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Jack-in-the-Box Looks Ready to Pop.

August 31st, 2009 3 comments

 

Jack-in-the-Box [NDQ:JACK] – August 31, 2009: $20.40 - 1:30 PM ESTjack-logo

52-week range: $11.82 (Nov. 21, 2008) - $30.35 (Sep. 19, 2008)
 
JACK operates and franchises Jack in the Box quick-service hamburger restaurants and Qdoba Mexican Grill fast-casual restaurants. They generate revenue through franchise royalties, company-operated restaurant sales, and distribution sales to franchisees. As of July 2009, there were 2,199 Jack in the Box locations (including 921 franchised units) in the western and southern U.S. and almost 500 Qdoba restaurants in 42 states. The 58-year old, San Diego-based firm generated about $2.9 billion in system sales during fiscal 2008.
 
Jack-in-the-Box has been a true growth story with earnings per share rising each year since 2003. Their low prices and drive-thru windows have been attracting customers despite the economic slowdown.
 
Here are their per share numbers from continuing operations as reported byValue Line (FYs end Sep. 30):
 
FY
Sales
C/F
EPS
B/V
Avg. P/E
52-wk Range
2003
28.36
2.01
1.02
6.48
9.5x
7.50-11.80
2004
31.66
2.30
1.14
7.87
11.1x
10.50-19.50
2005
35.17
2.49
1.24
7.93
14.6x
13.70-21.00
2006
38.67
2.76
1.52
9.94
13.0x
16.60-32.30
2007
48.15
3.69
1.89
6.94
17.2x
24.70-39.80
2008
50.91
3.87
2.00
8.05
13.1x
11.80-30.30
 
Value Line and Zacks each expect earnings of $2.13 and $2.35 for the FYs ending next month and in 2010. That makes the multiple just 9.6x trailing and 8.7x forward EPS. Compare those with the normalized P/Es from past years to see how cheap the current valuation is.
 
The last time JACK shares were offered at a single-digit multiple was in 2003. Buyers at that time saw their shares rise from a (split-adjusted) $7.50 to $19.50 in less than two years on their way to peaking at $39.80 in 2007.
 
A rebound to even 12 times FY 2010’s $2.35 earnings projection leads to a 12 – 15 month target price of $28.20 or 38% above today’s quote.Morningstar gives JACK their highest (5-Star) rating and sees ‘Fair Value’ as $32 /share.

Read more…

Dominion Resources - Utility Value for Investors.

August 28th, 2009 7 comments

NYSE Symbol:D _August 28, 2009: $33.15 /share

52-week range: $27.15 (Mar. 9, 2009) - $44.65 (Sep. 22, 2008)dominion-resources-logo
Dividend = $0.4375 quarterly = 5.28% current yield
Dominion Resources generates, transmits, and distributes electricity. The company generates electricity through coal (33%), nuclear (31%), gas (6%), and oil (1%) resources. Purchased power accounts for the final 29%. They serve approximately 2.4 million retail customer accounts in Virginia and NE North Carolina. Through their Consolidated Natural Gas division they also supply approximately 1.7 million residential, commercial, and industrial gas customers in Ohio, Pennsylvania, and West Virginia. The company also involves in merchant generation, energy marketing, and price risk management activities, as well as natural gas exploration and production in the Appalachian basin. Dominion Resources also operates a regulated interstate natural gas transmission pipeline and underground storage system.

EPS hit all-time high in 2008 and seem on pace to exceed that level both this year and in 2010. The dividend has been increased in each of the past six years. Current yield is a very nice 5.28% and is well covered at about 54.3% of this year’s earnings projection.
Value Line gives Dominion an ‘above average’ safety rating, a B++ for financial strength and a 100th percentile ranking for ‘stock price stability’ (on a 1 – 100 scale with 100 being best).

Here are Dominion’s per share numbers from continuing operations as reported by Value Line:

Year
Sales
C/F
EPS
Div.
Ave. Yield
Avg. P/E
2003
18.58
3.97
1.96
1.29
4.3%
15.2x
2004
20.55
4.18
2.13
1.30
4.0%
15.1x
2005
26.00
3.71
1.50
1.34
3.6%
24.9x
2006
23.61
4.91
2.40
1.38
3.6%
16.0x
2007
27.17
5.08
2.13
1.46
3.3%
20.6x
2008
27.93
5.07
3.04
1.58
3.8%
13.8x
2009*
28.50
5.40
3.25
1.75
5.4%
10.2x
*2009 data includes Value Line’s 2nd half estimates.

