Jim Cramer's Report Card: Reviewing 17 Buy Ideas (Part 1)

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Includes: CHK, CLR, FDX, HBAN, JAH, KR, LULU, MCY
by: Investment Underground

Here, we review the Wednesday, March 11th buy recommendations of Jim Cramer, host of Mad Money on CNBC. Since then, for comparison purposes, the S&P 500 is +0.76% and the Dow is +1.82%.

Cramer Buy Recommendations

Chesapeake Energy (NYSE:CHK) is down by 2.6%, since the March 11 close. He reiterated the buy recommendation on March 17 and 22. In 2010, the company generated $9.4 B in revenues or +21.6%, and GAAP EPS returned to positive territory to $2.51 from $9.56 in 2009. For 2011, analysts estimate CHK will generate revenues of $10.6B, an increase of 13.53% over the prior year's results, and $2.79 per share for non-GAAP EPS, which is lower than the non-GAAP EPS of $2.95 produced in 2010. With a net margin of 18.9%, CHK is not only profitable but is more profitable than the Oil, Gas & Consumable Fuels industry median. Furthermore, as measured by a cash flow margin of 31.4%, the company is doing an average job at converting sales into cash compared with others in its industry. The next earnings release is on May 2.

We place a $41 price target on CHK shares, and it is a buy at current price levels. We also believe its natural gas reserves are undervalued. According to S&P, the fundamental outlook for the oil & gas exploration & production sub-industry for the next 12 months is cautiously positive, as we expect rising oil prices and geopolitical tensions in the Middle East and North Africa to push equity prices upwards. For U.S. natural gas, high inventory levels and increased production from onshore shale plays have pressured spot prices, and investors should look for low natural gas prices to depress U.S. drilling activity in 2011.

Chesapeake Energy is the second-largest producer of natural gas and the most active driller of new wells in the U.S. Headquartered in Oklahoma City, the company’s operations are focused on discovering and developing unconventional natural gas and oil fields onshore in the U.S. Chesapeake owns leading positions in the Barnett, Haynesville, Marcellus and Bossier natural gas shale plays and in the Eagle Ford, Granite Wash, Cleveland, Tonkawa, Mississippian, Wolfcamp, Bone Spring, Avalon, Niobrara and Williston Basin unconventional liquids plays. The company has also vertically integrated its operations and owns substantial midstream, compression, drilling and oilfield service assets.

Continental Resources (NYSE:CLR) is up by 3.5%, since the March 11 close. Cramer indicated to his viewers to buy again on March 15, 24, and on April 4. In 2010, revenues grew by 33.99% to $839 million, and GAAP EPS shot up by 135.71% to $0.99. The profit margin improved to 77.60% from 76.11% and the EBT margin expanded to 30.80% from 17.57%. The company also has a debt to equity ratio of 0.77. The next earnings release is on May 2, with analysts expecting non-GAAP EPS between $0.44 and $0.61 and revenues between $299.2 million and $337.61 million. In comparison, Q1 2010 produced $0.43 and revenues between $248 and 268 million, respectively. Given higher oil and gas prices, we recommend CLR for our readers. However, keep your portfolio diversified. If you already have oil and gas stocks, avoid this. This is a good opportunity for one looking to add oil and gas exposure.

The company is an independent oil and natural gas exploration and production company. It is now the third largest crude oil producer in the Rocky Mountain region, the largest leaseholder and driller in the Bakken Shale and the largest leaseholder in the Anadarko Woodford in Oklahoma, with additional operations in the South and East regions of the U.S. The company’s exploration activities include large, new, or developing plays that provide the opportunity to acquire undeveloped acreage positions for future drilling operations.

FedEx (NYSE:FDX) is up by 3.7%, since the March 11 close. In FY 2010 through May, the company made revenues of $34.7 B or -2.1%, and GAAP EPS surged by 1110.8% to $3.76. For the nine months ended 28 February 2010, FedEx Corporation's revenues increased 14% to $28.75B. Net income increased 17% to $894M. Revenues reflect an increase in income from the FedEx Express segment. Non-GAAP EPS in 9M11 was $2.82, compared to 9M10, which produced $2.44. The next earnings release is on June 22 with a consensus non-GAAP EPS estimate of $1.73 or a range from $1.85 to $1.64. In comparison, Q4 2010 produced $1.33.

FDX shares trade well below our fair value estimate, and we place a $115 price target. We see revenues rising 10-15% in FY 2011, and ~9% in FY 2012. Also, FedEx Ground should benefit from the exit of DHL from the U.S. The annual “World’s Most Admired Companies” report listed FedEx as the #8 ranked company, up 5 positions from the organization’s rank in 2010. The survey measures 9 attributes related to financial performance and corporate reputation.

