Thursday Winners: Exide Technologies, Pier One and Joy Global

David Sterman's picture

Thursday, June 3, 2010 - 11:55am

by David Sterman

Among the biggest winners in Thursday's early trading are Exide Technologies (Nasdaq: XIDE), Pier One (NYSE: PIR) and Joy Global (Nasdaq: JOYG).

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Top Percentage Gainers -- Thursday, June 3, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Gain
52-Week High 52-Week Low
Exide Technologies (Nasdaq: XIDE) $5.25 +23.0% $8.87 $3.03
Pier One (NYSE: PIR) $8.35 +12.7% $9.81 $1.65
Joy Global (Nasdaq: JOYG) $54.40 +3.7% $65.93 $30.19

*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 11:32AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

Exide Moves on From Wal-Mart

Back in early February, Wal-Mart (NYSE: WMT) notified Exide Technologies (Nasdaq: XIDE) that it would no longer carry Exide’s line of automotive batteries. That news caused Exide’s shares to plunge -30% in one day to around $5, and they had been falling ever since, touching $4 in recent sessions. That’s what happens when you lose your largest customer.

Four months later, Exide is finally emerging from that loss -- in surprisingly strong shape. The battery maker was able to sharply boost prices to its remaining customers, as it passed on higher costs of lead, a key component. That pass-through price hike appears to have been even higher than necessary to offset rising costs, as gross margins rose 170 basis points from a year ago, according to a company report released Wednesday night. And that enabled Exide to earn $0.54 a share in its fiscal fourth quarter. Analysts were expecting profits of just $0.04 a share. Which explains why shares are up nearly +25% on Thursday.

Despite the spike in shares, they still trade well below their highs, and at a very low price-to-earnings ratio (P/E). Analysts had been expecting Exide to earn around $0.50 a share in the current fiscal year that ends next March. Profits now look like they will exceed $1 a share. Not bad for a stock trading below $6.

Action to Take --> Life without Wal-Mart may be a bonus, as Exide can exhibit more pricing power with other customers. U.S. auto sales are expected to strengthen into next year, which should help keep Exide’s sales moving north. This stock is quite cheap, and could move toward the $10 mark as analysts scramble to boost their earnings forecasts.


Pier One Sees Less Competition

When rivals such as Bombay and Linens & Things went out of business, Pier One (NYSE: PIR) had reason to cheer. That’s because the company had been in a vicious spiral of price wars and reckless store expansions by rivals. That hurt traffic and margins. These days, Pier One is showing what life looks life with less competition. The home furnishing retailer just announced that fiscal first quarter (May) sales rose +9% from a year ago, even as some stores were closed. On a same-store basis, sales rose an impressive +14%. That bullish report is pushing shares up nearly +13% today.

Pier one will report full quarterly results in about two weeks, and earnings will likely be a bit better than the ($0.03) projected loss. Factoring these sales trends into the projected (February) 2011 and 2012 forecast, per-share profits will likely hit $0.50 and $0.70, respectively.

Action to Take -->
Pier One’s merchandise is discretionary in nature, and if unemployment rates materially drop, consumers are likely to keep shopping for the company’s throw pillows, wicker chairs and scented candles. With less competition to worry about, this retailer could keep rising from the ashes, and shares could move into the low teens. That represents potential +50% upside form current levels.


Goldman Predicted the Joy Global Beat

Analysts at Goldman Sachs (NYSE: GS) are looking pretty smart today. They upgraded shares of Joy Global (Nasdaq: JOYG) 24 hours earlier, predicting that management would post solid results and boost guidance when the maker of mining equipment reported results Thursday morning. Good call. Fiscal second-quarter profits (April) were roughly +50% above forecasts. That’s pushing shares up nearly +4% on Thursday.

Joy Global always seems to beat estimates by a handy margin, but this is the best outperformance relative to expectations in several years. The strong results are a clear sign that the whole mining sector is seeing strong demand. Joy Global notes that Chinese demand for mining equipment is through the roof.

In their preview, the Goldman analysts assumed management would bump fiscal (October) 2010 earnings guidance from around $2.90 to around $3.40. Instead, management now thinks per-share profits might approach $4 this year. The bullish outlook stems from a 1.2 times book-to-bill ratio in the quarter, which means that the company received orders for about 20% more goods than it actually shipped. That translates into rising backlog, which will be shipped this summer.

But what about subsequent years? Speculation abounds that the Chinese economy may be overheating, and if that country’s construction boom grinds to a halt, so will demand for many mined materials such as iron and copper. But the country’s leaders are trying to engineer a soft landing, which would imply sustained growth, albeit at a moderating pace. With shares rising nearly +10% on Wednesday on the heels of the Goldman upgrade, and another +4% today, the stock is quickly approaching analysts’ price targets.

Action to Take --> Thus cyclical stock already trades for nearly 15 times projected 2010 earnings. It’s hard to argue for a further expansion of the multiple, with all of the global economic risks still looming. Shares are better pursued on a pullback.

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.