“It’s on the inside…”
Leggett & Platt, Inc. (LEG)
Recent Price: 20.44
Current Yield: 5.28%
How do you like the lumbar support in the chair you’re sitting in? Or how about the springs in your mattress? If you do, thank LEG. They make stuff you don’t think about: mattress spring and coil systems, retail fixtures and point of purchase displays, seat control cables for the automotive industry, and lots of other stuff you don’t think about but come into contact with every day. It’s an old firm, 121 years, so they’ve been at it a while. Numbers are OK. Revenue was up 7% YOY and volumes grew by 6% for the quarter YOY. With a better than 5% dividend yield, the share price should enjoy some support for the time being as everyone scrambles for something paying more than 10 bps.
If you had to pick a company that made components of two of the industries hit hardest by the sour economy, home furnishings and automotive, LEG would probably be the prom queen. Analysts have taken down their estimates in tandem with the company guiding lower. Even though YOY revenue was up 7%, the bogey was10%. That’s a 30% miss. Ouch. Throw in the fact that escalating raw materials (metal, wood, etc.) costs are starting to put pressure on the bottom line, and the company is facing some challenging headwinds going forward.
“Get paid…dollar…dollar bill…y’all”
Paychex, Inc. (PAYX)
Recent Price: 28.07
Current Yield: 4.41%
Although some readers may sniff at a 4% or so yield, it ain’t bad for a decent company that gives you some technology type exposure. Granted, PAYX is no AAPL (is anything?). But they are one of the leading national providers of payroll processing as well as providing human resources outsourcing for small and medium sized businesses. Recently, the company named Marty Mucci as the new CEO. Mucci isn’t actually THAT new. He’s been with the firm since 2002 in an upper level executive capacity and has been instrumental in shaping current policy. The company has streamlined and simplified their sales process which should pay off in better retention and increased sales as well. And in a recent conference call, the company reiterated its commitment to the dividend policy.
In recent guidance, PAYX has been somewhat vague about its longer term financial targets. Granted, everyone likes to under-promise and over-deliver. But you have to be a bit more specific. Sometimes, especially went you want someone to go long. The vagueness is understandable considering the current economic landscape. Their core business is a little soft as their core customers are medium and small businesses: those most affected by the recession and subsequent milquetoast recovery. Also, the multiple is a little high for us. Can they sustain that premium that earns them the 20x’s+? Who knows. We’d rather have some room to move up.
“We’ve said it before…we’ll say it again…”
AllianceBernstein Holdings LP (AB)
Recent Price: 26.36
Current Yield: 7.81%
I’m fairly certain this is the third time we’ve discussed this name. It’s not for lack of material. We just like it. AB is the limited partnership that owns 32% of AllianceBernstein, LP, one of the globe’s premier money managers with over $400 billion under management. A huge mutual fund complex (at one point during the boom boom days the most sold fund family in Merrill Lynch’s retail footprint…that’s gigantor, folks) and an equally large institutional business help AB generate an impressive 20% ROE. The money management biz has been tough as a two dollar steak these last few years. The good news is that AB is projected to grow revenues by 8% thanks to cooperative markets and the ability to nudge fees upward. Always good when you pay a dividend.
If a rising tide lifts all boats, one going out will screw the whole thing up. You’ve seen good markets. You’ve seen bad markets. The one we’re in now is OK. But there’s tons of headline risk. One bad housing report, a confirmed double dip, a rumor of war, prepare to be pummeled. How bad can it get? In 2007, AB had around $800 billion AUM (assets under management). The last few years have cut that nearly in half. The nature of the beast. Also, French insurance giant AXA (OTCQX:AXAHY) owns 63% of the LP that is 32% owned by AllianceBernstein Holdings. That’s a little too much in the opinion of some analysts. The result is a board that’s basically AXA’s. Always better to have a more diverse, independent board. The final item is more housekeeping than anything. AB units will generate a K1 at tax time rather than the trusty 1099. Your accountant (if you still use one) will kvetch.
Disclosure: Client accounts long AB.