Monday, June 30, 2014

Investing in Automobile Rentals Earnings Growth

When one thinks of exciting industries, sectors like biotechnology or social media probably come to mind. One segment that probably isn’t at the forefront of these types of lists though is undoubtedly the rental car business.

While loaning out cars may not be very high tech or exciting, the industry can provide investors with big profits. Take for example Avis Budget Group (CAR), a stock in this often-overlooked space that has surged as of late and could be poised for more gains ahead too.

Avis Budget Group in Focus

CAR is based in New Jersey and provides car and truck rentals—as well as car sharing services—to businesses and consumers across the globe. And while CAR may not have the most interesting business model, it has certainly benefited from a broad recovery as shares have added close to 45% in 2014 alone.

In fact, shares of CAR have pretty much doubled in the past one year period, easily crushing the S&P 500 in the same time frame. But given these kinds of performances, some might be wondering if CAR can maintain this momentum, or if it is due for a crash.

While there is no way of knowing for sure, recent activity in terms of analyst earnings estimate revisions is certainly promising and could suggest that strength is ahead for CAR in the near term.

CAR Earnings Estimates

Recent changes to earnings estimates by covering analysts have been almost universally positive in the past two months for CAR. Not a single estimate has gone lower for the current year or the next year time frames, suggesting universal agreement from analysts on this front.

The magnitude of the estimate revisions for these time periods has also been impressive, as the consensus estimate for the current year has risen from $2.69/share 60 days ago to $2.88/share today. Meanwhile, for the next year period, estimates have risen from $3.50/share to $3.65/share, suggesting that the longer term picture looks bright as well.

The great news about these rising estimates is the growth rate that analysts are baking in for this stock. 30% earnings growth is now projected for the current year, while 2014’s projected growth of 26.7% is not too shabby either. And given that the forward PE for CAR is just a dash over 20, it is pretty reasonable to assume that Avis Budget Group has not become overbought and that more gains could be ahead for this solid company.

Bottom Line

For these reasons, we have assigned CAR a Zacks Rank #1 (Strong Buy), and are looking for more outperformance from this company in the weeks ahead. The stock also has a positive Zacks Earnings ESP, and when this is coupled with a strong Zacks Rank, positive earnings beats tend to follow, so the upcoming earnings report could be a strong one.

Plus, the security is a best-in-breed company, as others in the space such as Hertz (HTZ - Snapshot Report) have weak Zacks Ranks right now, suggesting it is the best way to play the space right now. So if investors are looking for a top car rental company, they shouldn’t look any farther than CAR, as this stock could definitely continue to march higher in the second half of the year as well.

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Thursday, June 26, 2014

What You Need to Know About the US Federal Reserve

The Instability of the Federal Reserve by Market Authority

Every economic transaction is an agreement between two motivated parties. It doesn’t matter what is being exchanged: cash for AAPL stock, airline miles for a first class upgrade, a used auto for bitcoin, or even a concert ticket for a little weed. For any transaction to occur, the buyer and the seller must believe that what they’re receiving will increase their utility (ie-happiness) and they won’t be ripped off. AAPL will not suddenly issue an earnings warning; the used auto must not be a “lemon”; and the concert ticket (and weed) must be real. There must always be an understanding that the other side is not withholding any secrets, and that the transaction is fully transparent.

An economy only grows if people believe that others aren’t holding onto secrets. Secrets cause fear, and this anxiety permeates every transaction. If people fear they will be “ripped off”, they will hoard assets that are safe from secrets. They may sell their stocks for cash or gold; or, they may choose to hold the used car rather than upgrade to the new one. This psychological fear becomes self-fulfilling, manifesting itself in slower economic growth. We fear the economy won’t grow to justify our purchases today, so those transactions don’t occur now. As a result, the economy doesn’t grow and reinforces those original fears.

The role of the Federal Reserve is to promote transparency and reduce secrets among economic agents. Before the creation of the Fed in 1914, secrets about banks (and subsequent bank runs) caused an overwhelming number of banks to fail. In our fractional reserve banking system, a bank keeps about 10% of depositors money and then lends out the rest.

This arrangement is satisfactory for banks and borrowers unless depositors attempt to extract their money at the same time. Due to the low reserve requirements (about 10% in the US), banks aren’t capable paying back every depositor’s cash simultaneously.

