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April 4, 2005
Taking stock | An update on the performance of Maine's publicly traded companies
By Taylor Smith
By the looks of things during the past few months, it seems that Wall Street has its sights regularly trained on Maine-based companies. When Portland-based Wright Express was spun off in February from its parent company, New York-based Cendant Corp., journalists from Fortune magazine and the Wall Street Journal covered the story. And the transformation of the Banknorth Group to TD Banknorth through its March sale of a majority stake to Canadian banking powerhouse Toronto-Dominion Bank ended months of will-it-or-won't-it speculation in the media.
But as the dust is beginning to settle from these two deals, it's likely that Maine's corporate landscape will recede from Wall Street's vision and settle back into relative obscurity in the financial world. After all, Maine's publicly traded stocks aren't big by most measures. The largest stock in Maine is the new TD Banknorth, with a market capitalization of roughly $6 billion. In all, the 12 Maine-based companies with stocks that trade on the New York Stock Exchange, the American Stock Exchange or the Nasdaq exchange have a combined market cap of just under $11 billion. By comparison, Charlotte, N.C.-based Bank of America's market cap is a whopping $180 billion.
But just because these stocks are small doesn't mean they're bad investments. In fact, quite the opposite: In the investment world, sometimes small is beautiful. But in terms of stock performance, the question isn't always whether a stock is a big guy or a small fry. Often, how a company is executing on its strategy tells the tale of the ticker tape.
That's why Mainebiz thought it would be a good time to check in on Maine's publicly traded stocks. We wanted to find out what was happening with the companies. Are any wildly overvalued? How will recent mergers affect one company's business? Will regional bank stocks continue their great run? To answer these questions ˆ and many more ˆ we asked stock analysts and securities brokers in Maine and beyond to guide us through the maze of Maine's publicly traded companies.
TD Banknorth
2 Portland Sq., Portland
www.banknorth.com
Ticker: BNK (New York Stock Exchange)
Market cap: $5.9 billion
Recent share price: $31.50
12-month gain*ˆ:21.0%
* 12-month stock gain through close of trading, March 15, 2005
ˆ Banknorth stock prices prior to 3/2/05 adjusted to 79.87% of their former value to reflect the merger with TD Bank
TD Banknorth's stock, which was among the better performers of Maine's publicly traded stocks during the 12 months through mid-March, benefited from the late-August announcement that the company was considering selling 51% of its stock to TD Bank. During the 12 months through March 15, shares of the company gained nearly 21%, compared to a gain of just 1.2% for the Philadelphia Stock Exchange's Bank Sector Index. (As part of the deal, for every share held in Banknorth, investors received nearly one-half of a share of reissued TD Banknorth stock along with TD Bank stock and cash.) Meanwhile, Jim Ackor, an analyst at RBC Capital Markets in Portland, says in mid-March the stock was trading at a slight discount to its peer group, with a price-to-earnings ratio of about 13.
Jim Callahan, an analyst at Chicago-based research firm Morningstar Inc., says the stock is trading just below its fair value of $34 a share. "In our framework and methodology, we'd say that's fairly valued," he says. "We typically look for a margin of safety before a stock would receive a five-star rating" ˆ Morningstar's top equity rating ˆ "and that would be around $26 [per share]."
According to Ackor, TD Banknorth is in good shape post-merger. "They're not a plain-vanilla thrift, as some people have viewed them in the past," he says, noting that the company's management is likely to be a significant part of TD Banknorth's success. CEO Bill Ryan, says Ackor, has repeated the mantra that "asset quality won't be sacrificed for anything." As a result, Ackor says TD Banknorth's balance sheet is solid, and the company in recent years has done well driving growth in the New England banking market.
