading at deep discount by many metrics, so I would recommend the name if you've got some special insight into the technical issue. Once or if the situation is resolved, NAV could rocket. Otherwise, I suggest another expert take some time to work up a dedicated report on NAV to estimate the potential damage should the EPA rule against the company.
With regard to each name listed here, you have your game plan; now the rest is up to you.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.