Finmeccanica: You Can Fool All The People Some Of The Time
- Finmeccanica is not as attractive as it looks.
- A proper understanding of the company and its stakeholders raises many concerns.
- A FactSet presentation claims Finmeccanica is a bargain but I challenge the findings.
- All revenues and backlogs are not created equal. Beware valuation shortcuts.
Broadwind Energy: Strong Idea For 2015 With Extremely Compelling Risk/Reward
- BWEN’s Tower segment (~80% of revenue) generated $25m in YTD EBITDA, and is positioned for an incremental $10m in FY15 revenue. The entire company's enterprise value is just $50m.
- 2015 estimates are too low at $0.18 EPS and $13m EBITDA. BWEN earned an adj. $0.17 in 2Q14 alone, and already produced $11m in YTD company-wide EBITDA.
- Valuation is extremely favorable; BWEN prices at a paltry 0.2x revenue/backlog, 3.5x EBITDA, and 0.8x book, even though the company is CF-positive with a sold out 2015 order book.
- A six-month buyback is in place for 15% of the entire company; the short duration/large magnitude of the buyback suggest management is extremely confident in FY15 top-line growth/earnings power.
- BWEN was a $100 stock in 2009, a time when the PTC had gone 5 years without expiration - this free call option adds to an already powerful investment case.
Synergy Resources: E&P With A Premium Valuation That Could Decline 80%
- Synergy is within 10% of its 52-week high and carries a 20x EBITDA valuation that is 2.5x that of comparable companies.
- Management missteps and questionable stock sales are highly concerning.
- Continued low prices and infrastructure challenges in the Wattenberg will make profitable production growth near impossible.
Exxon Mobil: Slow But Steady, Value Erosion Is Underway
- Despite $100 oil and much higher capital spending, Exxon's oil production has continued to decline at a high rate.
- When measured on a free cash flow basis, after adjusting for production declines, financial returns over the past five years were poor and the outlook remains bleak.
- Even assuming the company will stabilize its liquids volumes, the stock appears dependent on $100+ oil to yield minimally acceptable free cash flow returns.
- In a weaker price environment, Exxon may have to borrow to sustain dividends and share buybacks at the current level.
- Exxon needs a radical Upstream strategy re-evaluation and deep cost reductions to restore competitiveness.
QEP Midstream Partners: 20% Near-Term Upside In A Takeout, And 40-60% Longer Term
- Tesoro Logistics recently offered to acquire QEPM for 0.2846 shares per share of QEP Midstream, a ratio that likely improves given what it paid to the parent.
- The stock trades on top of the exchange offer as the QEPM board considers the offer.
- Tesoro and QEPM are both cheap, attractive, fee-based midstream MLPs that have significant upside assuming any stability in oil prices.
My Best Idea For 2015 - American Airlines
- Price target - $120.
- 2015 EPS forecast of $12 per share.
- Airfare prices should remain relatively stable thanks to favorable economic tailwinds.
Trinseo - Compelling Price, Bain Capital Pedigree, And Excellent Risk/Reward
- Trinseo S.A is a global chemicals business that Bain Capital took public in June of last year after having acquired the business from Dow Chemical in 2010.
- Trinseo's IPO last year at $19 per share soared to nearly $23 per share, and Bain Capital did not sell a share of their own position. All proceeds repaid debt.
- TSE is off 24% since the IPO and 37% from its high, while making significant progress towards their operational/financial goals, yet trades at a 5x P/E on 2016 EPS.
- Headline multiples are already attractive, but the valuation becomes extreme once normalizing for the abnormally high capital expenditures the company is incurring over the next 24 months.
Discounting Coupons.com: Follow The Insider Selling And Clip This Coupon Before The Coming Crash
- Coupons.com was founded in May 1998 and remains unprofitable almost 17 years after its inception.
- After 16 years of floundering as an unprofitable business, the company took advantage of the JOBS Act and frothy IPO market to create a liquidity event for management and sponsors.
