CMHHY China Merchants Port Holdings Company Ltd (PK)

We recently maintained a Neutral recommendation on Leucadia National Corporation (LUK).

Why Neutral?

Long-term growth prospects seem bright for Leucadia due to its diversification into a variety of businesses including manufacturing, gaming entertainment, real estate, medical product development operations and various other investment activities. Also, its entry into beef processing business is working in its favor.

Over time, Leucadia has grown through meaningful acquisitions and dispositions of non-core or non-profitable assets. Of the many acquisitions, particularly that of National Beef Packaging Company, LLC, has added a new dimension to the company’s existing portfolio.

Also, disposal of stakes in Fortescue and merger of Jefferies are likely to bode well for the company. Jefferies merger is likely to open up more investment opportunities for Leucadia and be a long-term growth booster.

Despite these positives, disappointing results for the first quarter 2013 and the near-term concerns surrounding the stock force us to remain on the sidelines. Earnings per share on the quarter came in at $1.08, way below $1.97 earned in the year-ago quarter. Revenue plunged 10.1% due to weak revenue generation in the company’s Beef Processing Services and Corporate segments. Expenses, in relation to revenue represent 93.7% compared with 85.1% in the year-ago quarter.

Moreover, Leucadia has to grapple with issues like rising cost of cattle, animal health and disease issues, geopolitical risks, general housing market weakness, investments in volatile materials, and intense competition from its peers.

Other Stocks to Consider

Leucadia currently has a market capitalization of $11.3 billion. Other major players in the industry are China Merchants Holdings (International) Company Limited (CMHHY), with a Zacks Rank #1 (Strong Buy) while Compass Diversified Holdings (CODI) and Honeywell International Inc. (HON), each has a Zacks Rank #2 (Buy).
 

 
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