In the 19th century, there was no backstop for a bank run, so even the smallest concerns resulted in bank failures. With any negative secrets, people would immediately try to retrieve their cash, and the bank run would be self-fulfilling. Bank failures were crippling to the economy as it would take time for confidence to rise and people to transact again. In modern times, depositors don’t normally panic as the Fed (and the FDIC) will provide your local savings bank with the short-term financing necessary to allow access to your cash.

Imagine a friend posted on facebook that your local savings bank had made some terrible loans and was now facing bankruptcy. Even if it wasn’t true, the line to withdraw your cash would likely be around the block and the bank would be forced to liquidate. Obviously this can’t happen today as the Fed and FDIC provide ample liquidity.

Thus, the Fed provides stability for both the bank and the depositor. The bank can go about its business making loans; and the depositor can be confident that the money in the bank is safe. However, too much of anything is never a good thing. And, as we’ve seen, this stability eventually causes massive instability.

Let’s say I give you the choice to cross Niagara Falls via a high-wire or a five-foot wide steel bridge. Of course, you are going to choose the five-foot wide steel bridge. With the instability of the high-wire, each step you take will be very cautious. You will be acutely aware of your surroundings and the risk posed by a misstep. However, the five-foot wide steel bridge makes traversing the waterfall easy. And this ease brings about a complacency which enables risks not possible on the high-wire. Perhaps you move your family to other side of the river and build a house. Would you have attempted any of this on the high wire?

Assume this bridge can only be maintained if people continuously cross the bridge and pay a small fare. This revenue goes to general upkeep of the bridge, preventing it from cracks and collapse. Then one day, you are told a secret that the five-foot wide steel bridge has cracks and might collapse. Now, no one wants to use the bridge and the lack of revenues causes cracks to remain unrepaired. Everything you’ve brought to the other side of the seemingly stable bridge is in jeopardy. At the same time, everyone else who has been using the bridge is frantically trying to retrieve their belongings. The panic would be much less if only the high-wire was available and people didn’t rely on its stability.

The five-foot steel bridge is an analogy for the lower risk the Fed provides bank depositors. The stability and lower risk both allow economic agents to become complacent, which results in an appetite for more risk. While more risk-taking is correlated with economic growth, it eventually leads to a higher degree of instability when secrets are abundant. Thus, the over-reliance on the steel bridge has caused massive instability.

Next up, we’ll look at how the Fed has attempted to repair its five-foot wide steel bridge while everyone is trying to rescue their belongings from the other side of the river.

In 2002, economists James Stock and Mark Watson published a noteworthy paper titled, “Has the Business Cycle Changed and Why?”. In it, they discuss the macroeconomic phenomenon known as the “Great Moderation”: the significant reduction in economic volatility which started in the 1980s. This can be witnessed in lower volatility of major economic variables such as real GDP, industrial production, monthly payroll employment and the unemployment rate. For instance, take a look at this chart of GDP volatility:

Economists have cited four main reasons for the great moderation:

1. Central bank independence due to the Treasury-Fed Accord of 1951.

2. Counter-cyclical economic stabilization policies.

3. Improved economic stability from less reliance on manufacturing.

4. Good luck.

Now back to our bridge analogy…

The Great Moderation instilled the belief that the bridge is very stable, and the Fed is capable of managing business cycles with alacrity. This narrative of an omnipotent Fed provided necessary cover for the banks to extend unmanageable levels of credit, which lead to a sharper than expected contraction in 2008.

As we witnessed, Wall Street “innovations” were simply new products that added leverage and shuffled risk around. The investment community perceived the bridge as very wide and stable so they readily accepted these new-found products of controlling risk. As a result, the banking sector grew at double the pace of GDP. This is unstable, and a mark of adding leverage. Your local bank should not be growing faster than the businesses it services.

In 2008, the bridge displayed signs of extreme stress and was at risk of collapse. People were frantically trying to retrieve their assets at the same time, causing lower asset prices, and increasing the stress on the system (also known as a deleveraging). The Fed’s response was to make repairs to the bridge and purchase assets on the other side in the hopes that investors would stop trying to retrieve them.

The unprecedented actions of the Fed caused a shift in how investors priced assets. For the past 5 years, the main driver of stock, bond, and house valuations has been the seemingly endless monetary activity of the Fed. Economic data can only be viewed from the stance of “How will the Fed react?” Positive economic data means the Fed takes away the sugar earlier than expected, and the reverse is also true for negative economic data.

Bad news is good news; good news is bad news. Case in point: the -1% GDP in the 1st Quarter. This is bad news and, in normal times, we would expect the market to sell-off. However, everyone knows that bad news means more sugar and the market rallies. The mantra of “Don’t Fight the Fed” has never been more relevant.