- The company is ultimately a "print at home" coupon business, and it is no secret that consumer inkjet printing is in secular decline.
- We believe that the company has masked its weak underlying growth trends by utilizing a combination of opaque disclosures, non-recurring contract wins, and acquisitions.
- We view the recent strength in the share price as being the result of management's efforts to boost the stock in order to get the ball rolling on secondary offerings.
The Bull Case For Mavenir Systems
- An acceleration of carrier Voice-over-LTE (VoLTE) and Voice-over-Wi-Fi (VoWi-Fi) launches in 2015-2016 will drive demand for Mavenir’s market-leading solutions.
- Mavenir’s unique software-focused business model provides a significant competitive advantage that will allow it to continue to gain share from incumbent vendors, and open up a TAM of billions.
- As more wireless subs roll on to LTE, MVNR will shift its business from hardware to high-margin software sales, massively expanding its margins and moving towards high profitability.
- Shares are highly undervalued on low Street estimates for 2015-2016; the Street’s avg price target is just $17/share, but we see the shares headed to $30.
- Management, VCs, and Cisco (CSCO) own 57% of the shares. 1.6m shares (~13% of the float) is short making a short squeeze a real possibility.
Sell NovaGold: Market Vastly Overvaluing Donlin
- NovaGold's primary prospect, Donlin, is receiving a $2bn valuation from the market.
- This is inexplicable given comps to neighboring projects.
- Donlin also is valued at roughly 4x its Net Present Value, which is equally illogical.
- NovaGold has a spotty record of developing mining projects; this is particularly troublesome as environmental headwinds to Donlin mount.
- Recent 30% run-up in NovaGold shares offers perfect opportunity to sell.
EnPro: Unconsolidated Subsidiary A Hidden Asset
- The Garlock (GST) subsidiary was deconsolidated back in 2010. We think the market is missing the true value of the business.
- Recent court rulings were extremely favorable for the subsidiary and company, and have jump-started the work to get the subsidiary out of bankruptcy.
- A turnaround in Europe is offsetting headwinds from their oil and gas exposure, which we also think is overstated.
Tribune Media: Outsmarting The Market's Misinterpretation Of Retransmission Renegotiations
- Investors misunderstand the implications of broadcasting fee-split renegotiations for Tribune and sold off the stock.
- However, Tribune underwent bankruptcy from 2008-12 and never profited from otherwise industry-wide increases in retransmission revenues; unlike its peers, it will benefit from the upcoming renegotiations.
- Tribune's business is therefore at an inflection point, whereby industry tailwinds from sports and political advertising and the conversion of WGN to a cable network drive additional upside.
- The market has also been overlooking Tribune's valuable hidden and soon-to-be monetized assets, including spectrum, equity stakes, and real estate.
- This leads to an +80% fair-value discount and merely 11% premium to liquidation value which, in combination with multiple catalysts, makes Tribune an incredibly compelling investment opportunity.
Pending Class-Action Lawsuit Creates A Short Case For Eagle Materials
- Eagle Materials achieved a 74% increase in gypsum wallboard price in just 3 years, and it currently stands close to the peak level of 2007.
- Housing starts activity is at significantly depressed levels and industry-wide wallboard capacity utilization is only at 63%.
- Based on the balance of probabilities, Eagle Materials and other wallboard manufacturers are not operating in a clean competitive environment with the pending antitrust lawsuit in place.
- The upcoming break-up in suspected price-fixing creates a short case for Eagle Materials since 70% of its operating earnings are derived from the wallboard.
Green Plains Inc. Shares Can Double Despite Cheap Oil
- GPRE's shares have fallen by 53% since September as gasoline prices have collapsed.
- GPRE's forward P/E ratio is less than half of its 5-year historical average.
- Rebounding RIN prices will insulate GPRE's earnings from gasoline price volatility.
