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Alex Morris

 
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  • Sanity Returns To J.C. Penney: Here's Why I'm Shorting Anyway [View article]
    Adam,

    You seem very focused on short term numbers, particularly analyst estimates for sales or current year EPS (which you used as a justification for shorting JCP), as opposed to the viability of this strategy long term; is it safe to say you are a trader and not an investor?

    I say this for one reason - there's a lot more to this situation (long term) than the sales figures in the coming months, particular the value of the assets on the balance sheet (market value, not historical) in comparison to the liabilities and when they come due; the only other scenario I can think of is if you assume that whatever comes out for the first few weeks on the first few shops will indicate the long term success of this strategy when the entire store (roughly 100 individual shops) is complete... any thoughts?
    Sep 9 06:39 PM | 1 Like Like |Link to Comment
  • Sanity Returns To J.C. Penney: Here's Why I'm Shorting Anyway [View article]
    "On Wednesday, Hannah stated that there would be no further shop roll-outs this year, and that while the company planned to add 30 next year (bringing the total of 40), that would be dependent on cash flow. In other words, if profits and cash flows fall short of targets (as I expect), the shop roll-out will slow down to limit capital expenditures. However, this could cause a vicious cycle where a slower shop roll-out depresses future earnings, which further slows down the shop roll-out, etc."

    That is correct - and in addition, if it is better than expected, the roll-out could be accelerated, as was explicitly mentioned; would that cause a vicious cycle where a faster shop roll-out increases future earnings, which further speeds the roll-out, etc?

    Obviously there are two sides to this - and considering their commentary since Aug 1 (unless you think they're lying), I find it curious that you point to the potential for the negative but don't even consider/address the positive...
    Sep 9 03:19 PM | 1 Like Like |Link to Comment
  • Stay Away From J.C. Penney: Management Is In Denial [View article]
    "Given that the company plans to pay down $230 million of debt and invest well over $500 million in CapEx in the second half, this requires roughly $900 million of positive operating cash flow in the back half. It will be nearly impossible to meet this target."

    What would you quantify as "nearly impossible", to use your term? 50-1? 100-1? Let's call it 25-1; let me know your address and we can draw up a contract if you're willing to make a wager on that (I won't sit by the mailbox waiting...)

    Whatever your number is for year end cash on hand ($700M? $800?), they also have a $1.5B line of credit, with no covenants until it's 90% drawn; the weighted average maturity on their remaining debt is 23 years, with the closest maturity in 2015.

    JCP also has non-strategic assets that can be monetized, like the Simon Properties stake (and maybe that land on the balance sheet at about $315M has appreciated over time?); while you may not be confident that the company can survive, the financials say otherwise...
    Aug 27 05:38 PM | 1 Like Like |Link to Comment
  • Can Salesforce Deliver Another Straight Quarter Of Accelerated Growth? [View article]
    As the first comment noted, it's nice to hear the other side of the story; with that being said, I think the author makes the short case with his article - increased competition and an absurd valuation will make long term value creation from this price very, very difficult indeed.
    Apr 16 10:20 PM | 3 Likes Like |Link to Comment
  • J.C. Penney Is Setting Investors Up For Disappointment [View article]
    "I would disagree with your statement that JCP has plenty of cash. If the company needs to substantially increase its capital expenditures (likely) that will have to come from new borrowing or new stock."

    Their average pretax income over the past four years is roughly $900 million, compared to a net debt position of roughly $2 billion. Over that same four year period, they have reduced LTD while simultaneously investing a disproportionately large amount on capital expenditures (on either a % of sales or % of operating CF basis) when compared to their competitors like Macy's.

    I'm not sure what your definition of "substantial" is when talking about CapEx spend next year, so maybe that is part of our disconnect...
    Dec 23 06:32 PM | Likes Like |Link to Comment
  • J.C. Penney Is Setting Investors Up For Disappointment [View article]
    "Investors are therefore likely to become demoralized over the next few months as they realize that there is no quick fix to J.C. Penney."

    The big holders of JCP stock aren't worried about what they are going to do next month; Ackman (via Pershing) and Roth (via Vornado) have more than a 35% combined economic interest in JCP and recently were added to the Board of Directors - they're not going anywhere for a while.

    "Given the deterioration the business has seen in recent quarters, this suggests that he will have to dig out of a large hole."

    What hole? JCP has plenty of cash, is solidly profitable, has an over-funded pension, and can dispose of real estate if necessary; there is no reason to suggest Ron Johnson and the JCP team will be under any sort of liquidity/solvency constraints when implementing their plan.

