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A couple of weeks ago, I recommended SuperMedia (SPMD) based on the absurdly low valuation it was getting. The stock is trading about 10% lower now than it was then, with the stock now trading well under one times operating income.

To highlight how cheap the stock is, we now have the opportunity to compare it to a similar company, which just emerged from bankruptcy Monday.

Dex One (DEXO) is the old RH Donnelly, which, like SuperMedia, went bankrupt to enable them to get from under a mountain of debt. Upon the emergence from bankruptcy, the company has reduced debt from $9.7 billion to $3.4 billion, compared to SuperMedia's $2.7 billion. Also upon emergence, Dex One now has 50 million shares outstanding, compared to SuperMedia’s 15 million shares.

This puts Dex One's market cap at over triple the market cap of Supermedia's despite the fact that Dex One's operating income is lower and its debt load is higher.

Another advantage of SuperMedia over Dex One is that SuperMedia has superior internet assets including superpages.com, localsearch.com, and switchboard.com. Dex One owns the web site business.com, but SuperMedia has the better internet assets.

Below is a chart comparing the two companies:

SuperMedia
Dex One
Operating Income (9 months)
$610mm
$425mm
Debt Load
$2.75bb
$3.4bb
Shares Outstanding
15mm
50mm
Internet Assets
superpages.com, localsearch.com, switchboard.com
business.com, dexknows.com
New Business Ventures
SuperTradeExchange, EveryCarListed
None
Market Cap
$539mm
$1.7bb

As one can see from the chart, the one stock that should be at the higher valuation would seem to be SuperMedia, but for some reason it’s trading at about one third of Dex One's valuation.

I continue to believe that SuperMedia is undervalued, and I am holding onto my sizable position. If one wants to hedge his bet though, I think a long SuperMedia short Dex One paired trade might makes sense.

Disclosure: Long SPMD

Source: SuperMedia: Still Undervalued, Superior to Dex One