- A return to the 5-year average P/E ratio would cause shares to double from their current price.
Key Tronic: A Cheap, Quality, Growth Play On EMS Re-Shoring
- Superb management let this electronics manufacturer outperform peers in tough past environments - profitable every quarter 2004-2014 - despite geographic, scale and scope constraints.
- Each of those constraints have either been lifted or shifted in their favor. EMS work now flows back to Mexico; organic growth has delivered scale; and acquisitions broadened capabilities.
- Worth $16, or 15x the $1.15 run-rate I expect within 12 months. Potential to trade to $32 within a couple years if operating margin nudges through past plateau.
Medley Capital: Another Gift From Year-End Tax Loss Selling
- Medley Capital is a busted BDC trading at a +25% discount to NAV. Its portfolio of predominantly senior secured floating rate mezzanine debt is well diversified and strong.
- MCC has suffered from tax loss selling and fears of a potential but needed dividend cut. The December price decline is an overreaction to a down-tick in MCC's fundamentals.
- Equity issuance at a deep discount to book value is unlikely given management's promises to the contrary and history.
- MCC represents one of the strongest risk-reward investment opportunities in the BDC space today (TR of 40-50%), even with the projected dividend cut.
Advanced Drainage Systems: Inside Selling Is Worth A Thousand Words
- Advanced Drainage Systems is the leading US manufacturer of plastic pipe, used in the waste management, infrastructure and construction sectors.
- If your first reaction to that was “sounds like a tough industry”, you’d be right – margins and returns are typically low, in the mid-single digits.
- The stock is trading on optimistic growth forecasts and huge margin expansion, both of which seem misplaced and reliant on external factors.
- We argue that the correct price for a commoditized, low-quality business in a cyclical sector is far from the 20x+ EV/EBIT on which the stock is trading.
- .. But you don’t just have to take our word for it – the private equity house which took the business public is aggressively selling down its stake.
Value Trap, Or Why The Prospects For Dorian LPG May Be Bleak
- VLGC vessel orderbook stands at 54% of the existing global fleet size.
- Upcoming US export terminals to boost LPG trade flows but insufficient to balance the VLGC fleet growth.
- Major deterioration in the VLGC charter rates would lead to further decline in Dorian LPG's stock.
SEC Action Forces RAIT Financial Book Value To Plummet
- Our analysis indicates the SEC settlement will cause book value to drop by -35% to $4.73 per share.
- We expect investors will continue to value the stock on a price/book multiple and therefore expect the stock price to decline by a proportionate amount.
- We believe the current dividend is not sustainable according to the pro-forma income statement filed in the Company’s 8-k on December 29, 2014.
- Dividend growth has been fueled by dilutive equity raises. The dividend is really just a “return of shareholders’ capital” rather than a “return on shareholders’ capital”.
- Two executives facing enforcement actions from the SEC were given golden parachutes at the expense of shareholders.
OHA Investment Corporation: Special Situation In A Busted BDC
- Busted BDC trades at +40% discount to book value due to a misread 3rd quarter, a tiny float, low institutional ownership, and year-end tax loss selling.
- Last quarter, there was a complete turnover in the Board of Directors, management team, strategy and opportunity set for this BDC that the market completely overlooked.
- Strong insider buying points to a total return potential of 30-50%.
MiX Telematics: A Rare Opportunity To Buy A Stake In An Excellent Company At An Excellent Price
- MiX Telematics operates in the Fleet Management industry which is growing fast, yet is under-penetrated.
- Its excellent management team has grown MiX from a start-up to becoming a differentiated and profitable global player.
- Temporary headwinds and selling pressure have weighted on the stock since the August 2013 secondary IPO, resulting in an attractive valuation.
Despite Positive Phase 3 Results, Radius Health May Warrant A Short Sale
- RDUS spiked on positive phase 3 results but three problems face the drug's commercialization prospects:
- The results aren't good enough to outstrip existing competitive drugs.
