Todd Parvis

Todd Parvis
Contributor since: 2012
I tend to agree with your assessment that it seems like the main growth for the credit card companies is internationally at this point with MasterCard being well positioned. My question is and I understand that it is hard to precisely measure, but how long do you think they can keep growing volumes in the double digits in the emerging markets? Also, do you think that they will ever be able to directly get access to the Chinese market? I understand that they can only currently do cross border transactions there.
What is others take on the potential long term success of Indian? Do you believe that it will be a formidable competitor to Harley?
What do you think about the gross margin guidance that they offered in the latest conference call? Do you feel that some of the gross margin upside is now more limited?
Could you provide some elaboration on the inputs for your NAV calculation?
My question is whether natural gas at or above 5$MMbtu is currently sustainable. Richard made a great point about the difficult of the operators in the difficulty of bring on new projects quickly to increasing production quickly to accommodate the higher pricing. However, on the demand side won't natural gas prices create incentives for utilities to switch back to coal at least in the short term putting a pressure on natural gas prices. Any thoughts on the subject would be appreciated.
Richard-Does the reduced potential long term pricing suggested by the NYMEX futures curve justify lower valuations for natural gas E&Ps in your opinion?
Prescient Investment Analyst,
You are correct in your assessment that the stock has been on a hot streak, so a pullback in the short term is quite possible. Meanwhile, there have been a couple of tailwinds pushing the stock forward recently. The cold winter is a major plus for all auto parts retailers as it means more failures, so it is a reversal of the effect of last years unusually mild winter which hurt all of the auto parts retailers. Additionally, the credit upgrade is a boost for Autozone as you mentioned.
As you mentioned commercial is critical for Autozone. Commercial auto parts retailers are also in favor as Advanced has seen its stock price soar since the CARQUEST acquisition. AutoZone's ability to accelerate their business by expanding their inventory model for commercial to make their program more competitive will have a major effect on the stock price in the future.
Good article Prescient Investment Analysis.
It does seem like DLTR may be attractive at this level. The stock has come back quite a bit and they still have opportunities to gain share, expand margins in the long term, and the accelerated share buy back comes at a good time.
Richard,
Natural gas price is a key risk to Cabot, as you mentioned in your article, since its production profile is decidedly skewed towards natural gas. In your opinion how low do you believe natural gas pricing can get, due to the factors you outlined in your article. I understand this may be tough to answer because things are changing relatively rapidly.
Do you expect any increase in demand for natural gas over the next 5 years possibly offsetting some of the negative supply issues?
Richard,
Thanks for taking the time to clarify my questions. Your answers are quite helpful in aiding my understanding of Cabot.
Richard
Can you understand why Cabot would not drill more wells with such excellent returns and increase their capex budget to get more production. Would generating greater production be a better use of capital than dividends or buybacks?
Richard,
Thanks for putting out another well researched article. You always do a great job. The upward production guidance that Cabot did for 2014 certainly was positive. However, I just wondered whether you view the fact that their reserve growth has been much slower than production growth in the last few years will eventually slow down their production growth rate longer term or if it does not matter.
Todd
Richard,
Thanks for the thoughtful answer to my last question.
Cabot has had tremendous production growth in the past, and guided to 30% to 50% next year I believe. They have tremendous assets, and the well results are continuing to improve as you mentioned. My question is do you believe that the strong assets in the Marcellus support such robust growth rates over a long term basis? Any thoughts would be appreciated.
Thanks Richard for the insightful article. I understand that you did not really go into valuation details in this article with Cabot. However, I wanted to ask your opinion as to whether you feel that Cabot is at this juncture undervalued, despite the high multiple that you mentioned. I have had an issue myself in deciding whether Cabot is a good value at this price. Any thoughts would be appreciated.
hathawaydh
Thanks for the kind comment. I understand why you would like to get a pullback. It is always nice to get stocks at a cheaper price. I am not sure what will happen to the stock in the short term at this level, but in my opinion I still feel that the long term trajectory of ROST will be up, but that is not to say that the stock will not, or cannot correct a bit.
It will be interesting to see what happens in this quarterly earnings this Thursday especially considering TJX good results today. I would expect that ROST would post similarly good results as TJX, but we will see on Thursday.
Shaun,
I appreciate this well thought out article. I am not as familiar with the space as you are, but I have notice that Vitamine Shoppe's comps have decelerated over the last year or so. What do you attribute this to? Why do you think the comps will accelerate? Do you believe that this will be do to easier compares or is there some sort of catalyst here that is driving your estimate. Any color would be helpful.
