Spin-Off NOW, Inc: Market Leadership, Experienced Management, And Pristine Balance Sheet Point To Compounding Value
- DistributionNOW or NOW, Inc. (DNOW), the recent spin-off from National Oilwell Varco, Inc. (NOV), ranks second by market share in the fragmented but fast consolidating energy distribution market.
- DNOW’s pristine balance sheet – $236 million in cash, no debt – and low cost of capital should facilitate organic market share gains and rapid growth via M&A activity.
- In contrast, DNOW’s primary competitor and market leader, MRC Global (MRC), has much higher leverage and now needs to enter a period of de-leveraging, which will likely slow growth.
- DNOW’s management team has a 10 year, successful track record of accretive M&A. The spin-off is only the most recent in a long series of strategic actions to create value.
- DNOW’s operating margins are likely to inflect significantly higher after digesting two large acquisitions and transitioning to a global ERP system.
Short Famous Dave's With 33-48% Downside
- Famous Dave's is a fundamental short due to deteriorating fundamentals, namely negative SSS trends.
- The company trades with a "growth" valuation despite virtually no current new unit growth.
- The current valuation is already giving credit to a successful turnaround, yet there is currently no evidence to support improving fundamentals.
- At current prices, Famous Dave's has 33-48% downside.
Long Run Exploration: Cheap Canadian E&P With Huge 8.4% Yield
- Long Run Energy (LRE in Toronto) is an E&P company trading at a 15% FCF Yield and a huge 8.4% dividend yield.
- Technical pressure has pushed the stock down 10% in the past month as shares issued to fund an acquisition recently hit the market.
- Management grew production organically 5.5% in the last quarter, and at under 4x TEV/EBITDA, the stock is excessively cheap and misunderstood.
Paradise Entertainment: 80% Upside On Strong Earnings From Casino Management, Gaming Equipment
- Non-mainstream stock pick on Macau gaming sector: Strong 2-pronged earnings growth strategy driven by (1) Casino management and (2) Gaming equipment.
- (1) Casino management: Increased capacity and continued yield enhancement with sticky grind mass focus.
- (2) Gaming equipment: Overseas sales upside in US and Australia from distributorships, Macau local sales upside from upcoming new Cotai casinos, and long-term upside on product mix upgrade.
- Recent sell-off post-1H14 results offers attractive valuation now for an entry point, especially when expectations for Macau gaming sector are lowered and reset.
Hutchinson Technology, Revisited
- Turnaround of suspension assembly business solidly back on track.
- The rumor about an Optical Image Stabilizer (OIS) turns out to be true, and WOW what a partner!
- While recent developments make posited $12 per share intrinsic value look conservative, we probably won't get to see HTCH trade above $20.
American Capital's 2nd Quarter Results Show Transformation Progress
- Net operating income shows sequential growth and appears to have bottomed.
- Management's investment focus on debt and more stable recurring income is starting to appear on financial statements.
- Current share price discount to book value continues to present an attractive risk-reward opportunity.
Alere: Diagnosing A New Strategy With Upside Of 50% Or More
- The market reaction to the quarterly results were off base presenting an entry opportunity.
- The company has significant upside catalysts including the divesting of the Health Management division and other non-core assets.
- The balance sheet debt has been a hindrance to investors supporting the shares. They have aggressively been delevering over the last year.
- Aggressive activist shareholders provide a margin of safety in the shares motivating management in restructuring the business.
Layne Christensen: Why We Think The Bottom Is In With Strong Risk-Reward Going Forward
- We think LAYN’s worst days are behind it as evidenced by a sharp reversal in bookings, non-residential construction spending acceleration, and winding down of unprofitable “hard bid” contracts.
- Breakup valuation isn't in the stock – LAYN’s best segment is likely worth over $11 per share before attributing any value to LAYN's $700 million of remaining revenue.
- Activist shareholders are pressing management to sell part of the company and reinvest the proceeds into debt paydown and share repurchases.
- Recent refinancing yields a de-risked balance sheet: new revolver eliminates maintenance covenants with no significant maturities until 2019 barring a $15 million principal payment in CY2014.
- Valuation is very attractive and the stock is receiving little credit for numerous materially positive developments over the last 2-3 quarters. LAYN is worth $20+ on a SOTP basis.
