OUTLINE:
*Each target price is (1) computed using CGFS' proprietary valuation and simulation approach and (2) adjusted within 3 standard errors of the estimate. Assumption and computation details are inserted at the end of each write-up.
This Week's Picks:
- Our Weekly Stock Picks*
- Macro Environment
- The Bond Report, What's next, & Key Earnings
*Each target price is (1) computed using CGFS' proprietary valuation and simulation approach and (2) adjusted within 3 standard errors of the estimate. Assumption and computation details are inserted at the end of each write-up.
This Week's Picks:
Cantel Medical has gradually increased its exposure to the Endoscope Reprocessing segment, which now makes up slightly more than half of Cantel Medical’s business. A key factor of the growth in the medical device industry can be attributed to endoscopy. Endoscopy is a nonsurgical procedure that examines a person’s digestive tract. The demand for such products has increased in the past few years due to the minimal invasive procedure and its uses for treatment and diagnosis purposes. This demand not only reaches the aging population in the United States, but growing economies such as Brazil, Russia, India, and China as well due to an increasing middle class population with increased wealth. New product development is key to their business strategy, as half of their organic growth is determinant on these sales between 2015 and 2021. Another key driver for Cantel Medical is establish themselves outside the US. Domestic sales have been around 78.5 percent past two years, compared to 83.4 percent between 2013 & 2014. The fastest growing segment to Cantel, according to Bloomberg, is Europe/Africa/Middle East, with sales growing at 11 percent in 2015 and 13.3 percent in 2016. . The management team has been able to successfully acquire other businesses and mold them into their strategies in the past, and can anticipate this as being a big part of the company’s growth. Management’s goal is to double sales between 2016 and 2021, with international sales growing at almost double the rate of domestic sales. Today, physicians regard endoscopy as the primary method of diagnosis and treatment, trumping imaging scans. Cantel Medical has been able to grow at least 10 percent growth in 11 of their past 13 quarters, and are the self-proclaimed leading pure-play in the global infection prevention market.
MercadoLibre is at the forefront of an early stage e-commerce market that is not developed as Asian and U.S. E-commerce markets. MELI is the leader in E-commerce in Latin America where they provide their services to the whole region. Their developed payment services and logistics service will continue to add to their growing business as they are focused on enhancing the market place and customer experience. MELI continues to grow year over year in user basis, gross merchandise value has continued to grow. Projected growths for E-retail look favorable, expect MELI to capitalize on this on top of MELI expanding there MercadoPago services to all users of their market place but also non marketplace users, which will help the company with continued growth.
Columbia Sportswear has an international reputation for innovation, quality, and performance. Columbia has seen growth in a challenging retail environment with significant headwinds from customer bankruptcies, changing consumer shopping behavior, and unreasonably warm weather. Columbia's 4th quarter earnings increased net sales, operating income, net income, gross margin, and a record operating cash flow of $275.2 million. The global ecommerce business grew more than 20% to representing 9% of global sales and has potential for further growth to counteract the loss of square feet of sporting goods leaving the retail landscape. The Sorel and prAna brands have potential for rapid continual growth, while the realignment of the Mountain Hardwear through innovative marketing strategies has great potential as well. Columbia is able to distinguish itself from its competitors due to its technologically advanced products like the OutDry Extreme Eco and Omni-Heat Reflective Garments. Marketing strategies like the partnership with Macklemore, Manchester United, Disney, and the Tested Tough Platform will expand brand recognition and market share. Columbia has an unleveraged capitalization and high profitability margins that will continue to grow. Columbia Sportswear has succeeded in a difficult operating environment and is underpriced right now.
Burlington Stores Inc. has been able to create significant value in an industry that has proved otherwise. They have continued to increase revenues for the last 5 fiscal years. 2016 proved to be another successful year for the company, increasing revenues 6% and increasing EPS 40.4%. Margins have also continued to increase due to the successful strategies the company has taken on in recent years. They have been able to steer customers away from the computer and into the stores. They have done this by offering value that not even Amazon can match. While competitors like Macy’s and JC Penney’s are closing stores, Burlington is opening more. Within their stores they are able to create more revenue per square foot and increase same store sale percentages. The company has been successful in diversifying its products by rebranding itself as a retailer of various clothing and home products. Burlington has also been able to increase margins by reducing inventories through new inventory strategy. Diversity in products have also allowed Burlington to sell products that have higher markups. Due to these factors BURL should have no trouble reaching their target price of $110.42.
This upcoming year Omnicell will lower their operating costs and thus increasing margins. This is based on their recent acquisitions and integration of these models and systems into their product line. The continual backlog growth and XT product line will increase revenues this upcoming year as well. EBITA margin will increase and ROIC will increase, creating significant value for Omnicell. I would suggest buying this stock based on its vertical integration strategy that will lower costs, thus growing and creating value in the long run.
In all of the company’s recent public statement, management has been trying to appease investors and the market as a whole despite reporting frightening quarterly results. But one can argue that at this point in struggle, only figures and number can talk, and in that case earnings call from the last 2 years speak for themselves. In addition, the company admitted for the very first time that “substantial doubts exist related to company’s ability to continue as a going concern” The company has been poorly performing for years, therefore that are a lot of reasonable doubt that the company could go bankrupt by the end of 2017. Hence the reason I believe that Sears Holding is currently depicting a perfect sell opportunity.