Update to TAL short thesis
Key points this article:
Management commentary on recent earnings call confirms my view.
$2.52 EPS (My estimate) for 2014 -- 37% below consensus and less than the dividend.
Believe TAL needs to issue equity to avoid bigger problems in 2015 (such as cutting the dividend and/or breaching covenants).
Reiterate $18/share price target (57% decline) based on replacement value.
On January 6, 2014 I wrote "Trouble Ahead for TAL" and described the problems I foresaw for TAL International in 2014. I focused on revenue headwinds from leases set to re-strike lower, depreciation and gain-on-sale headwinds resulting from TAL's accounting changes, and the risk of rising interest rates.
TAL reported earnings on February 12,