Quartet: Joel Greenblatt Writes A Blank Check For Pangaea Logistics
- Joel Greenblatt is an initial stockholder and special advisor to Quartet, a blank check company that plans to merge with Pangaea Logistics, a maritime logistics provider.
- Pangaea Logistics displays many of the characteristics one would expect from a Joel Greenblatt investment. Sector market leadership, high return on equity, experienced management and attractive growth prospects.
- Quartet’s management highlight that there is a significant valuation gap between the price they are paying for Pangaea Logistics and its publicly traded peers. We estimate about 28% upside potential.
- Key catalysts to unlock value include the successful completion of the merger, growing investor awareness and Pangaea Logistics achieving its net income targets, in particular for 2014E.
- This opportunity should start to realize material upside in the near term, with limited downside risk due to an attractive entry price versus Quartet's current cash balance and the post-merger valuation.
HC2's Deal Making Offers Significant Upside
- Significant NOLs and shifting balance sheet obscure company's value.
- While controversial, management has a significant ownership stake and is highly incentivized to increase net asset value.
- Near-term catalysts include closing of Schuff deal and uplisting to major exchange.
Quartet Merger Rights: 40% Upside For A Short-Term Event Driven Investment
- Quartet Rights offer investors the opportunity to re-create Quartet common at $7.20 per share, or 40% upside if the rights trade up to the common.
- A near-term event is in place to unlock value. On September 29th, shareholders will vote on the Company's merger with Pangaea Logistics.
- Quartet boasts strong sponsorship through Eric Rosenfeld of Crescendo Partners and famed value investor Joel Greenblatt.
Arris Group: Finding Profits In Your Cable Box
- The acquisition of Motorola Home has been very successful, resulting in double-digit growth in operating income and EPS.
- Post-earnings selloff on unfounded concerns surrounding bookings has created an attractive entry point.
- Continued balance sheet deleveraging will lead to increased ability to return capital to shareholders.
- Despite year-to-date gains, shares continue to trade at modest multiples, both on an absolute and relative basis.
Wizard World: Obscure Marketing Machine Offers Attractive Risk/Reward
- Wizard's convention business is the quintessential low asset high return business.
- Wizard's scale provides barriers to entry in marketing, celebrity draw and attendance.
- Comic cons benefit from continued monetization of superhero assets by movie studios.
- Even with the >70% increase in share price this month, we continue to see at least 46% upside in the near term, limited downside and plenty of optionality.
Danieli: Ultra-Cheap, Ultra-Solid, 40% Upside (At Least)
- Italian steel and aluminum plant maker Danieli is trading at an EV/EBITDA ratio of under 2, despite being highly profitable.
- Adjusting for excess cash, the company's preference shares trade at only 2.7 times expected 2014 EPS.
- Even without adjustments the PER 2014e is only 8.35 and the PER 2015e is 7.11.
- With the steel sector picking up speed, a return to a still modest valuation of 10 times earnings should be easy to achieve within 12 months.
9% Yield And 50% Upside At Bluerock Residential Growth REIT
- Bluerock is a discounted multi-family REIT with large growth potential.
- Developing and repositioning afford BRG greater yields on investment than market cap rates.
- Misconceptions about the company's operations have kept its market price down.
KAR Auction Services: An Opportunity From Industry Anomalies
- KAR is poised to benefit from a strong cyclical surge in its key whole car auction segment from late 2011 and 2012 cars coming off lease.
- The industry is essentially an oligopoly with a few large players and very highs barriers to entry.
- The financing arm represents a hidden asset opportunity which is a fast growing and very high incremental margin business.
TransAct Technologies: After A Sell-Off, Investors Have A Great Opportunity To Own This Debt-Free 4% Yielder
- After a heavy sell-off earlier this month an underfollowed microcap, TransAct Technologies, is now on sale.
- Recent selling can be attributed to the market's misunderstanding of the company's product cycle and investments in new sectors of business.
- TransAct is debt-free and offers investors a dividend yield over 4% which has been increased twice since being initiated a year and a half ago.
- Management has also recently engaged in massive share repurchases, with a new $7.5 million share repurchase program announced producing an extremely favorable Total Shareholder Return profile.
