23rd AIM student equity update by Robert Uhland. Oxford Industries, Inc. (OXM): Winning Fashion Brands with Oxford!

OXM (Oxford Industries, Inc.): Tommy Bahama and Lilly Pulitzer Brands Lead Oxford Forward into 2016

By: Robert Uhland, Student Analyst at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• This apparel company is well positioned relative to its peers. With CEO successions in both brands (Tommy Bahama and Lilly Pulitzer), Oxford Industries is ready with new, exciting product initiatives. It has a history of pioneering new lines through innovation - which will continue into 2016.

• In a depressed apparel industry, OXM prevails above its peers with significant plans to expand its robust brands: tommy Bahama and Lilly Pulitzer.

• With over $160MM in unused availability under its U.S credit revolving agreement, OXM is well suited and aggressively on the hunt to acquire strong lifestyle brands.

• Driven by Lilly’s comp store sales increases of 30% through Q3 FY15, including a +27% 3Q comp. store sales increase, the future looks bright.

• Tommy Bahama posted negative (-5%) comp store growth in light of a difficult environment. With QTD comps for Tommy and Lilly increasing in November and December, OXM is poised to see a solid rebound in Q1 2016.

• Tommy Bahama’s spring 2016 women’s line is on track to be a popular choice in fashion - and could be the catalyst to drive the firm's stock higher.

Oxford Industries, Inc. (NYSE:OXM) offers an exceptional growth opportunity in a highly competitive apparel industry. Currently, trading at about $60, OXM offers a great entry point into the industry. OXM has been able to maintain an edge over its competitors like PVH, Perry Ellis, and Ralph Lauren in the apparel industry - which is due to its ability to be a design-led, trend aware business with a sound capital structure. Although management has conservatively reduced FY15 guidance, given the positive QTD comps for Tommy and Lilly, it appears that the company is set to deliver moving forward into the new year.

The company has a healthy balance sheet which provides them with more than enough liquidity to acquire one or two lifestyle brands that align with OXM’s existing portfolio. Furthermore, OXM’s unused availability under the credit revolver leaves the company well positioned to fund any future capital expenditures, operating activities, or strategic acquisitions.

Building on this growth story, OXM management is poised to expand Tommy and Lilly considerably. The company delivered stellar Q3 gross margin growth of 270 basis points year-over-year lending to the strength of OXM’s brands. Additionally, Tommy has recovered and comparable store sales remain ahead of last year's Q4. A favorable retail-restaurant location opening for Tommy in Hawaii earlier this year and decreased international headwinds on Tommy’s Asia–Pacific operations bode well for Tommy. The aforementioned drivers, coupled with Lilly’s push to make its mark in the Midwest territory, should propel the company forward as we move into the new year.

Lastly, the Tommy Bahama spring 2016 women’s line has already started to impress critics. The spring wholesale order book for both Tommy and Lilly are growing as interest has heightened for the long awaited new launch. Considering that this is the first line under the new management at Tommy Bahama, investors have high hopes for the future.

What has the stock done lately? Over the past three months, OXM is down 23% and has taken a hard stock hit. The apparel industry as a whole has suffered and thus, I feel, this downward pressure has led to an aggressive tumble on OXM's stock price. On December 8, 2015 Q3 earnings were released and the company beat on earnings (+$.01) and missed on revenues. The company revenue miss was driven by Tommy Bahama’s underperformance. The day after earnings were released, OXM’s stock tumbled to around $60; however, this is the lowest that I see it going - and offers an attractive entry point.

Past Year Performance: OXM has increased 15% in value over the past year and was just added to the AIM portfolio on December 15. OXM reached its 52 week high in August at $91.24 before plummeting down to the current level. Despite a disappointing consumer sales environment in the second half of 2015, Lilly has continued to generate stunning comp growth - and Tommy is poised to deliver in Q4 and beyond. Yes, OXM missed on revenues recently, but all five analyst’s covering the company reiterated a 'buy' on the stock the day after the announced earnings, with some even bumping up their future revenue estimates. The past performance, given an unfavorable Q3 environment, has been solid with OXM's stud brands propelling the company into 2016.

