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Wal-Mart (WMT) Continues to Roll and VeriFone Drops 30% in Early Trading

February 21, 2013 | About:
U.S. equity markets remain mixed after initial jobless claims increased and inflationary pressure on the consumer starts to build up. The economy is starting to show the effects of the high price of gasoline and economists are afraid it will put the breaks on the sluggish but slowly growing economy.

One of the companies that in the past has been affected by higher gasoline prices is Wal-Mart (WMT). The retailer posted fourth quarter profits of $1.67 (ex-items) versus analyst estimates of $1.57 per share and at the same time raised its dividend by 18%. The company now expects to pay an annual dividend of $1.88 per share. For fiscal year 2014, first quarter EPS was $1.11 to $1.16 versus $1.19 consensus and fiscal year 2014 EPS was $5.20 to $5.40 versus $5.37 consensus. Despite the beat, the company’s sales and earnings forecast were significantly lower.

Gurus who have been adding to their stake in the giant retailer include Bill Gates, Tweedy Browne and Ken Fisher. Bill Gates' position is interesting considering Wal-Mart represents 4.5% of the Bill & Melinda Gates Foundation portfolio.

The maker of Sam Adams beer, Boston Beer Co. (SAM), had EPS of $1.25 meeting analysts estimates both on the top and bottom line. Total sales rose by 8% year-over-year but the company is experiencing some margin pressure as margins fell to 52.1% from 56.4%, mainly due to increased advertising behind existing brands.

Gurus who have recently bought or added to their shares in the brewer include Baron Funds’ Ron Baron and Ken Fisher. While neither position is significant, Ron Baron commented his thesis behind his position in his fourth quarter commentary.

“We initiated a new position during the quarter in The Boston Beer Company, Inc. (SAM) best known for its Samuel Adams brand. Founded in 1984 by sixth generation brewer Jim Koch, Boston Beer is the largest craft brewer in the United States, selling approximately three million barrels annually and generating $600 million in sales. Craft beer represents just 7% of the U.S. beer industry volume today, but is the fastest growing segment, taking share from 'big beer' brands: Budweiser, Miller and Coors, as well as wine and spirits. This shift is occurring as consumers seek out more variety, more flavor and better quality from their beers, similar to what the wine industry experienced several decades before. Boston Beer remains the clear innovator and leader within a category that we expect to double in size over the next five years. Boston Beer boasts the broadest portfolio in its industry, with fifty different varieties of Samuel Adams beer as well as recent introductions into hard cider and malt beverages. Though they are the largest craft player, Boston Beer has just 1% of the overall U.S. beer market by volume, representing a major opportunity as they gain wider distribution across the country and reap the benefits of recent investments in sales and marketing. The company generates high returns on capital at its three brewing facilities, significant free cash flow and maintains a debt free balance sheet." (Matt Weiss)

I love the thesis; the only problem is that its shares always trade at very rich valuations.

Shares of electronic payment solutions provider Verifone (PAY) are under extreme pressure after the company forecasted lower earnings for the first and second quarter. The company stated that customers are not making major purchases and the continued weakness in Europe further adds to the problem. The Street responded by sending the stock close to 40% lower.

Gurus who are hurting today include Leon Cooperman and Joel Greenblatt but their stakes in the merchant are not significant.

Rating: 3.0/5 (6 votes)

Comments

kfh227
Kfh227 premium member - 1 year ago
I'll never invest in Boston Beer.

1) Cheap beer is always going to the Coors and Buds of the world.

2) Samuel Adams is not a premium beer

SamuEl Adams is sort of the poor mans "good beer". It will probably always have it's place but it will never be a Magic Hat.

FWIW: Most beer connoisseurs don't run to Guiness either.

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