Valuation Fair on PetSmart
PetSmart, Inc. (PETM) reported fourth quarter results that were in-line with the company's negative pre-announcement. The company also issued full-year EPS guidance of $1.51-$1.59 that was in line with our previous estimate of $1.59.
However, first quarter guidance of $0.29-$0.33 was disappointing, and it indicates that PetSmart's full-year outlook is back-end loaded. Given the difficult retail environment, we do not expect a big uptick in sales in the second half of 2008.
As a result, we are lowering our 2008 EPS estimate from $1.59 to $1.52. We are also publishing our 2009 EPS estimate of $1.64. The company expects total sales growth in the high single digits for the first quarter and full-year 2008 with flat to low single-digit comparable-store sales growth in the first quarter and low single digits for the full year. The company also expects earnings per share of $0.29-$0.33 for the first quarter and $1.51-$1.59 for the full year.
PetSmart shares currently trade at 13.8.0x our fiscal year 2008 EPS estimate and 12.7x our fiscal year 2009 EPS estimate. At its current valuation, PETM shares appropriately reflect the company's attractive market position and long-term growth opportunities, in our view. We maintain our Hold rating on PETM shares, as the valuation still looks reasonable. Our target price is $21.50, which is roughly 14x our fiscal year 2008 EPS estimate.
JOBS Still Strong in China
51job, Inc. (JOBS) announced its financial results for the fourth quarter. Its net profit margin declined due to higher sales and marketing expenses and a higher tax rate. Its EPS missed market consensus, while revenue exceeded expectations. 51job continues to have the highest brand recognition in both the online and offline recruiting market in China.
Overall, we believe 51job is well-positioned to leverage this market opportunity in China. Therefore, we are maintaining the Buy rating for the stock. Although the competition is increasing in both the offline and online recruiting market, 51job has the highest brand recognition in the online recruiting market in China. Moreover, China's prosperous economy will boost the recruiting market.
Based on our estimate for fiscal year 2008 earnings per ADS, the stock is trading at 25.3x, which is lower than the industry mean. Based on our estimate for fiscal year 2009 earnings per ADS, the stock is trading at 18.8x, which is much lower than the industry mean. We reiterate the Buy rating for the stock. Using a P/E multiple of 22x our fiscal year 2009 earnings per ADS estimate of $0.90 yields a target price of $20, which can reflect company's great growth prospects, in our view.
Hold Rating on CBS Corporation
Mired in a secular and cyclical slowdown, we think CBS Corporation (CBS) can nevertheless generate high-single digit EPS growth over the next couple years through share repurchases, low-single digit revenue and mid-single digit operating income growth. Driving growth in 2008 is the U.S. presidential election, which will attract significant political revenue.
At current valuations, we expect the stock to generate total shareholder returns in-line with the market. Dividends supplement our expectations of mid-single digit capital appreciation (the stock currently yields a generous 4.4%).
On January 10, 2008, CBS Corporation completed the sale of seven of its owned television stations to Cerberus Capital Management for $185 million. The sale includes stations in Austin, Salt Lake City, Providence and West Palm Beach, and is subject to FCC approval and other customary closing conditions.
On February 26, 2008, CBS Corporation reported 4Q07 financial results. CBS's 4Q07 EPS increased 1.9% year over year to $0.54 from $0.53 per share in 4Q06. On a GAAP basis, EPS was $0.42, down 2.3% compared to $0.43 in 4Q06. Revenue declined 3.2% YOY to $3,758.8 million the television and radio station divestitures, the non-renewal of several marginally profitable outdoor transit contracts, and record political advertising sales in 4Q06.
Management anticipates operating income before depreciation and amortization (OIBDA) and operating income to increase in the range of 3% to 5% in 2008. EPS is anticipated to grow at a high-single digit rate. Management expects a capital expenditure of $500 million to $550 million in 2008.
Penske Positives Priced-in
Penske Automotive Group, Inc. (PAG) is well positioned among the auto retailer peer group. The Penske Automotive Group's specialty and luxury product mix offers opportunity for long-term growth. Additionally, we are encouraged by positive same-store sales in both new and used vehicles. However, rising interest rates, difficult industry conditions and a leveraged balance sheet dampen our outlook on the stock.
For 2007 full year, earnings from continuing operations per diluted share were $1.35, down from $1.40 in 2006. Revenues for the year increased 16.5% to $13 billion. The company divested 21 franchises in 2007 that generated about $370 million in annualized revenue. The company currently projects earnings from continuing operations in the first quarter of 2008 to be in the range of $0.32 $0.34 per share.