Richard Zeits,
This is a very well written article. It provides very thorough analysis. I wanted your take on what you think about the independence of the lower three forks benches. CLR noted that a couple of wells experienced interference during the last call. Do you think that this limits their upside in the three forks to any extent? Any thoughts would be appreciated.
Brian Langis,
Good Article. It has a lot of in depth research. You are very knowledgeable about this company. I wanted to get your take on the departure of the COO. I know that COO's can leave for a number of reasons, and I read that he left for a CEO post at another company. However, do you feel that a departure for a high level exec could be a negative signal? Also, Rossy also mentioned on the last quarterly conference call that they are looking to an outsider to fill the COO spot. Since, Dollarama seems to be on a roll do you feel that bringing in an outsider could disrupt the company's momentum?
Thanks for such a thorough response. I knew that Dollarama could not grow so consistently for so long without a reason, but I did not know enough about the company to understand why they were so successfully. It sounds like they have a healthy, profitable niche in Canadian retail. Based on your insights, it seems like Dollarama is a strong company. It will be interesting to see Dollarama develop in the future.
Hi Brian,
I appreciate the insights and fact that you invited me to read your article. Unfortunately, I am blocked by reading it since it is part of the Seeking Alpha Pro archives and I am not a subscriber..
I am impressed by the company. They are growing square footage aggressively as you mentioned, and their CEO seems to be very sharp. I know that the trade down trend has been extremely prevalent in the US and has allowed deep discounters to grow robustly since 2008. I am not as familiar with the Canadian market. I apologize as you have probably addressed these questions in your article, but I was just curious about a few things. Is Dollarama growing so successfully because many Canadian consumers are a bit more stretched financially? Who is Dollarama taking share from? How long do you think this stretch can continue? What differentiates Dollarama from its peers? Any insights would be appreciated.
I agree with your analysis. Thanks for your well thought out article.
Brian Langis,
Thanks for the solid article. You have a solid understanding of the company. I wanted to ask you about what your opinion is on the long term operating margin potential of the company.
Operating margins were 17% at the end of the last fiscal year, which is pretty spectacular for a discount retailer. You mentioned that there was a bit of a headwind to margins in the quarter, due to new store openings. Considering that Dollararama is going to aggressively open new stores in the forsseable future, do you see some of these margin headwinds abating in the longer term? Also, do you think Dollarama can expand EBIT margins as robustly as they have historically or do you think that tapers off a bit? Any input would be appreciated.
I appreciate your article on Hibbett Sports. It was well thought out.
You forecasted a same store comp for the full year of 0 to 5%. Do you think that Hibbett will be closer to the high side or the low side. I know this may be hard to predict, since there are a lot of factors here. I am trying to get a handle on the long term comping ability of Hibbett. They did great until the back half of 2012, until they decelerated significantly.
Also, what do you think about the company's ability to expand margins in the long term? That is something that they have historically been fairly good at, especially with their gross margins.
Thank you Brett.
I appreciate the comment. I try to do my best. I think ROST is not fully appreciated by the investment community. Management seems to try to keep a low profile, and that could be part of the reason the company does not get a lot of attention. The important part is that the company has delivered, and they seem to have the potential to drive solid results in the future.
burger guy,
That is a smart observation about TJ Maxx making that Sierra Trading Post acquisition last year. That may boost TJ Maxx growth prospects, and that is something that ROST does not have and this point in time. I think that it will probably help TJ Maxx grow sales, but I do not think it will make up the difference between TJ Maxx growing its square footage at roughly 4.5% annually and ROST at 6.5% currently.
The other online apparel makers are growing in sales, but are not particularly profitable from what I have read. Also, ROST management has consistently reiterated that it does not make sense to add online, because it is not profitable to add online at its price point. However, if ROST management finds evidence that points to the contrary it is something that they could always add in the future.
wiza,
Thanks for the comment. I think ROST is still compelling at this price point and is better than TJX due to better growth potential and a more favorable valuation. The reason I say that ROST has more growth potential is there are simply a lot less Ross Stores out there and they are expanding much quicker, while generating similar same store comps to TJX. TJX is a good chain. I just view it as being at a more mature point in its development. I would get hesitant in buying ROST if the P/E went much north of 20.
TJX is getting a bit expensive in my opinion. It was at 19.55 yesterday. If I were to buy TJX I would try to buy it at a less that 18P/E trailing multiple and in my mind it should be discounted to ROST not at a premium.
