Amit Chokshi
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Latest Comments87 Comments
My Biggest Turkey: Aurora Foods
Retail Discounters: Hope Their Exotic Investments Excel
Total return swaps are derivatives and the fact that those drove the EPS figures for SHLD speaks to the lack of "earnings quality" regarding the retail operations. Still, going back to the previous point, I don't believe most shareholders are buying SHLD for the retail angle at all. It's as a lot of posters/bloggers/write... have said, SHLD is a public investment fund with one of the better fund managers running it. So you're paying a fair to premium price on a retail comp basis for SHLD which makes it seem odd/overvalued but then you factor in that SHLD in 10-15 years, maybe even 5, won't be predominatly a retailer as opposed to a company with a variety of holdings across industries with Lampert picking the investments. That's not a bad opportunity given that access to a lot of managers with Lampert's ability is limited to investors. There are a ton of great mutual funds run by impressive investors but with SHLD you get a manager with virtually no investment restrictions or redemption issues and other technical issues associated with most mutual funds. BTW, I have no position in SHLD.
R.H. Donnelly: The Stock's a Steal
Advocat Earnings: Not Good Enough
The tax benefit did mask what the real operating performance was but keep in mind the same thing happened in Q2 with a big reversal in professional liability costs. This stock's valuation relative to Kindred and other competitors is very attractive so while I'd prefer to see some better growth I'm content with solid cash flow and the changes management is making.
Now's A Good Time To Buy Mueller Water and Walter Industries
Two Compelling 'Cash Hoard' Stocks
They also rely on just one type of SoC platform that's really targeted towards PMPs. They are going into the cell phone business and there are rumors about Zune picking them up since PLAY's SoC will be in SideShow but the impact of all this is extremely difficulty to quantify. I'm not sure I believe Vista is going to spawn some notebook computer explosion where laptops equipped with sideshow devices will be flying off the shelf. I don't see a lot of differentiation between what SideShow devices can do relative to the next-gen handhelds which can synch to your computer as it is. PLAY's SoC costs more and is a higher end product which is fine but I think as PLAY goes downstream into other devices they'll run up against guys like SGTL and Action Semi that can price them out.
Nonetheless, the cash balance should give you some safety but tech cos can be notorious from going through cash flow to cash burn. Also, the forward estimates are not that attractive, PLAY is really selling for at least 30x next year's EPS.
Bristol-Myers' Board Behaved Responsibly in CEO Dolan's Departure
Big Media vs. Blogs Take-Two: Neither Has Cornered the Market on Bad Advice
Blockbuster Offers Big Upside Potential
VOD is going to continue to grow, so as a viewer you can pay $2-$4 to get a movie into your home rather than go to BBI and pay the $5 and have to worry about returning it. I just think the business model is under too much pressure. Plus from just a simple valuation metric rundown, according to Yahoo Finance the stock is trading at 15.0x fwd earnings, 5.9x EV/EBITDA, and 1.3x book. In this market that seems fair to expensive for a company that's in the type of long-term trouble BBI is in.
How much upside do you think BBI offers in terms of share price?
Take a Second Look at Take-Two Interactive
I was long THQI for a while and was rewarded well and still think that offers the best value of all the video game companies from a valuation point and product portfolio standpoint. I'm out of the vg sector for now since it looks overbought but it should offer a good buy-in point after the holidays, even if the PS3 and Wii do well there will probably be a good sell off and if does not do well there could be an even harder sell off.
Doral Financial Defines Deal with the SEC
The Semiconductor Industry Desperately Needs to Go Private
Also, how easy is it to reduce capex at FSL or other semis? Aren't these facilities multibillion dollar plants, I'm sure the maintenance capex is very high? Sure they don't need to build new plants but most semis don't do that until the top of chip cycles either way so I'm assuming (and maybe wrong) that a lot of that capex can't be shut off.
I think, having good familiarity with the LBO world from a prior life, that buying a cyclical business like semis is pretty risky for an LBO firm. You have massive fixed costs so when the cycle turns your cash flow will take a big hit, not to mention the capital intensive nature of the business. Oh well, these guys have billions so I'm pretty sure things will work out. As most LBO deals go, the PE firms are going to pay themselves an M&A fee up front which will prob be 0.5% to 1.0% of the deal so they're on their way to making money already.
The Semiconductor Industry Desperately Needs to Go Private
I don't follow Freescale but I'd expect it has a good amount of capex and is highly cyclical, I have no idea why the PE firms would go after that company, I'm suspecting it's mostly because they actually believe in the "secular growth" in portable media and wireless consumer devices that FSL has a strong niche in. Plus they have more money than they know what to do with. A lot of LBO firms blew up from the 98-00 telecom deals they did, the same will probably happen again.
