News Analysis date published New: 
Wednesday, June 9, 2010 - 12:56
New Date created: 
Thursday, August 15, 2013 - 10:08
New Date last updated: 
Wednesday, June 9, 2010 - 12:56

Wednesday Winners: Felcor Lodging Trust, Ciena and Bunge

Wednesday, June 09, 2010 12:56 PM

Among the biggest winners in Wednesday's early trading are Felcor Lodging Trust (NYSE: FCH), Ciena (Nasdaq: CIEN), and Bunge (NYSE: BG).

Top Percentage Gainers -- Wednesday, June 9, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Gain
52-Week High 52-Week Low
FelCor Lodging (NYSE: FCH) $6.56 +17.6% $1.86 $8.99
Ciena (Nasdaq: CIEN) $14.94 +7.9% $8.45 $19.49
Bunge (NYSE: BG) $51.02 +6.8% $45.36 $74.04

*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 11:00AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

Hotel Rooms Start to Fill

The hotel industry was caught off guard during the 2008-2009 economic slowdown. Just as demand slumped, key industry players found themselves in the middle of a building boom. They had to complete construction of all of those half-finished hotels, even though they lacked customers to fill them. (I stayed at an off-highway mid-priced hotel in Atlanta last year where I was the only guest that night.)

As the economy has rebounded, hotels and motels have started to see increasing demand, but so many new rooms have forced the industry into deep discounts. Felcor Trust (NYSE: FCH), a real estate investment trust (REIT) that operates a range of hotel franchises from different brands, just gave the industry some promising news: Demand has finally climbed back to the point where hotel room prices are starting to firm up (8% higher than a year ago), and that has enabled the REIT to generate its strongest cash flow levels in several years. And that unexpected boost in cash flow is enabling Felcor to pay off some of its debts early, and at a discount. That’s good for a +15% gain in shares in Wednesday trading.

Action to Take --> Because of the economic slump, hoteliers were wise enough to let the construction boom wind down without authorizing a fresh round of new construction. That should enable demand to catch up with supply – unless the economy slumps anew. Look for other players to speak of firming pricing and demand in the months to come. Felcor still carries a lot of debt and is a risky play in this still-tenuous economic environment. Investors may want to stick with hotel operators with stronger balance sheets such as Starwood Hotels (NYSE: HOT), Marriott (NYSE: MAR) and Hyatt Hotels (NYSE: H). Those firms also have greater exposure to Europe, and would be prime beneficiaries of any spike in U.S. travel abroad now that the weaker Euro makes vacations a lot cheaper.

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Ciena Higher on Lower-than-Expected Quarterly Loss

Ciena’s (Nasdaq: CIEN) investors were girding for the worst. Shares had slumped sharply in recent weeks on fears that the telecom equipment maker would post a large quarterly loss. Thanks to sharp cost cuts, Ciena lost -$0.13 a share, half the expected per share loss. That’s helping shares rebound +7% in Wednesday trading.

But a loss is a loss, and Ciena’s high level of exposure to Europe – perhaps as high as 25% of sales – could be a real problem if major European telcos decided to sharply slash spending in the face of economic uncertainty. So there’s plenty reason for near-term caution. In addition to demand concerns, investors will also need to see that Ciena can smoothly integrate the acquired assets of Nortel. If the company can achieve hoped for cost cuts and sales synergies, then investors will warm to this stock even more. It will be several more quarters before that is apparent.

Action to Take --> Despite the bottom-line improvements, Ciena is still expected to lose money for a few more quarters. How profitable the company can become is an open question. And that will keep most investors on the sidelines for now.

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Stock Buyback Boosts Bunge

Shares of Bunge (NYSE: BG) are up around +7% in Wednesday trading, after the agribusiness company announced plans for a fairly hefty stock buyback. Bunge had been heavily indebted, but just completed a $3.5 billion asset sale, which should lead to a much cleaner balance sheet when it is released next month.

On StreetAuthority's sister website, InvestingAnswers.com, we note that not all buybacks are effective, especially if they are just sopping up option grants.

Action to Take --> Buybacks are most effective when shares are very close to multi-year lows. Shares of Bunge have fallen around -30% since early January, but are still +50% higher than a few years ago. Nevertheless, the buyback, if completed, would reduce the share count by around -8%, and boost profits on a per share basis by a commensurate amount. That should provide support to shares at these levels, but shares may not rise until management puts the rest of the proceeds from that $3.5 billion in asset sale to use in the form of deal-making.

David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.