Paul Price

EZCorp: Profiting from Tough Times

UPDATE 1-Ezcorp Q4 beats Street; outlook above estimates

* Sees FY ‘10 EPS of $1.65-$1.69 vs est $1.64

* Sees Q1 ‘10 EPS of $0.41-$0.43

* Q4 EPS $0.42 vs est $0.41

* Revenue up 34 pct

Nov 5 (Reuters) - Pawn and payday lender Ezcorp Inc (EZPW.O) posted fourth-quarter profit that edged past market estimates by a penny as it gained from increased sales of jewelry scrapping and pawn service charges, and it forecast 2010 earnings above Street expectations.

Net income was $20.9 million, or 42 cents a share, compared with $16 million, or 37 cents a share, last year.

Jewelry scrapping sales increased 48 percent to $40 million, while pawn service charges rose 39 percent to $37.2 million.

Total revenue increased 34 percent to $164.8 million.

Analysts expected the company to earn 41 cents a share in the quarter.

Operational expenses grew 31 percent to $54.3 million.

U.S. pawn lenders are seeing a boost in revenue from their pawn operations as more consumers pawn gold for access to quick and easy cash due to higher gold prices. [ID:nBNG340597]

The company also said it expects to earn at least $1.65 a share in 2010 and at least 41 cents a share for the fourth quarter. Both the figures came above analysts’ estimates by a penny each.

“In fiscal 2010, we plan to open 40 to 50 Empeno Facil pawn locations in Mexico, 35 to 45 Cash-Max payday loan locations in Canada, and six pawnshops in the United States,” the company said.

EZPW shares are now trading at $14.30.

Cedar Fair: Growth Opportunities in Amusements

More than 100% of yearly profits.
The off-season posts losses.

Sorry for any confusion.

Playing Defense with General, Northrop and Raytheon

THURSDAY, NOVEMBER 5, 2009
HOT RESEARCH AM - Barrons.com

Upgrading General Dynamics Credit Suisse expects shares to climb 18% from current levels.

General Dynamics (GD: NYSE)
By Credit Suisse ($62.55, Nov. 4, 2009)

WE HAVE DONE A DETAILED HISTORICAL ANALYSIS of General Dynamics' (ticker: GD) trading patterns, business jet operating data and company program outlooks. We find General Dynamics defense programs on balance to have a fairly positive outlook, pointing to a stable forecast for General Dynamics' defense segments through 2012.

Meanwhile, in our recent business jet report (dated Oct. 21), we concluded that General Dynamics' higher-end product line should fare better than peers' in the evolving biz jet market. Based on third-quarter earnings per share (reported Oct. 28), we think Aerospace troughed in sales and margins in the third quarter, and we see sequential improvement in earnings and orders going forward, with first signs likely from the newly expanded (via the Jet Aviation acquisition) aftermarket business in 2010.


We are raising our rating to Outperform; price target rises to $74. While General Dynamics has moved strongly off its March low, we think the market has yet to factor stability in its defense programs in 2011-2012 coupled with potential strong recovery growth in Aerospace in that time frame.

We think General Dynamics' modest 4% war exposure can keep defense earnings intact and historical analysis shows a 10 times multiple (same as peers') is warranted for this segment. The projected Aerospace growth warrants a price/earnings multiple in line with commercial names -- we apply a 15 times multiple on our expectations of trough 2009 EPS. The consolidated multiple of 11 times, applied against our calendar 2010 EPS forecast of $6.72 yields a price target of $74 (18% upside), up from $70, when we used 12.5 times for Aero.

Catalysts include positive economic data. And sequential improvement in Aerospace earnings/orders are future share catalysts. Defense contract announcements, along with the February fiscal 2011 budget release should bring greater comfort for the defense outlook. Risks include a deferred economic recovery and greater-than-expected impact from war withdrawal on Combat Systems, or other unanticipated program cuts.

