spin off
Canadian Tire has risen 50% from a low of $36.56 last November. That’s mainly because the company is benefiting from its innovative new store designs, which include wider aisles and better lighting. It has also done a good job of managing its financing division during the credit crisis. Moreover, it is making better use of one of its most underappreciated assets — roughly $2 billion in real estate. CANADIAN TIRE CORP. $50 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.6 million; Market cap: $4.1 billion; Price-to-sales ratio: 0.5; SI Rating: Above Average) operates 476 stores that sell automotive, household and sporting goods. These account for around 60% of the company’s revenue, and 45% of its earnings. Canadian Tire also owns other retail chains, including 374 Mark’s Work Wearhouse casual-clothing stores, 274 gas stations (many have car washes and convenience stores) and 87 Part-Source auto-parts stores. Mainly on the strength of its store renovations, Canadian Tire’s sales rose 29.2%, from $7.1 billion in 2004 to $9.1 billion in 2008....
CANADIAN TIRE CORP. $50 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.6 million; Market cap: $4.1 billion; Price-to-sales ratio: 0.5; SI Rating: Above Average) operates 476 stores that sell automotive, household and sporting goods. These account for around 60% of the company’s revenue, and 45% of its earnings. Canadian Tire also owns other retail chains, including 374 Mark’s Work Wearhouse casual-clothing stores, 274 gas stations (many have car washes and convenience stores) and 87 Part-Source auto-parts stores. Mainly on the strength of its store renovations, Canadian Tire’s sales rose 29.2%, from $7.1 billion in 2004 to $9.1 billion in 2008. Earnings jumped 43.1%, from $3.53 a share (or a total of $291.5 million) in 2004 to $5.05 a share (or $411.7 million) in 2007. The retailer’s 2008 earnings fell to $374.2 million, or $4.59 a share, because of writedowns of currency hedging contracts and gains on the sale of property and equipment. Without these non-recurring items, the company would have earned $572.5 million, or $4.85 a share....
VERIZON COMMUNICATIONS INC., $29.61, New York symbol VZ, plans to merge parts of its local-phone operations in 14 states with those of Frontier Communications Corp. (New York symbol FTR). As a result, Verizon shareholders will get one Frontier share for roughly every 4.2 Verizon shares. The company will finalize the exact exchange ratio just prior to the merger. This is a tax-deferred distribution, so investors will only be liable for capital-gains taxes on their new Frontier shares when they sell them. Verizon shareholders will control 68% of the new company. Verizon itself will get $3.3 billion in cash and debt securities. It will probably use the cash to pay down its $55.7-billion long-term debt, which is equal to 66% of its market cap. The assets that Verizon will spin off mainly consist of 4.8 million land lines in rural areas. As of March 31, Verizon had 35.2 million land lines in 25 states. The deal, which will probably close sometime next year, will make Frontier the fifth-largest local phone service provider in the U.S., with 7.1 million lines in 27 states....
BAFFINLAND IRON MINES, $1.68, symbol BIM on Toronto, continues to enter into agreements to sell iron ore from its proposed Mary River project on Baffin Island. It will now sell up to 1.8 million tonnes of ore per year to Italian steel producer Riva Fire SpA. The sale to Riva Fire is the company’s first deal with an Italian steelmaker. However, it’s the fifth letter of intent Baffinland has signed with European steelmakers. This includes one Austrian and three German steelmakers. Riva Fire’s 1.8 million tonnes brings Baffinland’s European commitments to 8 million tonnes. That’s half of the 16 million tonnes it plans to sell in the European market. Baffinland plans to start building an open-pit mine in 2010, with completion scheduled for 2014. It then hopes to produce 18 million tonnes of ore per year for over 21 years....
