The rising tide on Wall Street is certainly lifting Kansas City’s fleet of local stocks.
By MARK DAVIS
The Kansas City Star
Here’s what Avondale Partners analyst Pete Heckmann noticed about the list of stocks he follows from offices in Overland Park.
“Of all the names, some of the Kansas City ones have done really, really well,” Heckmann said.
Euronet Worldwide Inc. up 102.8 percent, NIC Inc. up 52.2 percent, DST Systems Inc. up 49.7 percent and Epiq Systems Inc. up 26.8 percent.
All four beat the Dow Jones industrial average, which posted its best year since 1995.
Each company runs solidly on business that generates recurring streams of revenue from clients. Heckmann said they benefited as managers found themselves with new inflows of money from clients to invest.
“Instead of going out and buying something that might or might not work, they said, ‘Let’s buy some of these steady Eddies,’” Heckmann said.
As a further sign that Kansas City is sharing in Wall Street’s fortune, the list of local stocks is growing again.
Aratana Therapeutics Inc. in Kansas City, Kan., QTS Realty Trust Inc. in Overland Park and AMC Entertainment Holdings Inc., based in Leawood and privately owned for nine years, became publicly traded in 2013.
Regional stocks fared well, too, with nearly half beating the Dow, the Standard & Poor’s 500, Russell 2000 and Nasdaq stock indexes for the year.
Sprint a ‘new’ stock
The comparison excludes one key local company, Sprint Corp.
In July, Tokyo-based SoftBank Corp. became Sprint’s principal owner, plus a source of funding and expertise in new wireless technologies. The deal allowed Sprint to purchase its longtime network partner Clearwire Corp.
Because of the way the deals were structured, Sprint’s new stock isn’t directly comparable to its old stock, and that prevents Bloomberg from calculating an annual performance.
Sprint shareholders aren’t likely to complain. At the time of the deal, their old shares had gained 26.6 percent for the year. Sprint’s new shares have jumped 93.7 percent since their debut on July 8.
Certainly, 2013 was a big year for the Overland Park-based wireless carrier. And it is widely reported, though not confirmed, that Sprint may be readying a bid for No. 4 T-Mobile US Inc. sometime this year.
Analysts say the key question for 2014 is what Sprint makes of its renewal.
Looking ahead, analyst Adam Ilkowitz at Nomura Equities Research, says forget the cost savings SoftBank’s ownership can deliver, or any hope of a merger with T-Mobile.
He says Sprint is poised to generate more revenue even as it cuts costs. Do the math. It means profits, perhaps even a dividend for stockholders in 2017, according to Ilkowitz.
The seed for all this is Sprint’s total network makeover, which has been costly but he sees as ultimately rewarding.
“We believe Sprint is finally spending the capital needed to run an efficient, modern mobile network to compete with peers after years of underinvestment,” Ilkowitz said in a 24-page analysis in which he upgraded Sprint shares to a buy rating.
He said half the financial improvement – $2 billion worth – will come from wrapping up the expensive network upgrade, ending the remaining costs tied to the old Nextel network shuttered last June and shedding roaming payments to other carriers as Sprint’s new network emerges.
Top that off with even “modest revenue growth” of 4 percent a year, and the math turns strongly in Sprint’s favor, Ilkowitz said.
Analyst Kevin Smithen at Macquarie Equities Research has been bullish on Sprint’s stock – until recently. He downgraded it from buy to neutral a few days before Ilkowitz’s report.
The new development, Smithen wrote in his report, is that Sprint’s upside potential has been joined by “a risk of a meaningful drop” that he said could reach 20 percent.
Smithen still likes the company’s long-term plan and its backing by SoftBank. The damage, he warned, could come if the rollout of Sprint’s faster network is delayed, or Sprint keeps losing subscribers along the way.
Cerner charges ahead
The horizon still looks bright at Cerner Corp., up 43.8 percent last year. It continues to post record bookings of new business amid America’s re-invention of medicine.
“The amount of disruption that is coming in the health care industry over the next 12 to 24 months is really unprecedented,” said Sean W. Wieland, who follows Cerner for Piper Jaffray & Co. “The disruption is going to create an enormous opportunity for Cerner to sell their products.”
Wieland lists not only the Affordable Care Act but also adoption of new medical records codes, the second round of federal incentives for the medical industry to embrace electronic medical records, penalties on hospitals with high rates of readmitting patients and mounting financial pressures on hospitals.
Cerner isn’t limiting itself to the electronic medical records boom. Last month , it invested in a company involved in genetic testing.
Chief executive Neal Patterson said such investments beyond medical records set the company up for sustained growth.
