Guru Meryl Witmer’s 2014 Barron’s Roundtable Stock Picks
Wyndham Worldwide (WYN)
“The company is the largest global franchisor of hotels. It has 15 brands in 67 countries… Like most franchisor businesses, lodging requires little capital to grow organically. Incremental margins typically are in the 40% range. Capital spending in this business is around $40 million a year, and EBITDA is $300 million.” – Witmer
Wyndham Worldwide was Meryl Witmer’s one new stock pick for the New Year. She had many favorable things to say about the company and the company’s management. At the time of her pick, the company was trading at $72.97 per share. The company is trading slightly underneath this price at $72.05 as of market close.
Wyndham Worldwide operates as a hospitality company and offers individual consumers and business customers a suite of hospitality products and services across various accommodation alternatives and price ranges through its portfolio of world-renowned brands.
Wyndham’s historical revenue and net income:
Meryl Witmer also had a lot of good things to say about the company’s CEO Steve Holmes and the way he runs his company. Witmer said “Holmes is a great capital allocator… He has shrunk the shares outstanding since 2006 from 199 million to under 132 million.” She also says that they assume that the corporate head will continue to buy more shares with the company’s free cash flow.
In her Barron’s interview, Witmer also addresses her financial forecast for the company. The guru believes that Wyndham’s earnings could increase in the next couple of years by approximately $115 million to $625 million, and also that the share count will fall to 112 million in two years and 103 million in three years. And finally Witmer says that through her calculations the company will hold a target price of $95 to $119 within a year or two.
The Peter Lynch Chart on Wyndham reports that company appears to be overvalued:
The GuruFocus analysis on Wyndham reports that the company’s price is near a 10-year high, its P/S ratio is close to a 10-year high and the company has issued $463 million of debt over the past three years.
As of the third quarter there were seven gurus that maintained a position in Wyndham Worldwide. You can check out these gurus’ holding histories here.
Wyndham Worldwide has a market cap of $9.39 billion. Its shares are currently trading at around $72.05 with a P/E ratio of 22.90, a P/S ratio of 2.00 and a P/B ratio of 5.60. The company’s dividend yield is sitting at around 1.60%.
Check out more information on Wyndham Worldwide here.
Spectrum Brands Holdings (SPB)
“Last year my low-end estimate of free cash flow for 2015 was $7 a share. Management recently forecast that free cash flow will be at least $350 million in 2014, so with 52 million shares outstanding, Spectrum is a year ahead of my schedule.” - Witmer
At the time of Witmer’s interview Spectrum was trading at around $69.80, and since then the price per share has dropped nearly $2.00 to $67.90 per share.
Spectrum Brands Holdings is a global branded consumer products company. The company has market positions in six major product categories: consumer batteries, pet supplies, electric shaving and grooming, electric personal care, portable lighting and home and garden control products.
Spectrum’s historical revenue and net income:
The GuruFocus analysis on Spectrum Brands reports that the company’s price is near a 5-year high, its issued $1.3 billion of debt over the past three years and its dividend yield is trading near a 1-year high.
In her Barron’s interview Witmer says, “Spectrum should be trading 30% higher, with potential for share appreciation, as management continues to do the right thing.” The guru believes that Spectrum’s newest path in acquisitions will help to expand the company in the right path.
The GuruFocus analysis on Spectrum reports that the company has issued $1.3 billion of debt over the past three years, its dividend yield is sitting near a 1-year high and its price is sitting near a 5-year high.
As the close of the third quarter there were three additional gurus holding a position in Spectrum. Check out their holding histories here.
Spectrum Brands Holdings has a market cap of $3.58 billion. Its shares are currently trading at around $67.90 with a P/S ratio of 0.86 and a P/B ratio of 4.00. The dividend yield of Spectrum is at 1.47%
Esterline Technologies (ESL)
“Our interest piqued when Esterline announced that Curtis Reusser would be joining the company as CEO in October 2013. He was previously president of the aircraft-systems unit at United Technologies (NYSE:UTX)…” – Witmer
Further showing that she favors companies with strong and experienced management teams, Witmer’s third pick of 2014 was in Esterline Technologies. At the time of the interview Esterline was trading at around $101.67, and since then the price per share is trading up at $105.09.
Esterline Technologies is a specialized manufacturing company mainly serving aerospace and defense customers. It designs, manufactures and markets highly engineered products. The company primarily serves the aerospace and defense industry in the U.S. and Europe.
Esterline Technologies’ historical revenue and earnings growth:
In her discussion of Esterline’s financials Witmer said, “Total revenue is split 45% from commercial aviation, 35% from defense, and 20% from industrial customers. The company reported $2 billion in total revenue for fiscal 2013, ended Oct. 25, of which 15%came from higher-margin aftermarket business.”
The GuruFocus analysis on Esterline reports that the company’s revenue has been in decline over the past year, its price is sitting near a 10-year high and its operating margin is consistently expanding.
Witmer believes that the company could achieve 15% operating margins in 2015, and that it will assume a flat revenue of $2 billion next year. She discusses that ultimately with the revenue growing as it is and higher margins, the free cash flow could hit $10 per share in 2016, which would yield her target price of around $160 per share.
The Peter Lynch Chart suggests that the company is currently overvalued:
In concerns to Esterline another guru, Mario Gabelli (Trades, Portfolio), said that “With the middle class growing in India and China, anything tied to commercial aviation in any capacity will continue to do well, and the stock market likes it.”
Esterline Technologies has a market cap of $3.31 billion. Its shares are currently trading at around $105.27 with a P/E ratio of 20.30, a P/S ratio of 1.69 and a P/B ratio of 1.89. The company had an average earnings growth of 11.70% over the past ten years.
GuruFocus rated Esterline the business predictability rank of 3-star.
“Constellium has about a million tons of rolling capacity across six major rolling facilities. It is known for its research-and-development expertise and specialized technical capabilities, which have enabled it to develop long-term relationships with key customers including Airbus, Boeing, Audi, and Mercedes.” – Witmer
Meryl Witmer’s fourth and final pick is in the company Constellium, which at the time of the interview was trading at around $22.98 per share. Since then the price per share has jumped up to $25.44 per share.
Constellium NV designs and manufacture rolled and extruded aluminum products, primarily for aerospace, automotive and packaging markets. The Company's products include common alloy coils, paintstock, foilstock and soft alloys.
Constellium’s historical revenue and net income:
The company went public in summer 2013 at $15 per share. The company holds 105 million shares outstanding for an equity cap of $2.4 billion. Since the company is based out of the Netherlands, it reports its financials in Euros, but Witmer holds on to the company in its listing in New York.
What Meryl had to say about Constellium:
“Constellium is expected to earn about $2 in 2013… It has the potential to earn more than $2.50 a share in two or three years, all while generating free cash flow… Our target is $30 to $35 in the next two to three years. The company estimated that the replacement value of its assets is north of six billion Euros [$8.2 billion].”
The GuruFocus analysis reports two warning signs for the company. The company’s price is sitting at a 1-year high and its inventor has been building up, meaning it might be having trouble selling its product.
The Peter Lynch Chart suggests that the company is currently overvalued:
Constellium NV has a market cap of $2.56 billion. Its shares are currently trading at around $24.72 with a P/E ratio of 14.40 and a P/S ratio of 0.50.
You can read Meryl Witmer’s interview with Barron’s here.
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