At a time when the stock market is reaching record highs, Jacksonville-based Web.com Group Inc. is lagging, with its stock down about 20 percent over the past year.
So as the company held an Investor Day meeting in New York last week, one analyst asked if the market doesn’t recognize Web.com’s value, would it be better for shareholders if the company sought a buyout by someone who does see it?
“We’re completely open to the idea, however we have to build value,” Chairman and CEO David Brown said.
“Up to this point in time, there haven’t been a lot of people knocking on our door to buy the company and pay us a price that was better than what we can create for investors,” he said.
Web.com, which provides website development services for small- and medium-size businesses, has grown significantly through acquisitions in recent years, which sometimes creates uncertainty for investors.
“We’ve been through this before,” Brown said.
“Often times when you make big moves, the market doesn’t fully understand it or appreciate it. They need to see it,” he said.
Web.com early this year acquired digital marketing company Yodle to expand the value-added services it offers its customers. But Wall Street hasn’t been impressed.
“This year has been challenging as Web.com looked to digest the Yodle acquisition, drive cost synergies and then deal with operational challenges in two of the value-added solution categories,” J.P. Morgan analyst Sterling Auty said in a research note.
Auty actually raised his rating on Web.com from “neutral” to “overweight” the day before Tuesday’s investor meeting, saying the drop in price provides investors an opportunity for a reward.
“Overall the analyst day provided needed insight into the changes that Web.com is making to shore up the struggling legacy retail business, and how they can leverage growth areas to return the overall company to growth. But the highlight is still the free cash flow generation that is better than anticipated for 2017,” Auty said in a follow-up note after the presentation.
RBC Capital Markets analyst Andrew Bruckner maintained a “sector perform” rating after the presentation.
“Much of Web.com’s analyst day was spent highlighting what the key differences are between Web.com and companies more focused solely on web presence,” he said in his research note.
However, Bruckner said, while Web.com is improving its service to customers, the company “needs to remain focused on innovation and customer feedback.”
“Looking ahead, this is a time where it will be critical for management to execute to regain the trust of investors after two consecutive quarters of revenue guidance decreases,” he said.
Web.com enters Latin America
Also last week, Web.com announced a move to expand its presence into Latin America by agreeing to acquire an Argentina-based company called Donweb.com.
It’s not a big company, expected to produce revenue of $6 million next year, Web.com Executive Vice President Faisal Chughtai said on Investor Day.
However, the acquisition gives Web.com a local presence in several Latin American countries where “there is no leader in that market,” Chughtai said. That creates an opportunity for growth.
He said Web.com is focusing on Spanish-speaking countries and is not looking at Portuguese-speaking Brazil as a market for expansion.
Chughtai said Web.com is paying $8 million in cash up-front to buy Donweb.
Analyst upgrades Regency Centers
Regency Centers Corp. is another stock that has been lagging, prompting Argus Research analyst Jacob Kilstein to upgrade his rating on the Jacksonville-based shopping center developer from “hold” to “buy” last week.
“Our buy rating reflects the company’s focus on grocery store-anchored shopping centers in first-ring suburbs and the generally stronger outlook for grocery stores than for general retail,” Kilstein said in his research report.
“In addition, the company has largely completed the repositioning of its portfolio and has maintained a strong balance sheet by matching development spending with sales of noncore assets. We feel the valuation is compelling at this price point,” he said.
Kilstein set an $80 price target for the stock, which was trading at $67.69 when he issued the report.
“Regency has posted solid operating results, and has both a strong balance sheet and a healthy development pipeline. We feel concerns about rising interest rates are priced into the stock and that the valuation makes Regency a compelling buy at this time,” he said.
Regency announced a big move last month when it agreed to buy Equity One Inc.
“Equity One should provide Regency with access to high-growth, urban shopping centers such as Manhattan. The company will be the largest shopping center REIT by market cap,” Kilstein said.
He also expects Regency to benefit from a restructuring of the Global Industry Classification Standards system, which is used to classify stocks for financial market indexes.
