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Adam Levine-Weinberg

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  • American Airlines Shares Keep Climbing Higher After Recovering From A Near-Fatal Tailspin [View article]
    Thanks for the article. I don't think there will be as much left for equity holders as you assume. I'm not sure where you got the $3.5 billion figure for unsecured claims: the most recent figure that I've seen (from last week) estimates all the claims, including labor, at $7.3 billion. http://bit.ly/10U90IH. See p. 486.

    There's also a handy-dandy chart on that page laying out estimated recovery scenarios. Even at $20 for US Airways/AAG, AMR shareholders would only get about $9 of value. That drops off quickly: if the new company is valued at $16/share (approximately $12 billion), AMR shares would be worth less than $3.

    Adam
    Jun 6 08:45 PM | Likes Like |Link to Comment
  • Dell: Battle Royale For Control Offers Surprisingly Interesting Risk-Reward [View instapost]
    I agree that HP is still way undervalued (HP is one of my largest holdings). But if you were going for a leveraged bet on one of these two companies, I'd probably prefer an out-of-the-money LEAPS option on HP over the Dell stub.

    The real problem with Dell from a strategic perspective is that PCs, servers, and enterprise services are basically commoditized businesses at this point. There are other areas that are potentially promising, but IBM, Oracle, HP, Cisco, etc. are already there as well, so there's no real assurance of success. The big difference between Dell and HP is that HP has the printing cash cow. I would value the printing business alone at about $25 billion.

    As for the share count: I think this could be an atypical case. If you think the stub is worth less than $1.65 (the people who would be selling right away), you would be better off taking the Dell-Silver Lake offer. On the other hand, if Icahn convinces you that the stub is worth much more than $1.65, why take just one when you're being offered the opportunity to get 7.27 more at $1.65 each?

    It would appear that Icahn needs to convince a majority of shareholders that the stub would be worth significantly more than $1.65 to win the proxy battle. Because of that setup, I could envision a lot of people taking the stock offer if Icahn's proposal is implemented.
    May 23 11:37 PM | Likes Like |Link to Comment
  • Dell: Battle Royale For Control Offers Surprisingly Interesting Risk-Reward [View instapost]
    Hey Samir: Thanks for the shout out, and an interesting read. I also happened to read Greenblatt's book recently. Dell could definitely be a typical stub case for him, but I don't think so. In fact, I'm still not confident that Icahn/Southeastern will turn this proposal into a firm offer, although they do seem to be lining up lenders.

    A lot of the delta here will depend on the added interest expense and the number of shareholders who opt for additional shares rather than cash. There are two reasons why I don't like the risk-reward here:

    1) Following Icahn's numbers and plugging in the Dell management projection for $3 billion of operating income this year, the stub would have EPS of $0.51. However, Q1 non-GAAP operating income was $590 million, which makes $3 billion for the full year pretty challenging. I would say $2.5 billion is a likely figure, but not necessarily conservative. (After all it assumes sequential improvement at some point this year)

    The $500 million reduction to operating income would lead to pretax EPS of $0.40 (i.e. Samir's projection), but this is a "likely" number, not a conservative figure. I would assume tax rate of 20%-25%, which would get you to $0.30-$0.32 after tax. Dell would be more leveraged than HP in this scenario, while having higher exposure to PCs, so I think it would deserve a multiple well below HP's 7X. $1.65 might be a fair valuation here, but I don't think it's especially conservative.

    2) If every Dell shareholder opts for more stock rather than cash, this deal will function as an 8.27:1 stock split. Creating value depends on buying out a substantial proportion of Dell shareholders. I don't have a good sense of what constitutes today's shareholder base, but I wouldn't be surprised if people who love the stub stock are "selecting in", as Samir suggests here. With just 20% of shareholders opting for more stock, the share count goes to 4.4 billion. With 40%, it goes to 7 billion. This might save $200-$300 million in interest expense, but would drop EPS to the $0.20-$0.25 range. In that scenario, I think $1.65 could be a best-case valuation.

    There could be upside if the company manages to cut more expenses than are included in the current management business plan. On the other hand there could be downside if interest rates are higher than Icahn's projections or if the PC business continues to deteriorate.

