Following an industry-wide restructuring during the downturn, retail is ripe for M&A activity, says Brian Sozzi, a research analyst for Wall Street Strategies, Inc.

“Retailers have done fabulous jobs retooling their businesses, whether it’s closing down unproductive manufacturing facilities, completely rethinking how they produce and deliver products, and where they get products from overseas,” Sozzi said. “The fact is even though the sales aren’t there, retailers are operating very lean structurally.”

In addition to lean inventories, which should lead to an increase in profits, Sozzi says compelling valuations due to a retail equities selloff and many companies’ free cash flow buildup give him reason to predict a pickup in M&A.

“If you look at BJ’s Wholesale (BJ),” Sozzi said. “They’re throwing off a significant amount of free cash flow. And if you’re private equity, you can come in there and gain access to that free cash flow and invest in other companies, or put it to work elsewhere.”

The Chinese consumer has more disposable income than ever before, and with a growing middle class, the demand for for-profit education remains strong, said Ella Ji, a director and senior analyst at Oppenheimer & Co. Inc.

“Education has been and it will remain a top priority for Chinese families’ spending, and that demand is very resilient, no matter how the economy trends,” said Ji, adding that GDP during the economic downturn may have slowed, but Chinese education companies haven’t. “People may cut spending in entertainment or travel, but they will not cut spending in the education for their kids.”

The Chinese education market, which receives both government and consumer money, presently increases by about 10% per year and recently passed the $200 billion mark, making up about 3% of Chinese GDP, Ji said.

Ji also emphasizes the heavy cash flow nature of Chinese for-profit education.

“I just want to remind U.S. investors that in China there are really no student loans. Everyone pays cash out of their own pockets in advance,” she said. “I know that some U.S. postsecondary companies are facing some problems with their student loans. That’s not a concern for Chinese companies.”

Can Johnson & Johnson’s JNJ (NYSE) CEO, Bill Weldon, survive the firm’s repeated recalls?  First it was a series of small recalls then it turned into a flood.  Johnson & Johnson failed miserably to handle the public relations and the actual manufacturing related deficiencies in many of its McNeil Consumer Healthcare Division.  As time passes it is hard to believe, the somewhat bewildered CEO Bill Weldon will be able to hang on as CEO at J&J.  Mina Kimes wrote a terrific piece for Fortune that lays out the difficulties Weldon faces going forward.  According to Mimes’ story,

Weldon, who has kept a low profile for the majority of his eight-year tenure, must now fight to salvage not just McNeil’s reputation — but his own. Surveys of business executives conducted by CoreBrand show that favorability ratings of J&J’s management have dropped from 88.3% in 2006 to 80.9% last quarter. That’s a significant decline, according to Jim Gregory, the branding firm’s CEO. “There’s something not right here that needs attention,” Gregory says. “[Weldon] needs to change it — or there needs to be a change of management.”

… Though some corporate image pundits have called for the CEO to resign, insiders say Weldon is unlikely to depart before next year, when he will be 62, the age at which J&J leaders typically retire. In fact, two former executives say Weldon may stick around even longer. He has reportedly told his board, one says, that his two younger heirs apparent, Sheri McCoy, the head of J&J’s pharmaceuticals sector, and Alex Gorsky, the head of medical devices, aren’t prepared to assume his role.

Only time will tell.  Make sure to keep a close eye on the firm going forward.

Beckman Coulter BEC (NYSE), the biomedical testing company, announced today that its CEO, President and Chairman, Scott Garrett, has resigned.  Garrett, who has been CEO since 2005 found himself under increased pressure as the firm failed to meet analysts expectations in it second quarter results.  The firm has also found itself missing FDA quality standards on some its products.  Back in June the company received a warning letter from FDA regarding the marketing of one its products.  The combination of all these factors appears to have been what made for the resignation.  Beckman Coulter’s stock took a hit a few months back and so far nothing has happened to make for the stock’s revival.

The company also announced that an interim CEO J. Robert Hurley a current employee would take charge as the firm’s interim CEO until a successor to Garrett is found. This executive change takes place as the company is still working on integrating the acquisition of Olympus’s diagnostic’s business into the firm.  Hurley, the interim CEO was directly involved in the Olympus integration.  Hopefully, his expertise will come in helpful in making this integration more successful.The company can be expected to continue struggling to work out all these problems while the CEO search goes on.  Investors should keep a very close eye on the firm’s moves going forward.

For more:

Bloomberg 

Press Release

Prudential Managing Director Marc Halle urges investors to analyze REIT fundamentals and adjust valuation metrics according to where REIT stocks are in the market cycle.

“You have to determine the most appropriate methodology for various stages in the economic cycle,” Halle said. “When you look at the market today, you can say REITs may be expensive on an FFO multiple basis because REITs are trading at high multiples relative to the S&P; what you have to recognize is that the multiples on the S&P stocks have recovered, and they are currently experiencing very good earnings growth.”

Although REIT stocks have doubled, Halle points out that they’re still trading at about 45% below their peak. Also current multiples do not account for recent earnings growth that took place as a result of a supply/demand imbalance.

“I don’t think in the short term we get back to peak valuations. We don’t need to get back to those levels to make very good risk-adjusted returns for our investors,” Halle said. “We look at valuations and the market outlook, and feel that today is a good entry point. If anything, we may be a little early.”