And so the Great Moderation looks likely to resume where it left off in 2008. Volatility has once again drained from asset prices, and the shift in focus from the economy to the Fed’s moves means they have no intention of botching their repair work. When the economy heats up again (and the Fed ceases repairs), we will see how sturdy the bridge remains.

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Monday, June 23, 2014

Investing in Oil & Gas Earnings Growth

Due to tensions in Iraq, oil prices have been making an assault on fresh highs for the year. And with rebel groups threatening some key refineries and the Iraqi government seemingly unable to contain the uprising, there are real concerns that at least some of Iraq’s production could be taken off line.

While this is obviously a troubling situation, it is forcing many investors to look closer at the North American oil market instead. Companies here do not have to worry about geopolitical risks, and thanks to fracking and other technologies, have seen production levels soar as of late too.

A number of companies have benefited from this trend and have seen their share prices move sharply higher as a result. And should this trend continue we could definitely see more gains out of several companies in this space, such as Encana (ECA).

Encana in Focus

Encana is a Calgary, Alberta-based oil firm that explores for oil, natural gas, and natural gas liquids in the United States and Canada. The firm’s focus is in Western Canada—specifically British Columbia and Alberta—but it also has some exposure to projects in Nova Scotia, and then several states in the U.S. as well.

This has proven to be a pretty great business to be in, as ECA stock has moved sharply higher in the YTD time frame. The stock has actually appreciated by close to 40% so far in 2014 which is a pretty incredible run after its more-or-less flat performance in the preceding six months.

Yet while the stock has certainly moved higher in the past few months, there is plenty of reason to believe that more gains are ahead. This is especially true when you consider that ECA’s forward PE is still below 20, it is projected to see triple digit earnings growth this year, and its stock has seen rising earnings estimates.

Earnings Estimates for ECA

Over the last two months, investors have seen earnings estimates for ECA go sharply higher for both this year and next year. In fact, figures have surged from an estimate of $1.15/share 60 days ago to a level of $1.55/share today.

This is thanks to universal analyst agreement about Encana’s prospects, as not a single estimate for the current year has gone lower in the past sixty days. And given that we have seen a similar trend in the current quarter and next quarter periods as well, there is plenty of reason to be bullish on Encana in both the near term and the long run.

Bottom Line

Given these trends, it should be pretty clear why we have assigned ECA a Zacks Rank #1 (Strong Buy) and are looking for more outperformance from this stock over the next few months.

If these analyst revisions and #1 Rank aren’t enough, investors should take comfort in the fact that ECA is in great company from an industry rank perspective as well. Its oil and gas exploration and production peer group is in the top 25% right now, so there are definitely some tailwinds in this space.

This is particularly true when investors consider the broad geopolitical situation hitting the oil market and how this might make for a solid situation if you are a North American producer. Not only does ECA benefit from this trend, but its surging earnings estimates and great growth prospects suggest that even with the run up, there are plenty of gains to be had in this impressive Canadian oil and gas producer.

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Wednesday, June 18, 2014

Oil and Gas Stocks to Buy Now

It’s that time of year again. The time for barbeques, swimming pools, and pain at the pump. Oil is fairly cyclical and historically heats up with the weather. This year we’ve already seen crude oil break up over $106 per barrel for West Texas Intermediate. When the summer driving season gets into full swing you can expect crude to run up even higher. I have three great stocks to buy to cash in on the oil rally.

Crude Technical Analysis

All of a sudden crude is back into the conversation. A little bit of trouble in Northern Iraq and now we’re all worried about Texas Tea. Last time I checked, Crude below $110 isn’t a big deal. Crude at $125 may be but we are a far cry from that. Don’t forget that seasonally things heat up for Crude around this time of year.

Crude has been on a run up from below $90 in January to $106.70 today. The spike up on the Iraq news is still well below where Crude traded during the Libyan conflict. Still, the move puts the late 2013 highs in focus.

Aside from a few dips along the way, Crude has been in a firm uptrend all year as the world economy has continued its tepid recovery. Swings to the downside have been limited to about $7 from peak to trough. The breakout from the March 2014 high now sits at the July 2013 highs. Expect some follow-through tomorrow as well as volatility in the weeks to come.