Transport stocks on track
One way to run a railroad is to keep costs under control and Kansas City Southern, whose shares rose 48.3 percent, has been doing that.
Gimme Credit analyst Vicki Bryan noted that the company has refinanced its debts at sharply lower interest rates. Most of the $2 billion it has borrowed now costs less than 4 percent.
The company “has locked in historically low rates for decades and saved $20 million in interest costs this year,” Bryan’s December report said.
As expected, a stronger U.S. grain harvest in 2013 boosted business as has the continuing economic recovery.
“They’ve done a good job controlling costs, managing their business and prepping for 2014,” said Jon Braatz, an analyst at Kansas City Capital Associates.
The preparation is for what’s happening south of here, Braatz said, with construction of chemical plants in the Gulf Coast and openings of new auto and steel plants in Mexico.
Still perhaps another year away, he said, is a potential energy boom in Mexico as that country has opened energy development to international oil companies. It ends a 75-year monopoly by the government-run Petróleos Mexicanos, or Pemex, and, says Braatz, means more freight for Kansas City Southern.
On the roads, YRC Worldwide Inc. awaits the outcome of a labor vote on a contract extension that the company has considered a must-have.
It is asking members of the International Brotherhood of Teamsters to extend contract concessions for five years and give it greater flexibility to operate. Teamsters members have until Jan. 8 to vote.
Investors have been buoyed by the prospect as shares gained 157.3 percent.
It’s either a bet that the deal passes or that chief executive James Welch has been wrong in telling employees repeatedly that all of their jobs hang on the outcome.
Without it, Welch has said, lenders won’t refinance $1 billion in debt coming due in the next 24 months and which the company can’t pay.
Block surges, but...
H&R Block Inc. saw its stock surge 56.4 percent, but management is unhappy with another number. Revenues aren’t growing.
It plans to boost revenues in the upcoming tax season by making Block offices more private for customers, redesigning its online and digital services and pushing add on products and services.
Kip Knight, Block’s head of retail operations, noted during a conference with analysts that Block employees have been slow to adopt the company’s products, such as its pre-paid debit card.
“So we’re going to fix this,” Knight said. “Our tax professionals will have their own Emerald Card and will be able to give a personal testimony as to the value of this product to every client they serve.”
H&R Block will again talk with tax clients this season about the Affordable Care Act and how tax returns will pay a key role in the health act’s future.
The “timing and magnitude” of any payoff for Block remains uncertain, chief executive Bill Cobb said during the conference, but the company continues to “hang around the issue.”
Garmin holds steady
The tough news about 2013 is that a stock gaining 13.4 percent was a laggard. So it was for Olathe-based Garmin Ltd.
Garmin constantly fights its declining business in personal navigation devices. It also is winning the war, according to Wells Fargo Securities analyst Andrew Spinola.
After meetings with management in Boston, Spinola wrote in a note to clients that Garmin’s other businesses more than make up the slack. Its aviation, outdoor and fitness businesses “will drive strong growth in ‘14 and ‘15,” he wrote.
The upshot is that Garmin’s shares are cheap, says Spinola. Its other business lines and cash are “worth meaningfully more” per share than the company’s recent stock price, he said.
Similarly, Olathe-based NIC needs to expand to new markets, said Heckmann, the Avondale Partners analyst following several area stocks.
NIC builds and operates Internet sites for mostly state governments. Heckmann said it will have 31 signed up by mid-2014 but has managed only one federal agency contract.
“They really need to sign several more of those federal opportunities to prove to investors that there is a real growth opportunity,” Heckmann said.
New local stocks in 2013
• AMC Entertainment Holdings Inc. in Leawood, trading symbol AMC, traded publicly Dec. 18 after a nine-year absence from Wall Street.
• QTS Realty Trust Inc. in Overland Park, symbol QTS, operates 10 data centers across seven states. Shares first traded in October.
• Aratana Therapeutics Inc. in Kansas City, Kan., symbol PETX, creates pet medicines. Shares first traded publicly in June.
Top 5 local stocks, with 2013 gain
Elecsys Corp., 213%
Digital Ally Inc., 164%
Torotel Inc., 160%
YRC Worldwide, 157%
Euronet Worldwide, 103%
Waddell & Reed, 87%
H&R Block, 56%
DST Systems, 50%
Kansas City Southern, 48%
UMB Financial, 47%
Commerce Bancshares, 35%
Great Plains Energy, 19%
Capitol Federal, 4%
Source: Bloomberg News
To reach Mark Davis, call 816-234-4372 or send email to firstname.lastname@example.org.