Huntington Bancshares (NASDAQ:HBAN) is down by 1.6%, since the March 11 close. He restated the buy on March 14. The company made $2.6 billion in revenues in 2010, which was +9.50%, after +8.54% in 2009, +13.18% in 2008, and +25.18% in 2007; over all, solid revenue growth. However, profits painted a different story. Profits managed to hurdle over negative territory from -$3.09 billion to $312 million. The EBT margin in 2010 was a decent 13.24%. EPS came in at $0.19 in 2010, and analysts expect $0.45 to $0.60 in EPS in 2011. The company also expects pre-tax, pre-provision income levels to remain in line with 2010 second half performance. The next earnings release is on April 20. We recommend HBAN shares for investors looking to take on more risk. We believe that this is a great stock trading under $10.

Huntington Bancshares is a $54 billion regional bank holding company headquartered in Columbus, OH. Through its affiliated companies, Huntington has been providing a full range of financial services for 144 years. Huntington offers checking, loans, savings, insurance and investment services. It has 620 retail branches and a network of over 1,350 ATMs.

Jarden (NYSE:JAH) is up by 1.8%, since the March 11 close. Cramer mentioned it as a buy again on April 7. In 2010, Jarden Corporation's revenues increased 17% to $6.02 B, but GAAP EPS went down by 21.7% to $1.19. This was due to an increase in cost of sales, higher selling, general and administrative expenses, a rise in interest expenses and a decrease in operating earnings. The company also had a net margin of 1.8%, making it in line with other companies in the Household Durables industry. The company has long term debt of $2.83 B. The next earnings release is on April 28. The consensus non-GAAP EPS estimate is $0.31. In comparison, Q1 2010 produced $0.25.

According to S&P, the outlook for the housewares and specialties sub-industry is neutral. Consumer spending will grow in 2011, but is still anemic compared to 2006 and 2007 levels. JAH shares trade near our fair value estimate, but we are hesitant for our readers to have exposure to this sector. Sell your shares, and consider investing in floating rate instruments, if you are in a defensive mood.

Kroger (NYSE:KR) is up by 0.8%, since the March 11 close. For FY 2011 through January, revenues increased 7% to $82.19B, and GAAP EPS surged to $1.74 from $0.11. With a net margin of 1.4%, KR is less profitable than the Food & Staples Retailing industry median. The next earnings release is on June 16, with the consensus non-GAAP EPS estimate at $0.63. In comparison, Q1 2010 produced $0.58.

KR shares trade below our fair value estimates, but we do not expect them to outperform or market-perform. The food retail sub-industry has intense price competition, and is subject to impending food inflation. Sell KR, and consider other higher-yielding instruments.

Kroger is the nation’s largest traditional grocery retailer. It employs more than 338,000 associates who serve customers in 2,458 supermarkets and multi-department stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry’s, King Soopers, QFC, Ralphs and Smith’s. The company also operates 786 convenience stores, 361 fine jewelry stores, 1,014 supermarket fuel centers and 40 food processing plants in the U.S.

Lululemon Athletica (NASDAQ:LULU) is up by+16.7%, since the March 11 close. Cramer really likes this stock because he emphasized that his viewers buy it on March 22, 25, 29, and on April 5. Also, over the last year, LULU is up by 101.2%. For the fiscal year ended January 30, 2011, net revenue for the fiscal year increased 57% to $711.7 million, and diluted EPS increased 106% to $1.69 on net income of $121.8 million, compared to diluted earnings per share of $0.82 on net income of $58.3 million in FY 2010. Comparable stores sales increased by 30% on a constant dollar basis, resulting in a record $1,726 sales per square foot. The next earnings release is on June 9. For FY 2012, the company expects net revenue to be in the range of $885 million to $900 million and diluted EPS in the range of $1.90 to $2.00. The company has surprised the Street for 9 straight quarters, and we believe that LULU ought to be a part of your portfolio. Lululemon Athletica is a yoga-inspired athletic apparel company.

Mercury General (NYSE:MCY) is down by 0.2%, since the March 11 close. In 2010, revenues decreased 11% to $2.78B, and GAAP EPS fell by 62.1% to $2.78. With a net margin of 5.5%, MCY is less profitable than the Insurance industry median. The next earnings release is on May 2. The consensus EPS estimate is $0.57 compared to Q1 2010’s $0.85. Also, for the Q1 2011, analysts estimate MCY will generate revenues of $670.4M, a decrease of 4.20% over the prior year's first quarter results.

S&P’s outlook for the property & casualty insurance sub-industry is neutral. An economic recovery may help increase the demand for certain types of insurance products, particularly those in the commercial lines area. However, the industry remains awash in excess underwriting capital, or supply, limiting the degree to which premium rates rise. The company trades below our fair value estimates, and we are not thrilled about the prospects for capital appreciation beyond 10% for the rest of the year. Hold MCY for now, but take your profits on an upswing.

Mercury General Corporation is a multiple line insurance organization offering predominantly personal automobile and homeowners insurance through a network of independent producers in many states.



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.