- RDUS's drug will soon face competition from generics.
- Midterm, AMGN is developing a potential category-killer competitive product.
Medical Properties Trust Presents 40% Upside As Discount Evaporates
- MPW trades at 11.5X normalized FFO compared to peers which trade at 16X on average.
- The discount is unwarranted as MPW is equal or better than peers in key areas such as growth and reliability of earnings.
- A return to proper market pricing is catalyzed by a potential buyout and room for substantial dividend raises.
Management Overhaul = Long-Needed Transformation At Campus Crest, 50% Upside For Shareholders
- Campus Crest Communities' previous management team was removed on the back of multiple blunders and loss of credibility.
- The company's operations are getting streamlined by an exit from construction and development as well as from multiple joint-ventures.
- The dividend payout is finally reduced to a prudent and sustainable level.
- Recently announced actions would solve most of the relevant problems and should close the huge discount to peers.
Top Retail Value Play Heading Into 2015: Sears Hometown And Outlet Stores
- Valuation across numerous metrics supports shares being woefully undervalued.
- Continued closing of Sears mall based stores to benefit Hometown and Outlet.
- Enormous growth opportunity in store count make this asset light dealer owned/franchise model a tremendous opportunity to see a double on this investment in 2015.
Gladstone Land Has Gotten Cheap On Tax-Loss Selling With 40% Upside
- Gladstone Land has become unusually cheap due to the interaction of tax-loss selling with low trading volume.
- Our estimate of fundamental value is around $14 as compared to the $9.90 market price.
- Total returns will be catalyzed primarily by a cessation of tax-loss selling.
Why ModusLink Global Could Be A Double
- ModusLink is a $115mm TEV business with a $2BB NOL.
- Activist Steel Partner owns almost 30% of the company and is seeking an acquisition.
- Steel Partners' long-term track record is excellent, and an accretive deal could unlock substantial value for MLNK.
Rosetta Stone: Misleading Financials Mask Continued Deterioration In Business
- RST management is using questionable financial reporting practices which significantly overstate the financial performance of the business.
- In Q4 2013, RST changed its definition of Adjusted EBITDA to a methodology which significantly inflates performance via aggressive deferred revenue add-backs.
- A more reasonable method for calculating EBITDA indicates that management’s FY 2014 Adjusted EBITDA guidance of $18mm - $22mm is overstated by at least $22mm.
- In addition to aggressive financial reporting, RST’s business has continued to deteriorate due to competitive pressures.
- RST shares are overvalued by over 40% at the current price level.
WhiteHorse Finance: An Orphan BDC At A Deep Discount To Tangible Book Value
- WhiteHorse Finance trades for 0.75x tangible book, which is steep considering its underlying asset quality.
- WHF is an orphan stock after the Russell BDC Index deletion and low float due to high inside ownership.
- The Company is not currently earning its dividend on a net investment income basis yet that should change in the near future.
Orbital Sciences Could Explode... Again
- Occasionally one can find attractive, wide spreads around the periphery of merger arbitrage.
- One exploitable example from today's market is ATK-ORB.
- We own ORB, a security that costs about $25 and is worth about $35. Here is why.
Trinseo S.A.: Event-Driven Play With Catalysts To Close The Heavy Discount
- Debt refinancing and deleveraging should de-risk cash flows and create significant value for shareholders.
- Market overreacted to weaker than expected 2014 results since significant impact was on the back of one-off charges.
- Restructuring impact would be fully reflected from 2015 and hence provide significant increase to firm's earnings.
Intrepid Potash: New Mine And Changing Industry Dynamics Point To Significant Upside Potential
- Fertilizer stocks have been decimated due to oversupply and lower pricing that has crushed realizations of their production.
- A bottom in prices has likely been reached as a host of variables will likely curtail capacity while demand continues to grow.
