Clumsy Rick's  Instablog

On Sept 2, when Best Buy was near its 52-week low, I posted an article about why Best Buy was a great "Buy" and fit the description as a strong takeover candidate. With the stock now round-tripping up to nearly $45 and back down to $35.50, BBY is now back to trading at an extremely low valuation for multi-billion dollar category-killing retailer.  At 3.3x EBITDA, the valuation is even cheaper than it was in early September and since the we have seen a couple takeovers in retail at much higher multiples (GYMB=6.8x and JCG=8.6x).  All the same reasons stand from the earlier article, which suggest my original view is as relevant now as it was then: 

seekingalpha.com/article/223473-best-buy...;

REX will report its fiscal 2Q (ending July 31) sometime in the next few weeks. This was a tough quarter for the company and all the ethanol industry, but it also looks like the low point for earnings with 3Q looking brighter.

My model suggests the company will earn approximately $0.25, down from $0.42 last
quarter as ethanol production margins contracted. However, corporate level cash should remain a robust $80 million, down modestly from last quarters $86 million due to the +$9 million purchase of NuGen in the quarter. 

Since the end of the quarter however (which is reported on one-month lag, so we are nearly two months into reported results), margins have improved. Total earnings spread (crush spread, less all other costs) was approximately $0.23 gallon in 1Q, should fall to $0.17/gallon in 2Q but is on track to be back up to $0.22 for 3Q. Because the addition of NuGen should be accretive, 3Q EPS should come in above 1Q, or roughly $0.50-$0.60 based on current margin trends.

SUMMARY: So while REX is still primarily an asset play, the earnings outlook is improving as well. At $0.50/qtr, Rex could earn $2.00 next year. Even assuming a low multiple of 8x-9x earnings, REX could be see $16-$18. 


Disclosure: Long Rex

WW Grainger recently reported its July daily sales were up 21%, or 16% excluding acquisitions, and 12% from second quarter (ex-acquisitions). This is an acceleration from June's 13% (ex-acquisitions) and is a good sign for Genuine Parts as the company's industrial division has generally tracked directionally with Grainger as I have written about before.  

In Genuine Parts' recently reported 2Q, the industrial division (Motion Industries) showed a strong 26% increase in sales. While this was much stronger than Grainger's sales gain, this was due to an easier comparison the year ago for Genuine Parts. The two year trends were more in line with each other (down 1%-2% for both companies). 

Genuine Parts is guiding to only 13%-15% growth in this division for the second half of this year. While July is only one month, the Grainger report suggests business has remained far more robust so far. 

Next week, the Industrial Production data will be released from the Federal Reserve. This has also been a good indicator for the strength of Genuine Parts' industrial business and therefore could reinforce that Genuine Parts' looks to be tracking ahead of plan so far in the third quarter. 


Disclosure: Long GPC