Note the bullish trend line support that was tested in March and April. Now couple this with the firm top set from the March high and you’ve got a very bullish pattern that just has been broken. Now crude prices above $103.46 keep crude on a bullish bias. Look for crude to fill the gap it made today. Right now with a close near the highs it implies further upside in the short term.

C&J Energy Services (CJES - Trend Report Chart)

C&J Energy is a provider of hydraulic fracturing and coiled tubing services with a focus on complex, technically demanding well completions. The company has been strengthening operations in the Eagle Ford and Permian Basins and expanding its presence in the Bakken and Marcellus Shale. C&J targets high volume, high efficiency customers who recognize the value that C&J provides through efficiency gains that result in significant cost savings.

This Zacks Rank #1 (Strong Buy) has seen six analysts raise current fiscal year earnings estimates over the last 60 days. This helped raise consensus from $1.11 to $1.19 per share. Earnings have been coming in mixed over the last several quarters compared with consensus estimates. Last quarter CJES surprised to the upside by 4 cents, but two quarters in a row prior it missed by 10 and 11 cents respectively.

The technical chart shows a strong stock that has been consistently gaining ground since 2014 kicked off. After breaking above the 25 day moving average shifted by 5 days (25x5) CJES has kept making higher highs all year. The recent pullback to the 25x5 in late May offered up a buying opportunity as the stock regrouped before heading higher. Now CJES is breaking out to a fresh 52 week high again above $32.50.

Pioneer Energy (PES - Trend Report Chart)

Pioneer is a drilling and production services company that operates in the US and Columbia. PES has exposure to the full well life cycle including drilling, completions, workovers and on-going well maintenance. Approximately 60% of US revenue is attributable to the Bakken, Eagle Ford, and Permian. There are accretive organic growth opportunities in all four of Pioneer’s core service lines.

Of the top-tier well servicing providers Pioneer has the highest utilization rate, highest average hourly rate, highest average horsepower fleet and the highest percentage of taller mast rigs. They are also a significant player in the offshore coiled tubing market.

Pioneer is a Zacks Rank #1(Strong Buy) stock that has seen estimates for next year raised by three analysts in the last 60 days. This has helped push the consensus for next year up from 16 cents per share all the way to 43 cents. Pioneer has beat estimates every quarter for the last 6 quarters in a row.

The technical chart for PES looks a whole lot like the chart we just looked at for CJES. Similar story with the stock breaking above its 25x5 early in the year and rallying ever since. PES has already doubled this year and looks poised to add even more. 52 week highs seem to be broken nearly every day. The stochastics are a bit overbought on PES so there may be a slight pullback looming. Trend line support from the 25x5 currently sits down at $15.37.

Encana (ECA - Trend Report Chart)

Encana is a turnaround story in the oil and natural gas industry. They are a leading North American resource play with a disciplined focus on generating profitable growth and growing shareholder value. Their goal is to target 75% of their upstream operating cash flow from liquids over the next few years.

Encana has been replacing natural gas production with high-margin liquids. Recently they added the Eagle Ford shale as their 6th core growth play. They’ve sold their Jonah and East Texas assets, getting $1.8 billion for Jonah and $530 million for East Texas.

Analysts apparently agree with management’s game plan as six analysts have raised their estimates for the current year and next year. This helped push consensus up from 94 cents to $1.55 for this year and up from $1.11 to $1.63 for next year. These revisions have helped to push ECA to a Zacks Rank #1 (Strong Buy).

ECA has recently been breaking out after pulling back to support and consolidating from mid-April to the end of May. The breakout above $24 is in infantile stages. With earnings coming up in about a month, ECA could very likely track upwards ahead of expectations for a good earnings report. Right now stochastics are a bit overbought after the rally up through consolidation.

Bottom Line

Should crude oil continue its run, energy companies will likely benefit. These three stocks are all Zacks Rank #1 (Strong Buy) ideas to profit on the move.

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Monday, June 16, 2014

Investing in Semiconductor Earnings Growth

Headquartered in San Jose, CA and Singapore, Avago Technologies Limited (AVGO) is a designer, developer and global supplier of a broad range of analog semiconductor devices and digital, mixed-signal and optoelectronics components and subsystems.

Avago started as HP semi division and was later a part of Agilent that was spun-off from HP. It was spun-off from Agilent in 2005 and had its IPO in 2009. Avago is currently the 9th largest semiconductor company (excluding memory business) in the world. The company makes radio frequency chips that are used in smartphones by Apple, Samsung and other mobile device manufacturers.

