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HHGregg's debut bruising, but analysts see lots to like:

September 24, 2007

HHGregg Inc. didn't pick the most serene of times to go public, and the company's stock price since its July 19 initial public offering shows it. The shares are trading around $11.25, off 13 percent since their $13-a-share debut.

The performance is even weaker if you consider that HHGregg ratcheted down the offering price at the last minute. It had hoped to sell shares in the IPO at $15 to $17 apiece.

But if you buy into the company's sales pitch-and many analysts do-the swoon spells opportunity.

Here's the take of a couple of believers:

Jeffrey Stein, an analyst with KeyBanc Capital Markets in Cleveland: "The customer votes every day with his wallet, and clearly the customer is voting for them."

Bradley Thomas, an analyst with Lehman Brothers in New York: "In our opinion, there are very few compelling growth names in retail and HHGregg is one of them."

The pair are among six HHGregg analysts tracked by Bloomberg News, all of whom have "buy," "overweight" or "outperform" ratings on the stock. The least-bullish analyst has a $16-ashare price target; the most bullish, $20.

What's driving the optimism? In part, it's that the company is doing well at a time when there would be plenty of reasons to stumble.

The slumping housing market, for instance, is undercutting both demand for home appliances and consumers' ability to pay for them. Another sticky challenge is managing price deflation for consumer electronics, which cost less the longer they are on the market.

In its most recent quarter, HHGregg reported an 8.8-percent increase in samestore sales. That compares with a 3-percent increase for Best Buy and a 5.6-percent decline for Circuit City Stores.

Part of the difference, analysts say, is HHGregg's strategy of using highly trained commissioned salespeople, a concept that's become passé in much of the retail world.

Analysts say that gives the company a competitive edge, as consumer electronics grow increasingly complex and the difference between models less apparent at first glance.

They say that helps explain why HHGregg saw average selling prices rise for TVs with like-sized screens during the last Christmas shopping season, while rivals weathered doubledigit-percentage declines.

As KeyBanc's Stein noted in a report, the company's "selling proposition is based upon the premise that bet ter-educated consumers will frequently purchase higher-quality products."

None of that would get analysts jazzed on the stock if the company weren't in an aggressive expansion mode.

The company has just 79 U.S. stores, but sees the potential for more than 400. Lehman Brothers figures the chain can boost its store count by at least 15 percent for more than 10 years without reaching the saturation point.

Better yet: The company, while still relatively small has proven it can enter markets and gain a major market share, despite the fact that far larger companies already are entrenched there.

"They are always the new kid on the block, and they have a history of doing well," Stein said. "There's no reason that history can't be repeated."

It's never that easy, of course. But buttressing analysts' optimism is HHGregg's seasoned management team, led by CEO Jerry Throgmartin, who's been with the company 32 years.

He has his company humming. If he keeps it up, the true believers are going to make a bundle.

Conseco insiders buy

Is beaten-down Conseco Inc. now a good buy? Lots of insiders believe the answer is yes.

Conseco shares slid Aug. 7 after the company reported more woes in older, long-term-care policies it no longer sells but still supports. It set aside an additional $110 million to back such policies, causing an unexpected second-quarter loss.

That payment more than doubles the total amount Conseco has spent in the last year to shore up reserves on the policies, which typically pay for nursing home and in-home care for seniors.

It's enough to give investors the jitters. But in the weeks since, they've received news to calm their nerves. Since releasing the quarterly report, 13 insiders-including CEO James Prieur and Chief Financial Officer Edward Bonach-have spent $1.9 million to buy Conseco shares on the open market.

The company's long-term-care problem "is a little bit of a black hole," said Mark Foster, chief investment officer of Columbus, Ind.-based Kirr Marbach & Co., which owns about 490,000 Conseco shares.

"To the extent that insiders, who ought to know what that looks like, are willing to step up, it gives you some comfort there are not additional charges to be taken."

So far, the insiders have little to show for their faith. The stock, which topped $20 as recently as July, has slumped to $14.11, off 29 percent for the year.
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