RedHat is a leading developer and provider of open source software and services, including the Red Hat Linux operating system. Red Hat trades an average of two million shares per day with a market cap of $11 billion.
52-Week Range: $37.85 to $62.75
Book Value: $7.34
Price To Book: 7.99
Red Hat is forecast to report slightly lower second-quarter earnings after the market closes on Monday. The consensus estimate is currently 21 cents a share compared with 22 cents during the equivalent quarter last year. Technically, the difference is 4.5 percent, but I don’t consider percentage changes meaningful when the gross amount is 1 cent.
Seventeen out of 24 analysts rate Red Hat a “buy” or “strong buy.” The company has six “holds,” and one “sell” rating.
Twelve out of 24 analysts now rate Red Hat a “strong buy,” up from 11 analysts a month ago. The number of analysts rating Red Hat a “strong buy” during the last three months has moved up and down. The average analyst target price for Red Hat is $60.53.
It’s never a bad idea to be within good company, and Jim Cramer believes Red Hat is cheap as of a week ago.
After the company missed guidance in the last earnings report, I wrote that I believed the guidance wasn’t that bad. As it turns out, I was not only correct but Red Hat shares only took about a month before they were trading above the earnings announcement.
After a brief dip below the 200-day moving average, the trend is once again bullish. Based on technical analysis, Red Hat is in an upward trend, and there is no indication the trend is about to end.
Not all of the news is swell for investors, however.
Red Hat has blistering earnings multiple ratios that leave the open source company like an elephant riding a bike. It better not slow down too much or there will be hell to pay. The trailing 12-month price-to-earnings ratio is 70. Looking ahead, the ratio does not demonstrate a great deal of improvement. The mean fiscal year estimate price-to-earnings ratio is 67, if Red Hat comes in on target with estimated earnings of 87 cents per share this year.
I am consistently reluctant in advocating the bullish case for stocks above a multiple of 20. Red Hat does pull a rabbit out of the fedora and receives my aberrant bullish opinion in front of earnings. I have faith Red Hat beats this quarter.
Weinstein estimate: Red Hat beats and stock reacts positively. Currently, the short interest based on the float is small and not a big concern. Short interest is 3.1 percent.
Background: Walgreen is a national retail pharmacy chain and considered the leader in innovative drug-store retailing. Walgreen trades an average of seven million shares per day with a market cap of $33 billion.
52-Week Range: $28.53 to $36.85
Walgreen is anticipated to record lower fourth-quarter earnings before the market opens on Friday. The consensus estimate is currently 56 cents a share, a drop of 1 cent (1.8 percent) from 57 cents during the equivalent quarter last year. The average analyst target price for Walgreen is $38.54.
Last quarter Walgreen’s earnings release was held on June 19 and the previous closing price was $30.09. Relative to a current price of $35.55, shares are up 18.1 percent.
The trailing 12-month price-to-earnings ratio is 13.7, the mean fiscal year estimate price-to-earnings ratio is 11.6, based on earnings of $3.07 per share this year.
Shareholders receive $1.10 annually in dividend payments for a yield of 3.1 percent. Over the last five years, the dividend has expanded quickly by an average of 23.7 percent per year.
The short interest based on the float is small and not a big concern at 2.5 percent.
Discover Financial Services
Background: Discover Financial Services operates the Discover Card and merchant services. Discover trades an average of four million shares per day with a market cap of $20 billion.
52-Week Range: $21.44 to $39.64
Discover is anticipated to report much lower third-quarter earnings before the market opens on Thursday. The consensus estimate is currently $1.03 a share, falling 15 cents (12.7 percent) from $1.18 during the same period last year.
Before the previous Discover earnings release on June 19 the closing price was $33.57. Since the last earnings release, the shares are up 13.7 percent.
Although Discover is expected to report lower earnings per share, 13 (more than 70 percent) analysts rate Discover a “buy” or “strong buy” out of 17 analysts. The company has four “holds,” and not one “sell” rating.
Twelve out of 17 analysts now rate Discover a “strong buy,” down from 13 analysts a month ago. Compared to three months ago, fewer analysts are rating this company as a “strong buy.” The average analyst target price for Discover is $40.14.
Based on technical analysis, Discover looks like it just received a letter in the mail that its credit line was increased along with a one-year free interest balance transfer offer.
The moving averages are moving in lockstep higher. The price is on a picture-perfect rising slope with no payment due date in sight. Trend followers look for this type of pattern and will ride a position until a technical break results in a signal to exit.
