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Alex Shadunsky
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Alexander Shadunsky began his career in business at a young age, when he became a part of the family newspaper business. After a brief stint in retail, he developed an interest in value investing and has been uncovering undervalued opportunities ever since. He is a regular reader of Seeking... More
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  • Medtronic: Weak Growth Projections Make This "Value" Stock Unappealing

    After an impressive run in the 1990's, Medtronic's (NYSE:MDT) stock hasn't done much and is down about 40% over the past 10 years. The stock still hasn't even come close to recovering to its pre-credit crisis highs as growth has significantly slowed. Analysts are projecting revenue growth for MDT of just 1.9% for this fiscal year followed by 3.1% for next fiscal year. Still, management is optimistic and in its Q4 release last month said that MDT is beginning to gain momentum worldwide and is optimistic about its ability to improve long-term growth as its expands globally and identify new opportunities. The caveat is that management only guided for revenue growth of 2-4%. If the company is gaining momentum, it's not much. The valuations suggest that the stock is slightly undervalued to fairly valued but that may be about right considering the growth projections.

    Valuation: Medtronic's trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Medtronic's current P/B ratio is 2.2 and it has averaged 3.3 over the past 5 years with a high of 5.2 and low of 2.2. Medtronic's current P/S ratio is 2.3 and it has averaged 3 over the past 5 years with a high of 4.6 and low of 2.2. Medtronic's current P/E ratio is 10.5 and it has averaged 17.3 over the past 5 years with a high of 27.5 and low of 11.

    EV/EBITDA Comps: On an EV/EBITDA basis comparison, the stock is valued about right. Medtronic's current EV/EBITDA multiple is 8.5 versus the average of 7.9 for its publicly traded comps. The company by company multiples follow: Boston Scientific has an EV/EBITDA multiple of 7.43, Johnson & Johnson has a multiple of 8.01, and St. Jude Medical has a multiple of 8.22.

    Price Target: The consensus price target for the analysts who follow Medtronic is $42. That is upside of 18% from today's stock price of $35.86 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.

    Forward Valuation: Medtronic is currently trading at about $36 a share with analysts expecting EPS of $3.86 next year, an earnings increase of 5% y/y, for a forward P/E ratio of 9.3. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Boston Scientific (NYSE:BSX) is currently trading at about $6 a share with analysts expecting EPS of $0.48 next year, an earnings increase of 12% y/y, for a forward P/E ratio of 12. Johnson & Johnson (NYSE:JNJ) is currently trading at about $62 a share with analysts expecting EPS of $5.45 next year, an earnings increase of 6% y/y, for a forward P/E ratio of 11.4. St. Jude Medical (NYSE:STJ) is currently trading at about $37 a share with analysts expecting EPS of $3.69 next year, an earnings increase of 6% y/y, for a forward P/E ratio of 10.1. The mean forward P/E of Medtronic's competitors is 11.2 which suggests that Medtronic is undervalued relative to its publicly traded competitors.

    Earnings Estimates: Medtronic has beat EPS estimates 2 times in the past 4 quarters. The company's EPS figures have come in between 0 cents and 2 cents from consensus estimates or about 0% to 2.4% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.

    Price Action: Medtronic is down 6.86% over the past year, underperforming the S&P 500, which is about flat. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $37.85 and below its 200 day moving average, which sits at $36.27.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: MDT
    Jun 04 6:06 PM | Link | Comment!
  • Yum! Brands: Attractive Company But Has To Fall Further To Become An Attractive Stock

    With investors selling stocks because of various reasons, I thought it would be a good idea to take a closer look at stock with more stability in its results and that led me to Yum! Brands (NYSE:YUM), with its collection of fast food restaurants. YUM fell significantly on Friday and now is trading at its early-2012 levels, which may provide an opportunity for investors. However, looking further into the details I come to a different conclusion. From the valuations I see, the drop in the stock has just sent the stock from overvalued to fairly valued and suggests that YUM needs to fall further to become attractive for a position in an investor's portfolio. Below is an in depth look at the valuation metrics and stock chart.

    Valuation: Yum! Brands' trailing 5 year valuation metrics suggest that the stock is fairly valued as there is a mixed message about the valuation metrics compared to their 5 year averages. Yum! Brands' current P/B ratio is 13.9 and it has averaged 21.7 over the past 5 years with a high of 71.8 and low of 11. Yum! Brands' current P/S ratio is 2.3 and it has averaged 1.7 over the past 5 years with a high of 2.5 and low of 1.1. Yum! Brands' current P/E ratio is 20.1 and it has averaged 19 over the past 5 years with a high of 22.8 and low of 14.3.