Source: FactSet

My Takeaway

With consumer confidence, spending, and disposable income set to reach record highs moving forward in 2016, OXM is in a position to generate favorable returns. I feel that the stock has been depressed by an unfavorable environment and a recent revenue miss, but it possesses exceptionally strong brands to weather the storm. Jump on board soon, as I see OXM taking off with the release of Tommy’s new women’s line and positive expansionary efforts in 2016. Driven by strong comps at both Tommy and Lilly, the company’s rock solid balance sheet, and an EV/EBITDA of 7.0x compared that of its peers 10.8x, I believe that OXM is trading at a discount and is undervalued. Taking into consideration the aforementioned drivers, I feel that OXM is a top-tier growth story in the overlooked apparel industry. As the five day chart below shows, this stock can be volatile, but it will be worth the ride in 2016 if you can get past the first couple weeks in January!

Source: Yahoo!Finance

 

Baird has major announcement about its leadership

Booth Becomes President & CEO  Purcell Continues as Chairman

Baird is pleased to announce that Steve Booth has been named CEO effective January 1, 2016. Booth adds the CEO title in addition to his role as President, which he was named in 2014 as part of a multiple-year transition plan. He succeeds Paul Purcell, who will continue as Chairman of the employee-owned international financial services firm. Booth is only the eighth person to lead the firm since its founding in 1919, a testament to the strong leadership, consistent values and long-term partnerships that have differentiated Baird for more than 95 years. Read the related news release to learn more.    Steve Booth President & CEO Paul E. Purcell Chairman

22nd AIM student equity update by Colin Canflied: Dominion Diamond Corporation (DDC): A Great December and (hopefully) a Strong 2016

DDC (Dominion Diamond Corporation): A Rough Cut Worth Holding

By: Colin Canfield, student at Marquette University

 

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• Dominion Diamond engages in the mining and marketing of rough diamonds. As the Great Chinese Unwind continues to play its course, cracks have turned to deep fissures within the Chinese economy, dragging down consumer and, more importantly, diamond demand

• With low very low debt on the books, DDC looks to continue weathering the storm as larger players like De Beers claim market normalcy while suffering the downturn

• Demand resiliency is the key here with these Giffen goods demonstrating a number of key factors that should create a “floor” of consumption

• Investor lethargy is the key play here in that, despite China’s unprecedented slow down, we can expect a reversion to the long run mean in the medium term

Dominion Diamond Corporation (NYSE:DDC) Since its peak last June, DDC has experienced a steep -52.6% slide as fears of slowing global consumer demand, particularly in China, have driven investor sentiment into bearish territory. With global commodity markets continuing to follow the over-supplied weak demand story, nonmetallic mineral miners have felt the consequential squeeze.

Looking back to 2009, diamonds began to experience a coupling with metallic minerals, namely gold and silver, as hard assets acted as a hedge. With diamond prices doubling over a two year period, they hit a -30% slide in Q3 ’11, until finding their floor in ‘13/’14 as investors realized the underlying strength of consumer demand as a counterweight to investor demand. 

Now, we approach an interesting period for the stones as trends began to replicate the lethargic “quiet” period seen after the mining sell off of ‘01/’02. As investor sentiment stalled, the following 10 month period experienced a sharp 40% pop, with investors who continued bemoaning the “broken” commodity market missing out on significant upside. In effect, DDC’s holds an attractive position within the context of the overall super cycle as investors continue to underappreciate global production issues and the aforementioned strength of consumer demand.