- Intrepid's new HB Solar mine in New Mexico will complement smaller versions in Utah which carry significantly lower operating costs boosting profitability.
- The company is able to realize prices well above the industry thanks to a geographic advantage. We think this is missed by the market with valuations based on industry averages.
POSCO: Short-Term Risks Open Up Opportunity For Long-Term Investment
- Short-term pessimism drove share price to attractive levels.
- Strong competitive position as low-cost producer.
- Shifting towards more economically attractive products.
- Embarking on shareholder accretive restructuring.
- Incremental earnings will flow from non-core segments.
Cosan Ltd.: My Best Idea For 2015
- Cosan's stock price has been crushed with the recent unfavorable election in Brazil and the downturn in commodity prices.
- The market appears to be pricing Cosan as a pure-play ethanol/sugar producer, when in fact, over two-thirds of the company's EBITDA is derived from non-commoditised businesses.
- A conservative sum-of-the-parts analysis implies over 80% upside to the current share price.
CorEnergy Is Substantially Undervalued With Upside Of 75% And An 8.5% Yield
- CorEnergy is mispriced on a variety of misconceptions and temporary issues.
- CORR is fundamentally worth about $11.00 per share.
- 75% upside and an 8.5% dividend while we wait.
PrairieSky: Highly Valued Canadian Oil And Gas Trust Faces Potential Distribution Cut
- Unhedged Canadian royalty trust trading at +30x my estimate of 2015 cash flows.
- Barring a significant rally in oil and Canadian NGL prices, I believe PrairieSky will need to cut its distribution by +40%.
- Exposure to high-cost Canadian oil and gas plays may result in asset impairment in the "new oil" environment.
ChipMOS: Oligopoly At 4x EBITDA, 8x EPS With Pending Buyback - A Holiday Gift
- ChipMOS trades at 4x trailing EV/EBITDA and 8x 2015 EPS ex-cash, shockingly low multiples for any company, let alone one enjoying strong growth and a near 20% ROE.
- The market has failed to recognize that ChipMOS, like its number 2 customer Micron, participates in an oligopoly, which will continue to drive sustained profitability and free cash generation.
- A $15 million buyback set to begin this week should provide a near-term lift to shares. Substantial excess capital should drive additional accretive share repurchases in 2015.
- Strong business momentum and the recognition that ChipMOS plays in a defensible niche should drive a multiple re-rating. We value shares over $37 - 65% upside to yesterday's close.
Adcare Health: Near-Term Propco Event With Valuation Arbitrage
- Adcare presents a “must own” vehicle with near-term catalysts and limited risk.
- The company will focus on increasing its payout via accretive acquisitions while simultaneously remaining dedicated to selling itself to a larger REIT as an ultimate exit strategy.
- At its current share price, ADK is trading at an implied cap rate of 9.75% versus publicly traded peers at ~6.00%.
- Applying a 7.5% cap rate yields a price target of $6.50 per share. As the company pursues accretive acquisitions, we believe the stock price will approach $8.00 per share.
Best Long Idea For 2015: BNCCORP
- Before each year starts, Rangeley Capital writes our best idea for the subsequent Jan 1-Dec 31.
- This year, we focused on something that is unlikely to lose value in the next year.
- We looked for an investment idea with an upside return of over 50%. Here is what we found.
Rand Worldwide: Growth By Autodesk
- Strong growth at Autodesk should trickle down to this value added reseller.
- Rand is severely undervalued if management projections turn out to be correct.
- Confusion regarding tender suggests the market for RWWI shares are highly inefficient.
Vector Group: Strategic Moves Likely To Unlock Significant Value For Investors
- The tobacco business is not in massive decline as many investors believe, and generates substantial free cash flow and growing operating margins.
- The consolidation of the real estate assets improves the valuation of the shares and expands the screening of the name.
- We think that management and the board will attempt to spin out one of the two main but disparate businesses, and unlock significant shareholder value.