    I can't tell you whether they will make an immediate impact on same store sales, but I question your thesis that this is what JCP investors are expecting; I can account for 35% of the outstanding shares that have clearly stated they aren't, and known plenty of individual investors who think the same way...

    Disclosure: long JCP
    Dec 23 01:49 PM | 1 Like Like |Link to Comment
  • It looks like Warren Buffett is officially comfortable with investing in tech: Bloomberg reports that, in addition to acquiring a stake in IBM, Berkshire Hathaway (BRK.A) has taken a position in Intel (INTC). INTC +0.9% AH.  [View news story]
    Slightly misleading statement: the investment is almost certainly from Todd Combs (only $200M position).
    Nov 14 05:08 PM | 1 Like Like |Link to Comment
  • Brown & Brown Insurance: A Financial Growth Company Despite Turbulent Times [View article]
    Good article, thanks for bringing BRO to my attention.
    Sep 12 08:52 PM | 1 Like Like |Link to Comment
  • Cal-Maine Foods: Profit Opportunity in the Egg Business [View article]
    What about pending litigation? Thanks!
    May 24 09:28 AM | Likes Like |Link to Comment
  • Why I Bought Lee Enterprises [View article]
    Glen,

    Thanks for writing it up, and looks interesting on the CF's. Obviously the big issue is tons of debt compared to no real assets (90% from intangibles and goodwill); what are the plans here? Going to have to read the filings and the links you posted, but wanted to get your thoughts on how this plays out over the next five years.

    Here's what they say in the presentation:

    "As a result of our strong and improving free cash flow, we reduced debt by $109 million in calendar 2010 and by more than $700 million, or 40%, since the acquisition of Pulitzer in 2005. Debt levels should continue to decline.

    All of our debt is set to mature in April 2012. While our leverage is still higher than optimal given the changes in our business over the last few years, we believe the combination of our improving results, a growing economy and still strengthening credit markets will allow us to accomplish refinancing of our debt in a timely manner, and in a way that meets the collective best interests of stockholders, creditors and employees. And accomplishing that refinancing is one of our highest priorities."

    Alex Morris
    May 23 12:48 PM | Likes Like |Link to Comment
  • Just One Stock: Solid Core, New Products Set Up Refreshing Growth for Microsoft [View article]
    Thanks for your detailed analysis spa; besides calling him a con artist, if there are any points that you would like to make an argument on that have to do with the article, it would be much appreciated. Excited to hear what points he was wrong on (every one might be a long post, but very eager to hear that as well). Thanks.
    May 21 01:13 PM | 3 Likes Like |Link to Comment
  • Just One Stock: Solid Core, New Products Set Up Refreshing Growth for Microsoft [View article]
    You are assuming that those making these claims understand the basics of valuation; that is a big assumption.
    May 21 01:10 PM | 1 Like Like |Link to Comment
  • Just One Stock: Solid Core, New Products Set Up Refreshing Growth for Microsoft [View article]
    Spot on Tom Young. Anybody who is more focused on the price change over the past ten years rather than the business developments will probably never understand value investing or feel comfortable buying cheap assets; no complaints about less competition in the markets.
    May 21 01:08 PM | 2 Likes Like |Link to Comment
  • Microsoft After Earnings: Still a Screaming Buy [View article]
    Here are the seven mentioned:

    1) Search - been around for two years, and taking share slowly but surely; luckily, MSFT is generating billions every quarter in FCF which finances that venture

    2) Mobile - deal with Nokia worth mention? Guess not...

    3) Tablet - PC sales in 2011? Gartner estimates double digit growth; tablet is killing the netbook, not so much everywhere else

    3) Windows - Again, look at the numbers

    4) PC applications - One more time, the numbers!

    5) Cloud - MSFT is offering their service, which is more well known and well financed, at 1/2 to 1/3 of the price of Salesforce.com... which trades at 280x earnings; makes sense

    6) Enterprise applications - Guess I lied: Take a look at those numbers!

    7) Games - How about those Kinect numbers! Small percentage of business that is becoming a bigger piece with each blowout quarter.

    Everybody thinks PC's are gone and can never envision a world where MSFT monetizes search, mobile, the cloud, or games (for some reason nobody thinks any of these will ever work)... I'm liking the contrarian view on this one.
    May 9 07:35 PM | 2 Likes Like |Link to Comment
  • The Travelers Companies' CEO Discusses Q1 2011 Results - Earnings Call Transcript [View article]
    Another strong Q from Travelers; kudos to the management team.
    Apr 21 09:04 PM | Likes Like |Link to Comment
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