-- Robert Spingarn

Cedar Fair: Growth Opportunities in Amusements

CEDAR FAIR
SUMMARY STATEMENTS OF OPERATIONS
THIRD QUARTER


(In thousands Three Months Nine Months
except Ended ..... Ended
per unit) 9/27/2009 ............ 9/28/2008
Net income -
diluted $1.92 $1.65 .... $1.10 $1.12

Perrigo - A Prime Buying Opportunity

WEDNESDAY, NOVEMBER 4, 2009
HOT RESEARCH AM - Barrons.com

Perrigo a Go-Go Barrington Research says the generic drug maker's stock can rise 18% from current levels.

Perrigo (PRGO: Nasdaq)
By Barrington Research ($38.10, Nov. 3, 2009)

PERRIGO CO. (TICKER: PRGO), the world's leading store-brand health-care products manufacturer, reported fiscal first-quarter 2010 earnings that were significantly above expectations.

Based on new earnings-per-share estimates, and assuming the stock deserves a price-to-earnings multiple that is a slight premium to the market, expanding to 17 times forward earnings from 15 times, we have raised our price target to $45 from $32, which is 17 times our fiscal 2011 estimate of $2.65. With 18% upside to our price target, we reiterate an Outperform rating.


First-quarter adjusted EPS was a record 66 cents, up 60.5% from 41 cents a year ago, 14 cents better than our estimate of 52 cents, and 17 cents better than the Street consensus of 49 cents. Consolidated revenues from continuing operations for the quarter were $528 million, up almost $73 million or 15.9% from a year ago as well as up almost $20 million from the fourth quarter of 2009.

Revenues for the quarter came in above both our estimate of $507.6 million and the Street consensus estimate of $491.2 million.

The sales growth was driven by the Consumer Healthcare segment (up 19.4% from the prior year) reflecting incremental new product sales, higher volume of existing products and recent acquisitions. The company said there has been no competition in omeprazole and that the cough/cold/flu demand has been stronger than anticipated. Also, Perrigo's Rx Pharmaceuticals had a great quarter, reporting sales that were $47 million, or 42%, higher last year, due to increased volume of existing products and solid results from the ORx business [over-the-counter health-care products].

The company raised its guidance for fiscal 2010 EPS to a range of $2.35-$2.45 from $2.00-$2.12 per share previously. Applying the first-quarter results and consistent with the commentary on the conference call, we have raised our 2010 EPS estimate to $2.46 from $2.13 previously.

For fiscal 2011, we are applying more modest sales growth assumptions, but we believe most of the expected improvement in consolidated operating margin is sustainable. We are forecasting consolidated revenue growth of approximately 5%, leading to EPS growth of approximately 8%, or $2.65 per share, up from our prior estimate of $2.33.

-- Derek W. Leckow

Perrigo - A Prime Buying Opportunity

PRGO raised its dividend by 13.6%.

The new rate is $0.0625 quarterly versus the old rate of $0.055.

Record date ..... Nov. 27
Payment date ... Dec. 15

IBM: Take Advantage of Sell-Off After Good Earnings

Party with IBM like it's 1999

Analysts say shares could hit their highest level since the turn of the century.

SAN FRANCISCO (Fortune) -- If you own IBM shares, hold 'em. If you don't, now might still be a good time to get a piece of Big Blue.

Like many tech stocks, IBM (IBM, Fortune 500) has been on a tear lately, up almost 41% since March 9 lows. But even though its shares are knocking on the door of 52-week highs, they still lag the blistering 64% increase overall of the Nasdaq (COMP) and, perhaps more important, the 56% rise of the S&P 500 (SPX) during the same period.

Over the past five years IBM has traded at an average P/E ratio that is about 10% lower than the S&P 500's, according to financial data firm FactSet. With a current P/E just north of 12, IBM now trades at about a 25% discount to the S&P 500. So if IBM reverts to more typical ratios, it has some room to rise.

How much? Barclays Capital analyst Ben Reitzes recently raised his price target on IBM to $140 (that would eclipse the record high of $138 set in 1999). Reitzes sees IBM benefiting from continued strength in its core software and services businesses, but he highlights the long-awaited return of corporate spending on hardware in 2010.

