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Thursday, 23 September 2004
September 23, 2004 Carter's (CRI)

Hello Friends! I apologize for not posting as often as I would like, but I shall do my best to keep adding to the HUGE number of stock market ideas on this blog, Stock Picks Bob's Advice. As always please remember that I am an amateur investor, so please do your own investigation of all stocks discussed on this website, and please consult with your professional investment advisors to make sure all of your decisions have the greatest likelihood of profitability and appropriateness for you!

As many of you may know, the first thing I like to do when looking for a new stock pick is to search through the lists of top % gainers of the NYSE. On the list today was Carter's (CRI), which closed at $26.30, up $1.19 or 4.74% on the day. Looking at the Yahoo "profile", we can see that Carter's IS indeed the baby clothing store (it has been YEARS since my kids have been running around in those outfits), and "...markets apparel for babies and young children in the United States."

On July 28, 2004, Carter's announced 2nd quarter 2004 results. Net sales for the quarter increased 12% to $156.3 million from $140.0 million in the same quarter the prior year. For the second quarter ended July 3, 2004, net income increased 183% to $5.9 million or $.20/diluted share from $2.1 million or $.09/diluted share the prior year. ($.03/share represented a benefit of the "cumulative effect of a correction in the cost of inventory"). The company estimated a 10% year-over-year increase in third quarter 2004 sales to $234 million with earnings rising 19% compared to the prior year at $.57/share. For the full year, CRI estimated sales of $775.0 million (+10%), and earnings $1.56 to $1.58, a 28% to 30% increase from the prior year. Overall this report looked quite postive to me!

How about longer-term? For this I like to turn to the Morningstar.com "5-Yr Restated" financials. Here we can see that revenue has increased steadily from $406.9 million in 1999 to $703.8 million in 2003. The latest quarterly report has the company doing over $770.0 million in 2004!

Earnings have increased from $.82 in 2002 to $.92 in 2003. Again, estimates for 2004, reported in the latest quarterly earnings release by the company, should be about $1.56 to $1.58, a nice increase the last few years.

Free cash flow has been positive according to Morningstar.com, increasing from $12 million in 2001, to $23 million in 2003. The balance sheet also looks fine, if not perfect, with $36.1 million in cash and $185.7 million in other current assets, with only $71.2 million in current liabilities and $302.4 million in long-term liabilities.

How about "valuation"? Looking at Yahoo "Key Statistics", we can see that this is a small cap stock with a market capitalization of $738.69 million. The trailing p/e isn't bad at 23.42 (imho), with a forward p/e (fye 3-Jan-06) of only 14.53 thus yielding a reasonable PEG at 1.07. Price/sales is also cheap at 0.96. There are 28.09 million shares outstanding (I do not personally own any shares nor do I have any options), with 26.90 million of these that float. As of 8/9/04, Yahoo reports 588,000 shares out short representing only 2.19% of the float, but due to the low average trading volume, this is still significant at 8.647 trading days.

No cash dividend and no stock dividend is reported on Yahoo.

How about "technicals"? Looking a "point & figure" chart from Stockcharts.com:




it appears that this stock probably came public in its current 'incarnation' in 2003 at around $25/share. The stock traded higher until June, 2004, when it broke through a resistance level at $28, and actually has been trading UNDER a resistance level since that time. The stock, at $26.30 today, will not have broken through the resistance level at around $29. As a technician, I might want to wait until it got through that level to make sure it wasn't just a temporary improvement in stock price.

So what do I think? Well their clothes are sure cute! LOL. But seriously, the earnings reported is solid, the free cash flow is nice, the balance sheet is healthy, and the valuation is in line. It is just that the technicals, the price chart itself does look a bit weak. And besides, I don't have any money to be buying anything right now!

Thanks so much for stopping by! If you have any comments, questions, or words of encouragement, please feel free to email me at bobsadviceforstocks@lycos.com .

Regards!

Bob


Posted by bobsadviceforstocks at 5:55 PM CDT | Post Comment | Permalink

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