Brian Nelson

Lack of Winter Weather Hits Dick’s Sporting Goods and Big 5; We’re Not Fans of Either

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Dick’s Sporting Goods (DKS) and Big 5 (BGFV) recently pre-announced dismal guidance for the fourth quarter of 2011. Though both companies cited a lack of winter weather as the main driver of poor same store sales growth, we think the stories at each company are quite different. Dick’s remains a steadily growing, well-run business focused on driving high returns on invested capital, whereas Big 5 is an inferior player focused on smaller markets that’s struggled to find its way. However, as with any investment, getting the right price remains key to our decision-making process, even for firms that may not be best-in-breed.  Risk/reward at Dick’s Sporting Goods isn’t very compelling right now. With our fair value of Dick’s at $31 per share, and … Read more

JP Morgan Posts Fourth-Quarter Results; Sees Improving Loan Demand and Credit Quality

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JP Morgan (JPM), the largest bank in the US by assets, reported fourth-quarter results Friday that showed declining profits but solid loan growth, credit-quality improvement, and continued strength in its fortress balance sheet. We continue to hold positions in the Financial Select Sector SPDR ETF (XLF) and the SPDR S&P Bank ETF (KBE) in the portfolio of our Best Ideas Newsletter, but not any bank specifically as we seek to dodge firm-specific risk within the banking sector at this time. However, we think the US banks will have a nice year during 2012 as unemployment (now 8.5%) and housing trends improve (new order growth). JP Morgan’s fourth-quarter net profit fell to $3.7 billion ($0.90 per share) from $4.8 billion ($1.12 per … Read more

Lennar’s Order and Backlog Growth Impressive; Housing Market on the Mend

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On Wednesday, homebuilder Lennar (LEN) reported decent fourth-quarter results that showed strength in new orders and solid advancement in backlog. Though we remain unexcited about the homebuilding group in general, Lennar’s results today suggest that we may finally be past the bottom in housing (both with respect to unit growth and pricing). Our fair value estimate for Lennar is unchanged.   The homebuilder’s revenue jumped 11% thanks to a 9% growth in deliveries (3,375 homes) and a 2% increase in the average sales price of homes delivered. Lennar experienced new order growth of 20% (3,027 homes), and while this number fell below deliveries—indicating a book-to-bill below 1—we were encouraged at the pace of growth. The homebuilider’s backlog advanced an impressive … Read more

Lululemon Raises Guidance; Our Valuation Remains Unchanged

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Not surprisingly, Lululemon’s (LULU) weak fourth-quarter guidance, issued previously, was revised upwards Monday, sending shares higher. The company hinted that same store sales would come in the low- to- mid 20%’s (20%+) and that revenue would be be in the range of $358 to $363 million (from $327 to $332 million). Both are staggering increases, and the company also guided earnings to a range of $0.47-$0.49 per share (from $0.40-$0.42). Since the increased ranges aren’t much different from what we had expected, our fair value remains unchanged at $68 per share. We think the increased revenue range reflects the increased likelihood that inventory grew sufficiently to meet burgeoning demand, whereas it had been chasing it all year. Additionally, seasonally-warm weather in the Midwest and Northeast may have helped boost sales of Lululemon … Read more

Alcoa Posts Weak Fourth-Quarter Results, Will Focus on Preserving Cash Balance in 2012

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Similar to the third quarter, Alcoa (AA) kicked off fourth-quarter earnings season with a wimper. The aluminum giant posted a fourth-quarter loss on charges associated with cutting high-cost smelting capacity, lower aluminum prices, and general market weakness. We continue to be comfortable with our fair value estimate and do not expect to make any changes to it at this time. Revenue fell 7% sequentially thanks to weakness in Europe and weak alumina and aluminum pricing, but increased 6% from the same period a year ago. Revenues in packaging, industrial products, and building and construction each fell at a mid-to high-teens pace on a sequential basis, with only the aerospace and industrial gas turbine markets revealing continued growth. On a year-over-year … Read more

Stick to the Smoothies, Not the Stock with Jamba

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Jamba (JMBA) is one of the largest smoothie and healthy fast-serve chains in the United States. However, the company, better known as Jamba Juice, could quite possibly be worthless. Though we see the company’s operations slowly improving, we don’t think the company makes a compelling investment at this time. Massive growth potential Undoubtedly, US consumers seem to be turning towards more health-conscious offerings and lifestyles, as evident from the big booms in running and yoga (NKE, LULU), as well as superior performance from healthy fast-food chains like Panera (PNRA) and Chipotle (CMG). Even McDonald’s (MCD) has stepped up to the plate with better tasting salads and brand-new smoothie offerings. We think Jamba could stand to benefit from these new trends. … Read more