Shares of Siliconware Precision Industries are currently trading at 12.5x our 2008 earnings estimate of $0.55 and 8.8x our new 2009 estimate of $0.78. We have fixed our price target at $7.20 based on the company selling between 13.0x 13.2x our new 2008 EPADR estimate of $0.55, and we will have more visibility after 3Q08.
We still expect the company to outperform its peers, but believe that growth for the company and industry as a whole has started to slow, and a P/E in this range better reflects the uncertainty in the market over the coming quarters.
Green Mountain Getting Steep
The management of Green Mountain Coffee Roasters, Inc. (GMCR) is implementing a growth strategy based on a multi-channel geographic penetration business model. The company is expanding geographically and by adding new relationships, such as McDonald's Corp.'s (MCD) and Lowe's Companies, Inc. (LOW).
Having generated 23 consecutive quarters of double-digit sales growth and eleven consecutive quarters with growth in excess of 25%, the stock is fairly valued at a premium P/E. In fiscal 2008, the management expects top-line growth of 44% to 46%. The stock is rated a Hold due to high valuation, rising input costs and an unfavorable product mix shift.
Green Mountain is a growth company in the growth sector. It is in the process of growing from a regional to a national company. In August, the company acquired a new manufacturing facility at Knox County, Tennessee for $10.4 million. The 334,000 square foot facility is expected to support the brand's national expansion and continued growth in the single-cup business.
Green Mountain Coffee Roasters is currently selling at 47.4 times trailing 12 month EPS, reflecting the company's higher-than-average growth profile, given the company's exposure to the attractive premium coffee industry and successful business model. Over the last few years, the stock has traded in a very wide P/E range of 14 to 98, with the stock only having traded above a 40 P/E since November 2006.
Net sales have grown at a 33.7% five-year compound annual growth rate (CAGR). Better-than-expected quarterly results along with the management's positive outlook for fiscal 2008 bode well for the company. The target price is $38.50, which is a 50 P/E multiple on 12-month trailing earnings.
Kirkland's Up to Fair Value
Kirkland's, Inc. (KIRK) reported better-than-expected results for the second quarter, beating on both the top and bottom lines. The company continues its turnaround efforts, and that is producing in better comp-store sales and profit margins. As a result, we are increasing our estimates for 2008 and 2009. Even so, these estimate increases are due to higher profit margins and not stronger sales trends. The positive comps are due to the company closing its worst-performing stores.
While we applaud the company's efforts to increase margins and boost cash flow, we think the stock will remain range bound until the company can begin to produce solid sales growth while maintaining those higher margins. Unfortunately, we do not expect Kirkland's sales trends to improve until the macro headwinds, which are pressuring consumer discretionary spending, improve. Until then, we believe it is prudent to remain on the sidelines. We maintain our Hold rating on the shares.
The home furnishings industry is struggling and valuations of stocks in this industry are depressed across the board. That said Kirkland's trades on par with its industry peers on price-to-book, price-to-sales, and price-to-cash flow ratios. What's more, the stock is trading at 13.7x our 2008 EPS estimate and 12.9x our 2009 EPS estimate. We think this represents a fair value when compared to the company's expected earnings growth rate of 10%. Our target price is $2.50 or about 14x our 2009 EPS estimate.
Colgate-Palmolive Costs High
Colgate-Palmolive Co. (CL) has had a stellar long-term growth record. The company's tight financial controls and history of new product innovations coupled with efforts to enhance shareholder value through share repurchases and dividend increases support a positive long-term view on the stock. However, rising raw material/fuel costs and the costs related to the implementation of the restructuring plan remain concerns.
Colgate-Palmolive stock has traded in a P/E multiple range of 18 to 27 over the last four years. However, during the last time of earnings de-acceleration and a corporate restructuring in the mid-1990s, Colgate's stock traded at a P/E in the low 20 s. The stock is currently trading at a P/E multiple of 20.8, which is in the middle quartiles of the historical range. Positive earning surprises along with savings from the company's restructuring and business-building plan should support future growth.
In addition, the company remains the clear market leader in the oral care segment. With an array of new products scheduled to be launched in 2008, the company should deliver strong results. However, aggressive advertising expenditures and higher input costs should continue to constrain near-term growth. Therefore, the stock is rated a Hold. The target price of $80.25 is based on a 22 P/E on 12-month trailing earnings.