Callahan agrees that Banknorth's balance sheet is in good shape, and says the bank's recent debt restructuring was an effective strategy to shore up its finances before the merger. In October and February, the company, in an attempt to cut its debt, sold off more than $4 billion in loans, assets and investment securities and prepaid a similar amount in debt. "We've seen several banks go through the balance sheet restructuring," says Callahan. "In Banknorth's case, they did a restructuring, but the hit to earnings wasn't nearly the hit to earnings that we've seen for other banks."
And though there are still questions about what the deal will mean for Banknorth in the long run, analysts generally agree that the TD agreement gives Banknorth much more latitude in striking acquisition deals with smaller banks. (However, Jared Shaw, an analyst with Keefe, Bruyette & Woods in Hartford, Conn., says TD Banknorth likely will wait to make any acquisitions until its stock price moves higher.) The deal also gives TD Banknorth a wider range of services, which will be useful in moving into metropolitan areas such as New York City. "The jury's still out on how the marriage with TD will really work out," says Brad McCurtain, president of Portland-based brokerage firm Maine Securities Corp. "But I'll put money on Bill Ryan. I know that nine times out of 10, I'll make money with him."
(Full disclosure: While McCurtain has gained the reputation as one of the most knowledgeable analysts covering Maine's stock market, he also is a big believer in the stocks he covers. As a result, he owns shares of most publicly traded Maine stocks. RBC's Jim Ackor does not own any shares of Banknorth or other Maine-based regional banks. Neither Morningstar's Jim Callahan nor Keefe, Bruyette & Woods' Shaw own Banknorth shares.)
Fairchild Semiconductor International
82 Running Hill Rd., South Portland
www.fairchildsemi.com
Ticker: FCS (NYSE)
Market cap: $1.9 billion
Recent share price: $15.74
12-month gain*: -30.2%
* 12-month stock gain through close of trading, March 15, 2005
Brad McCurtain says the management team at Fairchild Semiconductor, which includes industry veterans such as President and CEO Kirk Pond, has done an admirable job diversifying the company's position in the semiconductor market since taking it public in 1999. Whereas many firms in the chip sector focus on one industry ˆ Mountain View, Calif.-based Intel, for example, manufactures chips primarily for the personal computer market ˆ Fairchild supplies chips for automobiles and cell phones, as well as personal computers and mp3 players. "One of their fortes is chips that go into toasters to cars to everything else," says Gregg Piasio, president of Bangor Securities, the brokerage arm of Bangor Savings Bank. (Piasio doesn't own shares of any Maine-based company.)
Because of volatility in the semiconductor industry, Fairchild's recent stock performance hasn't been stellar: The shares shed more than 30% of their value during the 12 months through mid-March. That compares to a drop of nearly 11% during the same period for the Philadelphia Stock Exchange Semiconductor Index. "They're not at the bottom, but they're not where they were a few years ago," says Piasio, alluding to Fairchild's strong performance at the height of the Internet bubble in early 2000. "[Fairchild] is subject to the fluctuations of the chip market."
And due in part to those market gyrations, Fairchild's stock has been relatively volatile during the past year. In March 2004 the company's shares began a five month slide, falling nearly 47% from $22.54 a share to $11.99, thanks to cyclical swings in the chip market and the consumer spending patterns for items as disparate as cell phones and automobiles. Since last September, the stock has risen in fits and starts by more than 31%. "They're getting whipsawed a little bit from the economy," says McCurtain. "[Fairchild] is well diversified across different industries, but those industries are all consumer driven. People will buy a new cell phone when the economy is good."
But McCurtain maintains that the company's products are "fabulous," and that it's releasing new ones at a prolific pace. Analysts say Fairchild is well positioned to take advantage of increasing demand for power chips, a fast-growing sector of the semiconductor market. The chips help regulate energy flow from power sources in products like laptop computers, cell phones and hybrid cars, effectively resulting in longer battery life and more uniform power delivery.
