There was plenty of reaction from analysts Monday afternoon and this morning on the fourth-quarter results and 2013 outlook reported by Dollar General. Here’s a rundown:
• John Heinbockel at Guggenheim Securities is OK with Dollar General execs’ forecast of sales strengthening as the year goes on, helped by the rollout of tobacco across the company’s massive footprint as well as a bit of inflation. He is maintaining his "buy" rating and “potentially conservative” $57 price target.
“Bottom line, we believe DG is still a 15 percent secular grower, driven principally by significant consumables market share gains that should trade at a PEG rate in excess of 1.0x,” Heinbockel wrote.
• Deb Weinswig at Citi agreed with Heinbockel and said Dollar General is generally conservative with its outlook. She has raised her target to $67 from $65.
• Mark Montagna at Avondale Partners also sees a steady progression in sales and profit growth throughout 2013 and says there is less risk than usual of competitors hurting margins by slashing prices. He has reiterated his ‘market outperform’ rating and $55 target.
• Barclays researcher Meredith Adler has reiterated her 'overweight' rating and raised her target to $58 from $52.
• Patrick McKeever at MKM has hiked his price target to $62 from $56.
• FBR Capital Markets’ Dutch Fox also lifted his target, in his case to $60 from $55.
• And finally, a note of caution: The team at Hedgeye Risk Management say investors shouldn’t count on more margin improvements courtesy of growing consumable goods sales. The trend in their chart is clear.
Shares of Dollar General have recovered a lot of the 8 percent they lost Tuesday after the company’s top executives said they are seeing greater pressures on consumer sentiment as well as more price competition. As of 10 a.m. this morning, the stock (Ticker: DG) was changing hands at $45.21. It had closed Monday around $46.50 and dipped below $42.50 early yesterday.
No doubt helping soothe investors’ fears are numerous comments from analysts following the company. Nearly to a man and woman, they trimmed their price targets for Dollar General but left plenty of upside and reiterated their upbeat ratings. The only outright downgrade we’ve seen came from Denise Chai at Bank of America Merrill Lynch, who lowered her rating to ‘neutral’ from ‘buy.’
Here’s a rundown of the other analyst actions since midday Tuesday.
• RBC’s Scott Ciccarelli said Dollar General’s adjusted guidance for the fourth quarter and full year “is likely conservative.” He trimmed his price target on the company to $54 from $61 but kept his ‘outperform’ rating.
• Dutch Fox at FBR Capital Markets made a similar adjustment to his price target, going to $55 from $61. He also reiterated his ‘outperform’ rating.
• Meredith Adler at Barclays — who on Tuesday asked a pointed question about the company’s ability to stay out of a vicious cycle of price-cutting to keep market share — trimmed her target to $52 from $58. She kept her ‘overweight’ rating.
• BMO Capital Market’s Wayne Hood lowered his target to $60. He also still has the stock at ‘outperform.’
• Deb Weinswig at Citi says CEO Rick Dreiling and his team are among the best in the business and has reiterated her ‘buy’ rating. But that didn’t stop her from lowering her target to $55 from $65.
• Among the few with ‘neutral’ ratings on the Street is Michael Exstein at Credit Suisse. His new price target is just $48, down from $56.
• And lastly, John Heinbockel at Guggenheim Securities reiterated his $57 target and ‘buy’ rating, saying that the initial investor reaction to the Q3 report and Q4 outlook was “way overdone.” Dreiling’s cautious guidance, Heinbockel added, has more to do with the fact that last year’s fourth quarter included a very warm January that produced exceptional sales. Even with same-store sales growth of just 3.5 percent, Q4’s earnings per share should come in at 93 cents, Heinbockel noted, which would be well above the 90-cent consensus.