Avago products primarily serve four markets: Enterprise Storage (38% of FY 2013 revenue), Wireless Communications (25%), Wired Infrastructure (23%), and Industrial & Other (14%). It has a diversified revenue model with 37% of its FY 2013 revenue derived from China, 20% from North America, 10% from Europe and 33% from the rest of the world.

Solid Second Quarter FY 2014 Results

On May 29, Avago reported its financial results for Q2 of its fiscal year 2014, ended May 4. Net income for the quarter was $158 million or $0.61 per share, up from net income of $134 million or $0.53 per share for the prior quarter and net income of $113 million or $0.45 per share in Q2 last year.

According to the management, “our wireless business came in significantly above our expectations due to strong product ramps for our FBAR-related products into multiple Asian Smartphone OEMs. We also saw resurgence in Industrial re-sales through our distributors, especially in Europe and Japan”.

On May 6, Avago closed the acquisition of LSI Corporation. Subsequent to the acquisition Avago joined the S&P 500 index, replacing LSI.

On June 5, AVGO announced a quarterly cash dividend of $0.29 per share.

Positive Earnings Estimates Revisions

As a result of continued solid performance, the Zacks Consensus Estimates for FY 2014 and 2015 have increased to $3.29 per share and $4.51 per share, from $3.07 per share and $3.68 per share, 30 days ago. The chart below shows the recent positive earnings momentum for the company.

Solid Industry Outlook

Semiconductor industry is currently ranked 42 out of 265 Zacks industries (top 16%). With rising earnings estimates, companies in this space are likely to outperform the broader markets in the coming months.

Zacks Initiates Coverage

On May 30, Zacks initiated coverage on Avago with an ‘Outperform’ recommendation. Per Zacks Investment Research report “Avago expects to further strengthen its position through organic growth across the industry verticals and increased market penetration buoyed by the LSI acquisition. In addition to cost synergies from a combined resource pool, the acquisition is likely to improve the operating margin and create greater scale to further drive innovation”.

The Bottom Line

With a strong industry outlook and rising earnings estimates, Avago looks set to reward investors in the coming months.

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Monday, June 09, 2014

Investing in Insurance Sales Earnings Growth

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Make no mistake about it, this market is on fire. It really doesn’t matter where you look right now. The Dow, the S&P 500, the NASDAQ and the Russell 2000 are all surging higher after the news of further ECB easing. While this risk-on rally may tempt investors to dump money into tech stocks you may want to take a look at a more traditional business. Growth isn’t just happening in the sexy sectors and stocks, it’s also happening in the tried-and-true insurance business. One of the companies in this industry is our Bull of the Day, Federated National Holding Company (FNHC).

Federated National Holding Company is a vertically integrated insurer operating through Federated National Insurance Company, Federated National Underwriters, Federated National Adjusting and Insure-Link. They underwrite homeowners, commercial, general liability, flood, auto and other insurance products in multiple states across the Southern US.

Over the last 6 quarters, their network of over 3,500 agents has helped increase the total amount of premium in force for $102.3 million at the end of 2012 to $250.2 million in 1Q2014. This huge growth is helping to fuel the stock price and boost earnings.

The property and casualty insurance industry is in the top 3% of our Zacks Industry Rank. 16 of the 59 stocks in this sector, including FedNat, carry a Zacks Rank #1 (Strong Buy). Aggressive growth is not something you typically see from insurers. FedNat has been so aggressive in the Florida housing insurance market that its earnings estimates have been revised upwards by multiple analysts over the last 60 days.

Consensus for next year’s earnings has increased from $1.48 to $2.05 and the current year from $1.23 to $1.79. This along with surprises to the upside the last two quarters are what have it in the good graces of the Zacks Rank.

Last September, FHNC stock was dragged down to nearly $8. The stochastics were extremely oversold and the stock was trading well below its 25 day moving average shifted by 5 days (25x5). Then little by little price action heated up. In October it peeked its head above the 25x5 after a stochastic buy signal a week earlier.

From November to mid-December a major bull run took FHNC from $11 to $15. Buying slowed down a bit and FNHC retraced back down below the 25x5 and forced stochastics into oversold territory again. Seems like that retrace was exactly what the stock needed as since the mid-February low the stock has more than doubled. Now it’s still firmly in an uptrend and now within earshot of a fresh 52 week high.

The recent support at $20 should provide a great level to part a stop below. This coincides with the 38.2% retracement of the move from the February low to the May high. Since that level held up, the 23.6% extension at $27.32 is the next upside target.

