November 8, 2013 Comments

Friday was another strong day on the markets with the S&P 500 up 1.3% and Toronto up 0.6%.

Toll Brothers fell 2.3%. This company’s earnings have risen sharply this year but because it started out the year with a very high P/E ratio its share price has been left out of the party this year.

The news of its strong Q4 (which was partially released on Wednesday night) would likely have caused the stock to climb but that was somewhat cut off at the knees by news that they would make a big acquisition and issue shares. The share price was revealed on Thursday night and the price is $32.00. In this case it is not surprising that the TOLL shares traded at about $32 today.

It’s seems unfortunate that the company would issue shares at $32. Luckily it appears this is not that huge an issue. It’s about $225 million while TOLL has a market cap of about $5,700 million. The acquisition is $1,600 million so it will be mostly paid by cash and debt. Hopefully a case of short-term pain for long term gain.

Canadian Tire is updated and rated Buy at $97.15. Its Q3 earnings were excellent. The impact of the REIT transaction is not in the financials statements yet as it occurred after then end of Q3. In any case it really does very little in substance since Canadian Tire still owns 83% of the REIT and since the REIT will be consolidated into the balance sheet at historical cost and not at market value. Canadian Tire seems to have suffered basically no impact from Target and that includes it Mark’s stores. The outlook appears good. I had trimmed my position approximately in half as the price rose 40% this year. However at this time I am more inclined to buy than to trim further.