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business newsInvestors Are Again Banking on Barclays
By
Justin Sharon
Feb 15, 2011 5:00 pm
Shares ended up more than 6% after the firm reported a 36% gain in full year net profit.
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With typical English understatement, researcher Richard Hunter at London’s Hargreaves Lansdown Stockbrokers characterized the results as being “representative of something of a return to normality.” The market however is reacting with much more unbridled optimism this afternoon. At its key growth engine Barclays Capital top-line revenues of about £3.1 billion gained 10% over the quarter, impressive enough in isolation and even more so versus an average decline of 22% among peers during the same period. Its cost-to-net income ratio, a critical metric, came in at 65%, again ahead of consensus estimates.
CEO Bob Diamond reaffirmed a Return on Equity target of 15% by 2012, which was just what investors wanted to hear, and concerns over capital are receding with the bank having announced a Core Tier 1 ratio of 10.8%. There was some noise amid today’s numbers, not least a goodwill write-off of £240 million in Russia and assorted other restructuring charges of about £200 million. And although the core UK retail banking unit outperformed expectations by some £100 million, it remains vulnerable to any additional macro issues in its home market, a country that can currently ill afford this morning’s horrific headline inflation. But shares still remain inexpensive on most metrics and, if success really is cyclical, Barclays may again be about to ride the wheel of fortune.
Please see Barclays on the Hunt for a US Retail Bank, British Pound ETF Could Be a Sterling Play for 2011, and Europe’s Biggest Banks Grow Even Bigger.
With its global headquarters on none other than 1 Churchill Place -- named after a chap who was particularly partial to bowler hats -- it’s extremely unlikely a Barclays banker would ever be caught dead in any attire from Gap (GPS). Suit yourself, for shares in the apparel outfit only marginally underperformed our first stellar stock this afternoon and stand at an eight-month high.
Today’s surge follows the announcement that billionaire hedge investor Edward Lampert has acquired 5.8% of the specialty retailer and now owns 35 million shares. This vote of confidence from the Sears (SHLD) chairman, coming on top of Gap’s good same-store sales growth over the holidays even while others in its industry are just out with iffy January comps, has sent the stock up nine days in a row in a reminder of its salad days.
The brand, which also owns Banana Republic and Old Navy, ruled the 1990s with its easy-to-wear corporate casual wardrobes, but ultimately lost focus and along with Microsoft (MSFT), another of the era’s high fliers, has essentially been dead money for a decade. It endured five years of consecutive annual revenue declines starting in 2005, never quite recapturing its old mojo even after multiple makeover attempts. (At one point their ads even enlisted Sarah Jessica Parker, but customers didn’t buy the idea of Carrie ditching her Manolo Blahniks to become the queen of khaki.)
In a fickle fashion market, Gap finds itself besieged by both hipper upstarts like H&M and Forever 21 and mass merchants including Target Corp (TGT). Though the company is admirably debt-free and boasts about $1.4 billion in cash on hand, operating margins are expected to contract by roughly 1% (to 12%) this year. With cotton costs also on an ever-upward march, shares look a little stretched at current levels.
Also check out Attacked in "War on Christmas," Gap Wins, Why Gap’s “Turnaround” Is Anything But, and Corporate Comebacks.
Cablevision Systems Corp. (CVC) seems to have much in common with Tiger Woods, who won the 2002 US open in its hometown of Bethpage, New York. Both entered the millennium on fire -- the telecom titan reached a share price peak of $87.51 in January 2001 -- only to each recently suffer some messy spats. Stock in the company ended lower today after being cut to Hold from Buy at Kaufman Brothers.
Concerns over valuation were cited, and with the entertainment services equity up some 67% in a year, it’s easy to see why. That said, Kaufman’s 12-month price target of $37 still allows for additional upside. (Wunderlich Securities, a Buy-rated bull on the name, raised its price objective to $44 from $38 this morning.) Its spin-off of its Rainbow Media segment, home to assets including AMC, IFC, WE, and Sundance channel, is a long-term positive. Cablevision also intends to buy back $500 million of stock, which should prove another catalyst.
Concerns, especially at such lofty levels, include Verizon (VZ), newly emboldened with the iPhone (AAPL), embarking on an aggressive quadruple play strategy, and the always mercurial leadership demonstrated by the Dolans.
Cablevision vs News Corp: 12 Channels of Prime Time Could Be About to Go Off Air for Millions, The Cloud Hanging Over Cable Stocks, and 10 Companies That Could Go Bankrupt have additional analysis.
From Bethpage to a fresh page. While its rival brick-and-mortar bookseller Borders Group (BGP) may literally be entering its last chapter, Barnes & Noble (BKS) was today’s headline upgrade. (Ironically the former ended up sharply even as the latter lost ground, showing it always pays to read to the end.) To be sure, the compliment Goldman Sachs itself paid America’s biggest bookstore chain was of the decidedly backhanded variety, removing the Nook maker from a list of Conviction Sells and raising its rating to a hardly table-pounding Neutral. The investment bank struck a more upbeat view on the ability of Barnes & Noble’s Internet business to drive earnings in the core retail market.
Analyst Matthew Fassler, who assigns a $19 price objective on the name, now sees positive EBITDA of $104 million for 2013, well above his prior $113 million loss forecast. That said, he still cites the iPad as being among an army of e-reader threats to what were once hours of browsing at bookstores. Indeed one major Barnes & Noble outpost closed only last month on New York’s West 66th Street. And what neighborhood newcomer thrives but a block away? That’s right, Apple.
For more, turn to Barnes & Noble, Amazon Try Competing With Apple, New Color Nook Takes the Worst From Both Worlds, and Hate Your Kindle? Here’s What You Can Do.
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No positions in stocks mentioned.
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