Investors need to pay close attention to all companies that report earnings, particularly the less “popular” companies. I believe that the companies I have listed here fall into that category and do not receive the level of attention that is deserved. The stock market is composed of thousands of companies, and one of the keys for investors to succeed is to unlock hidden value that is unknown to the masses.
You likely shop here, but have you considered an investment?
Same store sales miss, but not a concern.
Same store sales dropped 0.6%, as a 1.9% decrease in store traffic was offset by a 1.3% increase in average ticket. Much of the weakness could be attributed to weather related factors, so investors shouldn’t concern themselves with data. Looking forward to 2Q, the company can benefit from new merchandising programs (Nate Berkus, todd Oldham) along with the continued success and expansion of P-Fresh, and the company’s 5% rewards program should all contribute to a better 2Q bottom line.
Oh, Canada!
Target Corporation (NYSE:TGT)’s aggressive expansion in Canada has already yielded $86 million in sales, and the mix of sales was skewed towards higher-margin apparel and home products. Gross margin in Canada was 38.6% compared to 30.7% in the U.S. Target Corporation (NYSE:TGT) had a limited number of stores (24 to be exact) that were open for about half of the quarter. With a planned expansion to 124 stores across Canada by the end of the year, higher margin sales will continue driving profits for years to come.
Management committed towards share price.
In the quarter, management repurchased approximately 8.5 million shares, for a total cost of $547 million. Management also reaffirmed prior guidance issued in February for more than $2 billion in share repurchases during the year. The company also distributed $232 million in dividends to shareholders during the quarter.
Closing remarks.
Despite releasing somewhat disappointing results, the fundamentals remain intact. Management has issued a long-term EPS estimate of $8 or more per share by 2017, along with a $3 or more dividend per year. These numbers, at first glance, seem overly ambitious, but considering the company’s aggressive expansion in Canada at higher margins, and a loyal and dedicated customer group, the projections seem feasible. As such, the shares should still be considered “cheap” despite trading at fresh 52-week highs.
Better than expected results from this not so obvious investment idea
PetSmart, Inc. (NASDAQ:PETM) reported Q1 EPS of $0.98 which beat the consensus of $0.96, while Q1 same store sales were up 3.5%. Revenue came in at $1.7 billion, slightly below the $1.72 billion consensus.
Q2 and FY13 outlook looks great.
The company took the opportunity to reiterate Q2 earnings in the range of $0.82-$0.86 with comparable same store sales growth of 3%-4%. For fiscal year 2013, the company raised its EPS view to the range of $3.82-$3.94 from previous range of $3.76-$3.92.
Online retailers don’t pose any major threats.
One of the possible reasons for the underperformance has been fears that major online retailers represent a new form of competition and can take away a large chunk of sales . While investors shouldn’t discount such a threat, the threat is overblown due to the importance of PetSmart, Inc. (NASDAQ:PETM) (and other specialty pet stores) to suppliers. It makes little sense for those suppliers to undermine their own pricing and support structure for market share.
Iam’s tried this many years ago when it expanded its distribution to mass channels, and the brand lost its value and never recovered. Hence, while the online retailers remain a potential threat, I can not see it as a reason to ignore one of the best positioned companies in the segment.
Internal drivers: hardgoods.
The most intriguing story from the company’s success is the dog hardgoods reset, which the company identified as the largest merchandising reset in its history. Hardgoods now account for roughly one third of the company’s entire sales, which imply a significant opportunity to freshen up a key part of the store.
Final takeaway.
The company’s increased guidance should send the stock higher in the near term, given the massive underperformance when compared to the Nasdaq 100 index, and considering the company’s lack of sensitivity to interest rates. Investors looking for a profitable company with upside that is underperforming major virtually every major index could find the shares attractive.
Another solid quarter and a recent acquisition will drive this stock higher
salesforce.com, inc. (NYSE:CRM) modestly beat on several fronts in a difficult IT spending environment. Revenue and free cash flow per share came in at $893 million and $0.37 per share, respectively, which was above consensus. Q1 revenue increased 30% as the company became the number one CRM (customer relation management) based on market share.
Developments in the quarter
The company signed a marquee partnership with the Japanese government that will allow it to serve more than 3 million small and medium-sized enterprises in the country. Also of note during the quarter was the 15th straight quarter of improved dollar attrition which is now in the low-double digits.
Bears will point out the deceleration in calculated billings growth to 17% from 29% in Q4 and 30% for all of FY2013, but adjusted for the move to annual invoicing and the early renewal of a $30 million contract, normalized billings growth was still a strong 29%.
$2.5 billion well spent in acquisition
On June 4, salesforce.com, inc. (NYSE:CRM) announced an acquisition for $2.5 billion to buy ExactTarget Inc (NYSE:ET). The acquisition will solidify Salesforce’s mission of being the world’s leading CRM platform, one that enables companies to transform how they connect with their customers across sales, service, and marketing. The acquisition is the company’s largest, and a positive step in the company’s expansion to social marketing.
Looking forward
The company took the opportunity to revise revenue guidance range for fiscal 2014 to the tune of 27%-28% growth, which is extremely impressive for a company with $3.5 billion in revenue.
Closing remarks
All in all, the company reported an impressive quarterly results, and the immediate dip in the share prices should be seen as a buying opportunity. The company is maintaining its 30% growth trajectory, which is (at least to my knowledge) well above any of its peers in the large-cap software group.
Conclusion
As the earning season comes to an end, investors were given a glimpse of what is yet to come in 2013 and beyond. The companies I have listed should all be considered as good buys based on their sound businesses.
Jayson Derrick has no position in any stocks mentioned. The Motley Fool recommends PetSmart and Salesforce.com.
The article 3 Companies to Love Following Earnings originally appeared on Fool.com.
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