3 Unloved Stocks at Least 20% Under Their Targets

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Includes: OMX, SB, THC
by: Bret Jensen
Tenet Healthcare Corporation (NYSE:THC) - Tenet Healthcare Corporation, an investor-owned health care services company, operates general hospitals and related health care facilities. The company's general hospitals offer acute care services, radiology services, and respiratory therapy services. As of December 31, 2008, Tenet Healthcare Corporation operated 53 general hospitals; and a critical access hospital with a combined total of 14,352 licensed beds serving urban and rural communities.
Valuation and Price Targets – Tenet is selling at 15 times 2011’s projected earnings and a little over 13 times next year’s consensus. It’s selling at just .33 trailing revenues and a projected PEG of .93. After rejecting a bid from Community Health Systems, pressure will be on THC’s management to show the company was undervalued. Valuation remains depressed to peers, so inability to raise the stock price could force board to be more open to another offer. THC is priced at 6 times 2011’s projected EBITDA. THC has been going for over 7 times EBITDA average during the last three years. It sells at the very bottom of its five year valuation range based on P/E, P/B and P/CF. THC is selling at $6.40. Price targets are $7.50 at Credit Suisse, $8 at S&P and Jefferies had a target of $9.50. Buyout offer was for $7.25 a share.
OfficeMax Incorporated (NYSE:OMX) - OfficeMax Incorporated, together with its subsidiaries, distributes business-to-business and retail office products. The Officemax Contract segment markets and sells office supplies and paper, technology products and solutions, office furniture, and print and document services directly to corporate and government offices, as well as to small and medium-sized offices in the United States, Canada, Australia, New Zealand, and Puerto Rico. It sells its products through field salespeople, outbound telesales, catalogs, the Internet, and office products stores. As of January 23, 2010, it operated 44 distribution centers and 5 customer service and outbound telesales centers, as well as 55 office products stores.
Valuation and Price Targets – OMX sells at under 13 times this year’s earnings and around 9.5 times 2012’s projected earnings. After beating earnings for three straight quarters, OMX totally fell down on its last earnings report. This caused the stock to crater and it is now on sale. OfficeMax is selling near the bottom of its five year valuation range based on P/E, P/S, P/B, and P/CF. It has brought in new management and initiated various cost cutting programs to maintain earning levels. OMX has always been the third player in the office supply market behind Staples and Office Depot. Given the amount of M&A activity and available financing for takeovers, it would not be shocking to see OMX being acquired by either of its bigger competitors. OMX is currently selling at $8.19. Price targets are at $18 at Credit Suisse, $14 at Oppenheimer and $12 at S&P.
Safe Bulkers (NYSE:SB) - Safe Bulkers, Inc. provides marine drybulk transportation services worldwide. The company transports various bulk cargoes, such as coal, grain, and iron ore. The company’s fleet comprises 15 vessels, including Panamax, Kamsarmax, Post-Panamax, and Capesize class vessels with an aggregate carrying capacity of 1,346,900 deadweight tons. Safe Bulkers, Inc. was incorporated in 2007 and is based in Athens, Greece.
Valuation and Price Targets – The obscure Safe Bulkers has been impacted by the weak charter rates and falling asset prices in the Dry Bulking space. It probably does not help that it is headquartered in Greece. SB sells at a rock bottom 5 times expected 2011 earnings of $1.47 and around 4.5 times 2012's consensus of $1.62 a share. It has beat or met earnings estimates each of the last four quarters. Its PEG is around 1, and is paying a current dividend of over 8%. SB has 11 new ships coming on line by 2014 and is selling at $7.25. Price targets are $11 at Credit Suisse and $9 at Citigroup.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SB over the next 72 hours.