From: Nicole Urken
Sent: Tuesday, December 13, 2011 3:18 PM
To: James Cramer
Subject: DD analyst day
Dupont strong analyst day following the guide-down last week. Attached materials
Sent: Tuesday, December 13, 2011 3:20 PM
To: Nicole Urken
Subject: RE: DD analyst day
Five-year plan emphasized
As we have said on Mad Money, five-year plans are not limited to Stalin’s Soviet Russia or Chairman Mao’s China. They can, in fact, be (gasp!) capitalist ventures! Tuesday’s strong quarterly report from Nike is a testament, for example, to the strong five-year vision they have laid out. This strength comes on at the heels of strong five-year outlooks reiterated by Honeywell and Dupont , the latter of which trumped its more near-term guide-down. Ultimately, the names with strong five-year outlooks—which have demonstrated solid records indicating they can reach their goals—should be bought here, particularly as an uncertain macro environment remains. Strong long-term outlooks from companies that look achievable can sometimes warrant higher multiples for the underlying securities, particularly if the management team has a proven track record that makes the plan seem achievable. But, the key—as always—is to separate the good from the bad.
The three strong five-year reiterations we’ve gotten in the past week and why they remain buys:
Nike: Nike’s strong quarter after the close on Tuesday, which we highlighted onMad Money on top of its recent 16 percent dividend boost, reiterates why the company is well-positioned for the long-term. The company’s roadmap calls for revenues growing to $28bn-$30bn by 2015, numbers that were upped this past June from original targets laid out in 2010. The long-term Nike story is consistently attractive thanks to global category dominance, major share, and emerging market opportunities … complemented by near-term catalysts including the upcoming 2012 London Olympics and the 2014 Brazil World Cup.
Dupont: While Dupont announced downside guidance on December 9th for 2011 (surprising given its steady-eddy reputation), its analyst day last week presented some bullish data for its longer-term goals in 2012 and beyond. This speaks to Dupont’s continual efforts to transition away from a cyclical commodities business (it is anything but a boring chemical company!) and into growth markets like agriculture, nutrition and health, which harness key global megatrends (including the worldwide population boom and the need for energy independence). In its analyst day, the company reiterated long-term guidance to 2015 originally outlined back in 2009 and 2010 by CEO Ellen Kullman. The targets? Annual earnings growth of 12 percent (which equates to $6/share by 2015) and revenue growth of 7 percent. The company remains on track to hit these goals, and with the long-term story remaining intact, Dupont remains a buy in this environment.
Honeywell: Honeywell, whose CEO Dave Cote came on Mad Money last Thursday after his 2012 outlook meeting, also reiterated bullish commentary for the coming years. This American manufacturer—which makes everything from aerospace components to automation and climate control, equipment, security gear, specialty materials and auto parts—continues to deliver on its long-term goals. This name has some solid late-cycle appeal, aiding its outlook for next year of 4-6 percent organic sales growth with 40-70 percent operating margin expansion. Not to mention that the company boosted its dividend 12 percent in October, another bullish signal. This all bodes well for the company hitting their targets for 2014, most recently outlined in their March analyst day: 7-9 percent revenue growth with margins being boosted 60-75bps per year. This name is levered to strong secular themes (like energy/fuel efficiency) in addition to a cyclical turnaround (notably aerospace), and its strong management makes it a buy here.
In addition to these recent reminders of strong 5-year plans, a couple of other names with strong long-term outlooks (which we have highlighted on Mad Money in the past) are worth remembering. Let’s take a look:
IBM: IBM continues to execute on its 5-year roadmap initially unveiled on its analyst day in March 2010. Even with a $200bn+ market cap, IBM continues to see strong growth, planning to generate $100bn in free cash flow over 5 years, returning 70 percent of that to shareholders, with $20 in earnings power in 2015, up from $11.67 last year. Importantly, the company plans to shift revenue mix to more high-margin software, strategic acquisitions, cost savings, and buybacks ... not to mention increasing focus on emerging markets. Here is a name that has continued to surpass expectations, and it should continue to do so. Trading at just 13x forward earnings with an 11 percent long-term growth rate, this one is well positioned for the long-term. That said, IBM could be in for some more near-term weakness due to softness implied by tech names like Oracle , RedHat and Salesforce.com . Look to buy on a further dip to initiate a longer-term position.
Deckers: Deckers , the maker of Ugg boots (along with Tevas) is a long-term winner given its vast market opportunity relative to industry behemoths. At only $3bn market cap, the company’s market opportunity remains strong, as it expands internationally and increases its retail presence. With the stock selling off from near $120 to under $90 in the last two months over inventory and warm-weather concerns (in addition to being part of a market that is not friendly to high-multiple stocks—see Tuesday’s ‘Off the Charts’ pretty girls segment), this remains an interesting entry point. Deckers’ five year plan includes: (1) Growing its overseas business from just over 20 percent of revenue now to 40 percent within five years, (2) Hitting $2bn of revenue, up from just over $1bn currently, and (3) Increasing retail store count to 150 from 27 at the end of 2010. Take a look at the recent interview with DECK CEO Angel Martinez here from Nov 30th on Mad Money for some more insight.
VF Corp: VF Corp —the name behind North Face, Wrangler, Lee and Vans among others—announced at its March investor meeting plans to reach its 2015 goals of adding $5bn in revenues and $5 in earnings per share growth from 2010 levels. Much of this will be from growth in Outdoor & Action sports where the category has been strong (and has more recently been boosted by the Timberland acquisition) along with growth in international markets and in the other categories. On a pullback, this one remains a good long-term opportunity.
TWO INDUSTRIAL NAMES THAT REMAIN IN ‘SHOW ME’ MODE BUT ARE INTERESTING TO WATCH FOR GOOD ENTRY POINT
Both 3M and Ford have robust 5-year outlooks, but we need to hear more from both before getting behind them more fully.
3M: This industrial conglomerate, which is about a lot more than scotch tape and post-it notes, touches on a variety of end markets in industrial and transportation, healthcare, safety/security, consumer/office, and electronic communications. While much of the business is early-cycle or defensive, it also has some late-cycle exposure. CEO George Buckley rolled out a five-year plan last December, laying out some aggressive long-term targets which were reiterated at the analyst day this past March. These include 7-8 percent annual organic revenue growth through 2015 (up from 4 percent historically) and 20 percent plus margins. The drivers? A focus on emerging markets along with product innovation, supplemented by strategic bolt-on acquisitions. And the company’s recent 2012 outlook meeting and dividend boost add fuel to the fire. That said, while the better guidance is positive, outlook could be aggressive particularly given recent weak results so would wait for some more data points before buying in.
Ford: This past June, Ford revealed a major five-year plan that included increasing worldwide sales 50 percent by mid-decade, shooting eventually for one-third of those sales to come from Asia Pacific and Africa due largely to significant growth in those regions. However, shortly after, Ford has posted some more downbeat near-term guidance. This one is a more volatile one, particularly given rising costs. However, the recent restatement of the dividend (current yield 2 percent) with improved balance sheet, adds fuel to the upside case. That said, European macro concerns remain a big headwind for this company along with still limited exposure to China and still-high costs, and again—would wait for some more data points from the company before coming in, even with the stock off 40 percent year-to-date.
THE BOTTOM LINE
Always remember to balance your short-term and long-term views. Often times, a short-term blip can mean a long-term opportunity. But always beware to look at companies with the right track records. For example, as we have discussed on Mad Money, Ingersoll Rand’s long-term targets remain too bullish.