With 60% of Shanghai couples marking their engagement via diamond rings, as opposed to 15% two decades ago, investor concern over slowing Chinese demand is logical, but these Giffen goods are marked by two key qualities that make them resilient to the slowdown. First, demand exhibits a low elasticity to price as consumers often only scale down in carat size, rather than substituting away from the stones altogether. Second, the nature of Giffen good demand itself as “expensive is better” is supported the sharp growth of ultra-hit net worth individuals globally.

What has the stock done lately?

Over the past quarter, DDC has continued to get hammered, losing 16.2% of its value with investors continuing to weigh in the full impact of a Chinese slowdown. As sector momentum trends downward, DDC looks to outperform among precious metals miners given not only the low sensitivity of diamonds to price changes relative to other precious metals with industrial uses, but also as the impact of interest rates kick gold to the curb.

Past Year Performance: Over the past year the DDC story demonstrated an extreme sensitivity to the Chinese slowdown, exhibiting the steepest declines as new market data renewed investor fears on when the economy would get back into its rhythm. While reporting losses on its Q3 earnings, DDC’s .54x P/B is reason for hope as AIM looks to hold onto this bargain buy.

Source: FactSet

My Takeaway

As the long run story of China transitioning from an industrial to consumer driven economy takes time to play out, AIM will need to keep patience with DDC and its management team. Given a D/E of .03, the company’s strong balance sheet will afford investors that patience and actually give the company a great deal of flexibility. With an undoubted return to normalcy undoubtedly on the horizon, DDC can not only weather pending industry consolidation, but actually seize the opportunity to incorporate more leverage and expand market share as growth prospects for future growth materialize. DDC had  great December and looks forward to a strong 2016.

21st AIM student equity update by Eric Christopherson: PGT Inc. (PGTI): A Clear View of an Attractive "High Impact" Stock!

PGTI (PGT Inc.): The High Impact of Implementation

By: Eric Christopherson, student at Marquette University

 

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• PGT, Inc. manufactures and supplies residential impact-resistant windows and doors in the Southeastern United States, the Gulf. PGTI is in the final phase of their ERP implementation, a major source of negative sentiment for 2015.

• The acquisition of WinDoor on November 30, 2015 is expected to close in Q1'16 with synergies between the two companies to follow. The market has not yet recognized the potential synergies.

• Management released financial metrics for the acquisition of WinDoor with net income accretion within 12-18 months.

• PGTI could be looking to hit a new 52 week high for 2016 during the summer months, but labor expense and implementation issues could hinder this.

PGT Incorporated (NASDAQ: PGTI) is looking to have a strong year for 2016 after some rough patches in 2015.  These rough patches can be attributed mainly to the botched implementation of PGTI’s ERP system.  The company experienced difficulties with the sequencing portion of the Insulated Glass implementation, which in turn, negatively affected third quarter operations.  Higher the normal direct labor rates were achieved due to the difficulties with production being reduced as well.

In a business update from December 9, management indicated that it had reached the final phase of their ERP implementation with the support and main glass processing departments fully integrated.  Seventy percent of insulated glass units have been converted and 45% of assembly units have been converted and are the only areas that need to be worked on before the system can be fully implemented. 

Financial metrics for the acquisition of WinDoor were also included in the business update for PGTI.  WinDoor provides impact-resistant windows and doors for five-star resorts and luxury hotels and will become a wholly-owned subsidiary after the expected close of the deal in the first quarter of 2016.  WinDoor’s 2015 revenues are expected to be $41 million with $8-9 million in EBITDA.  Management has said that PGTI will see immediate accretion in earnings on an operating basis with net income accretion within 12-18 months.  PGTI has acquired a strong, recognized brand in WinDoor and looks to gain from a diversified set of products from the acquisition. 

PGTI will greatly benefit from their acquisition of WinDoor and will look to see this benefit on their financial statements for 2015 and could be looking at new highs on the stock chart.  However, there are some problems that could hinder this outcome.  If there are any more problems with the implementation of the ERP system, PGTI will feel the negative backlash on the stock chart.  PGTI is also looking at higher than normal labor rate expenses, which even reached a high of 14% in 2015. 