- Investors at current prices stand to benefit over the next year from the company's investment in new product deployment and will enjoy higher per share earnings due to share repurchases.
True Gold Mining Brings Good Karma To Your Portfolio
- True Gold Mining has an extremely robust project in Burkina Faso.
- We believe that this is only the tip of the iceberg. We expect the Karma project to develop into a long-lived and highly-profitable gold mine.
- The terms of the recent financing, and feedback from the company have further bolstered our confidence to call for 60% mid-term upside.
- Much more long-term potential exists, with some of the best management available to drive growth.
EQT Corporation: The Midstream Advantage
- Based on a sum-of-the-parts analysis, EQT’s upstream business is one of the best values in the Marcellus/Utica E&P peer group.
- The company is developing takeaway solutions in the Marcellus that may support production growth to over 3 Bcf/d by 2018.
- The stock has a catalyst in the form of a potential monetization of the General Partner interest in the MLP.
- The recently acquired Midland acreage has the potential to evolve into a second core operating area.
- Despite the natural gas pricing headwinds in the Marcellus/Utica area, the stock's risk/reward profile appears skewed very favorably to the upside.
TowerJazz: A Towering Double In Share Price
- TowerJazz's new JV with Panasonic adds $360 million-$420 million a year in revenue and also provides room for expansion.
- The JV facilitates the closing of the Nishiwaki fab, giving $132 million in annual cost savings.
- TowerJazz is also seeing extraordinary organic growth, especially in RF devices and image sensors.
- I believe TowerJazz is priced at a fully diluted level of around 3 times late 2015 or early 2016 EV / EBITDA.
To Handsomely Beat The Market, Buy Petroamerica Oil With Both Hands
- Petroamerica made a transformative deal by acquiring Suroco Energy, and addressed all the challenges it was facing.
- This acquisition significantly strengthens and diversifies the company's asset base.
- Now, Petroamerica has everything: strong production growth, high netbacks, stellar balance sheet with a strong cash position and an aggressive management.
- With management focused on continuing to grow, the tremendous valuation gap with the peers can close anytime and Petroamerica's shareholders stand to benefit a lot.
Mentor Graphics: Earn 20% With Zero Net Market Exposure
- Mentor operates in an industry experiencing multiple long-term tailwinds.
- The company's leading indicators suggest a business inflection is near.
- The stock's current valuation presents multiple ways to profit from the name.
Eclipse Resources Corporation: A Shiny Penny Still Isn't Worth Twenty Five Cents
- ECR is wildly overvalued when comparing its PV-10 to a peer group.
- ECR may soon have to take impairments on its assets as the price of Natural Gas has fallen 19% over the last 90 days.
- ECR fails several benchmark tests when compared to peers yet maintains valuation multiples at significant levels higher than those same peers.
TOP Ships: Deep Discount To NAV Presents Opportunity
- We believe TOPS will accrete in value over time and narrow the gap to NAV as its fleet grows and its strong FCF becomes more apparent.
- Management owns over 40% of the company and is highly incentivized to grow its NAV and build shareholder value.
- Patient investors will be well rewarded as we believe the intrinsic value of the company is well north of $4.40 per share currently.
Jason Industries - Hidden IPO Of A Proven Business With Proven Management
- Jason Industries is a fast growing and profitable global industrial manufacturing business that recently merged with a blank check company and became public.
- Due to lack of investor awareness and following among analysts the share price continues to trade in the pre-merger range, not reflecting any potential of Jason Industries.
- The company has long and profitable history of revenue growth and successful acquisition integration. Longstanding relationships with blue-chip customers and established reputation will ensure continuation of great financial performance.
- Peer valuation indicates 50%-55% upside. Management’s purchases of warrants signals at least 35% upside.
- Company’s chairman and management have proven track record and very high incentives to see share price grow.
DTS Inc.: A Mundane Business, With Exciting Profits
- Margin-rich royalty revenues result create business with material operating leverage.
- Partnerships with majority of leading consumer electronics companies create tailwinds as network-connected electronics sales continue to grow.
- Clean balance sheet with over $2 per share in net cash.