Real estate investment trusts (REITs) like Regency had been grouped with financial stocks but now are grouped in a new, separate real estate sector.
“We expect the change to attract more investors to REITs, especially asset managers who have mandates to diversify across all GICS sectors. We thus expect the Regency stock price to increase slightly over the coming months,” Kilstein said.
Landstar System stock downgraded
Landstar System Inc. has been surging, but that prompted Stifel Nicolaus analyst John Larkin to downgrade Jacksonville-based Landstar and five other trucking companies from “hold” to “sell” last week.
“In our view, each of the company’s common shares are overvalued based on where we expect the shares to trade 12 months from now. Investors are paying over full valuations for these names, especially after the recent run in transportation,” Larkin said in his research note.
Before the downgrade, Landstar’s stock reached a new high of $90.80 last week, a gain of about $25 over the last two months.
The other five companies downgraded are Heartland Express, Knight Transportation, Werner Enterprises, Marten Transportation and Celadon Group.
Investors either love or hate CSX
Wolfe Research, which provides extensive analyst coverage of the transportation sector, surveyed investors about their sentiments toward the industry heading into 2017 and found some interesting results.
Among the findings, the surveys show investors either love or hate Jacksonville-based CSX Corp.
When asked to rate railroad stocks, 17 percent cited CSX as their favorite stock but 13 percent cited the company as their least favorite.
Whether they like the stock or not, the investors anticipate several industry trends that would help CSX in 2017, such as a rebound in coal shipments.
“Most transports have high-end domestic exposure and should benefit most from lower tax rates and better U.S. growth. And coal could be a meaningful driver of EPS revisions, particularly for CSX and Norfolk Southern Corp.,” the report said.
Besides asking about railroads, Wolfe also asked investors which package delivery giant they prefer, FedEx Corp. or United Parcel Service Inc., two companies with significant Jacksonville operations.
The survey found 77 percent preferred FedEx and Wolfe analysts agree, saying they expect better earnings growth at FedEx.
“For what it’s worth, we think hedge funds clearly prefer FedEx over UPS, but we think long-onlys are more inclined to like UPS with much better returns and cash flow,” they said.
Overall, the investors have a positive view of transportation stocks.
“Despite the group’s outperformance this year, 76 percent of investors expect transports to outperform again in 2017. Thematically, investors favor transports right now with high-end exposure to potential tax reform and infrastructure stimulus,” Wolfe said.
Rayonier AM gets permits for lignin plant
Jacksonville-based Rayonier Advanced Materials Inc. said it secured the permits to begin construction of its joint venture lignin plant in Fernandina Beach.
Rayonier AM announced the joint venture with Norway-based Borregaard in June 2015. The facility will be built at Rayonier AM’s plant in Fernandina Beach, but Borregaard will own 55 percent of the joint venture named LignoTech Florida.
Lignin is a natural component of wood that can be used in construction, agriculture and other industrial applications.
Construction of the $135 million plant is expected to take about 18 months. The plant is expected to create 50 jobs.
Kraft Heinz-Mondelez merger rumored
It seems that Fidelity National Financial Inc. may not be the only company that buys back businesses it once spun off.
The hot market rumor last week was that Kraft Heinz Co. is looking to buy Mondelez International Inc.
If you remember, Kraft Foods Group Inc. spun off Mondelez four years ago.
Mondelez consisted of Kraft’s former global snacks business while Kraft Foods held the company’s North American grocery business, including brands like Maxwell House.
The company employs more than 200 people at its Maxwell House plant in Downtown Jacksonville.
Last year, Kraft merged with H.J. Heinz Holding Corp. to form Kraft Heinz.
While Kraft and Mondelez were denying the rumors last week, analysts speculated that reacquiring Mondelez may be attractive to make Kraft Heinz a global food powerhouse.
The Kraft Heinz-Mondelez remarriage talk came a week after Jacksonville-based Fidelity announced it would shed its majority stake in mortgage technology company Black Knight Financial Services Inc. Fidelity originally acquired that business in 2003, spun it off in 2006 and reacquired it in 2014.