It may be fun in an environment like this to roll the dice on high beta names in volatile sectors. But don’t forget about solid and steady growth stories like the insurance business. Here we have an insurance company aggressively adding customers, increasing premiums and coverage, with the Zacks Rank stamp of approval and a good technical chart.

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Wednesday, June 04, 2014

The Importance of the Nonfarm Payroll Report

The monthly employment report gives the market an idea of the strength of the U.S. Labor Market. The Nonfarm Payroll, or NFP report, as it is commonly called, is generally released on the first Friday of each month, which is this Friday, June 6th. Incidentally, next month July, 1014, the first Friday of the month falls on the 4th of July holiday, so the NFP report is scheduled to be released on Thursday the 3rd, the day before the normal release date.

The nonfarm payroll employment report is the monthly report released by the United States Department of Labor as part of a comprehensive, monthly report on the state of the labor market. It is a report that covers the employment numbers for goods-producing, construction, and manufacturing companies for the previous month. Typically, the Bureau of Labor Statistics releases the report at 8:30 a.m. Eastern Time on the first Friday of each month and covers the numbers for the previous month. The U.S. nonfarm payroll number is an important factor, which can affect the U.S. dollar, the foreign exchange market, the bond market, and the stock market.

The data released includes the change in nonfarm payrolls (NFP), as compared to the previous month. The NFP number is meant to represent the number of jobs added or lost in the economy over the last month, not including jobs relating to the farming industry. In general, increases in employment means, both, that businesses are hiring, which means they are growing, and that those newly employed people have money to spend on goods and services, further fueling growth. The opposite of this is true for decreases in employment.

While the overall number of jobs added or lost in the economy is obviously an important indicator of what the current economic situation is, the report also includes additional data that can move financial markets.

This additional information includes:

The Unemployment Rate – The unemployment rate in the economy is reported as a percentage of the overall workforce. This is an important part of the report as the amount of people out of work is a good indication of the overall health of the economy. This is a critical number that is used by the Fed when determining any action that might be needed in the economy.

Average Hourly Earnings – This is an important component to know because if the same number of people are employed, but are earning more or less money for that work, this has, basically, the same effect as if people had been added or subtracted from the labor force.

Revisions from Previous Month’s Report – An important component of the report which can move markets as traders re-price growth expectations based on the revision to the previous number.

Why is this report important? Employment is one of the most important and most watched economic indicators because it drives many aspects of the economy. If the NFP comes out better or worse than expected, the markets can react greatly, especially as the Fed has been using employment as a barometer of how well the economy is doing and how the economy is reacting to the current Fed’s stimulus “tapering”.

So look for the release of the NFP report this coming Friday morning, June 6th, at 8:30 a.m. ET and see how the markets react to the release.

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Monday, June 02, 2014

Investing in Chicken Sales Earnings Growth

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Sanderson Farms, Inc. (SAFM - Trend Report) is benefiting from the record high beef prices as more consumers switch to chicken. This Zacks Rank #1 (Strong Buy) recently blew by the Zacks Consensus in the fiscal second quarter by 32% as chicken volumes spiked.

Sanderson Farms produces fresh and frozen chicken in the United States.

Huge Beat in Fiscal Q2

On May 29, Sanderson Farms reported its second quarter results and beat the Zacks Consensus by 53 cents. Earnings were $2.21 compared to the consensus of just $1.68.

Sales rose 6.4% to $660.7 million from $621.2 million a year ago. The company saw a higher gross profit per pound as volumes spiked on strong demand, there were lower grain costs and chicken prices remained stable.

Summer Grilling Season is Here

The summer is usually the peak season for chicken demand simply due to the fact that everyone is grilling out. This year, however, beef prices are at record highs. Already, Sanderson Farms has seen consumers rotating into chicken due to cost.

The company said it was "reasonably optimistic" heading into the summer. Chicken demand is expected to remain strong and supply is still constrained which should keep prices elevated.

The analysts are bullish on fiscal 2014. Earnings are expected to rise 36.9% to $7.78 per share this year.

Shares Soar But There's Still Value

Shares have nearly doubled the last 2 years and are now at 5-year highs.

But despite the surge, there's still value. Sanderson Farms trades with a forward P/E of just 11.6.

It also has a price-to-sales ratio of just 0.8. A P/S ratio under 1.0 usually indicates the company is undervalued.

If you're looking for a food play to cash in on growing chicken demand, then Sanderson Farms should be on your short list.

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