While it accounts for only about 17% of sales, IBM's hardware business has been the hardest hit during the recession, down 12% in the third quarter (margins fell slightly too). IBM has been beating Street estimates on earnings by cutting costs and wringing more margin out of its software and services businesses. Those sectors clearly dominate IBM, but all of IBM tends to do well when its hardware business is on a roll.

That hasn't happened yet. In the third quarter IBM yet again beat analysts' estimate for earnings, posting a 14% increase in net income year-over-year. Revenue, however, fell 7% during the same period (the decline was much smaller than in the previous quarter).

0:00 /3:26Low tech supply? Good sign
IBM didn't show the top-line growth that investors are looking for, in part because of the continued hit its hardware business is taking. Without evidence of a return to revenue growth, IBM shares were punished the day after its third-quarter earnings were announced, dropping 4%.

But the next six months are likely to offer a rosier picture, says Mark Loughridge, IBM's CFO. Loughridge predicts a return to revenue growth in the fourth quarter, driven by improved performance in both its software and hardware business.

"We're not just saying we see an improvement in profitability for our hardware business going from third quarter to fourth quarter," Loughridge told analysts. "We're looking at it and saying that the hardware business ought to be growing profitability at double-digits as we go into the fourth."

Remember, all of IBM does well when its hardware business is humming. So if you start to see an uptick in sales of servers, storage systems, and mainframe computers, you're also likely to see continued upside for Big Blue

A Low-Risk Strategy to Capture Grupo Televisa's Growth

Bill Gates added even more to his TV stake recently…

Grupo Televisa (TV)

Cascade Investment and The Bill and Melinda Gates Foundation Trust each purchased 1,723,700 global depositary shares on Oct. 26 and Oct. 27 at prices ranging from $20.03 to $20.90. Each global depositary share is traded on the New York Stock Exchange and equals 25 Series A shares, 22 Series B shares, 35 Series D shares and 35 Series L shares of Grupo Televisa, a Mexican media company.

Cascade, the private investment vehicle of Microsoft (MSFT) Chairman Bill Gates, has 3,048,012,500 A shares (2.7%), 2,682,251,000 B shares (5.1%), 4,267,217,500 D shares (5.1%) and 4,267,217,500 L shares (5.1%). The Gates foundation now owns 1,518,425,000 A Shares (1.4%), 1,336,214,000 B Shares (2.6%), 2,125,795,000 D Shares (2.6%) and 2,125,795,000 L Shares (2.6%).

Riding Coach for First Class Returns

A Smoother Ride for Coach

Coach (COH: NYSE)
By Jefferies & Co. ($32.97, Oct. 30, 2009)

WE ARE UPGRADING our rating on Coach (ticker: COH) to Buy from Hold and increasing our price target to $40 from $38.

Sales trends are about to reaccelerate. Recently reported fiscal first-quarter results show management initiatives to adapt product offering to changing consumer landscape are working. Coupled with improving mall traffic, increased consumer willingness to spend on durable and nondurable goods again, and nearing an end in the department-store inventory destocking cycle, mean Coach’s sales trends are poised to reaccelerate.

Margins should also begin to rise soon. In fiscal first quarter, gross margins were down only one third of the decline seen in the prior quarter on better sourcing and less channel mix impact versus last year. Gross margins should now stabilize at current levels and soon show improvement year over year as the company laps more substantial margin declines from late fiscal 2009. As a partial offset, sales, general and administrative should begin to deleverage after cost-cuts opportunities wane, but the impact should be minimal and is already in Street models.

The catalyst will be upside to sales/earnings per share. As sales/margin compares ease and the economic environment slowly improves, we see sales and earnings having upside opportunity at Coach. Our current fiscal 2010 and fiscal 2011 earnings estimates are near Consensus, which we think is conservative given our model incorporates operating-margin assumptions 800 basis points below peak levels.

Don’t forget quality matters. These statistics are industry-leading and impressive… $1 billion in cash on balance sheet (about 10% of market cap), greater than $600 million in free cash flow annually (near 7% yield), operating margins 30%, return on capital greater than 20%. Oh by the way, the company now pays a dividend (greater than 1% yield).