At today’s quote of $33.15 the multiple for Dominion is just 10.2x this year’s expected earnings. That the lowest P/E for these shares in more than 10 years. (The shares may be cheap today as they went ex-dividend yesterday). Dominion’s 10-year median multiple has been 16x and the lowest annual average P/E of the past 15 years (pre-2009) was 12x in the last severe bear market of 2002.
The current yield of 5.4% is well above historical normal for D, as can be seen from the chart above.
Value Line is assuming a normalized 14 multiple and a 4% dividend yield in calculating their 3 – 5 year target price range. A rebound to even 12x this year’s estimate of $3.25 would lead to a share price of $39 by early 2010.
If the current payout stayed level and the 4% ‘normalized’ yield returned, the shares would rise to $43.75.

Read more…

Time to ‘Lock Up’ Shares in GEO Group?

August 26th, 2009 4 comments

The GEO Group is a world leader in providing private corrections and detention management, health, and mental health services to federal, state and local government agencies.  With operations in the US, Australia, Canada, Cuba, South Africa, and the United Kingdom; GEO offers a diversified array of turnkey services which include design, construction, financing, and operations. Our unique approach allows GEO to provide high-quality and cost-effective services with state-of-the-art designs, innovative programs and ground-breaking treatment approaches. 

Their turnkey solutions include:

  •   Facility Management 
  •   Facility Operation 
  •   Facility Maintenance 
  •   Facility Design geo_logo
  •   Infrastructure Financing 
  •   Construction Management 
  •   Residential/Special Needs Services 
  •   Secure Prisoner Escort 
  •   Court and Immigration Custody Services 

Since its inception in 1984, GEO has become successfully established within the industry through our quality of service, innovative operational solutions, and efficient cost-effective operations. 

To date, GEO manages 61 facilities encompassing approximately 60,000 beds world-wide. Their 13,000 professionals are dedicated to the safety and care of the 60,000 plus individuals assigned to our custody on behalf of federal, state, and local government agencies. 

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GEO Group [NYSE:GEO] August 26, 2009: $17.95 /share

52-week range: $10.98 (Feb. 23, 2009) - $26.96 (Sep. 19, 2008)

 

GEO has posted excellent long-term growth in providing for the outsourcing of detention services. Here are their per share numbers

as reported by Value Line:

 

Year Sales C/F EPS B/V Avg. P/E
2003 22.06 0.70 0.12 3.11 43.4x
2004 21.55 1.12 0.60 3.50 11.9x
2005 21.08 0.75 0.20 3.74 44.7x
2006 21.80 1.33 0.85 6.29 15.4x
2007 20.10 1.48 0.84 10.35 31.4x
2008 20.58 1.95 1.19 11.42 19.0x
2009* 20.00 2.15 1.35 12.45 13.1x

* 2009 numbers include Value Line estimates

Well-timed secondary offerings in both 2006 and 2007 were accretive to B/V while holding back Sales/Share and EPS growth initially. The extra capital has been paying off ever since as can be seen by the large jump in EPS in 2008 and into the first half of this year. 

The shares look reasonably priced at today’s $17.95 quote. That’s right around 13.3x this year’s and 12.4x 2010’s estimates from both Value Line and Zacks. GEO’s 10-year median P/E has been 16x and even a rebound to 14 times year-ahead expectations would bring GEO to a target price of $20.30 /share. 

That’s a very conservative goal considering GEO actually traded at $20.20 in 2006 on EPS of $0.85 and as high as $32.90 in 2007 when earnings came in at $0.84 /share. On numerous occasions GEO has traded for 2 - 3 times book value versus about 1.5x B/V currently. 

Business trends look good with the last six quarters showing nice year-over-year growth. I don’t see a low of downside here. 

Here’s a nice seven month play that allows for excellent returns even if GEO’s share price does absolutely nothing.

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Cornell Companies - Don’t Buy this one on a “Break-0ut”

August 26th, 2009 3 comments

Cornell Co. [NYSE:CRN] August 25, 2009 close: $20.61 /share

52-week range: $13.42 (Mar. 9, 2009) - $28.45 (Sep. 18, 2008)crn-logo
Cornell Companies, Inc. provides privatized correctional, detention, and pre-release services for adults and juveniles. The Company provides facility development, design, construction, and operational services to governmental agencies within secure institutional correctional facilities, juvenile treatment and educational services, and pre-release correctional services divisions.

Cornell now has 70 facilities serving 4 Federal agencies, 15 states, the District of Columbia and many local government entities. Cornell’s 35 years of experience with a wide range of services allows customers access to programs and services focused on treatment and release preparation. Among the services offered are:

  • substance abuse/addiction counseling, education and treatment
  • individual, family and group counseling
  • vocational training
  • gender-specific treatment
  • behavior management strategies
  • individual case management
  • therapeutic communities
Constricted budgets at all levels of government, has led to a greater outsourcing of detention services for both youths and adults. Cornell Companies have been benefiting from this trend. Earnings per share surged by 84% (from $0.82 in 2007 to $1.51) in 2008.
First half 2009 profits continued the trend at $0.84 versus $0.68 (+23.5%).
Unfortunately for society, this is a growth business.

