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(Best) DDRX, IWA, DSW (Worst) PEET, VIP, BWS from Better Trades
November 30, 2009
In a holiday shortened trading week, the market reached the final turn of 2009, as stocks have begun padding full-year gains heading into the final quarter of the earnings season. The dollar carved out fresh multi-month bottoms during the week, as gold is running to new nominal all-time highs and oil is holding near $75 per barrel.
A big swoon last Friday erased Wall Street’s early week advance. Thin trading volume saw the Dow Jones edge up 2 points to 10,309, the S&P 500 held flat at 1,091 and the tech-heavy NASDAQ slipped 6 points to 2,138.
Top 3 Stocks
DDRX – Diedrich Coffee Inc. ($25.99 to $33.50) +28.9%
With only three-and-a-half trading sessions last week, one of the leading percentage gainers for the week was Diedrich Coffee Inc. (DDRX), a specialty coffee retailer that sells specialty brewed coffee and espresso-based beverages through its retail locations. The company’s stock price has taken off over the past week or so, as two companies are bidding for the purchase of Diedrich.
Over the past month, both Green Mountain Coffee Roasters Inc. (GMCR) and Peet’s Coffee & Tea Inc. (PEET), have made offers to acquire Diedrich, as the two vie to own the company’s license to produce single-serving coffee pods used in Keurig Inc.’s brewing systems. On November 25, Green Mountain offered an all-cash deal that appears to have out bid Peet’s cash-and-stock deal that was presented earlier in the week.
Peet had originally offered Diedrich $19.80 in cash and 0.321 of one share of Peet’s common stock for each share of DDRX. However, Green Mountain came in offering Diedrich $32 per share, all in cash, and valued the deal at $265M. Peet has until the end of the day on November 30 to counteroffer Green Mountain’s proposal.
Lawrence Blanford, President and CEO said, "We believe our revised offer constitutes a superior proposal to Peet's November 22, 2009 offer, as it provides Diedrich shareholders with a substantial all-cash premium as well as greater value and greater certainty and speed of closing. This transaction will build upon the success of GMCR's family of brands across North America and further advance GMCR's objective of becoming a leader in the highly fragmented and competitive coffee and coffee maker businesses."
Although shares of Diedrich fell following the buyout news, the stock did manage to post a nearly 30% gain during the week. However, at the sound of the closing bell on the final trading day in November, shares of DDRX fell more than 1%, giving up $0.38 to settle at $33.12 per share.
During the past year, the company’s stock price has traded as low as $0.21 per share, while reaching an annual high of $33.97 per share, which was achieved early last week.
IWA – Iowa Telecommunications Services Inc. ($12.46 to $16.01) +28.5%
In other M&A activity, the largest provider of wire-line local exchange telecommunications services to residential and business customers in rural Iowa, Iowa Telecommunications Services Inc. (IWA) became the target for a takeover by phone company Windstream Corp. (WIN) for an estimated $1.1B. The deal, which is a cash and stock proposal, will provide Windstream with an additional 250,000 customers, including 95,000 high-speed internet customers as well as 26,000 video subscribers.
Windstream, which is based out of Little Rock, Ark., would offer IWA 0.804 of Windstream common shares as well as $7.90 in cash for Iowa Telecom. Windstream expects to issue 26.5M shares, valued at $269 million based on the closing price of $12.69 on November 23, and pay $261M in cash as part of the transaction. Windstream will also be absorbing IWA’s $598M in estimated debt.
Alan Wells, CEO of Iowa Telecom, said, "Windstream is a leader in our industry, and Jeff Gardner and his team has done an outstanding job of profitably growing their business in challenging times. Windstream shares our commitment to both customer service and shareholder value, and we're very pleased that our company will be joining the Windstream organization."
Jeff Gardner, CEO of Windstream, commented on the acquisition, "These are well-run, profitable properties in very rural service areas that expand our presence in the Upper Midwest and grow our free cash flow per share."
Upon completion of the deal, Windstream would now have a presence in 23 states, up from 16 prior to the acquisition. The two companies expect the deal to be finalized sometime in mid-2010 and is subject to state and federal regulatory approval.
