James Cramer recently examined Carefusion (CFN), a remarkable profit-maker in the long term. He also went “off the charts” to explain why Bank of America (BAC) is performing so awfully. Here's a look at these stocks, along with Sunrise Senior Living (SRZ). I have examined these stocks from a fundamental perspective, adding my O-Metrix Grading Systemwhere practicable. Data obtained from Finviz / Morningstar and is current as of Aug.17.
Stock Name | Ticker | Cramer's Suggestion | O-Metrix Score | My Take |
Carefusion Corp. | CFN | Buy | 4.10 | Long-term Buy |
Sunrise Senior Living | SRZ | Buy | N/A | Neutral |
Bank of America Corp. | BAC | Avoid | N/A | Hold |
Carefusion does not “need a healthy economy to deliver healthy earnings growth,” says Cramer. As of the Aug. 17 close, the California-based healthcare company was trading at a P/E ratio of 19.76 and a forward P/E ratio of 12.37. Analysts expect the company to have an annualized EPS growth of 13.18% in the next five years, which sounds utopic given the -8.77% EPS growth of a past five years. Profit margin (6.9%) is below the industry average of 11.9%, while it offers no dividend yield. The company has a 4.10 O-Metrix score. Institutions hold 92.27% of the stock, whereas insider transactions for the last six months have decreased by 95.25%. Earnings increased by 102.00% this quarter and 82.46% this year. Target price is $30.07, which implies a 17.9% upside potential. Debt-to equity ratio is 0.3, below the industry average of 0.6. The stock is trading 14.95% lower than its 52-week high, while it returned 13.1% in a year. Assets keep increasing for the last four quarters, whereas debts are stable. P/B is 1.1 and P/S is 1.6, both of which are below their industry averages. I believe Carefusion is worth buying as it is capable of beating the market in the long-term.
"This is a terrific story and a remarkable turnaround," Cramer commented about Sunrise Senior. The Virginia-based Sunrise shows a trailing P/E ratio of 12.8 and a forward P/E ratio of -85.5, as of the Aug. 17 close. Estimated annual EPS growth for the next five years is 18.00%, which is overdone when its -21.04% EPS growth of a last five years is considered. Profit margin in 2010 was 3.9%, while the company has no dividend policy. Earnings increased by 126.62% this quarter and 125.19% this year. Sunrise has a remarkable ROE of 166.17%, whereas it returned 163.8% in the last 12 months. The stock is currently trading 41.24% lower than its 52-week high, and debt-to assets ratio is going down sharply since 2008. Institutions own 63.02% of the stock, while insider transactions have decreased by 23.71% for the last six months. Target price is $10.00, which implies an about 36.7% upside movement potential. Debt-to equity ratio is 4.6, way above the industry average of 1.9. Insiders have been mostly selling stocks for a while. Sunrise Senior is highly volatile, and I would not risk my money in it. I am staying neutral.
What’s wrong with Bank of America? Cramer says:
Bank of America is one of the worst performers my charitable trust has ever had .... The bank is now selling the good — its fantastic international credit card business — and funding the bad — the mortgage morass. Until the company either replaces management or gets its arms around the total possible exposure to mortgages, it is just way too hard for those who do not own it to wade into right now.
Bank of America, as of the Aug. 17 close, shows a trailing P/E ratio of -4.9 and a forward P/E ratio of 4.94. Analysts estimate a 9.1% annualized EPS growth for the next five years, which is truly utopic given the -37.05% EPS growth of past five years. With an awful profit margin of -18.6%, Bank of America pays a razor-thin dividend yield of 0.54%. Sales decreased by 10.83% this quarter, and the stock is trading 51.21% lower than its 52-week high. Earnings decreased by 430.83% this quarter, and 28.55% this year. Bank of America returned -43.6% in a year. ROA, ROE, and ROI are -0.20%, -2.20%, and -0.62%, respectively. Debt-to equity ratio is 2.1, above the industry average of 1.7. SMA50 is -24.45%, whereas SMA200 is -39.09%. Bank of America is down by 21.9% since Aug 3. I have to say that this stock seems hopeless for the moment. However, it is too late to sell it. Holding is the best if you already own BAC stocks.
Find more information on O-Metrix Grading System here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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