(Story updated with Align fourth-quarter earnings and revised analyst views.)
NEW YORK (TheStreet) -- In today's daily series of investing strategies from Wall Street, analysts highlight solid trends for natural food stocks and improving prospects for long-suffering crude oil refineries.
1) Natural Foods Show Solid Demand Trend
Not only are Citigroup analysts seeing strong long-term growth for the natural food industry in their crystal ball, they're already seeing decent near-term sales in spite of macroeconomic volatility. The analysts are optimistic that companies such as
, whose brands include Celestial Seasonings and Earth's Best, have been growing solidly in the fourth quarter, after posting solid growth the preceding quarter. The reason for this, say Citigroup analysts, is that higher-end consumer demand for natural and organic food products is holding up well and the trading up to such foods remains a long-term trend.
Citigroup equity researchers say their thesis is also being supported by
United Natural Foods'
indication of an accelerating preference for natural and organic foods in November, Hain Celestial's positive rhetoric in a recent Web presentation, and
strong fourth-quarter same-store sales, which have a high correlation to natural or organic company sales.
At an attractive 21X forward earnings per share value, Hain has been added to Citigroup's list of top stock picks. Meanwhile, the analysts believe that their high teen, longer-term EPS growth forecast for the stock is conservative. They're also seeing high single digit organic sales for the company. "If Hain can merely hit or modestly beat current, conservative analyst estimates over the next few quarters, which we think is achievable, then we could see nice stock upside," they noted.
2) Crude Refineries Eye Brighter First Quarter
Citigroup analysts believe that crude oil refineries are returning to profitability in the first quarter as global refining capacity utilization remains on par with last year and crude spreads move back to more profitable levels. The now tightened overall supply of refined oil products, following the widespread closure of refineries around the world due to shrinking profit margins -- thanks to high crude prices but weak demand -- will likely help lift refinery product prices in the first quarter.
The analysts maintain a buy recommendation and $31 price target for
as it's set to benefit from the refinery shutdowns on both sides of the Atlantic. The company's Quebec refinery is expected to benefit from better margins in the New York Harbor, while its Pembroke refinery is likely to be a beneficiary of the potential shutdown of
refineries in Europe. Furthermore, Valero is getting ready to bring on two hydrocrackers, which breakdowns petroleum into products such as gasoline, at its Port Arthur, Texas and St. Charles, La. refineries in the second half of this year. This may add $1 a share in full-year earnings power for Valero.
is also a buy, according to the analysts, who have a $42 price target for the stock. They believe that Marathon's Detroit Heavy Oil Upgrade Project (DHOUP), to add new equipment at Marathon's Detroit refinery to process additional heavy crude oils such as those from Canada, will increase the company's earnings power by up to $1 a share.
Marathon could achieve an exceptional $1 billion in tax savings related to DHOUP asset depreciation in 2012, according to the Citigroup researchers. The project will likely launch in the second half of this year.
Citigroup analysts are also reiterating their buy recommendation for
and raised their price target for the stock to $44, thanks to their bullish view on Sunoco Logistics' crude, natural gas liquids and refined products business. Sunoco owns 33.8% of
through a 31.8% interest in the limited partner units and a 2% general partner interest.
3) U.S. Dental Manufacturers Gain Momentum
Jefferies' analysts note that shares of the average U.S. dental product manufacturer and distributor are up 9% year to date compared to a 5% increase in the S&P 500 index, on the heels of 600 basis points of relative outperformance in 2011. Heading into the fourth quarter, the analysts continue to favor dental product manufacturers due to compelling valuations. In light of this, they're reiterating their buy view on shares of
Sirona Dental Systems
The analysts expect that DENTSPLY International's fourth quarter 2011 and 2012 full-year financial outlook announcement on Thursday, Feb. 16, before the markets open, will show an acceleration of the company's earnings per share growth due to accretions from its Astra Tech dental and healthcare business acquisition and rebounding sales volumes in Japan. However, they're trimming their 2012 earnings per share forecasts for the company to $2.35 from $2.40 to factor in negative foreign currency developments. They maintain their $45 price target for the company due to its consistent, long-term cash flow forecast.
Sirona Dental Systems, which is scheduled for a first quarter 2012 announcement on Friday, Feb. 3 should report continued demand strength for its high-tech products in the European Union, despite its troubles. With shares of Sirona at an enterprise value of about 10 times the analysts' calendar year 2012 EBITDA (earnings before interest, taxes, depreciation, and amortization) forecast, and roughly five percent below their historical average, the analysts reiterate their price target of $53 for the stock.
Meanwhile, the Jefferies analysts have raised their full-year earnings forecast for Align Technology to $1.05 from $1.03 a share on a stronger volume growth outlook for the company's Invisalign teeth-straightening product. They've raised also their price target for the Invisalign maker to $30 from $23 on higher cash flow forecasts and greater confidence in the company's operating margin outlook.
However, the Jefferies analysts are trimming their 2012 revenue projection for the company by about 1% to $550 million to reflect a now more conservative view on sales growth trends at its Cadent oral-scanning unit.
On Monday, after the markets closed, Align reported fourth-quarter adjusted earnings of 28 cents a share, which was 6 cents above the consensus estimate on much stronger Invisalign revenue growth and profitability trends, as well as a lower tax rate.
4) A Pickier Approach to Homebuilder Stocks
JPMorgan analysts are looking for moderate improvement in housing demand this year, with single-family starts likely to grow a mere five to ten percent. Amid the likelihood of depressed homebuilder stock valuations relative to historical averages over the next two to three quarters, the analysts are being particularly picky about their homebuilder selections. Their top picks among homebuilders are
, on which they have overweight recommendations.
On Friday afternoon, the Obama administration expanded its Home AffordableModification Program (HAMP) by extending the expiration of the program by oneyear to the end of 2013, broadening the qualifications for borrower eligibility. The analysts believe that this expansion will further help the work-down of "shadow" inventory and general supply issues, and improve price stability, but caution that the biggest drag on the housing market continues to be a slow pick up of demand.
5)Broadlines, Apparel and Footwear See Signs of Light
While their January same-store estimates for broadline, apparel and footwear stocks broadly fall below the consensus street estimate, JPMorgan analysts see a pick up in strength in the fourth week of the month, providing a "subtle positive" in a minor clearance month.
That said, they believe that the recent weakness in
shares, on which they have an overweight recommendation on, is overdone. The stock has been down six percent in the past week compared with the S&P 500 index, which has essentially been flat, because
CEO Ron Johnson's move to take a more upscale approach to the Macy's competitor. "Fear of J.C. Penney's upscale move is overblown in our view," given that the long-term focuses of the two will have little overlap, the analysts note.
On the other hand, JPMorgan researchers continue to advocate a short side recommendation for
, citing longer-term structural problems relating to pricing and promotions, margins and customer traffic.
-- Written by Andrea Tse in New York.
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