Among the biggest losers in Thursday's early trading are
H&R Block (NYSE:
HRB
)
,
The Gap (NYSE:
GPS
)
and
Kohl's (NYSE:
KSS
)
.
|
Top Percentage Losers --Thursday, July 8,
2010
|
|
Company Name (Ticker)
|
Intra-Day Price
|
Intra-Day
% Loss
|
52-Week High
|
52-Week Low
|
| H&R Block (NYSE:
HRB
) |
$14.30 |
-7.7
%
|
$23.23 |
$13.58 |
| The Gap (NYSE:
GPS
) |
$18.20 |
-7.7
%
|
$26.34 |
$14.65 |
| Kohl's (NYSE:
KSS
) |
$46.62 |
-3.9
%
|
$60.89 |
$42.10 |
|
*Table includes companies with minimum market
capitalizations of $200 million and three month trading
volumes of at least 100,000 shares. All percentage returns
are listed as of 12:30AM Eastern Standard Time . Click on
ticker symbols for up-to-the-minute price quotes and
percentage gain data.
|
Abandoning Ship at H&R Block
Last one out, turn off the lights. That's the likely chatter among
executives at tax-prep firm
H&R Block (NYSE:
HRB
)
. The company's chief financial officer left in late April (and has
yet to be replaced), the company's General Counsel resigned last
week and on Wednesday evening the company's Chief Executive Officer
announced plans to depart. Investors are wondering if these folks
know something that the rest of us don't and they're pushing shares
down -8% on Thursday morning, briefly touching an eight-year low.
Perhaps change is a good thing. Sales in the all-important fiscal
fourth quarter (ending in April) fell -5% while profits were
roughly flat. You have to go back to 2004, when H&R Block
earned $1.94 a share, to find the last truly impressive year. But
maybe there's little any management team can do, short of making
major acquisitions. After all, an increasing number of consumers
are handling their own tax needs through software, which carries
much lower profit margins and is brutally price-competitive.
Action to Take -->
H&R Block's lead director, Alan Bennett, will temporarily take
the helm. In a previous stint in the corner office, he embarked on
major cost-cutting but presented few growth initiatives. Until a
new course can be charted, he'll seek to keep buying back stock
($1.6 billion remains under the current buyback authorization) and
perhaps boost the
dividend
, which currently yields close to 4%.
Shares are undeniably cheap, trading at less than 10 times trailing
and projected profits. If $1 billion in stock were bought back,
shares outstanding would fall from 327 million to around 250
million, boosting per share profits by about +20%. But until the
company can come up with a plan to boost sales, shares are likely
to tread water. The only real catalyst for shares is a possible
bout of rumors that private equity (
PE
) firms may start sniffing around. H&R Block has precisely the
size and
cash flow
characteristics that appeal to PE shops.
------------------------------------
When Headlines mislead
On the face of it, flat same-store sales for
The Gap (NYSE:
GPS
)
are understandable. After all, consumers remain cautious and few
expect to see big gains right now. But those flat results just
reported for June are being compared to June 2009, when same
store-sales fell a massive -10%. In reality, sales were really
lousy a year ago -- and they're still really lousy, which is why
investors are greeting this flat sales report with a -7% drubbing
in the stock.
It's fair to ask if The Gap could fare well in a stronger economy.
After all, annual sales have fallen every year since 2005, even as
management has tried every trick in the book to boost sales. The
only bright sport has been rising gross margins, which has enabled
the retailer to squeeze out +10% annual operating profit growth in
recent years. But you can only boost margins so much, and at some
point, investors need to see real organic sales growth.
Action to Take -->
As is the case with many other retailers, this sales report does
nothing to inspire. In the absence of new growth ideas, management
should be returning cash to shareholders in the form of buybacks
and dividend boosts. But that's unlikely to give much of a boost to
the stock.
------------------------------------
Kohl's High Bar
Investors may be getting a little carried away with retailer
Kohl's (NYSE:
KSS
)
. The company has been performing so well for so long that
investors have come to expect consistent 100% sales execution. At a
time when the consumer is on the ropes, investors still expected
Kohl's to boost same-store sales by about +6.5% in June. That fact
that they "only" rose +5.9% counts as a real disappointment and
shares are off -4% in Thursday trading,
Action to Take -->
Ignore the noise. This is still a great retail story. As is the
case with so many retailers, it trades for about 10 times next
year's profits. The key distinction: Kohl's remains on a steady
growth path while so many other retailers are seeing growth peter
out. Shares have lost roughly -20% of their value in the last two
months, and historically, that has always proven to be a great
buying opportunity.
-- David Sterman
David Sterman has worked as an investment analyst for nearly two
decades. Most recently, he served as Managing Editor of
RealMoney.com, the premium website of TheStreet.com. David has made
numerous media appearances over the years, primarily on CNBC and
Bloomberg TV, and has a master's degree in management from Georgia
Tech. Read More...
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
StreetAuthority