Tuesday, March 23, 2010

STEP Commentary Changes to the Growth STEP $LOW $V

STEP Commentary
Changes to the Growth STEP
Adding a 4% position in Visa. We believe that Visa appropriately fits the Growth STEP’s bias to large cap “stable growth” companies that are leaders in their businesses. We favor Visa’ strong global brand equity, management strength and depth, leadership position in debit transactions, and exposure to emerging markets. Over the longer term, Adam Frisch sees potential for high double digit EPS growth, and we believe that delivering on growth faster than the industry’s secular trends, via continued investment and solid execution in new product areas and higher growth geographies, will help to maintain V’s relative premium valuation and drive the stock higher.

Removing the portfolio's 4% position in LOW, following termination of Morgan Stanley Research coverage last night. While we continue to view LOW as a best in class retailer and long-term winner in the home improvement retail space, we believe the stock could struggle in the near-term as expectations have moved up following the company’s 4Q09 earnings beat at the end of February. Moreover, following the stock's 6%+ YTD gain, we no longer view valuation as compelling, with LOW trading at close to 18x consensus CY2010E EPS and roughly 15x consensus CY2011E EPS.

STEP Commentary

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