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*
- 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:
ITT Corporation is diversified with its business mix, end markets, and geographic presence. The company has leading brands with a strong reputation such as Goulds Pumps, KONI, Cannon, and Enidine. ITT's 3rd quarter earnings resulted in promising segment performance leading to a share price increase of approximately 11% with a huge volume of approximately 3 million. The company will benefit from the industry trends of electrification in the transportation industry, increases in the federal budget for defense spending, and normalization in the oil & gas industry. ITT has seen increasing operating margins in the motion technologies segment due to the high performance of its KONI shock absorber and brake pads. There is an opportunity to grow in its other segments due to being below its competitors' average segment operating margins. The continued implementation of the Lean Six Sigma will continue to cut operating costs and drive margins. ITT has no long-term debt, which gives it a low probability of default and the opportunity to use debt. The company is best in class with its cash conversion cycle of 79 days. ITT's strategy along with industry trends will drive margins and increase the value of the company.
Hostess is currently in a market which has been heavily affected by diet trends, wage growth from collective bargaining agreements, and a slew of overleveraging. This has led to companies, such as Hostess, being beaten up on prices. The company has restructured themselves by fixing wage issues and is now in a very good position to redeem past mistakes. Hostess has done this while maintaining a brand loyalty.
iRobot is a company that has had the ability to find numerous way to create revenue for themselves. They have had the ability to increase revenue due to the innovation of their products. iRobot is known for their vacuums, but have been able to beat their competitors, coming out with new products that respond well in the market. iRobot is necessary to buy due to their ability to be more innovative than their competitors are.
Nutrisystem is poised to continue growing their top and bottom lines for at least the near to midterm. Currently there is an estimated 160 million over-weight or obese adults in the United States. The need for weight loss and weight management products is at an all-time high. Through strategic marketing initiatives to expand market share and industry leading capital allocation strategies, Nutrisystem is in a strategic position to capitalize on the obesity epidemic that America is currently facing. With the continuation of double digit revenue growth and a cost-efficient structure put in place by management, along with a proven capital allocation strategy, Nutrisystem will continue to bring value to shareholders.
J2 Global will continue to increase their revenue with the stable growth in their Cloud Segment and the rapid growth in their Digital Media Segment. The Cloud Segment will continue to add business due to the increase in demand from health, pharma, legal and finance industries. The Digital Media Segment will continue to grow and add revenue as the number of visitors to the ir websites increase. These visitors will increase revenue through the commission that J2 Global will receive from the increased n umber “viewable” impressions that they get from their websites. The success of IGN will give J2 Global a platform into the video game sphere. J2 Global is positioned for growth in both of their segments, which will increase the stock price in the short an d long term.
U.S. Concrete is situated in the top position of each major Ready-Mix and Aggregate concrete supplies market. USCR currently services the fastest growing residential, commercial, and infrastructural real estate markets in the United States. They provide their patented quick drying and eco-friendly mix of concrete to the markets in New York City, Dallas-Fort Worth, and the San Francisco Bay area. The quality of their product and their ability to distribute Ready-Mix concrete in a timely fashion has granted them the ability to sell their concrete at a premium over the industrial average. Still, US Concrete has agreed to contracts with high margin commercial companies such as Google, Facebook, Toyota, and LaGuardia International Airport. Their current strategy of organic and acquisition growth has led to consistent revenue and margin growth.
On Assignment has established themselves as a leader in global staffing. Their strong and diversified segments appeal to a wide range of clients , mainly within the United States . With massive Government reformation in employment and taxes looming, On Assignment is set up to benefit tremendously in the near future. Their experience d management team has increased share price vastly over the last few years, through acquisitions and EBITDA growth. They know how to best use their capital for long - term growth because of their many years of experience in this industry. We can expect to see On Assignments stock price grow relative to the industrials index , with very little downside.
Charles River Laboratories provides a systematic location for companies to do research and develop ment on new drugs and medicine. Being one of the most differentiated CROs in the world, Charles River Laboratory provides the testing facilities in order to help expedite research programs and help with drug discovery/preclinical drug development. Although they are not responsible for th e creation of the drug, they provide everything along the way to help the process of creation.
The PulteGroup has had strong revenue growth throughout previous quarters. This growth is expected to continue as the group has developed a strong backlog pipeline with favorable operating margins. EBITDA margins have grown at a faster rate, creating value for the group and creating the opportunity to continue value creation. The group has also diversified its portfolio nationwide, backed by a strong expenditure strategy. Currently the stock is undervalued.
Founded in 1935, Tyson Foods Inc. is an industry leader in the food and packaged food industries . I believe that the company is relatively undervalued and shows strong growth prospects for the coming year. With an upcoming earnings announcement on Nove mber 15th , for which the company and some analysts have recently revised their estimates to a higher number, the company will like ly see an appreciation of share value with better than expected performance. TSN has a history of growth and providing value t o shareholders . Ex ecutives have recently announced their intentions to focus on lowering debt levels, achieve strong growth and create shareholder return . The company boasts solid financial fundamentals, a diversified product mix, better than expected perf ormance, better performance than peers, and has announced efforts to innovate and cut costs whilst revenues from previously invested R&D ventures continue to grow and recent acquisitions boast an additional $700 million in potential revenues for the coming year.
OpenText is a well-established company with a strong brand name and a large list of reliable partners and clients. OpenText has been successful in growing their company year-over-year and has distinct plans to continue this growth moving forward. OpenText creates value through their strategic acquisition process. OpenText acquires businesses and implements their successful business model to improve operations and increase margins. OpenText supplements this growth with organic growth in each one of their segments. OpenText will continue to create value through management’s strategic capital allocation strategy and strong organic growth initiatives.
The retail industry is in a steady decline due to the consumer shift to online shopping. With Amazon’s market share and product line rapidly increasing, it’s difficult for traditional retailers to stay competitive. Management’s inability to create value has restricted Kohl’s from making any advancements, as the company’s current price is back to where it was in 2008 when CEO Kevin Mansell took over. With the consumer shift, Kohl’s looks like it is almost at the end of its useful life, just like its assets. The company’s large amount of depreciation will plague them going forward, as three years of flat earnings doesn’t portray growth anytime soon. In a thinning industry, Kohl’s doesn’t have the management or competitive advantage to fight the decline.
REV Group Inc. is a new company that has entered the market in just February this year. The CEO, Tim Sullivan, loves when people ask why they named it REV. REV is not an acronym. A statement that drives home our company’s commitment and momentum to connect and protect communities through our products. They strive to drive, protect, innovate, and serve their customers every day. This company is just starting to feel out the market, but already has a great grasp on the fire and emergency segment, which drives their revenues. They are making moves through innovation and acquisitions, which will lead to further growth.