Kirkland's a Buy on Valuation
As expected, Kirkland's (KIRK) fourth quarter results were dreadful. Sales were down 16% and EPS were down 58%. Clearly, the environment for home furnishings retailers was difficult in 2007. That said, we continue to believe Kirkland's is taking the right steps to weather the current storm.
Kirkland's is focusing on cash flow and liquidity, closing unprofitable stores and positioning its stores to thrive when macro conditions finally improve. In our opinion, the shares are cheap. We reiterate our Buy rating and lower our risk rating from Speculative to Above Average.
Given Kirkland's smaller revenue base compared with larger competitor Pier One (PIR) ($400 million vs. PIR's $1.6 billion and industry avg. of $1.2 billion), it makes sense for KIRK shares to trade at discount to Pier 1 and the industry average. We think a generous discount of 50% to the industry average P/S multiple is reasonable. Applying a P/S multiple of 0.2x our 2008 sales estimate yields a target price of roughly $4.00 for KIRK shares.
Solid Forecast for Vimpelcom
Vimpelcom (VIP) is the second-largest cellular carrier in Russia. The company maintains approximately 30% market share in Russia (which is rapidly maturing) with expansion into regions of the Commonwealth of Independent States operating GSM-based wireless technology. Robust subscriber growth and recent acquisitions continue to drive revenue and earnings momentum.
Growth prospects in Eastern Europe for wireless services remain firm and support our forecast for strengthening financials. We continue to be intrigued by Vimpelcom's success in maintaining its market share and increasing sales on a recurring basis. Its acquisition of Golden Telecom is also expected to facilitate telecom expansion outside its core consumer cellular offering.
We reiterate our Buy rating based on financial metric estimates which we believe are attainable. VimpelCom is trading at 16.0x our 2008 EPADS estimates. This is at a premium to its major competitor, Mobile TeleSystems (MBT) (its closest Russian peer) and the S&P 500. Meanwhile, VimpelCom continues to demonstrate its ability to succeed in emerging markets bolstered by sustained subscriber growth which, in turn, continues to drive revenue and earnings higher.
NOVA Chemicals Rates a Buy
NOVA Chemicals (NCX) is a leading chemical company jointly headquartered in Calgary, Alberta, and Pittsburgh, Pennsylvania. NOVA creates plastic bags, packaging, containers, pipes and other household and commercial plastics. Components for appliances, electronics, and automobiles are also produced by the corporation. Further, NOVA creates an extensive line of plastic tools and parts for construction.
The company's earnings in the near-term will be driven by a relatively strong ethylene market and cost cutting in the styrenics business. We rate the stock a Buy with a target of $35. This is 9.9x our 2008 estimate.
Currently, NOVA is valued at 6.7x our 2008 estimate of $3.53. NOVA's earnings in the near-term will be driven by a relatively strong ethylene market and cost-cutting in the styrenics business. On March 10, 2008, NOVA Chemicals announced that Grant Thomson has been appointed as President of the Olefins and Feedstocks business. Thomson will operate from the company's Canadian Operating Center in Calgary.