What has the stock done lately?

Over the past year, PGT’s stock has seen its ups and downs, but the stock is up 24% from $8.94 to $11.78.  This large increase can be attributed to the performance of the company and the increases in revenues.  PGT’s stock chart shows that the company hit a high over the past year in the summer at $16.06, but fell off going into the end of the year.  The 24% increase still looks good, but the company may be looking to their newest acquisition to help move the stock up to more consistent levels.

Past Year Performance:

While PGT has seen a stock increase of 24% over the past year, the stock is not looking to be at a bargain at the moment.  Consensus estimates have put a hold on the stock with price targets ranging only from $12-13.  The performance of the company was severely hindered by the botched implementation of their ERP system, but if things go well, PGTI can rebound in 2016 and see their stock numbers go up.



Source: FactSet

My Takeaway

PGTI has a lot of good things going for it right now, but it’s hard to say whether this is a hard buy at the moment.  The integration of WinDoor as a subsidiary company will have a major impact on the financial statements for 2016 and will look to be a main driver for the company.  The efficiencies guaranteed by the ERP system will also have to come to fruition in 2016 if the company is to combat their high direct labor rates they experienced in 2015.  While the past quarter has been challenging, if things go well, PGTI could be looking at a new 52-week high, but one can never be so sure and the stock will have to be watched carefully - however, the long-term view is clearly positive.

Dan Fuss (Marquette alumnus) to deliver annual market outlook on January 13th to Milwaukee CFA Society

Dan Fuss to deliver talk on ‘The New Factor in the Bond Markets’

Dan Fuss

The CFA Society of Milwaukee is once again honored to have Dan Fuss, CFA, CIC, of Loomis, Sayles & Co. as their luncheon speaker.  He is one of the giants in the investment industry and is best known for his bond investing savvy.

Dan Fuss' career in the bond market has spanned over 50 years (see bio below).  He is vice chairman of Boston-based Loomis Sayles and manages the firm's flagship Loomis Sayles Bond Fund.

Dan Fuss analyzes the economy and the bond market along four dimensions - the "Ps" of peace, people, politics and prosperity. Those considerations, however, no longer suffice to explain the market's underlying dynamics.  A fifth dimension now dominates his thinking: the expanded role of the world's central banks over the last two years.  

To attend, please contact the CFA Society of Milwaukee at: info@cfamilwaukee.org or call 414-301-1299.

Wednesday January 13, 2016

Registration:  11:30 am

Program/Luncheon:  12:00 to 1:15 pm)

Milwaukee Athletic Club

758 N. Broadway

Milwaukee, WI 53202

Dan Fuss,
Marquette alumnus

Bio of Daniel J. Fuss, CFA, CIC

Dan Fuss has 57 years of experience in the investment industry and has been with Loomis, Sayles & Company since 1976. 

He is vice chairman of the firm's Board of Directors and manages the firm’s flagship Loomis Sayles Bond Fund—which won the 2009 Morningstar Fund Manager of the Year award in the fixed income category—in addition to the Loomis Sayles Investment Grade Bond, Investment Grade Fixed Income, Strategic Income, Fixed Income, Institutional High Income, Dividend Income and Global Equity and Income funds. 

In 2012, Dan received both the Institutional Investor Money Management Lifetime Achievement Award, and the Lipper Excellence in Investing Award. 

In 2013, Dan received the CFA Society of Milwaukee Lifetime Achievement Award. In 2000, he was named to the Fixed Income Analysts Society’s Hall of Fame in recognition of his contributions and lifetime achievements toward the advancement of the analysis of fixed income securities and portfolios. 

He has twice been president of the Boston Security Analysts Society. Dan earned a BS and an MBA from Marquette University. He served in the US Navy from 1955 to 1958 and held the rank of Lieutenant.