A Solid and Very Timely Consumer Play
|Written by GSCR Staff|
|Thursday, 30 January 2014 09:52|
In Monday’s Goldman Guide we mentioned that there were two important reports coming out this week that will give some idea of where the economy is going. The Consumer Confidence Index came out Tuesday and the news was encouraging. The index increased to 80.7 for this month marking the second straight month of an upward trend. On Friday, the University of Michigan’s Consumer Sentiment Index is released as well and an uptick would be welcome news for anxious investors. A play on select beaten-down, consumer discretionary and other retail related stocks might be in order.
Libbey Inc. (NYSE – LBY - $20.77) is a solid play on an increase in consumer discretionary spending in our small cap world. The glass tableware product manufacturer is headquartered in Toledo, Ohio and has been around since 1818. Not much cache here. So in this ultra hype Super Bowl week with multi-million dollar ad campaigns the pick may not have sex appeal, but the brand is solid and the Company appears poised to meet the pent up demand that may be unleashed as the economy continues to improve.
Libbey has a variety of products that consumers will look to purchase as they re-vamp their kitchenware after several years of keeping that old ‘stuff’ around. The Company offers glass tableware products, including tumblers, stemware, mugs, bowls, vases, salt and pepper shakers, shot glasses, canisters, candleholders, and various other items; glass bakeware; handmade glass tableware; and other glass products for original equipment manufacturers, such as blender jars and washing machine windows. Libbey also offers higher end stemware, glassware, crystal, and China. The Company’s distribution channel includes foodservice distributors, mass merchants, department stores, retail distributors, national retail chains, specialty housewares stores, candle and food packers, decorators, breweries, distilleries, craft industries, gourmet food-packing companies, and floral companies.
LBY appears very strong from a basic valuation perspective. The forward 12-month P/E of 9 is less than half the forward P/E of 21 as the consensus revenue forecast for 2014 is expected to grow 2.5% to $840 million. A current ratio of 1.87 indicates the Company has plenty of cash on hand to expand this year as well. Moreover, the Company is set to release its 4Q13 results tomorrow, so the combination of good results and a solid survey numbr could drive the shares higher.
We like LBY as a solid play with limited downside on an increase in consumer discretionary spending in 2014. A 25% increase in price is within reach sometime in 3Q14.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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