Buy or Sell? Today’s Losers: VRA, PANL, ABFS
Among the biggest losers in Monday’s early trading are Vera Bradley (Nasdaq: VRA), Universal Display (Nasdaq: PANL) and Arkansas Best (Nasdaq: ABFS).
Read on for our instant analysis…
Vera’s tough report?
Investors continue to dump shares of Vera Bradley, a purveyor of women’s handbags and other accessories. Shares fell 6.5% on Thursday, Aug. 23, dropped a bit more on Friday, Aug. 24, and are off another 6% this morning. The company is slated to deliver fiscal second-quarter results on Wednesday, and the stock price action implies an imminent disappointment. Not so, say analysts at Piper Jaffray, which came out with a note this morning predicting a better-than-expected quarter. History is on their side. Since coming public in 2011, the company has topped profit forecasts by at least 5% in each of the past four quarters.#-ad_banner-#
At least one analyst is predicting bad news beyond the second quarter, though. Lazard’s Jennifer Davis believes that second-quarter results will be OK, but also expects management to take down forward guidance a bit due to the current (third) quarter showing signs of weakness. She just trimmed her third-quarter earnings per share forecast to $0.35 from $0.40, which the recent share price weakness seems to be anticipating.
If she’s right, then this stock will take a short hit when the numbers come out Wednesday, but that might set the stage for an eventual rebound. If Lazard’s $34 price target stays intact, despite the lower profit view, then that implies 50% upside from current levels, and even more if the stock takes a hit on lowered guidance.
It’s always great to land a big new customer — except when that customer runs into trouble itself. That might help explain the 10% drop in shares this morning.
Universal Display makes many of the touch screens that go into Samsung phones. And quite suddenly, doubts have emerged about Samsung’s viability in the smartphone market, after the news last week of its legal setback in a case against Apple (Nasdaq: AAPL).
This challenge to Samsung (and Universal Display by extension) may not be as bad as is feared. Apple and Samsung may hammer out a licensing agreement, or Samsung may simply choose to tie Apple up in court for a long time to come. Still, it’s worth watching how these events play out before bottom-fishing with Universal Display.
Investors may also want to wait to get a fresh quarterly snapshot of Universal Display’s balance sheet. The company has embarked on a big buildup in inventory in anticipation of a big spike in demand. That spike may not come, if Samsung’s woes are prolonged.
Arkansas Best (Nasdaq: ABFS)
Shares of this trucking firm are “only” off 3% this morning, but that marks a five-session losing streak, taking it all the way down to a multi-year low. Shares have been dropping ever since a judge ruled on Aug. 1 that teamsters had not violated labor agreement terms with Arkansas Best after agreeing to lower wages with rival trucking firm YRC Worldwide (Nasdaq: YRCW). (A document known as the National Master Freight Agreement (NMFA) is supposed to equalize pay rates across the industry.)
So Arkansas Best won’t be achieving the cost savings that had been penciled in by analysts. Merrill Lynch pegs the lost chance for labor savings at $50 million annually. Arkansas Best is expected to appeal the decision, or may just wait until next March, when the current NMFA expires anyway.
Still, even with the negative verdict, this freight carrier appears capable of earning more than $1 a share in 2013 and perhaps a lot more as U.S. economic activity picks up. So the stock’s move below $10 (levels not seen since 2001) may prove to be a solid entry point for value investors focused on the longer-term picture.
Action to Take –> Put all three of these stocks on your watch list. It’s too soon to buy them, but the sell-off may be an overreaction.
Universal Display could post a solid snapback rally the moment Apple and Samsung hammer out a deal, so if you hear a deal is in the works, it may be time to buy. Vera Bradley looks like a solid buying set-up — after second-quarter earnings are released Wednesday and the forward outlook is digested. Arkansas Best is in the midst of shaking out its current base of shareholders. Once that process is complete, value investors are likely to take note and send the stock higher.