Shares trade at about 15 times calendar 2010 year price-to-earnings multiple and about eight times enterprise value/earnings before interest, taxes, depreciation and amortization (a discount to the group average and to its own historic average). We believe shares deserve a premium given stronger global-growth prospects, industry-leading returns, and a strong management team.

Our $40 price target is based on 20 times EPS and about nine times EV/Ebitda. Risks to price target include a deceleration in consumer spending and the accessories category from current levels.

– Randal J. Konik
– Taposh Bari, CFA, CPA
– Shreya Jawalkar

Two Asset Management Companies Still Have Room for a Rebound

AllianceBernstein (AB): Q3 EPS of $0.67 beats by $0.22. Revenue of $806M (-5%) vs. $737M. AUM down 16% Y/Y to $498B.

Shares +3.8% after hours

Sealed Air Still Packing Great Returns

Zacks now loves SEE…

Sealed Air Keeps OutperformingBy: Zacks Equity Research
October 28, 2009

Sealed Air Corporation (SEE - Analyst Report) posted third-quarter EPS of 38 cents, beating the Zacks Consensus Estimate of 33 cents as well as prior-year EPS of 28 cents. Through its stringent cost-control measures and global manufacturing strategy, the company managed to offset the impact of lower sales on its earnings.

Net sales declined 11.4% to $1.08 billion from $1.22 billion in the third quarter of 2008. This included a negative impact of 5.9% from foreign currency translation, 4.1% from lower unit volumes and 1.4% from unfavorable product-price mix. The decline in unit volumes was primarily seen in industrial businesses.

Excluding the currency exchange effect, the Food Packaging posted a 4% increase in net sales due to higher unit volumes in North America. The remaining three segments reported lower sales (excluding a negative currency translation impact) due to lower unit volumes in Europe and North America.

However, Sealed Air posted strong margins during the quarter, reflecting the effectiveness of the company’s ongoing cost control efforts. Gross margin increased 470 basis points year over year, while operating margin was up 390 basis points. This reflects the benefits of the company’s global manufacturing strategy, cost reduction and productivity programs, which together resulted in approximately $20 million of benefits during the quarter.

Sealed Air is pursuing a multi-year global manufacturing strategy to revitalize its bottom line. The company plans to build manufacturing plants close to the markets it serves, with the bulk of production being transferred overseas. Apart from its global manufacturing strategy, the company is also aggressively managing its overhead costs.

Sealed Air raised its full year earnings guidance to $1.37 - $1.45 from the previous guidance of $1.25 - $1.45. The company expects to continue to realize benefits from its cost reduction and productivity programs in the fourth quarter.

Other packaging companies, Sonoco Products Company (SON - Analyst Report) and Pactiv Corp. (PTV - Analyst Report) also reported better-than-expected third quarter earnings and raised their full year earnings estimates.

Hudson City Bancorp: Yielding Total Returns for Option Writers

A Bank Stock that Stayed Out of Harm's Way
By TERESA RIVAS - Barrons Online

Hudson City Bancorp, one of the recession's best performing banks, should continue to best rivals in the hyper-competitive New York area.

IN NEW YORK, the city that never sleeps, Hudson City Bancorp (ticker: HCBK) is one of the few financial institutions that wasn't asleep at the wheel in the last year.

The nation's largest thrift has stayed true to its roots, making conservative mortgage loans in New York City and the surrounding suburbs, even as its rivals were engaged in some risky lending during the last real-estate boom.

Hudson City's strategy paid off, leaving it cash-rich and able to take market share from competitors in a difficult banking environment.

At a Glance:
Hudson City Bancorp (HCBK)

Stock Price: $13.30
52-Wk High: $18.93
52-Wk Low: $7.46
Market Cap: $6.5 billion
Est. FY 2009 EPS: $1.08
2009 P/E: 12.7 times
Est. Long-Term EPS Growth: 16.4%
Est. ('10/'09 EPS Growth: 10.2%
Revenue (trailing 12 months): $1.1 billion
Dividend Yield: 4.5%
CEO: Ronald Hermance
Headquarters: Paramus, NJ

* Based on analyst estimates looking ahead three to five years.
Sources: Morningstar, Barron's, Yahoo Finance, Thomson Reuters. "It's one of the best run banks in the country, and you can see that in their performance metrics, even in the worst of times" says Sandler O'Neill analyst Mark Fitzgibbon. "They're still [turning out] returns on average equity in excess of 10%, and their 19% efficiency ratio is the lowest in the industry."

