The financial tea leaves have been read, the crystal balls for Colorado companies have been gazed into.
There are no sure bets in investing, but some clues are evident in analyst reports and earnings forecasts.
On the eve of second-quarter earnings reports, several of Colorado’s biggest and sexiest companies are expected to report higher profits, which could help push their stock prices up.
And a few may report lower earnings, possibly putting the brakes on their recently high-flying shares.
Among Colorado companies that analysts are keeping a close eye on:
- Century Casinos has performed better than analysts predicted and is on a big casino-development growth spurt. Its stock price has surged 25 percent this year.
- Telecommunications companies Qwest and Level 3 are riding stock-price gains of 37 percent and 41 percent, respectively, and are poised to grow revenues.
- Frontier Airlines is facing tough challenges from Denver upstart Southwest and veteran competitor United. Frontier shares have fallen 35 percent this year.
- Homebuilding giant MDC saw its earnings drop sharply during the past quarter and its stock price fall 23 percent this year. More rough times could be ahead, analysts say, although MDC may be in better shape than some of its homebuilding peers.
On balance, analysts like Colorado-based stocks. Some analysts regard them as “counter-cyclical,” meaning they resist national downward trends. And Colorado has other corporate attributes as well.
“Colorado and the Rocky Mountain region has become an entrepreneurial incubator, like California was in the 1960s,” said Barbara Walchli, portfolio manager of the Aquila Rocky Mountain Equity fund, a mutual fund that invests only in Western companies.
“People like to live here, and technology now allows people to work here,” Walchli said. “That bodes well for many of the young companies here.”
Many Colorado firms are forecast to show earnings growth in the second quarter and even higher profits in the third quarter. But the momentum can’t be guaranteed, said John Claxton, vice president of RBC Dain Rauscher.
“This earnings growth run won’t last forever,” he said. “While we work through this transition period from a high-octane growth environment to historical norms, our advice is to pay attention to established companies with historically good valuation levels and a global business exposure.”
Among the Colorado companies Claxton follows is Chipotle Mexican Grill, whose stock has enjoyed a 146 percent runup since its initial public offering in January. The stock, currently trading at $54.11, has a near-term target of $50 from RBC Dain Rauscher.
“There’s nothing wrong with the stock, it’s just a little ahead of itself,” Claxton said.
Since its market debut, the company has bested analyst expectations, posted strong same-store sales, and continued growing. Analysts are expecting second-quarter earnings of 25 cents per share. “I fully expect Chipotle to have better relative trends than the competition,” said Larry Miller, director of restaurant equity research for RBC Capital Markets.
For the market at large, investors should gird for an economic slowdown and resulting lower earnings. One of the chief reasons: the Federal Reserve’s 17 consecutive interest-rate hikes in an effort to keep inflation under control.
Here’s a synopsis of selected Colorado companies’ recent performance and projected outlook, from financial filings, market analysts and company officials:
Century Casinos
Century’s stock hasn’t retreated far from its 52-week high for the past few weeks, and there’s good reason for it. The Colorado Springs-based company has beaten analyst earnings estimates for three straight quarters, according to Thomson Financial, which polls Wall Street analysts for estimates on publicly traded companies.
Analysts polled by Thomson expect Century to post earnings of 7 cents per share for the second quarter, which ended June 30. Out of six analysts, two rate the stock as a “strong buy” and four rate it as a “buy.”
Century has become an attractive company because it has expanded operations significantly in recent years, said Luis Martins, an analyst with Taglich Brothers, which receives compensation from Century for research reports.
In addition to a casino in South Africa and some cruise ship operations, Century opened a casino in Central City last week and has begun construction on a casino and hotel in Edmonton, Canada.
Qwest Communications
Shareholders are continuing a wild ride with Colorado’s biggest telecommunications firm.
Qwest made an Internet play in the second quarter, announcing in May it would buy OnFiber Communications in Austin, Texas, for $107 million. Qwest officials said the purchase will help it deliver faster Internet service to companies in 23 cities it doesn’t currently serve.
But bread-and-butter financials appear to be driving the stock’s rise this year. The company is expected to report earnings of 5 cents per share, based on a Bloomberg compilation of 18 analyst reports.
Qwest has managed to pare its debt, improve cash flow and has reported positive earnings for the first time since 2002 in the first quarter this year excluding a one-time charge.
Frontier Airlines
Frontier may be known for its light-hearted, talking-animal commercials, but its business is being seriously tested by competition from Southwest Airlines’ start of Denver service this year and United Airlines’ expansion of service here.
The challenge shows in Frontier’s stock price, which closed Friday at $6, down from $10.76 the day before Southwest Airlines announced last fall it would return to Denver after a 20-year absence.
Analyst Helane Becker of The Benchmark Co. said that despite some positive signs, Frontier needs to be significantly profitable before the stock price recovers to double digits.
Calyon Securities analyst Ray Neidl in a June research report said if the challenges from United and Southwest cannot be met, “We believe Frontier could be a prime candidate for a merger or to be acquired.”
MDC Holdings
In a slumping residential real estate market, MDC Holdings is faring better than its competitors.
Like other homebuilders, the Denver company, which builds homes under the Richmond American name, faces fewer orders, more cancellations and lower prices and margins, said Alex Barron, an analyst with JMP Securities who follows the industry.
“It’s not a pretty picture, but of all the companies I cover, I think MDC might end up coming out the best of this whole downturn,” Barron said. “They have a very conservative management team. These guys will keep turning investments into cash, bang down debt and protect the balance sheet.”
Wild Oats
Boulder-based Wild Oats Markets Inc. has had the benefit of being a major player in a fast-growing sector, but some analysts are concerned that the company is vulnerable to competition.
Analysts point to the rollout of Safeway “Lifestyle stores” and Wal-Mart’s expansion into organics as potential challenges for the company.
Wild Oats chief financial officer Bob Dimond brushed off any Wal-Mart concern, nothing that “there is virtually no overlap between our customer and the Wal-Mart customer.”
EchoStar
Shareholders of the nation’s second-largest satellite cable provider will be looking for reassurance that the company can continue to survive in a competitive market thriving on bundled packages of video, Internet and phone service.
“The buzz is that there’s an offer out on EchoStar from (rival) DirecTV,” said Kaufman Bros. analyst Todd Mitchell.
Despite an alliance with telecommunications giant AT&T, EchoStar needs a suite of broadband services it can control, says Jimmy Schaeffler, senior multichannel analyst for The Carmel Group.
“They are at the mercy of the phone company,” he said. “Shareholders are supporting them well under the circumstances.”
Staff writer Steve Raabe can be reached at 303-820-1948 or at sraabe@denverpost.com. Staff writers Kristi Arellano, Margaret Jackson, Kimberly Johnson, Beth Potter, Aldo Svaldi, Andy Vuong and Kelly Yamanouchi contributed to this report.