Read more…

Swine Flu Mortality Projections

August 25th, 2009 No comments

If you believe the Presidential panel ’s projection of 90,000 deaths next year from Swine Flu then you might want to look at the bright side of all those unexpected funerals. 

Death Service related public companies include:

Hillenbrand Inc. [NYSE:HI] written up earlier here on Beating Buffett

Service Corp, Intl. [NYSE:SCI]casket1

Stewart Enterprises [NDQ:STEI] 

Carriage Services [NYSE:CSV] written up earlier here on Beating Buffett

Disclosure: Author is long HI shares and short HI options. My previous position in CSV was sold for a very nice profit.

Total System Services – Swiping Profits

August 24th, 2009 2 comments

TSS {NYSE} August 19, 2009 : $15.36
52-week range: $10.36 (Nov. 21, 2008) - $20.45 (Sep. 2, 2008)
Dividend = $0.07 quarterly = 1.82% current yieldtss-logo

TSYS (Total System Services, Inc.) makes it possible for millions of people to make paperless payments safely and securely. Recognized as the market leader, they provide electronic payment services to financial institutions and companies around the globe. TSS works behind the scenes to offer unmatched flexibility, control and service quality to customers through a broad range of innovative issuing and acquiring payment technologies, including consumer–finance, credit, debit, healthcare, loyalty, prepaid, chip and mobile payments.

The dismal economic conditions caused TSS to suffer a rare dip in earnings per share in 2008. This year looks to be on track for a second year-over-year decline. On balance the numbers don’t look too bad and appear to be fully discounted in the share price.

Here are the per share numbers as reported by Value Line:

Year Sales C/F EPS *Div. B/V Avg. P/E
2002 4.85 1.02 0.64 0.07 3.06 29.1x
2003 5.35 1.22 0.71 0.08 3.72 31.1x
2004 6.03 1.32 0.77 0.14 4.39 30.3x
2005 8.12 1.75 0.99 0.22 5.13 23.6x
2006 9.05 2.20 1.27 0.26 6.17 17.1x
2007 9.08 2.07 1.32 0.28 4.25 22.7x
2008 9.86 2.10 1.30 0.28 5.04 15.4x

* Excludes special dividend of $3.03 /share paid in Dec. 2007

The business is tied to the overall level of credit and debit card transactions so profits should recover nicely once the economy starts expanding again. Value Line notes that TSS has an ‘earnings predictability’ ranking in the 90th percentile (with 100th being best). Standard and Poors assigns TSS a quality rank of ‘A’.

Zacks now sees 2009 – 2010 earnings of $1.12 and $1.21 respectively making the multiple about 13.7x this year’s and 12.7x next year’s expectations. Those are quite low by historical standards as can be seen with just a glance at the chart above.

Read more…

DST Systems – Mutually Beneficial

August 23rd, 2009 3 comments

DST Systems [NYSE:DST] - August 19, 2009: $46.39dst-logo
52-week range: $25.70 (Mar. 9, 2009) - $64.43 (Sep. 2, 2008)

DST is the market leader in outsourcing of mutual fund record keeping and accounting services with over a 50% national market share. They also run DST Health Solutions to provide information processing and on-line access. This healthcare division may get a big boost from President Obama’s push for more electronic record keeping. The company is celebrating its 40th anniversary this year.

2009 may mark the first down earnings year in more than a decade.

Here are DST’s per share numbers from continuing operations as reported by Value Line:

Year       Sales                    C/F                  EPS              Avg. P/E       52-wk Range
2002 19.93 3.01  1.77 22.7x 24.10-51.20
2003 28.83 4.40 1.88 18.6x 24.00-42.10
2004 29.26 4.50 2.50 18.3x 41.00-52.50
2005 35.08 5.17 2.70 18.9x 44.20-62.30
2006 34.03 5.30 3.02 19.7x 54.80-64.00
2007  37.87 6.22 3.50 22.5x 62.50-88.70
2008 45.98 6.82 3.77 15.2x 31.00-82.40

 

The company has been actively retiring shares over the past 10 years. Outstanding shares totaled 126.25 million in 1999 and were down to just 50 million (fully diluted) as of June 30th this year. 

Zacks is looking for 2009 – 2010 earnings per share of $3.75 and $4.06 respectively. That puts the current multiple at < 12.4x this year’s and about 11.4x next year’s estimates. Compare those to all the historical norms from prior years in the table above. 

If DST merely regains a 15 multiple we’d achieve a target price of $56.25 by year-end and $60.90 by the end of 2010. Are those crazy goals? Nope. Check the chart and you’ll see that DST actually traded at levels of $62.30 and higher during each calendar year 2005-2006-2007-and 2008. The dead lows for 2006 and 2007 were $54.80 and $62.50 when EPS came in at $3.02 and $3.50 – well lower than they are today. Read more…

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