Topic: Daily Advice

Stock Pickers Digest Hotline – Friday, April 12, 2019

BELLATRIX EXPLORATION LTD., $0.30, symbol BXE on Toronto, produces natural gas (71% of output) and oil (29%) in Alberta, B.C. and Saskatchewan.

The company is now undertaking a major recapitalization plan to deal with its big debt. The strategy will see Bellatrix’s total outstanding debt cut by $110 million (approximately 23%) and reduce annual cash interest payments by over $12 million.

It will also address the company’s looming debt maturities, pushing back those due dates to 2023.

The recapitalization buys Bellatrix time. However, its debtholders will get a large number of common shares as part of the transactions. That leaves its current shareholders with just 16.5% of the shares outstanding.

Despite the reduction in debt and interest payments, the company will likely continue to report negative cash flow considering the capital spending it needs to maintain production at current levels.

As well, the recapitalization will raise the number of shares outstanding from 81 million to 490 million. As a result, the company plans to consolidate its shares.

Consolidations, or reverse stock splits, sometimes hurt investor confidence—especially with struggling companies like Bellatrix. Even if there’s no change in the company’s business or assets, consolidations can undermine a stock’s value by as much as 25%, at least temporarily. Other times, consolidations have little, if any, effect. All in all, though, it’s another risk for Bellatrix shareholders.

OUR RECOMMENDATION: Bellatrix Exploration is now a sell.

Bellatrix Exploration Ltd.’s recent coverage

SYMANTEC CORP., $23.96, symbol SYMC on Nasdaq, sells computer-security technology, including antivirus and email-filtering software, to businesses and consumers.

The stock jumped in price this week after major U.S. banker Goldman Sachs upgraded its recommendation to “buy” from “neutral.”

In its report, Goldman Sachs mentioned a few of the factors that we’ve been pointing out for quite a while. That includes Symantec’s strong sales to big corporations that continue to spend more to shield themselves from cybercrime. The report also points out that the stock is inexpensive compared to shares of other cybersecurity firms.

OUR RECOMMENDATION: Symantec is a buy.

Symantec Corp.’s recent coverage

FIRSTSERVICE CORP., $119.50, symbol FSV on Toronto, offers residential property management and improvement services.

Most of its operations are run by 1,794 franchisees. However, the company continues to buy select franchises to turn them into company-owned businesses. It believes it can then accelerate their revenue growth and boost profit margins.

The most recent of these types of acquisitions is California Closets in Baltimore and in south New Jersey. With these purchases, FirstService now directly owns 19 of California Closets’ 80 (state or regional) operations.

California Closets is North America’s largest provider of custom-designed and installed closet, and home storage solutions.

OUR RECOMMENDATION: FirstService is a hold.

Firstservice Corp.’s recent coverage

WESTJET AIRLINES LTD., $19.68, symbol WJA on Toronto, serves over 100 destinations in North America, Central America, the Caribbean and Europe.

WestJet carried 2.3 million passengers in March 2019. That’s an increase of 4.8% from 2.2 million a year earlier.

Moreover, the carrier’s load factor climbed in December, to a record 87.0% from 85.6%. Load factor is the percentage of available seats that are occupied by paying passengers. The gain came despite a 5.5% increase in capacity.


WestJet’s recent coverage

WYNDHAM HOTELS & RESORTS INC., $53.77, symbol WH on New York, is the world’s largest hotel franchisor with nearly 9,157 properties spread across 80 countries.

On June 1, 2018, Wyndham Worldwide (old New York symbol WYN) spun off Wyndham Hotels. Investors received one share of the new company for each WYN share they held. The remaining firm then changed its name to Wyndham Destinations (New York symbol WYND).

Prior to that spinoff, Wyndham Hotels paid $2 billion in May 2018 to acquire La Quinta’s 900 hotels, with nearly 89,000 rooms.

The company now reports that all of La Quinta’s hotels are operating on the same central reservation, property management, loyalty, digital and call-centre platforms as Wyndham’s 19 other hotel brands.

That successful transition should benefit Wyndham guests as they look to securely book rooms at La Quinta’s hotels. It also sets the company up to achieve its forecast $60 million to $70 million in annual cost savings by the second half of 2019.

OUR RECOMMENDATION:Wyndham Hotels & Resorts is a buy.

Wyndham Hotels & Resorts Inc.’s recent coverage

Our next Hotline will go out on Thursday, April 18, 2019.


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