What goes up must come down. And sometimes they bounce back up again.
Wall Street is littered with failed turnaround stories, but some ailing businesses do bounce back stronger than before. These three turnaround stories struck our panel of Motley Fool contributors as the strongest rebounds of 2014.
Target (NYSE:TGT) cleaned out the executive suite to come back from a data security scandal. Monster Beverage (NASDAQ:MNST) struck a game-changing partnership to end nearly two years of eternal Mondays. Rackspace Hosting (NYSE:RAX) came back from the edge of oblivion. Read all about these turnarounds here:
Bob Ciura (Target): Discount retailer Target is my pick for the best turnaround story of 2014. Investors may recall that in the fourth quarter last year, Target revealed that as many as 70 million shoppers had their personal information stolen. Hackers obtained data including payment card numbers, names, mailing addresses, phone numbers, and email addresses. Target's public relations image took a severe hit as a result. Its stock price fell from $64 per share to $55 per share by May, and the data breach ultimately cost Target's Chairman and Chief Executive Officer Gregg Steinhafel, a 35-year company veteran, his job.
If that wasn't bad enough, Target has also lost a lot of money throughout the year on its Canadian expansion campaign. Target aggressively opened new locations in Canada over the course of the past year, which made sense at the time because Target was previously limited to the United States. Last quarter alone, Target lost $211 million in Canada before interest and taxes. Target is racking up losses because it's been forced to discount prices significantly to lure shoppers in. The hope is that eventually Target's stores will stand on their own legs, but this hasn't happened yet. Target's comps in Canada look bad, with same-store sales up just 1% last quarter.
But all that looks like a distant memory now. Customers clearly forgave Target for the data breach, as U.S. same-store sales were up 1.2% last quarter, which was better than the company projected. The company delivered a 20% dividend increase to shareholders this year, and Target's stock price is now at $72 per share. Another tailwind is that Target management expects the improving retail environment, boosted by falling oil prices, to set the stage for a strong holiday shopping season in the U.S. and Canada. This would cap off a fantastic turnaround year for Target.
Anders Bylund (Monster Beverage): Energy drink specialist Monster Beverage limped into 2014, in desperate need of a fresh energy jolt. The stock has fallen 11% over the previous 18 months, just barely keeping pace with the S&P 500 (SNPINDEX:^GSPC) index in 2013. Monster missed analysts' earnings estimates in seven consecutive quarters, including the year-ending period of 2013.
But the tune changed in 2014. First, Monster started delivering against Wall Street's quarterly expectations. Then, beverage giant Coca-Cola (NYSE:KO) struck a huge accord with Monster, investing $2.2 billion of cash in the company while handing over all of Coke's energy drink operations to the specialist.
Coke gains a dedicated partner in the fast-growing energy drink arena; Monster gets full access to Coca-Cola's mind-bogglingly efficient distribution network on a global level.
This game-changing event boosted Monster's shares by 30% overnight, and the effect hasn't faded in the four months since. In fact, Monster soared once again on a strong third-quarter earnings report in early November.
Investors see the Coke deal as a long-term value booster, and rightly so. This turnaround should have legs for years to come.
Tim Beyers (Rackspace Hosting): Few companies can claim to have suffered a more tumultuous year than Rackspace Hosting. The cloud computing provider lost CEO Lanham Napier in February, struggled to find a buyer after announcing a strategic review in May, and then took a final hit in September when it publicly ended all buyout speculation and named then-company president Taylor Rhodes as permanent CEO.
As Rhodes put it to me in a recent interview: "Imagine the potential for absolutely going off the rails this year with Lanham's retirement, Graham stepping in as interim CEO, [and] the news of us potentially being in play. All of that junk... and yet to the last two to three quarters, we've had record cloud growth."
Indeed, third-quarter revenue improved 18.3% while per-share earnings soared 63.6%, easily beating estimates. Rackspace also reported big gains in return on capital and a monthly record for revenue per server while adding 1.7 percentage points to gross margin, suggesting that the company's pricing power -- thought to be at risk -- remains intact.
Has the tide turned completely? We won't know that for a few more quarters. But in February, this stock looked to be headed for the discard pile. Ten months later, it's back up 40% and nearing a 52-week high. Turnarounds don't come much bigger than that.
Anders Bylund owns shares of Google (A shares) and Rackspace Hosting. Anders Bylund has the following options: short January 2016 $320 puts on Amazon.com and long January 2016 $320 calls on Amazon.com. Bob Ciura has no position in any stocks mentioned. Tim Beyers owns shares of Google (A and C shares), and Rackspace Hosting.
The Motley Fool recommends Amazon.com, Coca-Cola, Google (A and C shares), Monster Beverage, and Rackspace Hosting. The Motley Fool owns shares of Amazon.com, Google (A and C shares), and Monster Beverage and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days.