Following the November 24 announcement, shares of IWA surged 26%, adding $3.31 to end the day at $16 per share. With a new trading week under way, the upward momentum from the buyout has quieted a bit, as shares of IWA were down $0.11 at the close of the November 30 session, falling 0.7% at $15.90 per share.
Over the course of a year, Iowa Telecom’s stock has been able to reach a high of $16.45 per share, while dipping as low as $9.94 per share.
DSW – DSW Inc. ($20.26 to $22.73) +12.2%
Rounding out the list of top percentage gainers for the week ending November 27 was DSW Inc. (DSW), a specialty branded footwear retailer operating stores and providing supplies to related retailers and to other non-related retailers in the United States. Over last week’s trading, shares of DSW were propped up following an earnings report that showed the company’s profits more than doubling as sales for the period improved.
Reporting for the 3Q, DSW confirmed that net earnings for the period came in at $26.6M, or $0.60 per share, up from the previous year’s earnings of $13.2M, or $0.30 per share, an increase in net profits of 102%. Following the November 24 announcement, shares of DSW jumped nearly 8%.
Revenues during the period surged as well, climbing from $391.36M to $444.62M, an increase in overall sales of nearly 14%. On average, analysts within the industry were looking for the footwear retailer to post a quarterly profit of $0.46 per share based on quarterly revenues of $424.58M.
Deeper inside the company’s earnings report, DSW posted an operating profit of $44.72M, compared to the prior year’s 3Q profits of $20.92M. However, the company’s operating expenses surged year-over-year, increasing from $88.16M to $102.44M.
Through the first nine months of the year, DSW has posted net earnings of $41.34M, or $0.93 per share, versus a profit of $34.42M, or $0.78 per share from the same period a year ago. During the same time, sales have increase as well, climbing from $1.11b to $1.2B, an increase of more than 8%.
With 3Q earnings and nine-month profits increasing year-over-year, DSW revised their 2009 earnings outlook upwards. For the year, DSW is looking to post a profit between $0.90 and $1.00 per share, up from a previously stated range of $0.70 to $0.80 per share. Analysts are currently looking for DSW to post a yearly profit of $0.78 per share on $1.55B in annual sales.
By the close of the November 30 trading session, shares of DSW continued their upward trend, adding $0.61, or 2.7%, to end the day at $23.34 per share. Over the past 52 weeks, the stock has managed to trade between $6.66 and $24.14 per share.
Worst 3 Stocks
PEET – Peet’s Coffee & Tea Inc. ($38.00 to $32.93) -13.3%
Related to the news about the aforementioned takeover of Diedrich Coffee Inc., Peet’s Coffee & Tea Inc. (PEET) appears to be on the losing end of the proposed acquisition, as Green Mountain Coffee has made the more lucrative offer. Peet, a specialty coffee roaster and marketer of branded fresh roasted whole bean coffee sold under strict freshness standards through multiple channels of distribution, has until the close of business on November 30 to better Green Mountain’s offer.
There is, however, a discrepancy in the manner of Peet’s proposed merger agreement. Peet is under the impression that the company has until 5pm PDT to revise their proposal and not bid higher than Green Mountain. Diedrich’s board of directors has decided not to debate the interpretations of the merger agreement but remains firm on the deadline set forth.
Peet and Diedrich entered the merger agreement on November 2 and Peet proclaims that the agreement is in effect until the deadline and that Peet has the right to amend any offer so that Diedrich’s board could not determine that Green Mountain’s proposal was not the winning bid.
Patrick O'Dea, President and CEO of Peet's, remarked, "As provided for in our merger agreement with Diedrich, over the next several days we will consider all our alternatives and take the action we deem to be in the best interests of Peet's shareholders."
In addition to the merger conflict, Peet announced that the company reaffirmed its 2011 yearly profit outlook and is expecting earnings to come in between $2.00 and $2.20 per share. For 2010, Peet is looking to post a profit between $0.80 and $0.90 per share, while analysts are looking for a profit in 2010 of $1.23 per share.
With the proposed acquisition still up in the air, shares of PEET lost more than $5 per share during last week’s trading. As the new trading week commences, Peet’s stock has continued with its downward trend. By the close of trading, the company’s stock slipped more than 1%, falling $0.37 to conclude the session at $32.56 per share.
