Three Stocks Kicked by Ken Fisher: PSS World Medical, Inc. (PSSI)

Warnaco Group

Warnaco reported its third quarter results and posted EPS of ~$1.15, which was in line with the consensus estimate. But the company’s revenue declined ~5% to ~$611.54 million as compared to the last year.

Warnaco is the largest licensee of Calvin Klein products in the world. It operates in both wholesale and retail with retail accounting for ~20% of the sales. Last year, PVH Corp (NYSE:PVH) announced that it will be acquiring Warnaco for ~$2.9 billion in a cash and stock deal bringing all Calvin Klein brands under one corporate umbrella. PVH will be offering ~$51.75 in cash and 0.18 of a share in PVH for each share in Warnaco. Also, Warnaco shareholders will be receiving a joint 10% stake in the enlarged company.

This deal will combine Warnaco’s presence in Asia and Latin America with PVH’s North America and European operations, thus expanding Calvin Klein sales in Europe with the use of PVH’s established position in the continent. However, I stay neutral on the company as its revenue is expected to decline ~2% in Fiscal 2012 as compared to 2011 and the benefits from the acquisition will take time to show up on financials.

PSS World Medical

The company posted weaker F2Q13 results with EPS of ~$0.26, which was below the consensus estimate of ~$0.29. Profit was up ~2.4% to ~$240 million as compared to ~$19.6 million a year ago, while revenue grew ~5.2% to ~$521.8 million as compared to ~$496.2 million.

PSSI announced that it will be selling the company to McKesson, a leading healthcare and information company for ~$29 per share, or ~$2.1 billion. Since August, PSSI was seeking the buyout and finally chose McKesson as a potential buyer. This deal will enable these companies to enhance the value that they deliver to their physicians and extended customer care. Further, on an individual basis this transaction shall help PSSI to get the financial resources of a larger company, as McKesson has more cash than PSSI’s revenue. Although the new plan of PSSI looks very encouraging, I am doubtful it will help the company overcome the serious headwinds (i.e. physical and hospital consolidation).

To end, I am neutral on all the above discussed three stocks. Although these companies still hold a great deal of promise in highly competitive but profitable healthcare, retail and semiconductor equipment markets, the recent buyouts remain a concern whether they will really help them to grow in future and generate increased earnings and put them back in shape.

The article Three Stocks Kicked by Ken Fisher originally appeared on and is written by Madhu Dube.

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