NEW YORK (
) -- The five mid-cap stocks rated highest by
have single-digit upside potential - at best -- based on median analyst targets, but all have managed strong sales growth over the past year.
The following 5 companies have market capitalizations of between $500 million and $10 billion and are rated A+, which is equivalent to a strong buy:
5. Casey's General Stores
Casey's General Stores
of Ankeny, Iowa, operates over 1,500 convenience stores in the Midwest. The stock is in-play, as Canadian-based Alimentation Couche-Tard of Montreal raised an earlier unsolicited tender offer of $36 a share to $38.50 or approximately $2 billion on Sep. 1. Casey's board of directors rejected an unsolicited bid from Couche-Tard in March and has recommended shareholders reject the subsequent tender offers.
Casey has also said it "remains in discussions with 7-Eleven, Inc." regarding a friendly offer. 7-Eleven offered $40 a share for the company on September 2, and Casey's board has said it firmly believes that Casey's value substantially exceeds $40 per share
In a September 8 note released before it was made public that Casey was negotiating with 7-Eleven, BMO Capital Markets analyst Karen Short speculated that
Speedway SuperAmerica LLC
) might be a good strategic fit with Casey's because of a similar marketing strategy and Speedway's Midwest footprint.
The company's fiscal year ends on April 30. For the three-months ended July 31, earnings were $37.2 million, or 73 cents a share, compared to $21.9 million, or 43 cents a share, during the previous three-month period and $44.2 million, or 87 cents a share, a year earlier. Earnings for the company's first quarter of fiscal 2011 were hurt by $6.2 million in legal and advisory fees related to the ongoing battle with Couche-Tard.
Second-quarter revenue was $1.36 billion, increasing 15% year-over-year.
Casey's General Stores has a low ratio of debt to capital of 0.16.
Shares were trading for 20 times earnings, which is above the P/E for domestic, except for
( WFMI) which trades for 28 times earnings.
Karen Short has a Market Perform or neutral rating on the shares, with a $46 price target that "does take into consideration the take-out potential," adding the target is "not rich for a company with a 100%-owned real estate portfolio and strong balance sheet." Casey's is a classic risk-arbitrage play for investors counting on a bidder stepping up to offer a serious premium for the shares.
According to Thomson Reuters, five of eight analysts covering Casey's General Stores rate the shares a buy, while the other three recommend investors hold the shares.
4. Balchem Corp.
of New Hampton, N.Y. is a provider of specialty ingredients and products for medical devices, as well as for food, pharmaceutical, nutritional and dairy production.
The company reported "record net earnings" of $8.3 million, or 28 cents a share, for the second quarter, increasing from $7.1 million, or 24 cents a share, in the first quarter and $6.9 million, or 24 cents a share, during the second quarter of 2009. Balchem reported that sales in its food, pharma and nutrition segment grew 16% sales year-over-year. Total net sales for the second quarter were $61.5 million, also increasing 16% from a year earlier.
Balchem has a very strong balance sheet, with a quick ratio of 3.52, showing the company can easily cover a multiple of current liabilities. The company's ratio of debt to capital is a miniscule 0.03.
Shares trade for 28 times earnings, the most expensive in the company's peer group.
Among four analysts covering the company, two rate Balchem a buy, while the other two analysts recommend investors hold the shares.
3. W.W. Grainger
is headquartered in Lake Forest, Ill. and distributes facility maintenance equipment and supplies, as well as providing inventory management and other services.
Net earnings attributable to common shareholders for the second quarter were $129.1 million, or $1.73 a share, up from $99.2 million, or $1.31 million a share, in the second quarter and $92.5 million or $1.21 a share a year earlier. Net sales increased to $1.78 billion from $1.53 billion a year earlier, with Grainger's heavy manufacturing sector leading the way. The company also said that the integration of its Lab Safety Supply and Grainger Industrial Supply divisions led to cost savings contributing over $88 million in revenue.
W.W. Grainger's ratio of debt to capital is 0.19. Long term debt was $413 million as of June 30, declining from $438 million a year earlier.
Shares trade for 19 times earnings, which is pretty much the middle of the pack for the company's peer group.
Out of 15 analysts covering W.W. Grainger, 7 rate the shares a buy, while 8 recommend investors hold the shares.
manufactures and distributes beauty care, food and household products internationally. The company is headquartered in Melrose Park, Ill.
The company's fiscal year ends on September 30. For the fiscal third quarter ended June 30, Alberto Culver reported net earnings of $47.2 million or 47 cents a share, increasing from $30.1 million or 30 cents a share the previous quarter and $28.0 million or 28 cents a share a year earlier.
Net sales for the fiscal third quarter were $417.6 million, increasing 17% year-over-year amid "replenishment of retailer inventory levels as customer service levels were restored to levels that existed prior to the company's supply chain, manufacturing and systems disruptions," although the company said that excluding the benefit from currency fluctuations, the increase would have been 10.7%.
Alberto Culver is another company with a very strong balance sheet. The quick ratio is 2.65 and the ratio of debt to capital is 0.11.
Shares trade for 21 times earnings, exceeded by several companies in Alberto Culver's peer group, including
with a P/E of 25 and
, which trades for 26 times earnings.
Out of 14 analysts covering the company, five recommend buying Alberto Culver, while the rest recommend holding the shares.GRAPHIC
1. Monro Muffler Brake
Monro Muffler Brake
operates over 770 automotive servicing stores mainly on the East Coast, operating under various names.
For the company's fiscal first quarter ended June 26, net income was $13.2 million, or 63 cents a share, increasing from $5.9 million, or 28 cents a share, the previous quarter and $9.4 million, or 46 cents a share, a year earlier. Net sales increased 24% year-over-year to $158.2 million, mainly reflecting the acquisition of Tire Kingdom, but comparable-store sales increased 5.1%
Monro Muffler Brake is not highly liquid, with just $2.9 million in cash as of June 26, however, its current ratio is 1.26. The ratio of debt to capital is 0.26.
Shares trade for 25 times earnings, compared with an aggregate of 31 for the company's industry group.
Three out of five analysts covering Monro Muffle Brake rate the shares a buy, while the other two recommend investors hold the shares.
Written by Philip van Doorn in Jupiter, Fla.
>To contact the writer of this article, click here:
>To follow the writer on Twitter, go to
>To submit a news tip, send an email to:
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.