TOP 100 TRANSPORTATION AND LOGISTICS SITES
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| Snap-On: The Future Looks Promising Wall Street Strategies submits:Snap-On Inc. (SNA) is one of our favorite long-term investment recommendations from our extensive equity coverage universe. To be sure, the manufacturer of automotive repair tools and diagnostic systems has felt the brunt of the economic firestorm. The effects of the global downturn may have reached a climax in 1Q09 as demand trends weakened further from an already softening base in 4Q09. The U.S., Spain, and France were just a few of the end markets where Snap-On didn't exactly light it up in terms of volume; to the contrary net sales declined in these areas from 6.0% to 40.0%. Organic net sales fell in all of the company's business segments, the most pronounced pullback being in the Commercial & Industry Group segment. Franchisees are struggling to sell big ticket items (tool storage), though this is a trend that became embedded in the early stages of 2008. On the other hand, the deceleration in the Commercial & Industry Group segment caught us and management by surprise; demand in areas like government and aerospace were not robust by any measure owing to limited visibility into an economic recovery. The standout was the Diagnostic & Information Group segment, where despite a significant drop in volume the operating margin expanded north of 600 bps year over year as management maintained a keen focus on the RCI process improvement initiative.Without a doubt Snap-On will continue to navigate a rocky sea for the foreseeable future; our modeling has the business returning to a modest degree of normality in 3Q09. In 2H09, currency should be less of a headwind and de-stocking actions at international distributors, which weighed unfavorably on 1Q09, should have played out in full. The stock, in our estimation, incorporates no appreciation for the long-term potential of the business (8.6x est. FY10 earnings/4.3x trailing EV/EBITDA; these are multiples that are well below historical averages, the S&P 500, and others in the tool manufacturing sector who lack strong balance sheets and competitive advantages.Story Beneath the Headlines Industry The market dynamics for Snap-On are about to change, in some respects drastically as OEM dealers close amid the non-functionality of the business models at General Motors (GM) and Chrysler. Should 4,000 plus dealerships evaporate, per industry forecasts, it may be a positive to Snap-On as repair services transition to the aftermarket. After all, individuals must have their cars serviced, and technicians arriving at aftermarket shops will need the resources to meet new business. For Snap-On, the opportunity is to sell more tools and diagnostics equipment to these technicians. In our view, the company has significant brand awareness and product offerings that are best in class. Balance Sheet Fresh off a $300.0 million debt issuance at interest rates we deem attractive (amidst the market hysteria), Snap-On has a solid capital structure that will allow for investment in overseas capacity (namely China) and in new products to keep the competitive gap wide. Capital expenditures are planned at a reasonable $60.0-$70.0 million for FY09, down from a prior forecast by $10.0 million. The annual dividend payout of $70.0 million looks safe as Snap-On displays strong free cash flow prospects. Approximately $150.0 million in floating rate debt matures in 2010, with repayment being made using proceeds from the recent debt issuance, still leaving ample cash for potential acquisitions or share repurchase program. Moody's and S&P assign Snap-On investment grade ratings on its long-term debt and commercial paper (can't say this for others in the sector), thereby making cost of funds compelling and easy to raise should the need arise. Authored by Brian S. Sozzi, an Equity Research Analyst for Wall Street Strategies, Inc. (www.wstreet.com) covering companies in the Retail (hardline and softline) sector. Disclosure: NoneComplete Story » seekingalpha.com |
AutoNation Will Survive the Demise of GM Michael Young submits:AutoNation (AN) is America's largest specialist automotive retailer. The very statement encourages readers unfamiliar with the company to jump to conclusions. Just weeks after the formal demise of GM (GMGMQ.PK) and Chrysler, hasty journalists need to be restrained from writing the retailer’s epitaph, exercising tired sound-bites about the demise of a once fine industry then maybe just adding a token chart, almost as an after thought.That route of analysis is fundamentally flawed. Never judge a book by its cover and never write-off a company because it’s in a beaten-up sector. AutoNation needs GM and Chrysler as much as an Eskimo needs a swim suit – not at all. The impact of GM’s notification that six of AutoNation’s dealerships (out of approximately 230) were identified for closure represents about 0% of AutoNation’s 2008 operating income. Zero impact. Chrysler is almost as insignificant. The seven AutoNation dealerships highlighted in the Chrysler consolidation plan equate to just 1% of the dealer’s 2008 operating income. Incredible but true. But then AutoNation does retail the vehicles of 35 other manufacturers. That’s what you call diversification.Complete Story » seekingalpha.com |
Cash for Clunkers: Everyone's a Winner Chad Brand submits: It is hard to argue with the success of the “Cash for Clunkers” automobile incentive program so far. With $1 billion already blown through, Congress is working on a $2 billion extension, despite most Republicans being against the program (probably because it was a Democratic idea, not because it is not working).So far the average consumer is trading in their clunker for a new car that gets 9 miles per gallon more than the vehicle it replaced. The sales spike during the last week of July has led both Chrysler and Ford (F) to report July sales gains, the first increase in 2 years for the domestic automobile industry. General Motors (GMGMQ.PK) reported a 19% decline in sales, but still saw an enormous benefit from the program.Complete Story » seekingalpha.com |
Northrop Grumman Corporation. Q3 2009 Earnings Call Transcript Northrop Grumman Corp. (NOC)Q3 2009 Earnings CallOctober 21, 2009; 11:30 am ETComplete Story » seekingalpha.com |
November Railtime Indicators Point to Positive Trend The AAR is out with its latest railtime indicators for the month of November.The Association of American Railroads (AAR) today released the December 2009 “Rail Time Indicators” report and online video summary. The report notes that November freight rail carloadings were down 8.2% compared with the same month last year and down 17.4% compared with November of 2007. However, if Thanksgiving week were excluded, November would have been the highest volume month of the year for U.S. railroads.Complete Story » seekingalpha.com |