Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings.

 

 

I'm Ready to Order a Larger Starbucks Short

Originally published at 9:42 a.m. EST on January 22, 2016
 
 

Starbucks  (SBUX) reported in-line U.S. comps after the bell yesterday as part of its quarterly earnings report, but same-store sales in emerging markets were disappointing. The coffee giant's Mobile Order App also failed to drive sales growth (as was expected).

SBUX remains a portfolio short of mine.

It's my view that if a consumer slowdown takes hold (in part because of the "negative wealth effect" of lower stock prices), price elasticity will finally begin to adversely impact the chain's domestic comps. That would probably produce a downturn in this popular, highly valued stock.

I covered most of my SBUX short when the shares were down $3 during Wednesday's market schmeissing. But I plan to short any strength on the stock if SBUX rallies from here.

Position: Short SBUX
 


 
FITB Still Be Fit to Me

Originally published at 11:22 a.m. EST on January 22, 2016
 

Fifth Third Bancorp  (FITB) reported in-line recurring earnings of $0.40/share yesterday morning, but the stock initially declined based principally on higher near-term guidance for things like technology and compliance costs (although shares are up a bit today).

Other metrics -- net interest margin, net chargeoffs, average loan growth, etc. -- were all in line.

FITB reported that its energy loans total approximately $1.7 billion, consisting of 45% reserved-based loans, 19% midstream, 18% oilfield services, 13% upstream and 5% downstream. The bank's reserves for these loans total a relatively high 5% of the energy book, and will probably rise by one percentage point in 2017.

For the full year, FITB sees about 5% expense growth year over year -- double the previous expectations. That led to a slight reduction in analysts' consensus 2016 earnings-per-share forecast, although there's little impact to the out years because the bank guided to 2%-or-lower expense growth.

 

My 2016 and 2017 EPS forecasts are $1.60 and $1.88, respectively, but I'm cutting my 12-month price target for the stock modestly to $21.50 from a previous $22.75. That's due to lower-than-previously expected oil prices, coupled with the continued drop in interest rates and the likely resulting impact on FITB's net interest margins.

Still, I'm keeping the bank on my "Best Long Ideas" list, as FITB trades at about 8.6x my estimate of 2017 EPS. That's about a 10% discount relative to Fifth Third's peers, making the stock cheap -- although I expect the peer discount to eventually narrow.

Here's a look back at my take from October on FITB's third-quarter results:

"Fifth Third Bancorp reported quarterly results today that were a penny shy of earnings-per-share expectations, but a large increase in loss reserves (against a 3% reduction in nonperformers) hampered the results.

Without this, EPS would have been nearly a nickel higher -- but I think the larger reserves are a good thing because they equip the bank with an earnings 'arsenal' if the domestic economy disappoints. And that might be the new CEO Kevin Kabat's objective.

I admire the bank's core Cincinnati franchise and am currently adding to my FITB stake. The stock is on my 'Best Long Ideas' list and my 12-month price target is $22.50 to $23.00 a share vs. the current roughly $19.

-- Doug's Daily Diary, FITB Looks Relatively Fit to Me (Oct. 20, 2015)

Position: Long FITB
 


  

At Least There's Macy's
 
Originally published at 2:33 p.m. EST on January 20, 2016
 

Macy's  (M) has been trading better all week.

According to my technical mavens, the shares pushed over their 50-day moving average of about $39 earlier in the day.

Macy's is on my Best Ideas List as a long.

Speaking of better actors, Standpoint Research initiates Twitter  (TWTR) with a Buy and a $24 target price.

Position: Long M, TWTR (large)
 
 
At the time of publication, Kass and/or his funds were long FITB, M and TWTR and short SBUX, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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