Ag Growth International Cleared For Takeoff
- AGI is a premier grain handling business based in Winnipeg, Manitoba. It has the largest share of portable grain handling equipment in the United States.
- AGI agreed to buy Westeel, the largest provider of grain storage bins in Canada, for $221.5 million.
- The deal was financed with a $90 million subscription receipt and convertible debenture deal which closed December 1. Until just recently, most analysts covering the stock were restricted on it.
- Six analysts have come out with EPS targets implying 22% growth in 2015 and 15% in 2016. Target Prices are in the $53.50-$65 CAD range versus the $52.01 close.
- I think AGI/Westeel will be competitive with leaders GSI and Brock and will gain a higher P/E multiple, leading to my 12 month price target of $72.20.
Acacia Mining: This Turnaround Is For Real
- Acacia Mining has turned free cash flow positive and has finally presented its vision for the mid-term future.
- We are convinced that a turnaround has been accomplished and we are expecting significant growth going forward even at today's gold price levels.
- Management has succeeded on just about the most difficult task available in the gold mining industry. We are confident that it will deliver on its 5 year plan.
- Acacia Mining remains severely undervalued and should rerate over time to account for its successful reinvention.
Badger Daylighting: Undervalued Industry Giant With A Clear Path To Long-Term Shareholder Value Creation
- Hydrovac truck demand is growing rapidly in North America, as oil and gas companies and utilities turn to safer methods for servicing, upgrading, and building out the continent's aging energy infrastructure.
- Badger owns and operates the largest fleet of hydrovac trucks in the U.S. and Canada, boasting a dominant leadership position in this highly fragmented industry.
- The Company is well positioned to maintain its impressive growth trajectory as strong capex trends in its end markets and rising safety pressures are providing a strong tailwind.
- Conservative DCF analysis suggests shares are trading at ~25% discount to intrinsic value; with considerable margin of safety and bull-case suggesting 100% upside, BADFF offers compelling risk-reward.
Freshpet Inc.: A Fresh JOBS Act Short
- Freshpet operates a capital-intensive business reaching maturation.
- It is a non-differentiated business facing increasing competition.
- The stock faces 50%-80% downside.
Watch Out Below When Five Below Reports Today, Target Price: $30
- Watch Out Below when Five Below (FIVE, $43.07, target $30, +30%) reports today.
- Tween weakness suggests Q4 comp/EPS downside.
- 50% multiple contraction before attractive to GARP investors.
- BGC Partners is just beginning to benefit from sweeping changes in the credit derivatives markets.
- BGC's buyout offer for rival GFI Group represents a uniquely complementary pairing, and the market is underestimating the chances of success.
- The value in the current financial metrics for BGCP mitigates downside risk, should the company fail to acquire GFI.
Medallion Financial: Classic Case Of A Thought Virus Gone Wild
- App threat is overblown: a fleet of part-timers will drive down wages to an unacceptable level for public safety and will trigger regulation.
- Some livery app companies externalize their cost of operations on their drivers including maintenance, depreciation and insurance (that is, if the driver does want to commit insurance fraud).
- TAXI has an established business in NYC where yellow cabs are most entrenched due to their monopoly on street hails in Manhattan. This will protect NYC medallion values.
- Furthermore, nearly half of the business is today unrelated to taxi medallions.
- We see a price to value discrepancy of some 30%+, ignoring dividends and share repurchases.
Dover Downs Is An Asymmetric Wager
- The company has a mid-single digit P/FCF.
- Management has been using the FCF to pay down debt, keeping interest coverage very safe.
- Potential upside exists in the form of tax relief, as the legislature recognizes the industry's economics are currently poor.
Peak Resorts Is Skiing Just Ahead Of An Avalanche
- Recent IPO Peak Resorts looks moderately interesting on the surface.
- A deeper dive into the company’s IPO filings reveals major capital structure problems.
- The company is a strong sell and underwriters should be ashamed of themselves.