In this Weekly Update, I report on five Cabot Benjamin Graham Value Investor companies that reported quarterly financial results or had other noteworthy news during the past week. I also include a question from a subscriber along with my answer. Prices appearing after each stock symbol are the closing prices on Thursday, December 8, 2016. Reports are for the quarter ended October 31, 2016 unless otherwise stated. Sales and earnings increases and decreases are based on year ago comparisons.
I also present two indexes, which list companies featured in the Cabot Value Model or in the Cabot Enterprising Model during the most recent four months so you can quickly find my recent write-ups for stocks appearing in the models.
My schedule for the next five weeks will be:
• Friday, December 16, Weekly Update
• Friday, December 23, Weekly Update
• Monday, December 26, Wall Street’s Best Daily
• Tuesday, December 27, Wall Street’s Best Daily
• Friday, December 30, No Weekly Update – New Year’s weekend
• Thursday, January 5, Cabot Value Model issue 270V
• Friday, January 6, Weekly Update
• Thursday, January 12, Cabot Enterprising Model issue 270E
• Friday, January 13, Weekly Update
Company Reports
Big Lots (BIG 55.50) reported decent results for the quarter ended October 29. Sales dipped 1% after coming up flat in the prior quarter. EPS increased to $0.03 after a loss of $0.03 last quarter. Same-store sales were flat. Management raised its EPS forecast for the year ending January 31, 2017 by a dime. Fellow dollar-store chains, Dollar General and Dollar Tree Stores also reported tepid results. Dollar stores typically attract lower income shoppers and these shoppers’ incomes have failed to increase during the past several years. If President-elect Trump can jump-start the economy, Big Lots could benefit noticeably. BIG’s stock price has surged 24% during the past month, but could rise another 12% before reaching my Min Sell Price of 62.21. Hold.
Korn/Ferry International (KFY 30.03) easily beat revenue and earnings estimates. Revenue surged 42% and EPS climbed 16% after increasing 41% and 11% in the previous quarter. Hay Group, purchased in December 2015, is producing considerably better than expected sales and earnings growth. Management provided an upbeat assessment of future profits. KFY has soared 46% during the past month, but could rise another 15% before reaching my Min Sell Price of 34.68. Hold.
Starbucks (SBUX 58.65) announced that CEO Howard Schultz will hand over the CEO title in April to Starbucks President Kevin Johnson, who has served on the company’s board of directors for seven years and has been second in command for nearly two years. Mr. Schultz will stay on as chairman and take on a new project to build luxury coffee shops within Starbucks. Mr. Johnson, a former Microsoft executive and CEO of Juniper Networks, is well-qualified to oversee the company’s 25,000 stores. Buy at 56.44 or below.
Toll Brothers (TOL 32.98) delivered mixed results, but management predicted strong performance in 2017. Sales advanced 15% but EPS fell 16% after increasing 24% and 72% in the prior quarter. Toll’s backlog of orders climbed 14% from a year ago, which bodes well for 2017 sales growth. Executives introduced a new line of homes at lower prices geared toward first-time buyers who have delayed buying a home. Toll’s stock price has risen 20% during the past month, but the shares are still undervalued and could rise another 30% before reaching my Min Sell Price of 42.76. Buy at 31.65 or below.
Ulta Salon (ULTA 253.29) produced superb results for the quarter ended October 29. Sales jumped 24% and EPS rose 26% after increasing 22% and 24% in the prior quarter. Same-store sales advanced an impressive 17%. Sales from the internet soared 59% from a year ago. Management increased its EPS estimate for the current quarter, and now forecasts EPS growth of 25%. Ulta opened 42 stores and increased its retail square footage by 10% from a year ago. The company now operates 949 stores in 48 states. ULTA’s stock price increased 9% during the past month, but the shares are still undervalued and could rise another 42% before reaching my Min Sell Price of 359.46. Hold.
Questions and Answers
Q. It would be great to get your updated thoughts on SNCR after the recent drop. (from subscriber J.L.)
A. Synchronoss (SNCR 40.79) fell 13% after an announcement that it will pay $821 million to buy Intralinks Holdings. The company stated that Intralinks CEO Ron Hovsepian is expected to be appointed as Synchronoss CEO after the transaction closes. Current Synchronoss CEO Stephen Waldis, the founder, will stay active in the company, becoming executive chairman of the board.
Synchronoss investors are worried about the future direction of the combined company. Nevertheless, Synchronoss believes that the deal should help it grow faster and take advantage of good conditions in the enterprise content-management market. Earlier this year, Synchronoss announced that it was open to sell the entire company if the price is right. Any hopes of a sale of the company now appear to be off the table because of the pending Intralinks purchase.
SNCR sells at 16.9 times latest EPS, its balance sheet is very solid with lots of cash, and sales and earnings are growing rapidly. The recent drop in the stock price presents an excellent buying opportunity. SNCR could climb 54% to my Min Sell Price of 65.63 within two years. Buy at my Max Buy Price of 52.92 or below.
Indexes of Latest Summaries – Recommendations featured in recent issues.