    If I were a shareholder, I'd take the cash. But then again, that's why I'm not a shareholder; there are better opportunities in this market.

    Adam
    May 23 09:29 PM | 1 Like Like |Link to Comment
  • This Is Why Netflix Will Go Bankrupt [View article]
    As a big-time Netflix bear, I agree with the overall short argument. However, I think this article is not entirely fair to Netflix. The acquisition of content is rising rapidly because of the growth of the streaming business, and particularly because of Netflix's entry into new markets. These require a significant upfront investment in content, but revenue will take a few years to "spool up". If revenue never catches up to content expense, Netflix could always close those markets.

    On the other hand, revenue growth appears more moderate because you're lumping all three segments together (DVD, domestic streaming, and int'l streaming). DVD revenues are declining, offsetting some of the growth in streaming.

    If you just look at the domestic streaming business, revenue grew 26% YoY last quarter, while cost of revenue (which is primarily amortization of streaming content) grew 21%. So Netflix was able to leverage content expense in the domestic segment, which is more mature. This also suggests that there is no meaningful risk of bankruptcy.

    For me, the short argument is just a question of valuation. After today's rally, NFLX has now surpassed a $14 billion diluted market cap. Even if the company fulfills all of the hopes and dreams of the bulls, I don't see any long-term upside.
    May 13 04:22 PM | Likes Like |Link to Comment
  • Nvidia: A Short Squeeze May Be Coming [View article]
    @PureValue: Not sure why you are so upset. Buy and hold is still a strategy that works, but only if you ignore the "noise" in the market (except perhaps to buy more if the stock drops for no reason). Over the long term, it's still pretty difficult for a stock to defy company fundamentals.
    May 11 11:14 AM | Likes Like |Link to Comment
  • Nvidia: A Short Squeeze May Be Coming [View article]
    I still like NVDA; but I'd be surprised if we see any sort of short squeeze tomorrow (or anytime soon). NVDA's results this year are going to be pretty mediocre barring something completely unforeseen; OpEx is still rising while Tegra sales are stagnant and the PC market is under pressure.

    I think this stock is more likely to take off next year, if and when it demonstrates some success with Tegra 4i and GRID. Just my two cents.
    May 9 03:36 PM | 2 Likes Like |Link to Comment
  • How Apple Let Its Shareholders Down [View article]
    This is an interesting take, but all you are really saying is that Apple was clearly undervalued five years ago and is clearly undervalued today. You could just as easily write that the market is letting Apple down, or something like that.

    The fact that the share price has gone up over the period you analyze is driving your conclusion. I'm pretty sure that all of the "value" you have created is from buying back shares in the 2007-2010 period at an average price under $200. Obviously, a good share buyback is designed to buy shares when they are undervalued. But it's a little unfair to blame Apple's management for not buying back shares without also blaming everybody else who did not buy Apple shares before they went up.

    If you assumed instead that Apple had returned cash through a dividend over your horizon, I think you would have a much more equivocal conclusion. And if you had just analyzed the last year, you would have found that Apple was wise to not buy back shares when they were trading at a significant premium to today's price.
    May 6 04:07 PM | 2 Likes Like |Link to Comment
  • Why $100 Brent Will Not Last Through 2013 [View article]
    I'm not hedging my claim that oil will drop below $100 by year end. In my previous comment, I meant that it is a question among analysts, investors, etc. when Brent will drop below $100, but my opinion is (still) that it will happen this year.

    Very little of current production is marginal at $90 or even $80/bbl, and most oil producers have hedged a lot of their future production anyway. So I don't see any material change to oil production from a 10% or even 20% drop in prices. Obviously, if we had a late-2008 style collapse, that would be a different story.

