Thursday, July 26, 2012

Bad news buys: Ericsson, Briggs & Stratton


I continue to like the long-term, three-to-five year prospects of undervalued stocks. In particular, we remain fond of some of our favored names that recently saw their share prices tumble after turning in disappointing fourth quarter numbers.

Here's a look at small engine maker Briggs & Stratton (BGG) and telecom firm Ericsson (ERIC).

Briggs & Stratton, the global leader manufacturing small engines for outdoor power equipment, including lawn mowers, generators and power washers, saw its shares drop more than 10% after it reported that it would further restructure the company.

While we don�t believe that consumer spending within BGG�s core businesses is going to skyrocket overnight, we believe that the cost cutting measures will pay dividends going forward as the U.S. economy continues to firm.
We also like that Briggs & Stratton has an approximate 50% share of the global small engine market.

Shares of BGG currently yield slightly below 3% and trade below their three-, five- and 10-year averages for revenue, earnings and book value per share. Our Target Price is now $27.

Telecommunications equipment provider Ericsson reported disappointing earnings for the fourth quarter, with news that revenue growth and profitability were below analyst expectations sending the stock price skidding some 15%.

The sales mix in the quarter negatively impacted margins as the company saw telecom operators, especially in the United States, continue to slow spending on network expansion.

In addition, profits were hit by the continued struggles of its two major joint ventures, Sony-Ericsson and STM-Ericsson.

While we were disappointed in the quarter�s results, we still believe that ERIC has solid long-term potential and would recommend adding to shares or starting a new position given the recent share price pullback.

No doubt, patience will be needed as Ericsson rebuilds its longer-term operating momentum, and we�ve trimmed our Target Price to $17, but we like that the shares pay an attractive dividend, putting the net yield above 3%, and that earnings per share expectations are still north of $0.70 for this year and next.




No comments:

Post a Comment