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(Best) CHTT, LNN, PRGS (Worst) CTAS, RIMM, FPL from Better Trades
December 28, 2009
The past week showed positive trading, despite a holiday-shortened week as all three of the major market indices ended the week in the green.
The Dow rose 191.20 points, or 1.6%, to close at 10,520, the S&P gained 24.03 points, or 2.2%, ending at 1,126, while the NASDAQ gained 74 points, or 3.3%, to close at 2,285.
Top 3 Stocks
SNS – Steak n Shake Co. ($11.79 to $14.55) +23.4%
As one of the top percentage gainers for the week ending December 24, Chattem Inc. (CHTT) jumped more than 33% on news of a buyout from French drug-maker Sanofi-Aventis SA. Chattem is a leading marketer and manufacturer of a variety of branded consumer products, including over-the-counter healthcare, toiletries, and skin care products.
Early last week, the French company offered $93.50 per share for the purchase of Chattem, as Sanofi-Aventis plans to use the acquisition for a distribution base for its popular allergy medicine Allegra. Allegra is currently waiting for approval from the FDA to be switched from a prescription only drug to an over-the-counter drug. Following the proposed deal, shares of Chattem jumped nearly $23 per share.
Sanofi-Aventis’ offer represents a 34% premium over Chattem’s closing price on December 18 of $69.98 per share. The offer also corresponds to a 44% premium over the company’s average closing price during the past six months.
Christopher Viehbacher, CEO of Sanofi-Aventis, commented on the recent development, "The acquisition of Chattem will be a significant milestone in Sanofi-Aventis' transformation strategy and will provide us with the ideal platform in the U.S. consumer healthcare market, which represents 25 percent of the current worldwide opportunity. In addition, we believe our ability to convert prescription medicines to OTC products will be enhanced by Chattem's leading sales, marketing and distribution channels."
Sanofi, one of the world’s leading producers of vaccines and prescription drugs, has more than $2B in annual sales with such drugs as Plavix and Lovenox, both blood thinners, and Lantus insulin. With the acquisition of Chattem’s $455M in annual sales, Sanofi would have nearly $2.5B in yearly revenues.
With a new trading week commencing, Chattem, the maker of such products as Selsun Blue, Cortizone-10, Gold Bond and Icy Hot pain relief medicine, posted a marginal gain, adding $0.05, or 0.1%, to conclude the day at $93.30 per share. Over the course of a year, shares of CHTT have traded between $50.10 and $93.30 per share.
LNN – Lindsay Corp. ($37.85 to $43.52) +15%
Also reporting last week was Lindsay Corp. (LNN), a company that manufactures and markets irrigation equipment including Zimmatic, Greenfield, Stettyn and Perrot center pivot, lateral move and hose reel irrigation systems and GrowSmart controls. Farmers use these products to increase or stabilize crop production while conserving water, energy, and labor.
Reporting for the 1Q, Lindsay managed to post net earnings of $6.7M, or $0.53 per share, compared to the prior year’s 1Q profit of $6.3M, or $0.51 per share, an increase in net income of more than 6%. Despite the increase in profits, overall sales dipped during the quarter, falling from $113.1M to $86M, a decrease in revenues of almost 24%.
On average, analysts within the industry were looking for the provider of irrigation systems and infrastructure products to post a quarterly profit of $0.24 per share on $77.4M in total sales.
Commenting on the company’s earnings release was Rick Parod, President and CEO, "Going forward, infrastructure spending continues to be uncertain due to delays in Congressional passage of a new federal highway bill. In the agricultural sector, farmer sentiment remains cautious toward capital equipment purchases. As a result, demand for the upcoming irrigation season remains unclear at this time."
Looking further inside the report, Lindsay posted an increase in gross margins, climbing from 25.3% to 30%, despite operating income falling from $11.8M to $11.2M. The company also saw a decrease in backlog orders, slipping from $40.1M in the same period a year ago to $36.1M.