How do you feel about the fact that the P/E multiple is approximately the same as Dollar General and Family Dollar? It seems like it least from my perspective the market should be giving a higher multiple relative to its peers given its better growth prospects. Dollar Tree has less stores and more room to grow. Additionally, Dollar Tree and its single store format seems to be more attractive to me than its peers and has allowed Dollar Tree to generate higher margins, which are consistently going higher unlike their peers.
I am curious as to your take on this issue. It just seems like the multiple is a bit low to me. The only rational I can think of is the last couple of quarters have not been the strongest from a comp perspective, but Dollar Tree still leveraged the comps unlike their peers and I can see the comps improving.
Richard-
Thanks for providing the details.
1) I knew that Dollar Tree has the Dollar Giant in Canada, which management says has the potential for over 1000 stores. There is also the Deals chain, which is growing. It is much smaller than the peers as you mentioned and provided that the comps are solid I see no reason why Dollar Tree cannot keep expanding at a brisk clip.
2) The quantified income number is helpful.
3) Q1 was a tough quarter for most retailers and the comparison was off a 5.6 comp last year, so the 2 year stack was a 7.7 which is not horrible given the conditions. The commentary on the call indicated an acceleration of sales trends at the end of the quarter and the back half of the year has easier comparisons, so hopefully the company can generate a 3 or better comp. It just seems difficult for Dollar Tree to consistently generate meaningful margin expansion if they are producing 2 comps, but I agree with you that it seems likely that they will return to the 3 plus range.
Richard Church,
Thanks for the informative article on Dollar Tree. I have a number of questions.
What gives you confidence that they can open up over 10,000 stores?
Do you have any income statistics on average income of a Dollar Tree shopper? I have tried to look for it and have not found it, but I am pretty sure it is higher than Dollar General and Family Dollar.
The ability for Dollar Tree to leverage SG&A in the last quarter with a 2.1 comp was impressive and generate 70 basis point of EBIT margin expansion. Do you feel that Dollar Tree could could consistently generate margin expansion if comps remain below 3?
I appreciate any insights you may have.
Aristofanis Papadatos,
I respect your report, but I politefully disagree with some of your statements. The 2.5 Debt/Ebidtar ratio is not something that just management repeats. This is a credit rating agency metric and this is a consistent target. The 2.5 ratio has stayed about the same for years. The credit cris occured in 2008 and interest rates spiked and they had no problem raising debt. Now if this rose to about 3.2 then this would be a problem. Management targets the ratio and what the credit rating agencies seek. Autozone has not deviated from it. The interest coverage ratios are quite strong. The cash flow is more than enough to pay the interest expense. Advanced Auto Parts also cites their Debt/Ebidtar ratios.
Their peers also have a high portion of current liabilities to current assets. It is common in this business to target a high AP/inventory ratio to generate a large amount of cash flow and Autozone is one of the best and maximizing this metrics. They have a high level degree of liquidity and an immense amount of free cash flow. I have not seen a credit report that has ever mentioned an issue with liquidity. Companies with a BBB with a positive outlook with a stable credit profile in a healthy industry are generally not high bankruptcy risk companies.
As to their ability to grow 20% EPS annually every year I would say that is impossible. That would be hard for any company to do and Autozone is no exception. Autozone's sales were soft in Q1 and with weaker same store comps it is more likely that 15% EPS is possible. Achieving that on an annual basis is still difficult and is impressive. 20% EPS growth occurred in part due to macro tailwinds, which management acknowledged is in the past. The free cash flow yield is still quite high and they still have room to buy back about 8% of the float while keeping the Debt/Ebidtar at 2.5.
Marine 85
You are right that CLR has been on a hot streak. You might get a pullback because who knows with the markets, but even with the run up the stock does not look particularly expensive. The trailing P/E was 22.1 yesterday with the forward being roughly 14, and CLR has the potential to grow their EPS in the mid 30 range for the next 5 years. CLR also had a very solid fourth quarter.
Jamie Ward
I appreciate the thought and rigor in your analysis. You seem to have a keen insight on the business, so I wanted to get your take on margins. The pathway to profit has been a remarkable success and operating margins have really soared as you mentioned in your article. You seem to imply that Fastenal will have limited room to improve these operating margins in the future. Do you believe that 23% is a peak operating margin and that Fastenal has already created all the efficiencies in the business? Are do you feel there is any upside potential on the margin front?