Far From Finished at Finish Line
I agree that FINL will eventually go up and I like FINL more than FL, but CG's analysis was weak and suggested an inflated value. They used FL's comps which reflect a 20% command of the athletic footwear market, to suggest FINL should be valued at 6-7x EBITDA (FINL has 5% of the market), and then they go on to suggest FINL can go for 8.0x EBITDA in an LBO. If they plan to use Petco and MIK as comparable transactions they can also include BKRS as a public comp since it's a mall based footwear retailer (has a 2.6x EV/EBITDA multiple, guess that's why it didn't make sense for CG).
So, some would say why do you care if they can get a good pop in the stock price, it helps everyone, right? Well, I don't think pushing FINL into a going private transaction is worth it for public shareholders, especially those considering "long-term value" (another laughable term these days). Public shareholders would be leaving real money on the table because in my mind, an LBO firm won't pay more than 5.5x-6.5x for FINL because there are major expansion plans ahead for FINL in regards to Man-Alive and Paiva that will require real capex.
Let's run through some basic LBO math:
They offer 5.5x 2007 EBITDA of say $130mm = $716MM EV. Factor in the $50MM of net cash on the books results in about a $15.50 per share offer. In today's market, an LBO firm will want 70% debt, so they'd be looking at $500MM of financing which will probably carry a financing cost of 8% if not more. That results in about $40MM of cash interest per year. If the LBO firm wants to stop any expansion ideas for Man-Alive and Paiva, I guess they can curtail expansion and reduce capex so they can make room for that $40MM of cash interest but the key issue is that even in 2003 and 2004, FINL was spending over $55MM in capex per year. According to CG, an LBO firm would offer 8.0x EBITDA? That means a PE firm would put need $650MM-$780MM in debt, which would result in $50MM-$60MM+ in annual cash interest??? I really don't see a deal happening at that multiple. I see it much closer to $14-$17 per share
Secondly, if FINL was worth $18-$23 as a pure play footwear company as recently as 2005, as Man-Alive and Paiva really mature and grow, shareholders could arguably enjoy even stronger returns, $30+ per share, through potential spin-offs, sales of those other businesses. In my view, both of those businesses offer higher valuation potential than FINL once they get some good mass under them. Footwear has the lowest multiples around, I really think Man-Alive and Paiva could be valued independently at the 7-9x EBITDA, 15-18x P/E for MA and 9-11x, 20+x P/E for Paiva once they develop.
All an LBO firm will do is give shareholders a few extra bucks and then do all of this themselves, grow Man-Alive a bit more and then sell it off in a few years in a private deal or IPO, same with Paiva, and then refloat FINL, if they went through with an LBO. Other retailers like FL might be better LBO candidates because they are mature and don't have real expansion plans that require major capex, so you can lever it up, cut costs, and use the cash flow to cover financing. With FINL, they have just 5% of the athletic footwear retail market so have plenty of room to grow, plus I believe they are looking at $60-$80mm of capex related to FINL, Man-Alive, Paiva, and maintenance expenses based on my models for the next few years. With mature retailers you can basically limit capex to just store maintenance.
Plus, public shareholders shouldn't view CG as any savior, if you read the 13D you'll see them mention an appetite for participating in a go-private transaction. So public shareholders will think, gee $14-$17 per share, what a deal, and then the deal happens and CG will tender of course and then get some form of subdebt in the deal that will yield them 9-12% and will probably get warrants or some other equity component. They will essentially get a major return that will make the return public shareholders receive from tendering look like a money market account in comparison.
Just run IRRs on it. Say you buy FINL at $12.50 on 9/30/06, the co is sold and the deal is closed, shares are tendered by 6/30/07 (which would be very quick in terms of hiring an IB, getting the books out, bidding, winner, fairness opinion, and then deal close). Assuming you get one quarterly dividend payment, you're at an IRR of 27.9%.
Now assume you buy at $12.50 on 9/30/06 and there's no sale but the company fixes problems at FINL and successfully expands Man-Alive and Paiva. At year end 2009, just assume the shares are worth $28 per share. Not a major leap of faith when considering FINL went from about $5 to $20 in two years from 2003 to 2005. Factoring in dividend payments (and not accounting for any dividend increases, just the $0.10 annual dividend), you're at an IRR of 28.5%. Not a huge difference but if you believe in Man-Alive and Paiva, then the $28 is likely conservative. If you believe that management will continue to increase its annual dividend payment, the $28 is conservative.
Just my two cents.
MDC Holdings Trades Below Book Value