Meanwhile, recent technological advances have allowed power chips and transistors to be significantly smaller and easier to incorporate into products. Forbes magazine recently argued that a widespread shift towards hybrid gas/electric vehicles in the auto market will provide a big boost to the power chip market ˆ already a $50 billion market ˆ and that Fairchild is among the dominant players in the market.
Idexx Laboratories
1 Idexx Dr., Westbrook
www.idexx.com
Ticker: IDXX (Nasdaq)
Market cap: $1.78 billion
Recent share price: $54.21
12-month gain*: -3.2%
* 12-month stock gain through close of trading, March 15, 2005
Since President and CEO Jonathan W. Ayers joined Idexx Laboratories in early 2002, the biotechnology firm's stock price has more than doubled, while revenues have grown at a steady 15% annual clip during the two years through 2004. Meanwhile, earnings per share last year grew by 38%, compared to 21% growth in 2003. What's behind the growth? According to Gregg Piasio, Ayers has been a big catalyst: "He's been viewed amongst the marketplace as being very successful," says Piasio.
Morningstar equity analyst Debbie Wang credits the company's strong sales and broad product mix for the big 2004 numbers. Sales were strong nearly across the board, especially in high-margin areas such as pet diagnostics, and a handful of acquisitions helped the company expand into the European market. (Wang doesn't own any Idexx stock.)
Despite that good news in 2004, Idexx's stock still posted a loss of 3.2% for the 12 months through mid-March ˆ slightly better than the 3.4% loss posted by the American Stock Exchange's Amex Biotechnology Index during the same period. Steve Hirshon, vice president of Maine Securities Corp. in Portland, says Idexx stock has been a very strong performer during the past few years. As a result, Hirshon says the stock was richly valued, and its recent losses have brought it down closer to a fair value. (The price-to-earnings ratio on the stock recently was 24.6, compared to 20.4 for the S&P 500 index.) "You've got a stock that's gone up around 150% over two or three years, and stocks don't do that forever," he says.
Research from Morningstar's Wang shows that Idexx, which provides a wide range of products to animal hospitals and veterinarians, is likely to benefit from a rise in pet ownership: The more people who own pets, the more people will have to treat their pets for various ailments. (As any dog owner can relate, vet bills don't come cheap.) Wang notes that total pet spending in the United States was up nearly 91% during the 10 years through 2003, and that 62% of U.S. households owned pets in 2003, compared with 56% in 1988.
Meanwhile, Idexx has introduced a number of successful products to the marketplace in recent years, including kits used by municipalities and livestock owners to test water sources for bacteria. Idexx also is, according to Wang, a leading supplier of fast-acting, single-use test kits that increasingly are being used by veterinarians in lieu of off-site testing. Sales of such kits, which offer Idexx strong profit margins, were up 17% last year. "Idexx has expanded its product line aggressively over the years," says Piasio. "The stock has done very well. It's a good success story."
Wright Express
97 Darling Ave., South Portland
www.wrightexpress.com
Ticker: WXS (NYSE)
Market cap: $701.5 million
Recent share price: $17.45
12-month gain*ˆ: 2.0%
* 12-month stock gain through close of trading, March 15, 2005
ˆ Wright Express stock began trading on 2/16/05
The newest addition to the club, Wright Express in February completed its spinoff from New York-based Cendant Corp. with an initial public offering that raised more than $700 million. (Unlike a typical IPO that raises money for the company going public, the stock sale proceeds went directly into Cendant's coffers.) Due to the recent IPO, Brad McCurtain is cautious recommending the stock because of a dearth of available fundamental data that's necessary to gauge the prospects for the company ˆ and the stock.
McCurtain says it's difficult to find an appropriate company to compare with Wright Express; traditional credit card companies such as MBNA, for example, have different business models. However, McCurtain says the company's customer list is a virtual who's who of corporate America: Firms including Enterprise Rent-A-Car, General Electric and SBC Communications use Wright Express' corporate credit cards for their fleets of vehicles.
