3 Stocks To Go
Declan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There has been a general slowing in the number of stocks making breakout moves on volume. Not there has be a slowdown in the number of stocks making all-time highs, but only of movers-and-shakers making near-term highs backed by volume buying. Three stocks to make an appearance were Alere Inc (NYSE: ALR), Emeritus Corp (NYSE: ESC), and DreamWorks Animation (NASDAQ: DWA).
Alere develops and manufactures patient diagnosis, monitoring, and health management products for a range of health issues. The driver for the volume move higher was of a deal done with the FDA on release specifications for its Alere Triage meter-based Products. This move should undo the damage done in May after the company had to recall 803,000 of the very same cardiology tests. The importance of this was critical as this particular product accounted for $51 million of the $69 million it generated in Triage sales, although the sum was less than 8% of the company's total sales.
The loss overshadowed what had been a positive earnings take for Alere in May, and an improving cash conversion cycle. The company had come in at analyst estimates, but it had handily beat in the prior three quarters. Expectations for Q3 are comparable to Q2 at $0.47 a share, although revenue is expected to rise again with estimates of $687 million; in Q2 the company reported over $700 million compared to expected $653 million. An increase in raw materials inventory is also a positive sign, reflecting expectations for increased demand for its products in the quarters ahead.
Emeritus Corp operates senior living communities in the United States, including care facilities for individuals suffering from Alzheimer's and dementia. The volume boost came off the back of coverage initiated by Deutsche Bank at a 'Buy' rating. There was also raised expectations with respect to real estate valuations of Emeritus senior housing properties by Stifel Nicolaus that added to the momentum (and also came with a 'Buy' rating). Indeed, increased demand for new or renovated senior living facilities is helping support the beleaguered construction sector.
Not only are there fundamental drivers built by an aging demographic, but the sector is attractive for M&A prospects. The recent takeover of Sunrise Senior Living came off the back of a lofty premium. The $14.50-per-share purchase price was a 62% premium on its prior business close. Both Emeritus Corp and Brookdale Senior Living (NYSE: BKD) fall into likely targets for buyers. Brookdale Senior Living is the industry's largest company and has the lowest valuation relative to cash flow. While Emeritus traded last month at its cheapest price relative to cash generated in 7 years. If there is one area where Emeritus could do with a boost is its net income figures. An attractive suitor Emeritus may be, but the company has only managed one profitable quarter in the last eight, although this is one profitable quarter more than Brookdale Senior Living has managed.
The last pick is DreamWorks Animation. This has been a company which has been under steady earnings pressure for the last few quarters. It's annus horribilis was 2010 when a huge earnings miss pummeled the stock from $40 into the $20s and subsequently lower. The company is now looking overseas and online to boost its bottom line. The studio's last two films, "Madagascar 3: Europe's Most Wanted" and "Puss in Boots" had its strongest performance in Russia (from 100 foreign territories) with the films collectively taking $100 million (the company has a ttm revenue figure of $678 million). It's next production, "Rise of the Guardians" is set to have a heavy marketing push in Russia. Although it was noted the Christmas Holiday period for Russia is January, so it won't be until spring of next year until the success of this is known on the earnings front.
Dreamworks Animation has also broadened its mobile distribution channel with a content licensing agreement with M-GO. M-GO is a cloud based, digital sales platform which will allow users to consume purchased media via TV's, PCs and mobile phones. The aim of M-GO is to address falling DVD sales not replaced by sales on Apple and Amazon (although the general lack of digital offers would probably explain some of this; a premium service without any low-cost bait isn't going to suck people in). In addition to pressure on DVD Sales, Dreamworks is also suffering from weaker merchandise sales, although tapping the right product, such as the $60 million in revenue generated by licensing of "How to Train Your Dragon," can beat an entire year's revenue for the studio as a whole.
Up until its recent volume surge, Dreamworks Animation was trading at the low end of a 7-year range, bouncing between $17.50 and $20. After its IPO and for a brief time in 2010 it traded in the $40s, but despite its recent success it's going to be a long slog back to those highs.
fallond has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend DreamWorks Animation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.