    Price Target: The consensus price target for the analysts who follow Yum! Brands is $79. That is upside of 24% from today's stock price of $63.42 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.

    Forward Valuation: Yum! Brands is currently trading at about $63 a share with analysts expecting EPS of $3.81 next year, an earnings increase of 15% y/y, for a forward P/E ratio of 16.6. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. McDonald's (NYSE:MCD) is currently trading at about $86 a share with analysts expecting EPS of $6.24 next year, an earnings increase of 10% y/y, for a forward P/E ratio of 13.9. Wendy's (NASDAQ:WEN) is currently trading at about $5 a share with analysts expecting EPS of $0.21 next year, an earnings increase of 40% y/y, for a forward P/E ratio of 21.9. Tim Hortons (NYSE:THI) is currently trading at about $52 a share with analysts expecting EPS of $3.09 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 16.7. The mean forward P/E of Yum! Brand's competitors is 17.5 which suggests that Yum! Brands is fairly valued relative to its publicly traded competitors.

    EV/EBITDA Comps: On an EV/EBITDA basis comparison, the stock is valued about right. Yum! Brands' current EV/EBITDA multiple is 11.8 versus the average of 10.5 for its publicly traded comps.

    Earnings Estimates: Yum! Brands has beat EPS estimates 3 times in the past 4 quarters. The company's EPS figures have come in between 0 cents and 5 cents from consensus estimates or about 0% to 8.2% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.

    Price Action: Yum! Brands is up 20.08% over the past year, outperforming the S&P 500, which is up 0.7%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $70.81 and below its 200 day moving average, which sits at $60.75.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: YUM
    Jun 04 2:40 PM | Link | 1 Comment
  • B Green Innovations: Tremendous Growth Platform Setting Company On Course Towards Profitability

    There are over 5,000 stocks listed on just the NYSE and Nasdaq making it easy for analysts and investors to overlook a few. It is even easier to overlook stocks trading on the OTCBB as some investors just simply stay away from them because of their bulletin board status. This leaves a lot of undiscovered gems for investors willing to do the careful research needed to scour the OTCBB. B Green Innovations (OTCPK:BGNN), a green company starting to get noticed in the marketplace, is one of those gems.

    The B Green Innovations "Go Green" mission from its inception is to create a "Green" company for the development of solutions to eliminate waste from the world's environment. B Green offers consumers a realistic and necessary solution to the problem of waste around the world. BGNN's first technology was to create new products from recycled tire rubber. Recently, the company released its new 100% Degradable/Biodegradable Compactor Bags as the demand for biodegradable bags is on a growth trajectory.

    In the recent months, more retailers have been switching to biodegradable plastic bags in their stores, and many manufacturers are packaging their products using degradable / biodegradable plastics. The cost of changing from regular plastic bags to B Green oxo-biodegradable plastic bags is negligible, and depending on the type of packaging application, can cost considerably less than non-degradable / biodegradable plastics. Many large companies are incorporating degradable plastic packaging including the Body Shop, Coca-Cola, Quantis and Butchart Gardens.

    The company's financials are proof of the pick-up in product traction. Just this week, B Green released strong Q1 results. Sales increased a whopping 161.3% y/y to $108,735 year due to the increase in sales of its "green" products as a result of an increase in volume from new customers. Gross profit jumped 184.3% y/y to $85,172 as a result the increased volume of the "green" products and the cost savings by changing its out-sourced manufacturer. The top line growth was met by margin expansion as gross margin came in at 78% compared to 72% a year ago. The bottom lined improved significantly as the compared reported a loss of just $15k versus a loss of $128k a year ago.

    Opportunity In Tires

    According to the EPA's Scrap Tire Cleanup Guidebook, released June 8, 2006, large scrap tire stockpiles present a risk to human health and the environment for several reasons. They provide an ideal breeding ground for disease-carrying mosquitoes and rodents. Stockpiles can also catch on fire as a result of lightning strikes, equipment malfunctions or arson. State, federal and local agencies have spent tens of millions of dollars over the past few decades responding to tire fires. Approximately 290 million automobile and truck used tires are discarded by Americans every year.

