“Guitar Center (GTRC
NASDAQ), the nation’s leading retailer of musical equipment, represents a
top pick for 12-month gains. Healthy cash flow and solid industry
fundamentals should keep per-share earnings growing at a double-digit annual clip through
2004. The company operates 110
Guitar Center stores and 20 American Music Group stores, as well as Musician’s
Friend, the largest direct-response and e-commerce business in the
industry.
”A
loyal customer base has contributed to steady sales gains. The firm believes
that about 73% of its sales come from professional and aspiring musicians who
generally view the purchase of music products as a career necessity. Since 1998,
profits have grown at an 11% annualized rate, while net sales grew at a 29%
annual clip thanks mostly to same-store growth. For 2003, the firm should post
profits of $1.30 a share, a 19% gain. Sales should climb 18%. New stores should also fuel growth. The company expects to add 16-18 new
locations and its market position has been improved by the bankruptcy of rival
Mars Music, which closed 41 stores. We are initiating coverage of this company
and consider this stock a best buy.”