After posting a gain of 15% last week, shares of LNN fell more than 4% by the close of the December 28 session, giving up $1.84, to conclude the day at $41.68 per share. Over the past year, the stock has traded as high as $47.02 per share, while dipping as low as $20.89 per share.
PRGS – Progress Software Corp. ($25.75 to $29.20) +13.4%
Progressive Software Corp. (PRGS) revealed last Tuesday that the company’s 4Q earnings came in higher than a year ago, leading to an upwardly revised fiscal 2010 outlook. Progress is a global supplier of application development, deployment and management technology, Internet and intranet enabling technologies and support services to business, industry and government.
For the recent period, Progress posted a net profit of $16.67M, or $0.40 per share, compared to net income of $6.45M, or $0.16 per share, an increase in net earnings of 158%. Revenues for the quarter slipped marginally, falling from $139.43M to $136.79M, a drop in sales of 1.9%.
Analysts within the industry were looking for the business software maker to record a net profit in the 4Q of $0.55 per share based on total revenues of $131.9M. The company’s stock jumped more than 13% following earnings.
As quarterly profits increased, that prompted the company to revise their 2010 yearly forecast. Progress is now looking to post a yearly profit between $2.15 and $2.25 per share, up from a previously forecasted range of $1.72 to $1.74 per share. Revenues were also adjusted higher, to a range between $520M and $530M. The previous range was between $490M and $493M.
Analysts are looking for a yearly profit of $1.98 per share on total revenues of $528.03M.
At the conclusion of trading on December 28, Progress shares were down marginally, falling 0.2%, or $0.06, to end the day at $29.14 per share. Over the course of a year, PGRS shares have traded as low as $14.69 per share, while establishing a new 52-week trading high of $28.50 per share in intraday trading.
Worst 3 Stocks
CTAS – Cintas Corp. ($29.54 to $26.37) -10.7%
On the flip side, there were companies that did not fare as well. One of the top percentage losers for the week ending December 24 was Cintas Corp. (CTAS). Cintas is a unique company that provides a specialized service to businesses of all types, from small service and manufacturing companies to major corporations. The company is divided into two operating divisions, Rentals and Other Services.
The company’s trend lower was directly attributed to an earnings report that revealed a decline in profits year-over-year. Reporting for the 2Q, Cintas posted a net profit of $57M, or $0.37 per share, down nearly 20% from a year ago in which the company recorded net earnings of $71M, or $0.47 per share. The decrease in net income can be somewhat blamed on the current unemployment rate, as customers reduced their demand for uniforms and other supplies.
Revenues for the quarter came in at $884.5M, down more than 10% from last year’s tally of $985.2M. Sales from the company’s rental uniform and ancillary products unit slipped from $711.5M to $643.6M, a decrease in revenues of nearly 10%.
On average, analysts within the industry were looking for Cintas to post a quarterly profit of $0.43 per share based on $890.2M in total revenues.
Commenting in the company’s recent report was Scott Farmer, CEO at Cintas, "According to the U.S. Department of Labor, the U.S. economy has lost jobs for 23 consecutive months, with 7.2 million jobs lost during that time frame. These job losses directly affect our business as many of our products and services are dependent on customer employee levels."
Farmer later added, "While job losses have moderated recently, 1.2 million jobs were lost during the last six months and we do not know when positive job growth will return. We will continue to focus on taking care of our customers and actively managing our cost structure in this difficult environment."
Through the first two quarters of fiscal 2010, Cintas has posted a net profit of $111.2M, or $0.72 per share, that is down more than 26% from the same period a year ago in which the company recorded net income of $150.5M, or $0.98 per share. Year-to-date revenues came in at $1.77B down nearly 11% from a last year’s six-month total of $1.98B.
As the December 28 session concludes, shares of CTAS were down, falling $0.26, or 1%, to end the day at $26.11 per share. During the past year, the company’s stock has traded as high as $30.85 per share, while slipping as low as $18.09 per share.