MGIC - An Opportunity Through Mortgage Credit Exposure
- Expected losses on MTG's legacy book are likely a lot less than anticipated.
- Even accounting for some conservative assumptions the fair value of MTG is over twice its market price.
- The results are not very sensitive to future mortgage default assumptions.
El Pollo Loco: PE 'Bust-Out', 20+ Years Of Failed Domestic Expansion, Pre-IPO Window Dressing Make An Ideal Short
- More like a ‘Pollos Hermanos’ than the Chipotle media comparison it is currently getting.
- 20+ years of failed domestic expansion track record.
- Two-year comp momentum is largely average check growth driven, and thus should be heavily discounted.
- Existing equity holders will be very motivated sellers at lockup expiry.
- There should be ZERO bid for this stock anywhere north of $20.
New Media Investment Group Offers 100%+ Upside With Downside Protection From Sustainable ~7% Dividend Yield
- As a post-bankruptcy equity and recent spin-off, NEWM is an undervalued and underfollowed local newspaper and online media stock that trades at 6.1x LTM pro-forma EBITDA and 7.2% dividend yield.
- Not a secular dying business: investors get a turnaround, stabilizing business with free optionality for the company to generate substantial value through accretive acquisitions, offering a compelling asymmetric risk-reward opportunity.
- NEWM owns 450+ local community newspapers that are more stable and have loyal readership base. NEWM purchases distressed newspapers at <3.5x EBITDA and has 1300 potential targets in M&A pipeline.
- One of the main competitors for M&A is Warren Buffett’s B.H. Media group, which poses limited risk since they operate in different, large, and fragmented markets.
- NEWM can leverage its strong local footprint and regional scale to cross-sell its Propel digital marketing, an organic high-growth segment with a potential $24B total addressable market.
Bellatrix Exploration: Deeply Undervalued And Likely To Achieve Significant Price Appreciation
- Bellatrix Exploration is a USD $1.3 billion market cap E&P with an average trading volume of US$3.3 million on the NYSE and $34.8 million with the TSX included.
- Bellatrix trades at a discount to peers and must appreciate 76% to reach the median peer group multiples.
- Bellatrix has net debt / Q2 2014 EBITDA of 1.2x, which is lower than 7 out of 10 peers, and affirmed production increases of 33%, which is higher than peers.
- Due to increased firm service capacity, Bellatrix alleviated near term constraints on production growth. Their 2015 and 2016 gas plants will fully eliminate those constraints.
- Continued increases in production growth, and a new PR campaign in the US will cause a re-rating of this stock. My 12 month price target is C$16.
Why Consolidated Tomoka Is Taking Off And Headed Much Higher
- A hidden asset rich company (balance sheet land values are 100+ years out of date) with significant catalysts to realize value, yet still under-appreciated by investors.
- Upcoming land sales, including 76 acres for a Trader Joe’s distribution center (set to close in the third quarter), should substantially accelerate the company’s transition to an income-producing company.
- A motivated and highly experienced CEO on track to make a name for himself within the investor community.
- Purchase and sale agreements for 16% of the company’s land have been signed with a total value of over $50 million, vs. the company’s market cap of only $280 million.
Cash America: Spin-Off Of Its E-Commerce Business Should Unlock Substantial Value
- Cash America is an alternative financing company that operates through two main segments. A traditional pawnshop business and Enova, an online provider of non-secured consumer loans.
- Cash America plans to spin-off Enova by early 2015. This provides a clear catalyst to unlock the value of the two businesses, currently not fully reflected in its valuation.
- Based on comparable multiples, we estimate the two businesses will trade at a 40% plus premium to Cash America’s current market capitalization post-separation.
- We think the downside is limited. Most of the bad news covering regulatory risks, suppressed gold prices and consumer confidence are well-known and most likely already priced in.
- This is a medium-term trade. Around six months for the spin-off to unlock substantial value, then a series of further value creating catalysts could unfold over the next few years.
Radcom: Product Success And Operating Leverage Will Drive Upside
- Radcom is at the cusp of significant earnings growth due to three key variables: (1) revenue growth; (2) gross margin expansion; and (3) fixed operating expenses.
- A transition to a software-driven model via new product offering - MaveriQ - is rapidly expanding gross margins coupled with well-contained, fixed operating expenses.
