Buy These High Performing Companies This Month
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
An upsurge in the stock price of a company indicates high performance and strong growth prospects. These companies are financially strong and provide good returns to investors. In this article, I have picked two such companies from the rental and leasing sector, which provided more than 35% in returns last year to investors. Both companies are large cap companies expanding to increase their market presence. Are these companies capable of providing stable returns into the future?
Expansion with the cost effective method
Hertz Global Holdings (NYSE: HTZ) began adopting cost initiative strategies in 2006, and it has been able to reduce the company’s overall cost by $2.6 billion. The company’s prime focus has always been the reduction in fleet management cost. Therefore, the company is adopting an alternative channel to sell its cars. The company receives $1100 more per car if it sells the car directly to a customer through a retail outlet. Consequently, the company is increasing its retail outlets from 35 locations to 100 locations by the end of this year. Due to this, the company’s fleet cost will be reduced 4% to 5% by year’s end, and it will contribute towards the company’s goal of reducing the cost by $300 million in 2013.
The company captures 12% market share in the off-airport car rental market, which is an $11 billion market in the U.S. To increase its market share, it is continuously adopting various strategies such as expanding its off-airport presence with cost effective video kiosks at various locations for $10,000 each rather than a brick and mortar locations, which would cost $150,000 each. These kiosks allow customers to interact live with an employee on the video screen. Additionally, it is incorporating its technology of “Hertz on Demand” in its off-airport segment, which will book a car 24/7 with the help of Internet, which was not previously the case.
Along with the market share upsurge, profit margins will increase from 18.1% in 2012 to 24.6% in 2014. Also, the company’s EPS will increase from $1.36 in 2012 to $1.88 in 2013.
Expansion in Brazil market for additional revenue
SBA Communications’ (NASDAQ: SBAC) towers outside the U.S. contribute only 14.9% of its total towers. With its low international exposure, the company is focusing on expanding its footprint outside the U.S. It currently has 800 towers in Brazil, a market which will experience an annual growth rate of 5.3% over a period of the next three years. Brazil’s telecommunication market will increase from $73 billion in 2011 to $100 billion in 2017.
Therefore, on July 15 SBA entered into an agreement with a Brazilian telecom company Oi SA (NYSE: OIBR), and the deal is expected to close by the end of this year. SBA communication will pay $302 million to the Brazilian company, and in return, it will have access to Oi SA’s 2,113 towers in Brazil. SBA funded this agreement with available cash and available credit facility. These towers will contribute $32.2 million of revenue and $67.3 million of cash flows by the end of 2014. In addition, company’s total tower count will reach to 20,000 globally.
On completion of this deal, Oi SA will sign a long-term agreement with SBA to lease and rent the antenna space required within these towers. This will help in meeting the rising smartphone demand in Latin America as the market continues to attract providers. Currently, there are approximately 1.15 tenants per tower, which is below the average of 1.5 tenants per tower in Latin America. This low tenant ratio and smartphone usage will generate further growth opportunity for Oi SA to attach more tenants in these towers.
The company’s site leasing segment is a major revenue driver contributing nearly 97% of its total revenue. This segment reported growth of 58% in the first quarter year-over-year. To continue to enhance its leasing revenue, it planned to upgrade its tower sites with 4G network. By now, it has upgraded 40% of its total sites and will upgrade 90,000 towers with 4G network by the end of 2014.
With the high demand for 4G network, its strong client base like Verizon and AT&T will be shifting their networks towards 4G. This will Increase the companies site leasing revenue from $846 million in 2012 to $1.1 billion in 2013, followed by $1.2 billion in 2014.
With the strong opportunity available in the market, all the above companies are expanding to increase their market presence, leading towards higher profits. Hertz is taking cost-initiative methods and is expanding in off-airport business segment. It is also shifting from brick and mortar to video kiosks, furthering its cost-effective measures.
SBA and Oi SA are coming to an agreement for enhancing SBA's presence in Brazil. Further, SBA is also converting its tower sites to 4G LTE, which is in huge demand, and will increase its site leasing segment. Therefore, in the long run all three companies will be strong performers and will continue to drive the shareholders return higher. So, I recommend a long term buy for all three companies.
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Shweta Dubey has no position in any stocks mentioned. The Motley Fool owns shares of Hertz Global Holdings. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!