Since the last summary of Doral on these pages, the company has announced that it will issue its 10-K annual report later in April. Investors will be looking for insight into whether the turnaround is indeed underway, or if conditions are worsening.
Among the key questions is the progress on shareholder lawsuits and restructuring of the balance sheet including possible refinancing of the $625 million Floating Rate Notes [FRN]. Analysts are looking for a $1.32 loss per share on average including one-off items, but more interesting might be any insight into 2007 and beyond.
Comparative valuations at $3.60 to $10.10
With a recent stock price below $2 down from about $50 2 years ago, any new forward-looking guidance could have a big effect on the stock price. So far, short sellers have been right. Given uncertainties in housing markets and Puerto Rico itself, they might continue to be so. Especially if the FRN refinancing fails, all bets might be off for current shareholders. We might not know about this though until mid-July when the FRNs are due. In the meantime, the downside may be limited to recent lows in the $1.20-1.50 range.
In the meantime, we can start to form a view on the possible upside. Looking at Price/Book Value and Price/Sales ratios for Savings & Loans, the fair value for Doral could range from $6.80 to $8.10 using Thursday’s closing price.
We can also compare Doral to a rare 5 star Morningstar pick Popular (NASDAQ:BPOP), also of Puerto Rico. Morningstar thinks Popular is worth 70% more than its current market price. If we use fair value for Popular as a benchmark and compare Price/Book Value and Price/Sales for Doral, we reach a Doral fair value of $5.90 to $10.10.
So who are the batters on deck to turnaround Doral?
- Credit Suisse recently helped Doral on the sales of its New York branches.
- Goldman Sachs is apparently the market maker and a lead shareholder
- Bear Stearns and J.P. Morgan are responsible for the ongoing restructuring and refinancing
- UBS is a lead shareholder that recently more than doubled its stake
The management is internationally experienced with an extensive track record. Chairman Dennis Buchert was Chief Executive Officer of Crédit Agricole Indosuez from 2003 to 2004, President of IBJ Whitehall Bank & Trust Company, N.Y. from 1997 to 2002, and Executive Vice President of IBJ Whitehall Bank & Trust Company, N.Y. from 1994 to 1997.
Combined this seems like a powerful team with some possible home run power. While such a team can strike out, shareholders are counting on at least a few singles in the 10-K to keep Doral in the game. In any case, it will be interesting see what will come out of the land of baseball legend Roberto Clemente.
Disclosure: Author has no position in DRL