MOLSON COORS BREWING CO. $49.91, New York symbol TAP, fell 10% this week, as rising costs for raw materials and energy more than offset rising sales. In the three months ended June 29, 2008, earnings before unusual items fell 2.0%, to $172.6 million from $176.1 million a year earlier. Per-share earnings fell 4.1%, to $0.93 from $0.97, on more shares outstanding. Sales rose 5.9%, to $1.8 billion from $1.7 billion. Sales gains in the United States and the UK offset a small drop in Canada. The company’s latest cost-cutting plan will help it cope with higher grain and other costs. So far, it has cut its annual expenses by $138 million. It should reach its goal of $250 million in annual savings by the end of 2009. The company’s new joint venture with SABMiller plc will also enhance its long-term profitability. Molson Coors is still a buy....
GENERAL ELECTRIC CO. $29 (New York symbol GE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.0 billion; Market cap: $290.0 billion; WSSF Rating: Above average) is one of the world’s largest industrial companies. It operates in six main segments: Infrastructure (33% of 2007 revenue, 37% of profit); Commercial Finance (20%, 21%); Consumer finance (18%, 14%); Healthcare (10%, 11%); Industrial (10%, 6%); and Media (9%, 11%). The company now plans to shed some of its slowgrowing businesses, and focus on its more promising operations. Consequently, GE will spin off its Consumer & Industrial division to its stockholders as a separate company next year. These businesses make household appliances, light bulbs and electrical equipment. The spinoff should help GE unlock value, and reduce its holding-company discount....
SONY CORP. ADRs $37.83, New York symbol SNE, fell roughly 10% this week after it reported earnings that fell short of consensus forecasts. In its first fiscal quarter ended June 30, 2008, earnings fell 39.2%, to $0.31 per ADR from $0.51 a year earlier. The drop was mainly due to lower profits at its TV division, where intense price competition and rising raw material costs have squeezed profit margins. Lower results from its cellphone and movie operations also contributed to the weaker earnings. However, overall sales improved 16.2%, to $18.7 billion from $16.1 billion. If you disregard foreign currency changes, sales were unchanged. The slowing U.S. economy and weak dollar could hurt Sony’s growth in fiscal 2009. But recent cost cuts should improve its long-term profitability. As well, rising sales of its PlayStation 3 video game player should lead to more licensing revenue from game designers. Sony is a buy for long-term gains....
ANHEUSER-BUSCH COMPANIES INC. $66.50, New York symbol BUD, jumped 9% on Friday on reports that Belgian brewer InBev NV has raised its takeover offer, from $65.00 a share to $70.00. InBev may also try to secure a friendly takeover deal, as well as drop its attempt to replace Anheuser-Busch’s directors with its own slate. Anheuser-Busch is still a hold. GENERAL ELECTRIC CO. $27.66, New York symbol GE, plans to spin off its Consumer & Industrial businesses to its stockholders as a single company. These businesses make household appliances, light bulbs and electrical equipment....
HEWLETT-PACKARD CO. $47.29, New York symbol HPQ, fell 10% this week after it agreed to buy Electronic Data Systems Corp. (New York symbol EDS), a provider of computer services to large government agencies and corporations. Major clients include the U.S. Navy and General Motors. Hewlett will pay $13.9 billion in cash for EDS. The company held cash of roughly $10 billion or $4.04 a share in cash at January 31, 2008, so it will have to borrow the money it needs to complete the takeover. However, long-term debt of $5.1 billion is just 5% of Hewlett’s market cap, so it can comfortably afford to take on more debt. The price is also less than half of Hewlett’s revenue of $28.3 billion in its second fiscal quarter ended April 30, 2008. That’s up 11.0% from $25.5 billion in the year-earlier quarter. Earnings per share before unusual items rose 24.3%, to $0.87 from $0.70....
THE PROCTER & GAMBLE CO. $67 (New York symbol PG; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 3.1 billion; Market cap: $207.7 billion; WSSF Rating: Above average) is one of the world’s largest makers of household and personal care products. Over 20 of its 300 brands each generate annual sales of over $1 billion, including Crest (toothpaste), Tide (detergent), Head & Shoulders (shampoo) and Pampers (diapers). Wal-Mart accounts for 15% of Procter’s sales.