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Stock Screen: Growth Stocks - November 9, 2011
Issues defined as “growth stocks” have a number of common traits, but the most important is that their earnings are expected to grow at a faster pace than the broader market over a period of time. With that in mind, Value Line runs a screen in its Summary and Index that searches for stocks that meet this key criterion. It focuses on issues that have recorded good per-share earnings gains in recent years and that should continue to do so in the future, such as Jarden Corporation (JAH) and Casey’s General Stores, Inc. (CASY).
To make our list, all stocks had to be ranked 3 (Average), or better, for both Safety and Timeliness (i.e., relative price performance in the year ahead), two of Value Line’s many proprietary rankings. Additionally, all of these company's annual growth of sales, cash flow, earnings, dividends and book value must together have averaged 10% or more over the past 10 years and be expected to average at least 10% in the coming 3-5 years, which is no easy feat considering that this time span included varying rates of economic growth.
The resulting list is an interesting mix of names (some surprising, others not), that not only performed well even as economic growth slowed, but are estimated by our analysts to have worthwhile earnings growth prospects in the year ahead. Below we highlight some of the stocks from our screen:
Jarden is a global company with leading positions in a broad range of niche-branded consumer products. The company expands its revenue base by introducing new products, innovating existing categories, and acquiring new businesses. There are three primary business segments each with their own notable brands (some of which have been in existence for over 100 years) including Outdoor Solutions: Aerobed, Coleman, K2, Rawlings; Consumer Solutions: Crock-Pot, Mr. Coffee, and Seal-a-Meal; Branded Consumables: Bicycle, First Alert, and Diamond. Jarden sells its niche brands through warehouse membership clubs, department stores, pharmacies, grocers, sporting goods outlets, as well as directly to consumers.
Third-quarter earnings results were well ahead of Wall Street’s expectations, climbing approximately 23% year over year. JAH’s extensive breadth of product appears to be acting as an insulator to pockets of weak consumer spending in various regions of the world. Indeed, solid organic growth was experienced throughout its three segments, coming in at an average rate of 5.3%. Branded Consumables put forth the best performance, with internal sales rising 7%. Revenue synergies related to the acquisition of Mapa Spontex (infant care accessories, and household and industrial strength cleaning products) also contributed meaningfully to the advance. Elsewhere, we expect cost synergies to benefit margins going forward. The stock buyback program is certainly helping lift the bottom line as well, and we expect this activity to continue over the near-term. Management’s focus on expanding JAH’s global footprint through acquisitions and investing in product innovation augurs well for this equity’s long-term earnings growth rate.
Casey’s General Stores, Inc.
Casey’s operates convenience stores under the name “Casey’s General Store”, “HandiMart” and “Just Diesel” in 11 Midwestern states, primarily Iowa, Missouri, and Illinois. The stores carry a broad selection of food (including freshly prepared offerings such as pizza, donuts, and sandwiches), beverages, tobacco products, health and beauty aids, automotive products, and other nonfood items. In addition, all Casey’s stores offer gasoline for sale on a self-service basis. On April 30, 2011, there were a total of 1,637 stores in operation. Approximately 60% of all its stores are located in areas with fewer than 5,000 persons. The Company competes on price as well as on the basis of traditional features of convenience store operations, such as location, extended hours, and quality of service.
The company has been experiencing solid same-store sales growth for the past seven quarters. Part of this is being caused by effective promotions. We believe the remodeling of a number of locations is also contributing to increased traffic and ought to continue to do so for the foreseeable future, as nearly a third of its store base still requires upgrades. Furthermore, new initiatives like more 24-hour locations and an expanded brand portfolio should help. However, increased remodeling activity may hurt profitability to a degree.
Casey’s long-term prospects appear bright. Not only has it done well at creating sales organically, but recent acquisitions have also been a meaningful bottom-line contributor. We expect the company to continue going through with bolt-on acquisitions, which gives us further confidence in our expectations for annualized double-digit earnings gains throughout mid-decade.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.