Wednesday Losers: Chico’s, Solarfun, Cost Plus

Among the biggest losers in Wednesday’s early trading are Chico’s FAS (NYSE: CHS), Solarfun (Nasdaq: SOLF) and Cost Plus (Nasdaq: CPWM).   

Top Percentage Losers — Wednesday, May 19, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Loss
52-Week High 52-Week Low
Chico’s FAS (NYSE: CHS) $12.21 +13.7% $16.57 $7.46
Solarfun (Nasdaq: SOLF) $6.08 +9.8% $10.78 $4.48
Cost Plus (NYSE: CPWM) $4.80 +10.7% $5.98 $0.95
*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 10:30AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

Retailers’ Slump Presents Opportunity for Chico’s

Investors often get spoiled. Once they see a company repeatedly blow past estimates, they expect more of the same. So when Chico’s FAS (NYSE: CHS) simply met first quarter profit forecasts on Wednesday, shares were dumped to the tune of -8%. Investors had only recently chased up shares of retailers on expectations of sustained sales and profit growth. But that retail trade has evaporated: shares of Chico’s, in particular, are off nearly -25% since April 23rd, which also happens to be right around the time that the Retail HOLDRS (NYSE: RTH) exchange-traded fund (ETF) also peaked.

#-ad_banner-#This should have been expected after retail stocks posted such a strong run in prior months. The downdraft is a fresh opportunity for growth investors — if you believe that unemployment rates will start to drop and consumer spending will commensurately strengthen. Indeed, even as Chico’s may have disappointed investors by not exceeding forecasts, the retailer is still expected to boost sales about +10% in 2010 and again in 2011. Per share profits are expected to rise at least +30% both this year and next as well. Against that backdrop, shares look to be a bargain at less than 13 times projected 2011 profits.

Action to Take –>
This morning’s sell-off in Chico’s is not a reflection of troubles at the company. Shares look ripe for bargain-hunting. For that matter, other retailers may also see choppy trading as they release earnings, so other sector bargains could emerge. 


Cost Plus in a Death Spiral?

The home furnishings segment can be brutal. Bombay, along with Linens & Things, were already forced to liquidate a few years ago, and Pier 1 Imports (NYSE: PIR) has had several brushes with death. So investors should proceed cautiously with retailer Cost Plus (Nasdaq: CPWM), which sports a debt-laden balance sheet and open-ended losses. Shares are off nearly -10% in Wednesday trading, one day ahead of the quarterly earnings release. The stock could post a rebound on Thursday if management’s comments are any more positive than the Wednesday stock chart seems to anticipate. But this retailer may be in terminal decline, and may increasingly become a favorite of short-sellers focusing on potential bankruptcy candidates.

Action to Take –> Today’s sell-off may just be the beginning. Take a close look at the company’s finances when results are released tomorrow. They could spell trouble — which is good news for short-sellers. 


Solarfun Drops into Deep Value Territory

As oil prices steadily drop, shares of alternative energy providers are falling back out of favor. Germany’s expected second-half drop in solar power spending is also pressuring shares in the group, even though this development has been widely anticipated for a number of months. SunPower (Nasdaq: SPWRA), for example, is falling for a sixth straight session, down another -5% in Wednesday trading.

The biggest sector laggard today is China-based Solarfun Power Holdings (Nasdaq: SOLF), which is slumping more than -10%. As is the case with a number of solar panel makers, Solarfun built too much manufacturing capacity to support current demand. It doesn’t help that past management had a reputation for poor sales execution. Yet shares have been punished too deeply, trading at around eight times projected 2010 profits and less than five times projected 2010 EBITDA, on an enterprise value basis.

Solarfun is expected to release first quarter results next Wednesday, and as has been the case with other industry players, management is expected to speak of a challenging current environment, but a still-robust outlook for later this year. Management recently noted that new orders are beginning to flow in, which should better utilize the company’s existing manufacturing capacity.

Action to Take –> Shares appear very close to a bottom as all of the negative factors swirl, but those in search of deep value should find Solarfun to be very appealing.