nwl

MOST NOTEWORTHY: StoneMor Partners, Suntech Power and Tesoro were today's noteworthy initiations:

• Morgan Keegan initiated StoneMor Partners (NASDAQ: STON) with a Market Perform rating. The firm has a low level of confidence in STON's financial projections given its vulnerability to changes in state and local regulations, and financial reporting complexities.
  
• Jesup & Lamont initiated Suntech Power (NYSE: STP) with a Buy based on the company's leading position in solar PV, industry growth and polysilicon supply agreements in place.
  
• Tesoro (NYSE: TSO) was assumed with an Underweight rating at JP Morgan. The firm expects the West Coast margins to remain weak given the decline in the gasoline demand and capacity increases of the majors.

OTHER INITIATIONS:

• RBC Capital initiated Agrium (NYSE: AGU) with an Outperform rating and $115 target.
  
• Merrill initiated Kohlberg Capital (NASDAQ: KCAP) with a Neutral rating.
  
• Caris started Newell Rubbermaid (NYSE: NWL) with an Average rating and $24 target.

A choppy, indecisive market requires a defensive play or two as a safety net, and a defensive stock worthy of consideration is Newell Rubbermaid (NYSE: NWL).

Newell Rubbermaid doesn't strictly fit the definition of a defensive stock, but its signature product, combined with its overall diversity in the consumer product space, make the stock a worthy consideration.

Newell Rubbermaid's signature product is the food storage container. At first glance, one could argue that U.S. shoppers will buy fewer of these containers as the U.S. economy slows, as it is, strictly speaking, a discretionary purchase. Still, we know from previous belt-tightening periods Americans tend to cut back on dining out. Undoubtedly that means more home prepared meals, and leftovers, which need containers -- a positive trend for Rubbermaid.

More infant deaths, this time not from Sudden Infant Death Syndrome (SIDS), but rather, badly-designed cribs.

According to today's reports: "About 1 million Simplicity and Graco Inc (GGG) cribs are being recalled after three children became entrapped in their cribs and died of suffocation, the Consumer Product Safety Commission said Friday. Two infants, a 6-month-old and a 9-month-old, died in the recalled cribs, which were sold through May 2007. A 1-year-old child died in a newer model of the cribs, which has not been recalled but is being investigated by the safety agency, CPSC officials said. In all three deaths, the consumer had installed the drop-rail side of the crib upside down, the CPSC said. This creates a gap in the crib that children can slide into and suffocate. Seven other infants have been entrapped in the cribs, according to the CPSC. There have been 55 reports of the cribs' drop sides detaching or the hardware failing to hold the side to the crib."

How does this happen? Why does this happen? The companies in question are not novices. Guess what...Simplicity Inc., of Reading, Pa., is listed as manufacturer of all the cribs, which were made in China. I think this is another example of an American company losing control of the process and forgetting that our product safety standards are not universal and that developing countries with rapidly expanding industrialization just don't get it.

Getting and keeping brand recognition is a critical part of any business endeavor. There is an outfit in Atlanta that ranks among the best in achieving those goals. The company's product list is one of the best recognized anywhere.

Newell Rubbermaid (NYSE: NWL) manufactures and distributes a wide variety of consumer and commercial products. Offerings include a long list of well-known home and office brands, including Levolor blinds, Lenox hand tools, Sharpie pens, Rolodex record holders, Amerock cabinet hardware, DYMO label makers, Graco children's products and Rubbermaid items. Competitors include Avery Dennison (NYSE: AVY) and Fortune Brands (NYSE: FO).

The firm pleased investors earlier in the week, when it raised Q3 guidance. Management now sees EPS of 48-50 cents (45 cent consensus) and revenue growth near the high end of the previously estimated 5-7% range. Strength in the Home & Family and Tools & Hardware segments were cited in support of the adjustment. The company also boosted Y07 EPS guidance to $1.74-1.78 ($1.76 consensus).

