Ongoing ArvinMeritor Expansion
ArvinMeritor, Inc. (ARM) has developed a leading position in most of the markets it serves. Presently, the company is undergoing dramatic cost reductions as well as implementing an impressive global growth strategy.
The company is also expanding geographically and outsourcing to low-cost countries. ARM is likely to benefit from the new business from Hyundai and the latter's focus on emerging markets. However, a downturn in the automotive industry leading to production cuts, coupled with rising steel and fuel prices, lead us to rate the shares a Hold.
On April 29, 2008, ArvinMeritor reported second quarter fiscal 2008 results. In the second quarter, net loss from continuing operations, excluding special items, was $0.37 per diluted share, compared to income of $0.17 per diluted share in the prior-year period. In the quarter, ArvinMeritor posted sales from continuing operations of $1.8 billion, up from the same period last year. Excluding the impact of foreign currency translation, sales were approximately flat due to a continued weak economy in North America, offset by strong sales growth in South America, Europe and Asia.
Currently, ARM's shares are trading at approximately 13.5x our 2008 EPS estimate of $1.05. Our six-month target price is $14, and we maintain our Hold rating on the shares of ARM.
Rent-A-Center Fairly Priced
Rent-A-Center, Inc's (RCII) first quarter results were better than expected thanks to the companyâ?s restructuring efforts. Still, management left its full-year EPS guidance unchanged at $2.17-$2.32. We increased our 2008 EPS estimate from $2.15 to $2.23 and our 2009 EPS estimate from $2.29 to $2.35 to reflect the companyâ?s upside in the first quarter. However, we continue to find it difficult to get excited about RCII due to the weak consumer spending environment and its effect on Rent-A-Centerâ?s core customer.
For the second quarter, the company expects total revenues of $701-$716 million and diluted earnings per share of $0.53-$0.59. The company expects to open approximately five new rent-to-own store locations and add financial services to approximately 25 rent-to-own store locations. For full-year 2008, the company expects total revenues of $2.868-$2.908 billion and diluted earnings per share of $2.17-$2.32. The company expects to open approximately 30 to 40 new rent-to-own store locations and add financial services to approximately 150 rent-to-own store locations.
With the stock trading around 10x our 2008 EPS estimate, RCII looks fairly valued at current levels. We maintain our Hold rating. Our target price of $23.50 is 10.5x our 2008 EPS estimate, which is in-line with the companyâ?s long-term earnings growth rate. RCII shares are trading at 10.1x our 2008 EPS estimate and 9.6x our 2009 EPS estimate. This valuation appears to be cheap, but we think it is a reasonable valuation that reflects the problems associated with the company s core customer base.
We maintain our Hold rating and expect RCII shares to track the overall market for the next six months. Our target price is $23.50, or about 10.5x our 2008 EPS estimate.
Sierra Wireless Attractively Priced
Sierra Wireless (SWIR), a leading provider of OEM wireless modem cards and access solutions, announced impressive first quarter of fiscal 2008 financial results that exceeded the companyâ?s own guidance.