Throughout the past year, Peet’s stock price has traded within a broad range, reaching a high of $42.20 per share, while falling as low as $19.29 per share.
VIP – Vimpel Communications ($20.66 to $19.14) -7.4%
Included in the list of top percentage losers for the week ending November 27 was Vimpel Communications (VIP), a provider of telecommunications services in Russia. Shares of Vimpel were pushed lower during the week, despite the company’s earnings report that showed a substantial increase in profits year-over-year.
The Moscow-based telecom company announced on November 24 that profits during the 3Q increased by more than 60%, growing from an equivalent of $269M, or $5.31 per share, to $431M, or $8.52 per share. Net income attributable to VIP’s American Deposit Shares (ADS) was $0.43, compared to last year’s equivalent of $0.27 per ADS.
Meanwhile, the company’s operating revenues for the period came in at $2.28B, down from last year’s tally of $2.84B, a decrease in overall sales of nearly 20%. On average, analysts within the industry were looking for the Russian telecom provider to post a quarterly profit of $0.45 per share on overall revenues of $2.28B.
Commenting on the company’s recent earnings report was Boris Nemsic, CEO of VimpelCom, "During the third quarter we continued to demonstrate growth in challenging market conditions and delivered a record 71.3 billion rubles in revenues and 36.0 billion rubles in OIBDA with a consolidated fixed and mobile OIBDA margin of 50.4%. We are particularly pleased with the OIBDA performance which demonstrates our ability to increase revenues and control costs in the new economic environment."
Having lost more than 7% of their market value during last week’s trading, the downward trend the stock appears to be in continued at the start of the new week. By the sound of the closing bell, Vimpel’s stock was down $0.05, or 0.3%, to conclude the final trading day in November at $19.09 per ADS.
Within the past year, the VIP’s stock has traded within an expansive range, reaching a high of $22.55 per ADS, while falling as low as $4.81 per ADS.
BWS – Brown Shoe Co. Inc. ($11.04 to $10.41) -5.7%
Filling out the list of weekly percentage losers was Brown Shoe Co. Inc. (BWS), a footwear company that includes operations related to retail shoe stores and foreign sourcing and marketing of footwear for women, men and children. The company’s stock price fell last week despite reporting a profit during the most recent quarter.
Brown Shoe announced on November 24 that the company posted a net profit of $16.3M, or $0.38 per share during the 3Q, compared to the previous year’s earnings of $10.4M, or $0.25 per share, an increase in profits of 57% year-over-year. The company also incurred a one-time charge and if excluded, would have posted a quarterly profit of $0.42 per share.
Quarterly sales for Brown Shoe fell year-over-year, declining from $631.7M to $625.6M, a decrease in revenues of 1%. BWS’s Famous Footwear brand saw sales advance by more than 7%, from $362.7M to $389.2M, along with the company’s same store sales totals increasing 4.7%. Sales from wholesale operations, however, plunged more than 16% year-over-year, falling from $203.4M to $169.9M.
Analysts, on average, were looking for the footwear manufacturer to record a quarterly profit of $0.38 per share, based on total quarterly sales of $617.8M.
Looking further inside BWS’ earnings report, selling and administrative expenses came in higher than last year’s tally, increasing from $219.07M to $222.38M. Restructuring costs for BWS came in at $2.72M, well below last year’s cost of $16.5M.
Commenting on the company’s results and upcoming quarter was Chairman and CEO Ron Fromm, “Our strategies to offer trend-right product, an enhanced store experience, and the increased reach of our marketing communications helped deliver a strong back-to-school selling season at Famous Footwear.”
Fromm later remarked, “Although the timing of economic recovery remains uncertain, we are continuing these strategies into the fourth quarter and holiday season, as we expect consumers will continue to shop later in the season."
Although the company revealed a positive earnings report, investors were not convinced that the shoe company was faring all that well in today’s economic crunch. With that, shares of BSW lost nearly 6% of their market value during last week’s trading sessions.
With a new week of trading kicking off, shares of Brown Show Co. continued with their downtrend, falling $0.15, or 1.4%, to end the November 30 session at $10.26 per share. During the past year, the stock has traded between $2.04 and $12.33 per share.
2009 Better Trades Article
brought to you by
BRIAN MULLIN