- The Q2 earnings release and conference call confirmed points (2) and (3) above. Recently announced contract wins should provide the last leg of the value thesis, revenue growth.
- Radcom's share structure includes only ~8 million shares, about 40% of which are held by two insiders, Zohar and Yehuda Zisapel. Place limit orders, expect volatility.
Outerwall, Inc: An Attractive Out Of Favor Business
- Outerwall trades at ~4.0 EV/EBITDA and 8.9x forward P/E indicative of immediate distress.
- Redbox is more sustainable than the market believes.
- Outerwall business includes two other segments.
- Debt levels are manageable and FCF will be returned to shareholders.
Marten Transport: Mispricing In The Industry Provides Strong Upside
- Marten is one of the premier niche transport operators in the business with top-notch management and very efficient operations.
- The company is now a much more diverse enterprise with "three fingers of growth" and a very broad revenue base.
- Further expansion into Southern California with their recent acquisition and into Western Mexico will likely push down operating cost ratios further and increase profitability as route density increases.
Noble Roman's New Initiatives Could Be Baking Up Some Profits
- Noble Roman's recent stand-alone take-n-bake initiative could be worth more than 50% of the company's market cap by the end of next year.
- Even without the stand-alone initiative, the company trades at a discount to peers despite significant tax assets.
- Strong insider ownership aligns management with shareholders.
Advanced Drainage Systems: Let The Share Price Drain Be Your Gain
- WMS should be currently operating exclusively on its revolving credit facility.
- WMS has more debt, contractual obligations, and operating expenses coming due, at best, over the next 36-48 months than it has borrowing capacity and cash flow generation capability.
- WMS is operating at max levels of efficiency and has a mature operation overall, greatly limiting its ability to improve revenue growth from current levels.
magicJack: Short-Term Catalyst, And Significant Upside
- Significant short squeeze possible when magicJack releases 2Q earnings on August 11.
- Trading at 4.4x EBITDA, magicJack has no debt, high margins, and a new product launch; expect revenue growth and multiple expansion under the company's new management.
- An acquisition or LBO is definite possibility.
LeapFrog: Product Cycle Refresh Provides The Road Map For Substantial Upside
- LeapFrog stock has been beaten down due to an inventory glut that is a temporary problem.
- New product releases scheduled for the balance of the FY should have investors looking back to what happened when LeapFrog first introduced the LeapPad.
- Company maintains a pristine balance sheet and should generate acquisition overtures or an activist investor could step in to create value for shareholder.
Overstock.com: A High Conviction Idea With 150% Upside
- Overstock.com is trading at a wide discount to my estimate of private market value.
- Management is introducing higher-margin service offerings such as Supplier Oasis and an insurance broker which should lead to incremental margin expansion.
- Clear tailwinds in eCommerce, a capital-light operating model and optionality in terms of monetizing developed in-house software and accretive capital allocation provide downside protection and significant upside potential.
ArcBest: 20% Earnings Related Decline Presents A Great Entry Point For Investors
- ArcBest fell over 20% after reporting substantial revenue growth with a noisy EPS number that missed expecations.
- The company is now experiencing significant revenue and EBITDA growth and short-term operational efficiency growing pains will not persist.
- 30% upside for ArcBest in the next 12 months.
Kennedy-Wilson: European Venture Should Shine A Spotlight On Its Own Significant Upside Potential
- Kennedy-Wilson is a vertically integrated global real estate investment and services company with a reputation for thriving in distressed property markets.
- Despite generating an average equity multiple of over 1.60x on its investments, the market is currently valuing them at just 1.10x book value. We estimate 25% plus upside for Kennedy-Wilson.
- The investment process that generates these returns is complex, with Kennedy-Wilson normally taking minority equity positions in commingled funds and JVs. This confuses the market, resulting in the gaping discount.
- We believe Kennedy-Wilson’s European venture will act as a catalyst, leading investors to question why its own investments are valued by the market well below their fair value.
- This is a medium-term opportunity. The downside is limited due to the existing discount to market value and Kennedy-Wilson’s proven ability to generate outsized returns from a crisis.
