"Street Critique"-Patrick O'Hare, Editor-in-Chief, Briefing.com
Wednesday, May 30, 2007PAUL KANGAS: My "street critique" guest tonight writes the bargain hunting column on the financial education website briefing.com and he's seeing new life in a big distributor of maintenance and janitorial products. He's Patrick O'Hare and Pat, welcome back to NIGHTLY BUSINESS REPORT.
PATRICK O'HARE, EDITOR-IN-CHIEF, BRIEFING.COM: Thank you, Paul. It's a pleasure to be back.
KANGAS: The last time we spoke, you were seeing value in a stock called Bed, Bath & Beyond. That was May 9th. The stock was around 41, still at the same level. Anything changed there? You still like it?
O'HARE: We still like it. I believe it's reasonably priced for the long-term investor in here.
KANGAS: OK, very good. What stock is in your bargain hunting radar now? What does it do? How big is it? Give us a little description.
O'HARE: We're looking at Interline Brands right now. The symbol is IBI and what they do, they're a specialty distributor and direct marketer of maintenance repair and operations products. They sell primarily 10 distinct brands into three different end segments: the facilities maintenance business, the professional contractor business and the specialty distributor business.
KANGAS: I see the stock is near the lower end of its recent range rather than the higher end so you think it's a good time to buy.
O'HARE: Year, we think there's a little bit of contrarian flavor here in Interline given its indirect link to the housing market. Professional contractors and specialty distributors count for about 40 percent of their sales and the professional contractors, primary markets happen to be the remodeling and repair aspect within the housing industry. There's been some softness there and the company has warned about continued softness through 2007.
KANGAS: The price to earnings growth ratio or PEG ratio is a key benchmark you look for. Why is that?
O'HARE: I like it as an initial screening metric really. It's not an all-encompassing metric, but what it does, it gives us a sense of whether a stock is trading at a discount to its projected earning growth rate. And when we see PEG ratios at one or below, we tend to take a closer look at them. And in the case of Interline Brands, it has a PEG ratio just under one and we like its position in the industry as well as the contrarian aspect here and so we think there's some nice risk-reward here for the patient-minded investor.
KANGAS: Briefly, what are the risks for Interline?
O'HARE: More meaningful economic slowdown is a clear risk, as well as some weakness, continued weakness in the dollar as they source a large proportion of their supplies out of Asia. But all in all, the company has acknowledged those risks and we think it is still reasonably priced here for the investment-minded individual.
KANGAS: Interline has grown through a series of takeovers but is the company itself now a takeover target?
O'HARE: Within this MRO industry, you can kind of look at it almost as the financial services industry, in that these leaders within the space are all looking to become one-stop shops for their customers and Interline itself certainly is not exempt from a potential takeover bid, but it's likely to be an aggregator and it shows a very good approach to being able to integrate acquisitions and been successful in doing that.
KANGAS: Pat do you own the shares of Interline Brands or do you have any other disclosures to make?
O'HARE: No, I do not Paul.
KANGAS: All right, listen, I want to thank you for being with us. We'll keep a close eye on the progress of Interline. Thanks again.
O'HARE: Thank you, Paul.
KANGAS: My guest Patrick O'Hare, editor and chief at briefing.com
