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An Upgrade, an Earnings Preview,
Pawn Shops Make Money and a New Nasdaq Listing
Inflation dips, housing starts rise, but that couldn't keep those cautious bears from light selling this morning and slightly pushing the markets into the red. Flying high this morning, four SmallCap stocks stand out. One of the four is a new listing (DRWI), but can SPAR, PRSC and FCFS make a true comeback to previous levels set in the last three months? Let's have a look.
Gaining over 7% this morning, S&P SmallCap 600 Spartan Motors Inc., (SPAR) http://www.spartanmotors.com/ hit $5.82 on heavy trading when Barrington Research issued an upgrade from 'Underperform' to 'Outperform'. The upgrade comes two days ahead of SPAR announcing its Q3 2009 results prior to the market opening.
At $5.82, SPAR is less than half its 52-week high of $11.75 set on June 29, 2009. SPAR has trailing twelve month revenues of $623 million and a calendar year diluted EPS of $0.89 (during the 'Great Recession'). I think this stock will bounce back. Here's why: one, they can generate revenues in an auto-based industry during the worst of times and two; SPAR management believes in top-line revenues and sales, sales, sales. I think the stock is undervalued at $5.82. Day-traders may make a few bucks buying tomorrow on Thursday's Q3 earnings release, but short-term investors (six months) can look for SPAR to gain at least 25% in the next two quarters.
Look at SPAR last week announcing new orders from Braun Industries for the SPAR FurionRT ambulance cab and chassis. Braun ordered 16 FurionRT ambulances for the Miami-Dade Fire Rescue department and 11 FurionRT units for DeKalb County Fire & Rescue in Georgia. SPAR can make chassis for just about anything and Fleetwood RV will begin offering its 2010 Fleetwood RV brand Class A motor-homes on SPAR's custom diesel chassis.
Early in October, SPAR management kept its word on a strategic initiative announced six months ago and made capital investments in facilities and equipment to strengthen its manufacturing capability and is developing new 'Road Rescue' products that will be introduced in the coming quarters. New sales and new revenue streams. SPAR will bounce back.
SPAR PRSC
Gaining over 9% this morning, Providence Service Corp., (PRSC) http://www.provcorp.com/ jumped to $11.66 this morning on yesterday's after-market preview of its upcoming earnings. Heavily traded this morning, PRSC is approximately $2.50 below its 52-week high set in May. PRSC has calendar revenues of $723 million.
Can PRSC become a momentum play upward until its Q3 2009 official announcement on November 4 after the market? Yes. And if yesterday's sneak peak is any indicator, it can beat that previous high. PRSC said yesterday it anticipated $0.20-22 earnings on revenues of $207 million. It also said it forecasts Q4 earnings of $0.33-35 on revenues of $209-215 million. 2009 earnings, revenues and sequential growth dwarf the PRSC losses in 2008.
PRSC management also said, the record 2009 results are being driven by Medicaid enrollment increases, rate stabilization and reduced operating costs. But this isn't a bottom-line driven report. As a matter of fact, on October 8, PRSC said that given the substantial free cash generated in the Company's record operating performance in the first half of 2009, as well as its expectations of additional free cash generation for the remainder of the year, the Board of Directors has authorized a total voluntary prepayment on its senior debt of $20 million. That is a good way for a company to spend free cash sitting around.
PRSC announced that all approximately 1,000 contracts in existence as of March 31, 2009 have been renewed for the July 1, 2009 to June 30, 2010 period. Of the 42 states, District of Columbia and Canada where Providence has contracts, only one state, North Carolina, implemented a rate cut, announcing a 3% across the board cut to provider rates.
Fletcher McCusker, Chairman and CEO: "The dramatic $87 billion dollar federal intervention to stabilize Medicaid along with the Federal Court's rulings in California that sent a message to state governments not to balance budgets with cuts to Medicaid have provided for a solid contract renewal season."
PRSC provides and manages government sponsored social services to individuals and families in the United States both directly, as well as through not-for-profit social services organizations. I believe PRSC stock will soar on news of a HealthCare Reform Bill. If you look at the chart, I believe PRSC will bounce back; Strong.
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Gaining over 7% this morning is S&P SmallCap 600 company First Cash Financial Services Inc., (FCFS) http://www.firstcash.com/ on triple its average 3-Month daily volume. Now in the $18.60 range, I believe FCFS can beat its 52-week high of $19.85 set on August 9, 2009 and the rebound will be based on momentum.
FCFS reported today its Q3 2009 diluted EPS was $0.35 (a 21% increase over Q3 2008). FCFS beat street estimates today and management said it is increasing guidance for full year earnings from continuing operations to a range of $1.37-$1.39 per share.
FCFS runs pawn shops and loan stores in the U.S. and Mexico and it said today same-store sales rose 9% for the quarter. Q3 2009 revenues were $94.6 million. Management noted sales of scrap jewelry increased by 18% for the quarter and 9% year-to-date.
There is a need for FCFS services and $344 million in trailing twelve month revenues bare that out. With only a dollar twenty to go to beat its high and the holidays ahead, I think 'recovery' shoppers and pay-day loan consumers will push the stock up until Federal Regulators start considering financial services in February.
FCFS DRWI
Finally this morning, a new listing on Nasdaq for DragonWave Inc., (DRWI) http://www.dragonwaveinc.com/ pushed the stock up 8% past $9.42 on nearly 10 times its normal volume on the Toronto Exchange (TSX). Congratulations to share holders. If you look at the chart, exposure in the U.S. can mean everything to share value. Principle underwriters Canaccord Adams and Piper Jaffray made the right move bringing DRWI south in an offering at $10 a share. DRWI will use its net proceeds to globalize and strengthen its balance sheet. DRWI is in the mobile broadband network deployment business. DRWI will have a duel listing on the TRX and the Nasdaq. Returning a positive $0.04 in calendar diluted EPS on $70 million in revenues, I think this is a good stock to 'Watch'.
If you'd like to know of any changes in our opinion of SPAR, PRSC, FCFS or DRWI
(or if SCN officially recommends them as trades)