    Since 1989, when only 10% of scrap tires were recycled or reused, the United States significantly increased its tire reclamation efforts to slightly more than 80%. However, the 55 million tires (19 percent) not reclaimed are being thrown into landfills or, even worse, disposed of illegally on roadsides and properties around the country.

    What is the economic opportunity? It's significant. According to the report, "State, federal and local agencies have spent tens of millions of dollars over the past several decades in responding to tire fires and as a general rule it is five to ten times more expensive to remediate a fire site than it is to remove the tires before they catch fire."

    Opportunity in Plastics

    Plastics play an important role in almost every aspect of our lives. Plastics are used to manufacture everyday products such as beverage containers, cleaning product and other household items, and water bottles. The widespread use of this valuable material demands proper management of used plastics, as they have become a larger part of the municipal solid waste (NASDAQ:MSW) stream in recent decades.

    According to the EPA In 2007, the United States generated almost 14 million tons of plastics in the MSW stream as containers and packaging, almost 7 million tons as nondurable goods, and about 10 million tons as durable goods. The total amount of plastics in MSW-almost 31 million tons-represented 12.1 percent of total MSW generation in 2007. The amount of plastics generation in MSW has increased from less than 1% in 1960 to 12.1% in 2007. Plastics are a rapidly growing segment of the MSW stream. The largest category of plastics are found in containers and packaging (e.g., soft drink bottles, lids, shampoo bottles), but they also are found in durable (e.g., appliances, furniture) and nondurable goods (e.g., diapers, trash bags, cups and utensils, medical devices).

    Consumers' Appetite For Green Products

    The number of Americans seeking green products stands at approximately 30 million today and that number is increasing. U.S. consumers continue to demonstrate a growing appetite for natural and organic products, as manufacturers and retailers expand into new and nontraditional areas and increase their offerings. Total sales for the natural and organic industry increased by 56% percent between 2002 and 2006. The opportunity exists to boldly mass market biodegradable plastic products to the consumers seeking green products.

    Todd Woody of the Green Wombat reported, since April 2007, Wal-Mart has tracked purchases of five eco-oriented products to measure its 180 million customers' attitudes toward buying green products. The products were compact fluorescent light bulbs, organic milk, concentrated or reduced-packaging liquid laundry detergents, extended-life paper products and organic baby food. Wal-Mart found approximately 18% of its customers are making green purchases at its stores.

    According to the AARP, 40 million baby boomers have gone green. A study by Accenture done in October 2007 found that two-thirds of consumers would pay a premium for green products.

    Innovative Products

    B Green's first technology was to create new products from recycled tire rubber. EcoPod and VibeAway address important environmental concerns and problems facing the planet today. EcoPod and VibeAway are 100% recycled rubber-based products that can be utilized as support pads under any units that vibrate and make noise, including washing machines, dryers, compressors, commercial condensers, and many other units that advantageously benefit from sound and vibration control.

    Recently, the company released its new 100% degradable/biodegradable compactor bags. These bags include oxo-biodegradable additive using the latest technology that supports the 3 R's of Packaging: "Reduce", "Reuse", "Recycle" and provides a fourth R, "Remove". Independent Scientific Testing show that plastics incorporated with an additive called Renatura will degrade and then fully biodegrade, without leaving behind harmful residues in the soil.

    These oxo-biodegradable plastic products are scientifically proven to be non-toxic and are FDA compliant, meaning they are safe for food packaging applications and have been awarded approved food film contact 'no migration' status. Regular plastic bags can take up to 100 years to break down causing plastic pollution and harm to both domestic and wild life. Standard plastics are filling our landfills and greatly impacting our planet. Plastics incorporating this additive in the presence of oxygen disappear when exposed to UV light or thermal heat. Our product is designed to allow plastics to degrade like a leaf, slowly yielding CO2 (which through photosynthesis becomes oxygen), water, bio-waste, and mineral salts that condition the soil in the process.

    The company will also continue to support the Interactive Voice Response ("IVR"), software that was developed by iVoice, a predecessor company. The company's Interactive Voice Response line was designed to read information from and write information to, databases, as well as to query databases and return information. B Green currently has no plans to engage in future research and development, to launch any additional versions of the IVR software or other products, or to continue to market this product.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I expect to receive compensation for researching B Green Innovations (OTCPK:BGNN). This fact does not impact my thesis. I took on this opportunity because of my strong belief in the company and its assets. The views expressed are purely my own.

    Tags: BGNN
    May 21 9:49 AM | Link | Comment!
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