ISI Group is hosting its Third Annual Retail Summit in Scottsdale, Arizona on Tuesday, March 19 and Wednesday, March 20.
Investor conferences serve two main purposes. First, these conferences aim to increase the visibility of the companies presenting, which hopefully will lead to higher stock prices. A secondary objective is to promote the equity research department of the host firm. This week’s host, ISI Group, will benefit if attendees begin to pay for the firm’s stock-based research. ISI is an acronym for International Strategy & Investment.
Here are three companies I’m following at this week’s conference that have a story unfolding early in 2013.
Tuesday, March 19; Time TBA
The Memphis, TN headquartered AutoZone is the largest publicly-traded auto parts retailer in the US, with a market capitalization of $14 billion. AutoZone fell within my coverage universe of Hardlines when I was a summer associate at Northcoast Research, an equity research firm in Cleveland, OH.
Wall Street believes that the auto parts industry is facing secular headwinds going into the 2014 and 2015 calendar years. Industry research indicates that fewer vehicles will be in the 6 to 12 year old range, an age category that requires the most repair work and therefore has traditionally benefited the auto parts sector.
On Feb. 26, AutoZone reported second quarter earnings that slightly beat analyst estimates. Earnings per share came in at $4.78 vs. a consensus of $4.76. Revenue also came in $20 million higher than expected at $1.9 billion vs. an estimated $1.88 billion. However, same-store sales slid 1.8% during the second quarter at a time when the company should benefit from seasonally cold weather. CEO Bill Rhodes also stated that sales were “inconsistent” during the quarter.
Analysts believe the same-store sales decline could be attributed to the payroll tax expiration, which affected the take home pay of Americans nationwide. Competitors such as O’Reilly Automotive have also expressed lukewarm comments about the business environment, which lessens my conviction in the auto parts group as a whole.
Given the secular headwinds and difficult sales trends at AutoZone, I will be looking for greater clarity from management at the upcoming ISI Group conference. The company should provide new commentary, as nearly one month has elapsed since the earnings release.
Best Buy Co.
The consumer electronics retailer was brought to the forefront in the fall of 2012 when founder Richard Schulze announced his intentions to take Best Buy private in hopes of restoring its former glory. Privately-held companies have greater flexibility in regard to operational change and do not have to meet the demands of Wall Street’s quarterly report cards.
As of this writing in March, Mr. Schulze has repeatedly failed to place a successful bid for Best Buy. An offer by the co-founder would require a large amount of debt financing, and reports indicate that he and his financial advisor Credit Suisse have failed to gather enough interest from other private equity suitors. A March 6 report indicates that Schulze is now planning to sell his Best Buy shares after failing to attract a bid.
The stock has rallied off a 10-year low of $11.20 in December and currently exchanges hands for more than $20.
On March 1, Best Buy reported better than expected EPS of $1.64 vs. $1.54 consensus. Revenue came in higher at $16.71 billion vs. an estimated $16.34 billion, although same-store sales declined 0.8%.
Wall Street has grown increasingly optimistic on Best Buy, as the company states it is beginning a “major transformation.” Analysts at Goldman Sachs reinstated the stock with a Buy rating and $25 price target on March 12.
ISI Group isn’t convinced of Best Buy’s turnaround and reiterated its Neutral rating ahead of the company’s presentation in Scottsdale.
Wednesday, March 20 at 10:30 a.m. ET
Whirlpool in a manufacturer and marketer of household appliances. The company operates in four markets: North America, Latin America, EMEA (Europe, Middle East and Africa) and Asia.
Shares of the appliance maker are reaching all-time highs in 2013 as Whirlpool benefits from margin expansion and new sales related to the housing rebound. The Chief Executive of Whirlpool told CNBC in December that the company expects sales to reach new heights over the next 3-5 years due to new housing starts.
The Michigan headquartered company is also poised to benefit from a U.S. International Trade Commission ruling back in January. Commissioners at the U.S. ITC ruled that Whirlpool has been “materially injured” by washer imports from South Korea and Mexico, namely competitors LG Electronics and Samsung. New import duties are expected to be implemented, benefiting U.S. appliance makers.
Whirlpool is also one of several multinational organizations that has resumed manufacturing in the U.S. (The Next Manufacturing Boom Will Be Ours - Barrons.com).
Everything seems to be going right at Whirlpool. Analysts at Bank of America Merrill Lynch initiated coverage of Whirpool with a Buy rating and $140 price target on March 8. The company stated in a press release that it plans to reaffirm its full year 2013 outlook at the upcoming ISI Group conference.
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