Given my possession of an extremely sweet two-month-old baby, my third little boy, I am one of the most profoundly sleep-deprived people on the planet. I should not be driving heavy machinery (and I don't); I should not be operating dangerous equipment. And, given the news about the recall of 1 million Simplicity and Graco cribs today, it's clear I should also cross "putting together baby gear" from my list. (Graco is a unit of Newell Rubbermaid Inc (NYSE: NWL), whose stock is up 9 cents to $28.79 after an initial morning dip on the news.)

I can't say I was surprised, a few days ago, when I saw Monroe's little bouncy seat had come detached from its frame, causing him to slide harmlessly a few inches onto the floor. But Simplicity Inc., the manufacturer of all the cribs under recall, shouldn't have been surprised, either, that parents put the drop-rail side of the crib on upside down. Let's review: parents are sleep-deprived. Parents are not necessarily mechanically-inclined to begin with! It is horribly unfair to expect parents, in their largely mentally-imbalanced state, to have to do everything right in order to keep their babies alive.

Now two sets of parents have to live with the guilt that they put their baby's cribs together incorrectly, which allowed their infants to become trapped in a gap and suffocate. Recalls? I only wish we could do take-backs, do-overs, when it came to the life of a baby.

Yesterday, Newell Rubbermaid Inc (NYSE: NWL) raised third quarter revenue and profit guidance. Revenue growth is expected to come in at the high end of the previously announced range of 5% to 7%, citing strength in Home & Family, Tools & Hardware segments, as well as favorable forex. Also, Newell said gross margins are expected to jump by 125 to 175 basis points, another big increase for the company, which showed good gross margin improvement earlier this year.

We blogged last week that investors should jump into Newell stock at $25 as it had gotten too cheap. Newell, which has been showing signs of beginning a sustainable turn around, has gotten hit hard in the recent stock market correction, with shares dropping from $30 to around $25, for a 17% decline.

However, we thought recent comments by Mark Ketchum, Newell's CEO, to analysts indicating it could meet its growth targets held some merit. Ketchum bought 20,000 shares of stock, according to a SEC filing a week ago Friday. Since blogging last week that investors should scoop up shares, Newell is up 12%.

Mark Ketchum, the CEO and President of Newell Rubbermaid Inc (NYSE: NWL), bought 20,000 shares of his company's stock late last month, according to a SEC filing. Newell, which has been showing signs of beginning a sustainable turnaround, got hit hard in the recent stock market correction, with shares dropping from $30 to around $25, a 17% decline.

Investors are concerned that recent revenue growth is unsustainable and will weaken as the economy slows. However, in a report released this morning by Bank of America (NYSE: BAC), management believes the growth initiatives that have been put in place are taking hold and 3% to 5% revenue growth is doable despite the slowing macro environment. However, B of A is somewhat skeptical and maintained its Neutral rating and $28 price target.

Merrill Lynch & Co. (NYSE: MER), in a report released yesterday, wrote that investors should jump on board Newell's stock, as the correction has been overdone. Newell should earn $1.78 this year, jumping to $2.00 next year, implying price-to-earnings ratios of 14x and 12.7x for 2007 and 2008, respectively. This is cheap for a company owning such well-known franchise names as Rubbermaid, Sharpie, plus a whole host of others. Merrill has a $34 price target on Newell Rubbermaid.

Newell Rubbermaid Inc. (NYSE: NWL) recently posted decent 1Q earnings despite still being in the midst of an expensive, long-term reorganization. First the numbers. Excluding the reorganization costs, revenue was down by half from 1Q 2006 to $65 million or $.23 per share. Net sales were up 3% to $1.38 billion and net cash from continuing operations improved to $14.5 million for the quarter. Unfortunately, net cash gain was entirely negated by much larger capital expenditures that wil eventually result in reduced expenses and improved productivity, or so insists CEO Mark Ketchum.

Newell Rubbermaid has been in the midst of a turnaround for quite some time, and apparently the wait is far from over. The 1Q 2007 earnings press release is a model of how not to say what one means. Management forecasts sales growth in 2Q 2007 in the 4-5% range, with net cash to be in the range of $75-$125 million. Capital expenditures are forecast to be approximately half of net cash figures. All full year figures exclude restructuring costs, so it is difficult to guage how much progress the company is making. FY 2007 EPS are forecast at $1.73-$1.78 with net cash from continuing operations approximately $575-$625 million. The reorganization project was supposed to have saved $50 million in 2007 and $150 million total by 2009.