"There's nobody that has as entrenched a position as Wright Express does," he says. "And [the company's] revenues are only $180 million, so there's lots of space to grow into."
The stock, since debuting in mid February, has hovered in the $17 range, and McCurtain says the company should benefit from a strong balance sheet that carries little debt. "[The IPO] struck us as a very positive deal," he says.
But as the dust is beginning to settle from these two deals, it's likely that Maine's corporate landscape will recede from Wall Street's vision and settle back into relative obscurity in the financial world. After all, Maine's publicly traded stocks aren't big by most measures. The largest stock in Maine is the new TD Banknorth, with a market capitalization of roughly $6 billion. In all, the 12 Maine-based companies with stocks that trade on the New York Stock Exchange, the American Stock Exchange or the Nasdaq exchange have a combined market cap of just under $11 billion. By comparison, Charlotte, N.C.-based Bank of America's market cap is a whopping $180 billion.
But just because these stocks are small doesn't mean they're bad investments. In fact, quite the opposite: In the investment world, sometimes small is beautiful. But in terms of stock performance, the question isn't always whether a stock is a big guy or a small fry. Often, how a company is executing on its strategy tells the tale of the ticker tape.
That's why Mainebiz thought it would be a good time to check in on Maine's publicly traded stocks. We wanted to find out what was happening with the companies. Are any wildly overvalued? How will recent mergers affect one company's business? Will regional bank stocks continue their great run? To answer these questions ˆ and many more ˆ we asked stock analysts and securities brokers in Maine and beyond to guide us through the maze of Maine's publicly traded companies.
TD Banknorth
2 Portland Sq., Portland
www.banknorth.com
Ticker: BNK (New York Stock Exchange)
Market cap: $5.9 billion
Recent share price: $31.50
12-month gain*ˆ:21.0%
* 12-month stock gain through close of trading, March 15, 2005
ˆ Banknorth stock prices prior to 3/2/05 adjusted to 79.87% of their former value to reflect the merger with TD Bank
TD Banknorth's stock, which was among the better performers of Maine's publicly traded stocks during the 12 months through mid-March, benefited from the late-August announcement that the company was considering selling 51% of its stock to TD Bank. During the 12 months through March 15, shares of the company gained nearly 21%, compared to a gain of just 1.2% for the Philadelphia Stock Exchange's Bank Sector Index. (As part of the deal, for every share held in Banknorth, investors received nearly one-half of a share of reissued TD Banknorth stock along with TD Bank stock and cash.) Meanwhile, Jim Ackor, an analyst at RBC Capital Markets in Portland, says in mid-March the stock was trading at a slight discount to its peer group, with a price-to-earnings ratio of about 13.
Jim Callahan, an analyst at Chicago-based research firm Morningstar Inc., says the stock is trading just below its fair value of $34 a share. "In our framework and methodology, we'd say that's fairly valued," he says. "We typically look for a margin of safety before a stock would receive a five-star rating" ˆ Morningstar's top equity rating ˆ "and that would be around $26 [per share]."
According to Ackor, TD Banknorth is in good shape post-merger. "They're not a plain-vanilla thrift, as some people have viewed them in the past," he says, noting that the company's management is likely to be a significant part of TD Banknorth's success. CEO Bill Ryan, says Ackor, has repeated the mantra that "asset quality won't be sacrificed for anything." As a result, Ackor says TD Banknorth's balance sheet is solid, and the company in recent years has done well driving growth in the New England banking market.
Callahan agrees that Banknorth's balance sheet is in good shape, and says the bank's recent debt restructuring was an effective strategy to shore up its finances before the merger. In October and February, the company, in an attempt to cut its debt, sold off more than $4 billion in loans, assets and investment securities and prepaid a similar amount in debt. "We've seen several banks go through the balance sheet restructuring," says Callahan. "In Banknorth's case, they did a restructuring, but the hit to earnings wasn't nearly the hit to earnings that we've seen for other banks."