Shares of Healthways are recovering this morning — up almost 3 percent on normal volume — from the hit they took Tuesday after Citigroup analyst James Naklicki said investors should sell them. Naklicki expects Healthways to earn 50 cents per share next year, well below the consensus of 72 cents. He says spending on the company's new contracts and lower rates on renegotiated deals will keep down profit growth. Healthways (Ticker: HWAY) closed at $10.48 Tuesday, down 3 percent on the day. Naklicki's target for the stock is $9.
Analysts at BGB Securities have launched coverage of Pinnacle Financial Partners with a 'buy' rating and a $21.50 price target. That makes the firm a outlier: Every other analyst following the largest bank headquartered in Nashville rates its shares (Ticker: PNFP) at 'hold.' BGB's price target provides for about 17 percent of upside from Tuesday's close of $18.35.
Color Citi analyst Gary Taylor among those impressed by the financial muscle of hospital giant HCA. In a note following the company's Monday Q4 earnings release, Taylor said HCA's $2-a-share special dividend is "the first time that I can recall a public company with leverage greater than 4x issuing such a dividend. It indicates management confidence in the company’s capital structure versus a more conservative strategy of reducing debt."
Over at Deutsche Bank, Darren Lehrich has taken HCA shares off the firm's 'short-term buy' list following their impressive 7 percent rally Monday. HCA (Ticker: HCA) is up more than 20 percent in the past three months and is now trading at its highest point since its Q2 earnings warning back in late July.
Brad Ludington at KeyBank Capital Markets has made a similar valuation call on Cracker Barrel Old Country Store shares, which have steadily climbed close to their all-time highs set in late 2010. Ludington has lowered his rating to 'hold' from 'buy' and has a price target of $55. Any serious upside from here, he says, will require a meaningful uptick in consumer activity.
Another investment bank has begun covering shares of Acadia Healthcare, the behavioral health care venture run by the former Psychiatric Solutions executive team. Analysts at Citi rate the shares (Ticker: ACHC) a 'buy' and see them going to $14.50 — the highest target on the Street — from their current level of about $11.50. Their move came a few days after Deutsche Bank launched coverage of Acadia with a 'hold' rating and $13.50 price target.
A day after he lowered his ratings on a number of other hospital companies, Citi analyst Gary Taylor on Wednesday cut his opinion on Vanguard Health Systems to 'neutral' from 'buy.' Green Hills-based Vanguard, he writes, is more focused on large cities (such as Chicago, Detroit and Phoenix) and thus more exposed to future Medicare and Medicaid spending cuts. Shares of the company (Ticker: VHS) are off almost 9 percent in early trading Wednesday and are flat over the past three months.
SEE ALSO: Citi call stings hospital stocks
The stock market as a whole is off to a nice start in 2012 on the back of upbeat economic indicators — as of 1 p.m., the S&P 500 (Ticker: .INX) is up about 1.6 percent — but the hospital sector isn't taking part in the rally. That's due to a note from Citigroup analyst Gary Taylor, who has a dim view of government health care spending in the face of ongoing federal budget pressures that will result in more spending cuts. Taylor has downgraded a number of industry names, including locally based HCA Holdings and LifePoint Hospitals.
"Federal and state governments are still deficit-challenged and just beginning a cycle of spending cuts," Taylor said in his note to clients. "Congress will likely have to raise the U.S. debt ceiling again in early . The precedent has been set that such increases must be funded by spending cuts."
HCA (Ticker: HCA) is now rated 'neutral' by Taylor and is off 2.5 percent, while LifePoint (Ticker: LPNT) — also now 'neutral' — is down about 3 percent. Taylor didn't change his rating on AmSurg shares (Ticker: AMSG) and still suggests investors buy the surgery center chain.
Citigroup analyst Gary Taylor says investors in hospital companies have massively overreacted to the potential for Medicare reimbursement rate cuts. That has set up the chains' shares for a nice short-term bounceback, with HCA being the top candidate — its stock (Ticker: HCA) is changing hands at just six times analysts' 2012 estimates.
"We are unable to definitively call the bottom but believe the current valuation affords an enormous range of error with respect to forward estimates," Taylor wrote.