Still, while Hudson City didn't suffer from the steep losses of its peers in the depths of the recession, its shares haven't been bid up in the latest rally: The stock actually fell 1% in the last three months while the market saw double-digit gains.

Trading at just 11 times 2010 earnings, Hudson City is scraping the bottom of its five-year range. The stock is also paying a hefty 4.5% dividend yield, supported by more than $600 million in cash.

"We continue to view Hudson City as a solid bank with good capital ratios and a balance sheet that enables it to capitalize on a favorable net-interest-margin environment," says Ragen Steinke, portfolio manager of the WHG SMidCap Fund.

When Hudson City reported better-than-expected earnings last week, profit rose 11%, as net-interest margin widened and deposits grew. The company has continued to make loans to high-quality residential borrowers with at least 20% down.

Although nonperforming assets did rise during the quarter, it was from a very low point. Growing to 90 basis points of total assets, Hudson City's levels are still well below peers.

"It's not a real risk to the story," says FBR Capital Markets analyst Bob Ramsey, who notes the bank's tangible common equity-to-assets ratio of 8.7% gives them plenty of capital for growth, helped by their strong credit quality. "The proof is in the pudding," Ramsey says of their continued earnings power.

"You could call it a one-trick pony, as it's basically a one-product institution on the lending side, but they stick to what they are extremely good at," says Fitzgibbon.

This mentality helped the company avoid all the toxic-financial products that eventually saddled competitors' balance sheets.

"This is a really terrific management team," says Janney Montgomery Scott analyst Richard Weiss. "They knew when to hang up the phone when other banks bought these products that they really didn't understand."

Bill Bartmann, publisher of the weekly financial newsletter, The Bartmann Report, applauds Hudson City for avoiding "the 'siren song' of quick and easy money and stayed true to their business plan."

Still, though the bank still originates the majority of its loans, about 30% are purchased from other institutions, and some investors may fear the company doesn't have as tight of control over these products.

However, Ronald Hermance, the chairman and chief executive of Hudson City, assures Barrons.com that these loans do not dilute Hudson City's quality portfolio.




"We write specifications that are more restrictive than we would take directly: they have to be jumbo, owner-occupied loans with a 25% down payment in the Northeast," he says. "These are prime loans."

And though the bank has maintained its integrity during the downturn, it shouldn't be left behind the pack in the recovery. Making loans and offering attractive rates to depositors (financed by its enviable capital) have allowed Hudson City to gain market share from weaker rivals.

Hermance says he has "no fear" that the company will be able to maintain this lead, because Hudson City's cost efficiency and lean infrastructure is not something competitors can emulate overnight.

Of course with over 70% of their loans in the New York metro area, any steep deterioration in home prices in the region would adversely affect the company, as would sharply rising short-interest rates. Nor is $30 billion in debt a number to gloss over.

However, the government has indicated that keeping interest rates low is a priority in the near future, and Hudson City's core base doesn't seem in danger of a large housing drop off. Likewise, Hudson City has not been in trouble with its creditors and did not take funds from the Troubled Asset Relief Fund, and has a strong-capital position.

Therefore investors should consider moving into Hudson City.

The Mosaic Company: Growing an Option Opportunity

Mosaic decleared a special dividend of $1.30 /share.

Record date......... Nov. 12
Payment date ..... Dec. 3

How I'm Trading V.F. Corporation Given Negative Quarters Likely Ahead

VF Corp raised its dividend from $0.59 to $0.60 quarterly making the current yield 3.1%.

Record date....... Dec. 8
Payment date ... Dec. 18

Energize Your Returns with BP

BP (BP): Q3 earnings of $4.67B vs. consensus of $3.25B. Sees 2009 costs down by $4B vs. a previous $3B. Total production +6.9%.

Shares +5% premarket to $58.55