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Can These April Stocks Spring Your Portfolio Higher?

Tuesday, April 11th, 2017

Southwest (LUV): BUY
Consumers are feeling good about the economy, with rising confidence levels not seen since 2000. This translates into consumers being conformable to travel this summer season. Southwest should be a big beneficiary from increased traveling habits. While this should help the stock price, the fundamentals also look strong. Starting with the balance sheet, debt/equity is strong as it is just 41.6%. The current ratio looks troublesome at just 0.66, but this is due to the business nature of airlines as the industry average is 0.67. Sales growth has been a positive over the last 12 months as it is up 3.1% versus an industry average which declined by 1.1%. EPS also looks strong as it has grown by 8.1% over the last 12 months, while the industry average saw a decline of 29.1%. Looking forward to December 2018 estimated EPS of $4.58 gives us a target sell price of $75.57.

Brinker International (EAT): HOLD
Brinker International operates and franchises the restaurant brands of Chili’s Bar and Grill and Maggiano’s Little Italy. The valuation ratios are a big positive for this company. The current P/E of 13.7 is below the industry average of 25.2, price/sales of 0.66 is below the industry average of 2.44; and price/cash flow of 6.4 is also below the industry average. The company pays a nice dividend of 3.1% and it uses just 41.5% of earnings to pay it out. The balance sheet has a major question as there is equity of negative $530.6 million. Looking deeper at the company we see this is most likely due to the company owning few of the property and buildings it uses. Looking forward to June 2018, estimated EPS of $3.37 gives us a target sell price of $55.61.

Carnival Corporation (CCL): HOLD
Instead of flying to a destination for vacation this summer, taking a cruise through one of Carnival Corporation’s companies could be another option. It offers cruises through Carnival Cruise Lines, Princess Cruises, Holland American Line, as well as a few other brand names. The balance sheet is off to a good start as debt/equity is just 40.1%. The current ratio looks very concerning as it stands at just 0.21. This could be due to the business structure for Carnival. The company has a strong profit margin of 18.1%, which is well above the industry average of 6.3%. The company has strong cash flow generation and you are not paying much for it. The current price/cashflow is 9.0, which falls well below the industry average of 18.4. Looking forward to November 2018, estimated EPS of $4.25 gives us a target sell price of $70.13.

The Walt Disney Company (DIS): SELL
The valuation ratios for Disney appear to show the company is slightly overpriced compared to the industry. While the current P/E of 20.4 is below the industry average of 21.1; price/sales of 3.2 is above the industry average of 2.6, and price/cashflow of 14.9 is above the industry average of 11.6. Price/Tangible book value of 91.6 is very high, but that is expected due to all the intangible assets that accompany the Disney name. Looking forward to September 2016 estimated EPS of $6.76 gives us a target sell price of $111.54.

Marriott International (MAR): SELL
The company recently completed its acquisition of Starwood Hotels and now has a strong portfolio of hotel brands. The company now operates and franchises under names including Ritz-Carlton, Westin, Sheraton, and Four Points. Although the company has great brands, the valuation ratios are higher than I would like to see. The current P/E is 35.3 which above the industry average of 23, price/sales of 2.1 is at the industry average of 2.1, and price/cash flow of 38.3 is well above the industry average of 38.3. Sales have grown by 17.9% over the last 12 months, while EPS has fallen by 14.8% during the same time frame. The picture will look very similar over the short term as Marriott continues to integrate Starwood into its business. The balance sheet looks weak as there is a current ratio of just 0.65 and debt/equity is 158.8%. Looking forward to December 2018, estimated EPS of $4.66 gives us a target sell price of $76.89.

The Priceline Group (PCLN): SELL
This company offers many great web based services including booking.com, Kayak, rentalcars.com, and OpenTable. PCLN has a good balance sheet as the current ratio is 1.9 and debt/equity is 73.0%. It also has a great profit margin of 19.9%, which is well above the industry average of 5.6%. The problem is the company appears to be overpriced. It has a current P/E of 42.0 which is above the industry average of 35.6, price/sales of 8.2 is above the industry average of 2.0, and price/cashflow of 36.0 is above the industry average of 12.1. Looking forward to December 2018 estimated EPS of $84.15, gives us a target sell price of $1,388.48.

Avis Budget Group, Inc. (CAR): SELL
After reaching above $65/share in 2014, the company has since had a sharp decline and now trades around $30/share. Sales have been relatively flat over the last 12 months as they are up just 1.9% during that time frame. EPS, however; had a sharp decline of 40.5% during that time frame. Price/sales of 0.29 looks strong as it is well below the industry average of 2.31 and price/cash flow of 1.1 also looks strong as it is well below the industry average of 16.9. Major questions lie within the balance sheet. The current ratio of 1.03 is alright, but debt/equity of 5,611.3% is a major cause for concern. It is for this reason that we would place a Sell rating on this stock.

Travelport Worldwide Limited (TVPT): SELL
Travelport provides travel commerce platform that offers distribution, technology, payment, and other solutions for the travel and tourism industry. This company has some major concerns. To start there is currently equity of negative $359.9 million, which is coupled with debt of $2.3 billion. There is also a narrow profit margin of just 0.6%, this falls well below the industry average of 8.2. These low profit margin could be part of the reason why the company has a high P/E of 87.6. It is for these reasons we would rate this stock a Sell.

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