RIMM – Research in Motion Ltd. ($70.00 to $66.92) -4.4%
Universally known as the maker of the BlackBerry wireless platform and hand-held cellular phones, Research in Motion Ltd. (RIMM) saw its stock price slip during last week’s trading, as users were set into a frenzy as Internet service was disrupted for the second time in less than a week.
RIMM is a world leader in the mobile communications market and has a history of developing breakthrough wireless solutions, which includes the RIM Wireless Handheld product line, software development tools, radio-modems and software-hardware licensing agreements.
The downed service was recorded on December 23 and affected countless subscribers in both North and South America. Minor issues also arose from some customers throughout Europe, Asia, Australia, India, Singapore and Taiwan.
Even though the most recent outage was more severe than the first outage a week ago, which only affected users in North America, the company stated that the problems stemmed from several flaws in RIMM’s upgrades of the BlackBerry’s messenger service.
RIMM released a statement following the outage, and upon further analysis of the company’s recent instant messaging software services, a representative stated that the problem “caused an unanticipated database issue within the BlackBerry infrastructure.”
The service interruption follows RIMM’s December 17 2Q earnings report, in which the company posted a net profit of $628.4M, or $1.10 per share, compared to the previous year’s profit of $396.3M, or $0.69 per share, an increase in year-over-year earnings of nearly 59%. Revenues for the quarter shot up more than 41%, from $2.78B to $3.92B.
Despite the positive earnings news, investors were taken back by the service outage, which pushed the company’s stock price down more than 4% by the end of last week’s trading. Heading into the new week, the stock rebounded, adding $1.41, or 2.1%, to end the December 28 session at $68.33 per share.
Over the course of a year, shares of Research in Motion have traded within a broad range, reaching a high of $88.08 per share, while slipping to an annual low of $35.05 per share.
FPL – FPL Group Inc. ($54.62 to $52.91) -3.1%
Rounding out the list of percentage losers for the past week was FPL Group Inc. (FPL), a public utility holding company, which is engaged in the generation, transmission, distribution and sale of electric energy. Although the loss was not as severe as other companies, FPL Group did see their stock’s price dip more than 3% last week, as a planned outage at its Seabrook Station nuclear power plant could affect the company’s 2009 adjusted earnings per share.
In addition to the company’s Seabrook outage, FPL has also been affected by a reduction in wind production at its wind turbine farms. This led the company to cut its fiscal 2009 earnings guidance, but maintained its fiscal 2010 earnings per share outlook. For 2009, FPL cut its annual earnings, on average, by $0.17 to $0.21 per share, down to a range between $3.93 and $3.99 per share.
FPL had previously offered an earnings range between $4.10 and $4.20 per share. On average, analysts within the industry are looking for the electric utility company to post a yearly profit of $4.15 per share for fiscal 2009.
FPL reaffirmed its intended earnings target range between $4.25 and $4.85 per share, while analysts forecast fiscal 2010 earnings per share from FPL to come in at $4.56.
Also affecting the company’s outlook was Florida’s Public Service Commission (PSC) cutting FPL’s request for a rate hike for its users. The PSC decision will result in FPL getting a $357M boost to its overall revenues in 2011, but will receive no additional revenues in 2012. FPL was requesting an increase that would result in additional revenues of $1.04B in 2011 and $247M in 2012.
FPL supports the rate increase by stating that additional funds are needed for upgrading and maintaining infrastructure operating and “to address the deterioration in earnings that will take place during 2010.”
The Florida PSC responded by saying, “As one reaches farther into the future, predictions and projections of future economic conditions become less certain and more subject to the vagaries of changing variables.”
The December 28 session brought a turnaround for the stock’s trading sentiment. By the close of trading, shares of FPL were up $0.51, or 1%, to finish the day at $53.42 per share. During the past year, the stock has within a relatively narrow range, with a high of $60.61 per share and a low of $41.48 per share.
2009 Better Trades Article
brought to you by
BRIAN MULLIN