Lynden Energy - Unknown Permian Basin Pure Play Could Triple
- Lynden Energy is a Midland Basin pure play with zero net debt and a current USD market capitalization of $106 million.
- Undervalued relative to peers by 220% on Enterprise Value/EBITDA, 230% on EV/Production, and 218% on EV/1P Proven Reserves.
- Currently worth $321 million in an asset sale or takeover which is triple the current enterprise value.
- Recent horizontal drilling partnership with Diamondback Energy increases Lynden Energy’s value and probability for asset sale/ takeover.
- Current drilling at Mitchell Ranch asset could easily double market cap of Lynden Energy or more by itself.
Tree.com: When Investors Ignore, You Win!
- The return to lower lending standards and secondary financing including second lien mortgages like HELOCs should benefit TREE strongly.
- Investors are expecting a decline in volumes as interest rise which is counter to what we think as lenders increase lead generation usage in order to offset refinancing declines.
- New products, including many in the non-mortgage space, continues to enhance the company's growth trajectory.
Mart Resources: It's The Right Time To Buy This African Oil Play
- Mart Resources has inched higher by 22% in the last five months on some crucial positive developments.
- Production and revenue for Mart Resources is likely to surge in FY15 as the company starts using its export pipeline for oil sale to Shell.
- Mart Resources is undervalued based on relative valuation with a potential 63% upside over the next 12-18 months.
Invacare Dramatically Undervalued Due To Temporary FDA Issue
- IVC is global leader in mobility and seating products, but it has been dramatically under-earning for the past two years due to an FDA consent decree.
- Once FDA consent decree is lifted, combination of $130m high-margin revenue coupled with $10m less of compliance expenses will have an explosive impact on FCF and EPS.
- FDA action pertains to quality control systems NOT safety of product or quality of product.
- We believe this saga with the FDA is entering the 9th inning and expect the consent decree to be lifted within the next 12 months.
- We see the stock offering a compelling 7.4x risk/reward opportunity and see intrinsic value being $26 per share (+73% upside).
The Market Is Only Just Starting To Wake Up To Largo Resources
- A growing supply deficit will drive vanadium prices higher in coming years.
- Commissioning at Largo Resources' world-class Maracas vanadium mine has been completed and production is imminent.
- The market has only just started to appreciate the quality of the asset, and the outstanding execution of Largo bringing the mine into production.
- We estimate 150% upside if past performance can be maintained throughout ramp-up.
Coupons.com - Crazy Growth Assumptions Necessary To Justify Valuation - At Least 55% Downside With Clear Catalyst
- Coupons.com trades at P/S=10 with no profit. It is currently priced 50% above its IPO price just 4 months ago. Its addressable market is limited and not growing.
- Company is unlikely to maintain its monopoly position as competition from better capitalized rivals will put pressure on company’s margins and market share.
- Diluted fair value assuming 30% growth and 80% market share is $11/share, a downside of 55% from the current price.
- Huge shareholder dilution through issuance of options and RSU – 28m shares to be issued compared to 12m during IPO.
- Strong catalyst with September lock-up expiry.
Aeropostale: Why It's A High-Conviction Short All The Way Down
- Despite mammoth underperformance in recent years, ARO stock still looks significantly overvalued at $3.2 per share, given the magnitude of secular challenges facing the company.
- Even adjusting for announced store closures, ongoing cash burn, as well as allowing for some improvement in comps and margins, ARO could still burn $108mm in net assets in 2Q-4Q.
- The current store footprint remains extremely overbuilt, suggesting ARO needs to close another 300-400 stores in coming years to rightsize the business.
- After conducting emergency financing with Sycamore, common stockholders have been effectively subordinated in the capital structure and should expect zero in recovery.
- Given the rate of asset destruction, a reasonable price target would be a slight premium to year-end proforma book value - that is, around $1.5 per share (45% downside).
If You Are An Alpha Seeker Looking For The Next Big Energy Play, Load Epsilon Energy Now
- Epsilon Energy is a profitable energy company with a pristine balance sheet.
- The company has two profitable and growing segments (upstream and midstream).
- It is drilling the sweet spot of the Marcellus shale.
- Epsilon's stock is a sleeper and the company's current valuation is irrational.
- Epsilon's stock has to soar to come in line with the peers' valuation.