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Momentum

Sally Beauty Holdings Inc. (SBH)

While the most recent economic data and market action may not be pretty, Sally Beauty Holdings managed to deliver some very attractive results on May 3rd. 

The global beauty supplier reported same store sales growth of 9.1% in Q2 2012 compared to 6% in the same quarter last year.  Net sales were up 10.9% to $889.3 million, which equated to Q2 net earnings of $67.8 million or 35 cents per share, an increase of 34.6% compared to Q2 2011.

Sally finds itself in an unusual situation.  They seem to be the only bright light in a sector that has been struggling as of late.  Could it be that they have simply gotten lucky up until now or are they really capturing that much business and executing better than their peers?

Company Description & Financial Profile
Sally Beauty Holdings, Inc. is an international specialty retailer and distributor of professional beauty supplies.  Through the Sally Beauty Supply and Beauty Systems Group businesses, SBH sells and distributes more than 6,000 products for hair, skin, and nails through professional lines such as Clairol, L'Oreal, Wella and Conair, as well as an extensive selection of proprietary merchandise.

Sally operates over 4,300 stores (including 200 franchised units) throughout the U.S., U.K., Belgium, Chile, France, Canada, Puerto Rico, Mexico, Ireland, Netherlands, Spain and Germany. Their Beauty Systems Group is the largest full-service beauty supplier in the world catering to professionals through a network of stores and sales consultants.  The Beauty Systems arm of SBH sells up to 9,800 professionally branded products including Paul Mitchell, Wella, Sebastian, Goldwell, and TIGI which are targeted exclusively for professional and salon use and resale to their customers.

SBH is mid-cap (4.95 billion) company with annual revenues of roughly $3.3 billion.  The stock is trading at 19.5 times forward earnings with a PEG ratio of 1.21.  This puts Sally Beauty at a bit of a premium compared to the broad market, but perhaps justified given its growth. SBH does not offer a dividend at this time.

Sally became a Zacks Rank 1, Strong Buy on May 8th.

Earnings & Expectations
They reported a quarter over quarter sales increase of 3% at their last earnings report, but managed to register a 21% EPS gain in the same period. Their bottom line has topped analyst estimates for the last four quarters, exceeding the Zacks Consensus EPS Estimate by an average of 7.91% during that time.    

SBH is expected to earn $1.36 in FY2012 and $1.59 in FY2013 according to the Zacks Consensus Estimate.  Of the 8 analysts who cover SBH, the consensus is for the company to see a 27.% increase in EPS in the current year (FY2012) and grow earnings by 17% in FY2013. 

In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were 7 days ago for the current and next quarter as well as FY2012 and FY2013.  These upward revisions came in the wake of the strong earnings and guidance gleaned from their recent report.

SBH is expected to earn 38 cents when they report on August 9th.  

Market Performance & Technicals
SBH epitomizes the word momentum.  What is most amazing about this stock is the fact that it has continuously performed since July of 2010.  Even the downdrafts in August 2011 which sent SBH below $15 still didn’t push the stock below its 200 day moving average, which now stands all the way down at $20.66

While the 20 day at $26.14 provides some support here, I would look towards the 50 day average of $25.35 for a more viable support level.

SBH has exceeded the S&P 500’s performance by a staggering 66% in the past year and almost 14% in the past 3 months.  Even with the recent pullback, Sally Beauty still leads the S&P 500  by almost 7% in the last 30 days alone.  Even though SBH has shown stunning performance for almost 2 years now, it is susceptible to market corrections and will generally be more volatile given its Beta of 1.67.

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

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