The mean fiscal year estimate price-to-earnings ratio is 9.2, based on earnings of $4.23 per share this year. Can you say cheap? The shares of Discover are dirt cheap, and unless it really blows an already weak estimate, plan on the company’s shares continuing higher.
The company currently pays 40 cents per share in dividends for a yield of 1.03 percent. Looking back at the three-year history of declared dividends, this company has paid on average 13 cents per share each year in dividend payments.
Short interest is only 1.1 percent.
Background: Strong third-quarter earnings growth is expected from the home builder before the market opens on Monday. The consensus mean is 28 cents a share, a gain of 17 cents (60.7 percent) from 11 cents during the corresponding quarter last year.
Before the previous Lennar’s earnings release on June 27, the closing price was $28.70. In comparison to a recent price of $36.60, shares are up 27.5 percent.
With the Fed committed to a housing recovery, it didn’t take long for investors to figure out, as in “Wall Street,” that “Blue horseshoe loves Anacott Steel.” Blue horseshoe has nothing on the Fed when it comes to moving stocks.
The mean fiscal year estimate price-to-earnings ratio is 12.7, based on earnings of $2.82 per share this year. Dollar for dollar, the earnings multiple is reasonable, as long as the housing market doesn’t take another turn for the worse. Again, with the Fed backstopping the space, if the housing market falls we may have bigger problems to deal with.
The current yield is 0.45 percent and pays 16 cents annually. In the last month, the stock has really moved higher with a 12.7 percent increase (investors should send a thank you note for the dividend and price appreciation to Fed Chairman Ben Bernanke).
Short interest with this stock is very high. More than one in five shares is short. Shorts are the smart money, but when they pile on this hard it can backfire, too. The proportion of the float short is 21.9 percent. (Note to short-sellers: Never fight the Fed.)
Research In Motion
Background:Research In Motion is a world leader in the mobile communications market and has a history of developing breakthrough wireless solutions. RIM trades an average of 17.6 million shares per day with a market cap of $3.8 billion. It reports second-quarter earnings Thursday.
52-Week Range: $6.33 to $24.74
Book Value: $18.61
RIM investors have been beaten up so badly the last four years they may qualify for handicap parking. RIM is a classic example of what happens when investors believe really smart CEOs are actually smarter than they are. Having the skill set of taking a technology company from zero to the world stage is a different skill set than running a large tech company. (Hello, Facebook investors.)
Investors aren’t expecting an improvement in RIM earnings. Analysts forecast per share results below last year in the same quarter. The earnings release is planned after the market closes on Thursday. The consensus estimate is a loss of 46 cents a share, falling $1.26 from a gain of 80 cents during the same period in the previous year.
Last quarter RIM’s earnings release was held on June 28, and the previous closing price was $9.13. Relative to a current price of $6.91, shares are down 24.3 percent.
Technically, the monthly chart is oversold, and I am expecting a bounce higher. The weekly chart is slightly oversold, as is the daily. I would not want to remain short into earnings. Earnings may not turn into the catalyst for the bounce, but it certainly could turn into one.
The short interest is anything, but short. The current float short is 18.7 percent.
Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions. The company was founded in 1978 and is headquartered in Boise, Idaho. Micron trades an average of 28 million shares per day with a market cap of $6.7 billion.
52-Week Range: $3.97 to $9.16
Micron is forecast to report really sorry fourth-quarter earnings on Thursday. The consensus estimate is a loss of 21 cents a share, falling another 8 cents from the loss of 13 cents during the same period last year.
The last date Micron released earnings was June 20, and the closing price was $6.12. Based on a recent price of $6.45, shares are up 5.4 percent.
The current proportion sold short based on the float is 6.8 percent. The price chart looks more attractive than the fundamentals. Micron is technically bearish as a result of the price trading under the 200-day moving average. But the price is also moving up towards and testing a breakout every couple of weeks.
I like Micron, so I don’t enjoy writing that I am not expecting a surprise beat for the upcoming report. This quarter makes it four quarters in a row of losses. With China’s slowdown, don’t expect the losses to end soon.
I use Zacks.com, WSJ.com, Tradestation and Reuters for my data. PE is generally adjusted PE based on an average number of shares.
—By TheStreet.com Contributor Robert Weinstein
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At the time of publication the author had no position in any stock mentioned.