And though there are still questions about what the deal will mean for Banknorth in the long run, analysts generally agree that the TD agreement gives Banknorth much more latitude in striking acquisition deals with smaller banks. (However, Jared Shaw, an analyst with Keefe, Bruyette & Woods in Hartford, Conn., says TD Banknorth likely will wait to make any acquisitions until its stock price moves higher.) The deal also gives TD Banknorth a wider range of services, which will be useful in moving into metropolitan areas such as New York City. "The jury's still out on how the marriage with TD will really work out," says Brad McCurtain, president of Portland-based brokerage firm Maine Securities Corp. "But I'll put money on Bill Ryan. I know that nine times out of 10, I'll make money with him."
(Full disclosure: While McCurtain has gained the reputation as one of the most knowledgeable analysts covering Maine's stock market, he also is a big believer in the stocks he covers. As a result, he owns shares of most publicly traded Maine stocks. RBC's Jim Ackor does not own any shares of Banknorth or other Maine-based regional banks. Neither Morningstar's Jim Callahan nor Keefe, Bruyette & Woods' Shaw own Banknorth shares.)
Fairchild Semiconductor International
82 Running Hill Rd., South Portland
www.fairchildsemi.com
Ticker: FCS (NYSE)
Market cap: $1.9 billion
Recent share price: $15.74
12-month gain*: -30.2%
* 12-month stock gain through close of trading, March 15, 2005
Brad McCurtain says the management team at Fairchild Semiconductor, which includes industry veterans such as President and CEO Kirk Pond, has done an admirable job diversifying the company's position in the semiconductor market since taking it public in 1999. Whereas many firms in the chip sector focus on one industry ˆ Mountain View, Calif.-based Intel, for example, manufactures chips primarily for the personal computer market ˆ Fairchild supplies chips for automobiles and cell phones, as well as personal computers and mp3 players. "One of their fortes is chips that go into toasters to cars to everything else," says Gregg Piasio, president of Bangor Securities, the brokerage arm of Bangor Savings Bank. (Piasio doesn't own shares of any Maine-based company.)
Because of volatility in the semiconductor industry, Fairchild's recent stock performance hasn't been stellar: The shares shed more than 30% of their value during the 12 months through mid-March. That compares to a drop of nearly 11% during the same period for the Philadelphia Stock Exchange Semiconductor Index. "They're not at the bottom, but they're not where they were a few years ago," says Piasio, alluding to Fairchild's strong performance at the height of the Internet bubble in early 2000. "[Fairchild] is subject to the fluctuations of the chip market."
And due in part to those market gyrations, Fairchild's stock has been relatively volatile during the past year. In March 2004 the company's shares began a five month slide, falling nearly 47% from $22.54 a share to $11.99, thanks to cyclical swings in the chip market and the consumer spending patterns for items as disparate as cell phones and automobiles. Since last September, the stock has risen in fits and starts by more than 31%. "They're getting whipsawed a little bit from the economy," says McCurtain. "[Fairchild] is well diversified across different industries, but those industries are all consumer driven. People will buy a new cell phone when the economy is good."
But McCurtain maintains that the company's products are "fabulous," and that it's releasing new ones at a prolific pace. Analysts say Fairchild is well positioned to take advantage of increasing demand for power chips, a fast-growing sector of the semiconductor market. The chips help regulate energy flow from power sources in products like laptop computers, cell phones and hybrid cars, effectively resulting in longer battery life and more uniform power delivery.
Meanwhile, recent technological advances have allowed power chips and transistors to be significantly smaller and easier to incorporate into products. Forbes magazine recently argued that a widespread shift towards hybrid gas/electric vehicles in the auto market will provide a big boost to the power chip market ˆ already a $50 billion market ˆ and that Fairchild is among the dominant players in the market.
