Monday Winners: China MediaExpress, Leapfrog and Weyerhauser

Among the biggest winners in Monday’s early trading are Weyerhauser (NYSE: WY), Leapfrog (NYSE: LF) and China MediaExpress (Nasdaq: CCME).

Top Percentage Gainers — Monday, July 12, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Gain
52-Week High 52-Week Low
China MediaExpress (Nasdaq: CCME) $10.71 +11.9% $14.82 $7.35
Leapfrog (NYSE: LF) $4.78 +10.4% $7.51 $1.91
Weyerhauser (NYSE: WY) $37.66 +5.1% $53.69 $27.18

*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 10:44AM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

Weyerhauser’s Gift to Shareholders

Shares of paper goods maker Weyerhauser (NYSE: WY) are up +5% this morning after the company announced a special one-time dividend in anticipation of a conversion to becoming a real estate investment trust (REIT). By returning more than 90% of their income to shareholders, REITS can avoid high corporate tax rates and the income is instead taxed on the shareholder’s tax return. The dividend will be payable on September 1 to shareholders of record as of July 22.

It’s unclear why shares should be up so sharply. Weyerhauser had already indicated such a move was coming, so the stock should have already reflected any perceived benefit to shareholders. Then again, those who sold their shares and helped push shares down from $50 in April to a recent $35 are probably kicking themselves.

Action to Take –> The $5.6 billion ($26.50 a share) payout is far larger than investors will see in the future. (Notably, only one-tenth of dividends will be paid out in cash, the rest in new shares). The company’s earnings streams are quite erratic, and future REIT payouts are likely to wildly fluctuate.

As Weyerhauser’s earnings remain well below historical norms, the company is being valued on the basis of its assets. UBS believes those assets are worth $54 a share. But they are likely to trade at a large discount to that target — at least while global demand for paper and paper products remains subpar. Nevertheless, the recent sell-off looks overdone, and shares should wend their way back into the $40s.


Leapfrog gets a Boost

After a recent survey among its retail contacts, analysts at Needham & Co. predicted that Leapfrog (NYSE: LF) would post impressive second-quarter results. Leapfrog’s educational electronic toys were once a hot item, though larger rivals such as Mattel (NYSE: MAT) and Hasbro (NYSE: HAS) eventually came up with copycat products to steal market share. And that has led the company to lose money in each of the past four years. As a result, Leapfrog’s shares, which traded for nearly $50 back in 2003, can now be had for less than $5.

But that may soon change, according to Needham. Leapfrog’s latest iteration of its “edu-tainment” toys are quite compelling, and as interest rebuilds, the company looks set to post profits once again this year. And they see earnings per share more than doubling next year to around $0.60. The Needham upgrade to “strong buy” is boosting shares nearly +11% this morning.

Action to Take –> Needham is correct in noting that Leapfrog’s turnaround has taken place under the radar. The apparently robust second-quarter sales trends have come at a time when its stock has fallen from $7 in May to less than $5 today. Even with today’s pop, shares trade for less than ten times Needham’s street-high 2011 profit forecast. If the analysts are correct in predicting that second-quarter sales will be fairly robust, shares could quickly move back to that recent $7 high.


China MediaExpress Holdings highlights the Contrarian View

With every passing week, we read another story about how the Chinese economy is about to hit a wall. To be sure, certain sectors such as real estate and construction may be set to slow down, but many aspects of the economy are just getting going, thanks to heavy government spending on infrastructure over the last five years. Well beyond Beijing and Shanghai, dozens of other cities with populations in excess of one million residents are geared for steady growth, thanks to a fast-rising consumer class.

China MediaExpress Holdings (Nasdaq: CCME) has just reminded us of this notion, citing robust advertising growth as a key factor behind just-raised earnings guidance. That’s pushing shares up nearly +12% in Monday trading. China Media focuses on airport and bus-based ads, and looks set to post another year of very robust growth. Yet Wall Street analysts have yet to start covering the stock.

Action to Take –> As this fast-grower starts to garner a following among analysts, its price-to-earnings ratio (P/E) below six is bound to catch attention. The stock had fallen out of bed recently — dropping from $13.25 on May 28 to below $9 in early July — for no apparent reason. Shares are back up above $10 today, and should push past the 52-week high of $14.82 when investors stop fretting about China’s growth rates.