Investors might still want to be patient with newell Rubbermaid. The company consistently pays a dividend that yields 2.7% annually. The stock is not subject to cyclical or seasonal fluctuations, and its brands include such office basics as Paper Mate, EXPO markers, Sharpie markers, Rolodex, and, of course, Rubbermaid. The stock hasn't budged much from where it began at the beginning of 2007, but CEO Ketchum still insists that the company is building momentum. The stock recently closed at $30.86, up slightly from$29.26 where it began trading in 2007.

This morning, Newell Rubbermaid Inc (NYSE: NWL) reported strong gross margin improvement, jumping 210bps, a big move. Sales growth came in at 3%, a bit light.

Full-year guidance looks good, however, with sales expected to grow 3% to 5%. Gross margin improvement for the full year also looks solid, with a 150 to 200 bps increase.

At first glance, Newell reported solid results. However, the results are not spectacular, either. It will be hard to find news that will drive this stock higher in the near term. There needs to be more evidence of product initiatives that will get investors excited about this stock and push it higher.

As a follow up to my blog yesterday, here are a few other ideas to look at as this stock market correction continues to unfold.

Newell Rubbermaid Inc (NYSE: NWL), a stock we have blogged about the merits of repeatedly during the past year, is holding up steady. There are a couple of reasons for this -- first, Newell, as a consumer staple company, attracts money during volatile markets, and second, the belief that its turnaround is for real.

Dynegy Inc (NYSE: DYN) is also holding up well. Similar to the IP transport companies blogged about yesterday, this stock typically got hit hard during these market corrections during the past few years. However, in this selloff, it has declined little. With private equity firms eyeing TXU, investors are beginning to believe in the merchant power business again.

Use this correction and current bout with fear to pick up some good stocks. Newell and Dynegy are companies to throw into your portfolio.

Newell Rubbermaid Inc (NYSE: NWL) held it analyst day with the investment community on Tuesday. Yesterday, Newell was getting upgraded across the board.

We began blogging about the merits of Newell's turnaround back in April when the stock was trading at $26, today the stock is around $31, up 19%. Merrill, Smith Barney and Oppenheimer have raised its price targets to $34-to-$35 price range.

In my opinion, the analysts' price targets are too low. Estimates are for Newell to earn $1.95 per share, but Newell will most likely earn over $2.00. Also, as the company exceeds earnings expectations, the P/E investors are willing to pay will go from 18x to 20x. I see Newell's stock price approaching $40 by the end of 2007.

Newell Rubbermaid Inc (NYSE: NWL) reported another very solid quarter under the reign of CEO Mark Ketchum. Newell grew organic revenue 4.7% before the impact of the DYMO acquisition. Including the DYMO acquisition, revenue grew 8.5% -- very solid numbers for a company that has struggled with revenue growth for a long time.

Guidance Highlights:

• Ketchum expects organic growth to continue
• Resin costs, a big expense for Newell, should continue to moderate and begin benefiting the company
• Costs savings to continue which should lead to gross margin expansion
• Expects lower double digit operating income growth

Newell, who has been in the investors' doghouse for years, is beginning to perform well, both in terms of operating performance and share price. The stock has had a good run increasing from $22 to $30 during the past year. The stock might pull back due to Newell re-investing in its business at the SG&A line which might impact 1Q07 results. I would use any of this price weakness to get into this stock.

Mention Graco and most people start thinking about baby strollers. If you've ever confused Graco Inc. (NYSE: GGG) with the company that manufactures those baby strollers, join the club! I actually developed an interest in the baby stroller company by following Peter Lynch's principle of "investing in what you know." Graco baby strollers are everywhere and they're made of high quality materials, thus prompting my interest.

I thought to myself -- if the troops in the middle east ever come back from their tour of duty, historical statistics show that there should be a boom in new baby births right after a war ends. The population explosion of the last century may not have been possible without the two world wars. Foolishly, I looked up the stroller company but instead, found one of the world's premier manufacturers of fluid-handling equipment and systems.