Idexx Laboratories
1 Idexx Dr., Westbrook
www.idexx.com
Ticker: IDXX (Nasdaq)
Market cap: $1.78 billion
Recent share price: $54.21
12-month gain*: -3.2%
* 12-month stock gain through close of trading, March 15, 2005
Since President and CEO Jonathan W. Ayers joined Idexx Laboratories in early 2002, the biotechnology firm's stock price has more than doubled, while revenues have grown at a steady 15% annual clip during the two years through 2004. Meanwhile, earnings per share last year grew by 38%, compared to 21% growth in 2003. What's behind the growth? According to Gregg Piasio, Ayers has been a big catalyst: "He's been viewed amongst the marketplace as being very successful," says Piasio.
Morningstar equity analyst Debbie Wang credits the company's strong sales and broad product mix for the big 2004 numbers. Sales were strong nearly across the board, especially in high-margin areas such as pet diagnostics, and a handful of acquisitions helped the company expand into the European market. (Wang doesn't own any Idexx stock.)
Despite that good news in 2004, Idexx's stock still posted a loss of 3.2% for the 12 months through mid-March ˆ slightly better than the 3.4% loss posted by the American Stock Exchange's Amex Biotechnology Index during the same period. Steve Hirshon, vice president of Maine Securities Corp. in Portland, says Idexx stock has been a very strong performer during the past few years. As a result, Hirshon says the stock was richly valued, and its recent losses have brought it down closer to a fair value. (The price-to-earnings ratio on the stock recently was 24.6, compared to 20.4 for the S&P 500 index.) "You've got a stock that's gone up around 150% over two or three years, and stocks don't do that forever," he says.
Research from Morningstar's Wang shows that Idexx, which provides a wide range of products to animal hospitals and veterinarians, is likely to benefit from a rise in pet ownership: The more people who own pets, the more people will have to treat their pets for various ailments. (As any dog owner can relate, vet bills don't come cheap.) Wang notes that total pet spending in the United States was up nearly 91% during the 10 years through 2003, and that 62% of U.S. households owned pets in 2003, compared with 56% in 1988.
Meanwhile, Idexx has introduced a number of successful products to the marketplace in recent years, including kits used by municipalities and livestock owners to test water sources for bacteria. Idexx also is, according to Wang, a leading supplier of fast-acting, single-use test kits that increasingly are being used by veterinarians in lieu of off-site testing. Sales of such kits, which offer Idexx strong profit margins, were up 17% last year. "Idexx has expanded its product line aggressively over the years," says Piasio. "The stock has done very well. It's a good success story."
Wright Express
97 Darling Ave., South Portland
www.wrightexpress.com
Ticker: WXS (NYSE)
Market cap: $701.5 million
Recent share price: $17.45
12-month gain*ˆ: 2.0%
* 12-month stock gain through close of trading, March 15, 2005
ˆ Wright Express stock began trading on 2/16/05
The newest addition to the club, Wright Express in February completed its spinoff from New York-based Cendant Corp. with an initial public offering that raised more than $700 million. (Unlike a typical IPO that raises money for the company going public, the stock sale proceeds went directly into Cendant's coffers.) Due to the recent IPO, Brad McCurtain is cautious recommending the stock because of a dearth of available fundamental data that's necessary to gauge the prospects for the company ˆ and the stock.
McCurtain says it's difficult to find an appropriate company to compare with Wright Express; traditional credit card companies such as MBNA, for example, have different business models. However, McCurtain says the company's customer list is a virtual who's who of corporate America: Firms including Enterprise Rent-A-Car, General Electric and SBC Communications use Wright Express' corporate credit cards for their fleets of vehicles.
"There's nobody that has as entrenched a position as Wright Express does," he says. "And [the company's] revenues are only $180 million, so there's lots of space to grow into."
The stock, since debuting in mid February, has hovered in the $17 range, and McCurtain says the company should benefit from a strong balance sheet that carries little debt. "[The IPO] struck us as a very positive deal," he says.
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