    I don't really buy the argument that monetary policy is driving oil prices long-term. Obviously big monetary shocks affect the commodities market, but ultimately high oil prices depress demand, leaving no one to take physical delivery. Theoretically, you could store the unwanted physical oil, but that's a lot more costly than storing gold, if your goal is just inflation/currency protection. If QE eventually leads to rapid inflation in the US that would presumably drive up the dollar price of oil, but I don't expect that to happen (as I've written previously on SA).
    May 5 01:48 PM | Likes Like |Link to Comment
  • Why $100 Brent Will Not Last Through 2013 [View article]
    That's a fair perspective. However, I don't expect crude to fall quite so far that it becomes particularly affordable in developing countries. As a result, there's always going to be an efficiency drive in the third world as well as in developed countries. In my opinion, development today won't lead to as much incremental oil demand as was the case fifty years ago.

    The oil futures market suggests that people expect oil prices to decline over the next several years. The real question seems to be when the bulk of the decline will occur.
    May 4 04:05 PM | Likes Like |Link to Comment
  • Why $100 Brent Will Not Last Through 2013 [View article]
    It's just an endless guessing game. Now Brent is back up above $104 on stronger economic data. At a fundamental level, the supply picture is really benign. OPEC probably has as much as 4 million bpd of spare capacity, and inventories are still rising. With WTI still hanging in the $85-$95 range, oil companies will keep drilling in Bakken/Permian/Eagle Ford as fast as they can. Domestic production is already up around 300K bpd from the beginning of the year. I will be interested to see if US production hits 8 million bpd before year end.
    May 3 12:10 PM | Likes Like |Link to Comment
  • BlackBerry: Supporting Evidence For 6 Million BB10 Units Per Quarter [View article]
    I'm not sure we'll see 6 million BB10 sales this quarter; I think it will depend heavily on how many Q10 units BlackBerry sells into the channel. I expect Q10 to sell more units than Z10 because more to most of the BB user base, whereas the Z10 is designed more to attract current iPhone/Android users. However, it's possible that Q10 is supply constrained this quarter (say, 2 million or something like that).

    On the other hand, I think 6 million is definitely manageable in future quarters. This doesn't even count future BB10 smartphones, which the company has already confirmed for later this year. Those will probably include a lower-margin midrange phone for developing countries like India, Indonesia, etc. There are obviously huge markets there, although BlackBerry will be competing with much cheaper Android phones.
    Apr 30 03:55 PM | 1 Like Like |Link to Comment
  • Why $100 Brent Will Not Last Through 2013 [View article]
    I don't want to declare victory too early, but it seems like we are reaching a moment of truth. Brent has already crossed below $100, and we are still near the beginning of the seasonally weakest period of oil demand. U.S. production continues to grow, and pipeline capacity is continuing to come on line. We might see a little rebound in the summer, but only after further declines in the next couple of months. I would say Brent is more likely to hit $90 than $110 between now and the end of the year.
    Apr 17 11:14 AM | 2 Likes Like |Link to Comment
  • Hewlett-Packard Is Likely To Miss Estimates [View article]
    HP's PC business is almost all variable cost, since the manufacturing is done on contract basis in Asia. It's incredibly unlikely that PCs had negative margins for HP. In fact, it's possible that HP's PC margin will improve sequentially, if management just decided to stop chasing low margin/unprofitable sales. A relatively small improvement in operating margin could fully offset a 20%-30% decline in revenue. Lastly, industry sources have stated that January and February were much worse than March; HP's January results were already reported last quarter.

    I actually think HP will beat estimates again, largely driven by strong printing margins (because of the weak yen).
    Apr 11 01:30 PM | 1 Like Like |Link to Comment
  • Who Will Win Amazon's Next Generation Kindle Fire? [View article]
    I don't know the particulars of what happened in 1983, but just-in-time manufacturing has come a long way since then. I doubt the contract manufacturers in Asia are building OMAP chips more than 3 months before they go into OEM products. Just my two cents; I don't have any inside info here.
    Apr 9 10:37 AM | Likes Like |Link to Comment
  • Who Will Win Amazon's Next Generation Kindle Fire? [View article]
    I'd be pretty surprised to see anything other than a TI OMAP5 chip in the next gen Kindle Fire. I'm sure AMZN will get a very good price from TI, since to the best of my knowledge, TI isn't actively developing the OMAP platform further. Any money that TI can squeeze out of OMAP is a positive, so I would expect management to accept very low GMs to get the deal.
    Apr 5 05:48 PM | 1 Like Like |Link to Comment
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