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Alexander J. Poulos  

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  • Long Kraft As The Heinz Merger Radically Transforms The Company [View article]
    Ernie,

    Give them a year from when the deal is consummated. It will be interesting to watch the evolution of the growth in EBITDA margin. Thanks for reading and contributing to the conversation. I will be actively following the merger and will update when prudent.
    Jun 7, 2015. 06:45 PM | 2 Likes Like |Link to Comment
  • Long Kraft As The Heinz Merger Radically Transforms The Company [View article]
    Kolpin,

    The answer is it depends. I would need to see the particulars of the deal and study up on how they plan on running DEO. My guess is they would want to integrate DEO into AB Inbev, however DEO is predominately a spirits company. Yes, they control Guiness which can be incorporated under the various beer brands they control.

    How they would drive efficiency of scale remains unclear to me at this juncture. DEO would continue to suffer currency related issues, I am not sure how they would mitigate its impact.

    The reason why DEO was sold was to create room for KRFT. I am fully invested so to make room for an excellent opportunity such as KRFT would require selling of a previous stake. In my view, it is important to not become enamored or particularly wedded to any individual equity. A stake in a business should be evaluated as to risk reward relationship on an ongoing basis.

    Currently, I am watching a few issues outside of an unforeseen event, (perhaps a 3G takeover of DEO) I do not have an plans of making changes to the portfolio. I realize many have commented on the site I have been quite impatient and should stick with high quality names. Lets me share some portfolio performance metrics. YTD 6.36, 1yr 11.93 inception 1/2012 16.86%
    S&P YTD 2.49, 1yr 10.34 and inception 17.35% and the Russell 5.16 YTD 11.30 1 year and 16.52 from inception. I have outperformed the Russell over each time frame and the S&P recently. The longer term under performance was due to holding DGI stalwarts such as KO, CL, and having a large helping of energy related issues in mid 2014. Fortunately I dispatched some before they crashed (ESV and replaced with WBA) however I rode XOM and BP all the way down for little profit. I put a ton of hard work in, akin to a second virtual time job (30+ hrs per week). The results especially the recent ones have validated the hard work.

    I am sorry for the minor tangent there. I read your bio and realized you are in your mid 30's roughly in my age bracket. In my opinion, our bracket is better served with growthier names that will eventually morph into dividend payers. I am far more interested in top line growth and a clear runway, dividends will come much later when the growth opportunities exhaust themselves. Example of equities purchased before dividends are AAPL, and GILD, with DG and V right after they initiated the dividend. The share price growth from AAPL, V and GILD (the portfolios 1,2 and 4th largest holding) has really powered the performance. As always, I appreciate the comment and for you taking the time to read and comment.
    Jun 7, 2015. 11:37 AM | 1 Like Like |Link to Comment
  • Long Kraft As The Heinz Merger Radically Transforms The Company [View article]
    GregT and ErnieMac,

    On a side note a similar play to KRFT is SBGI a stellar producer of free cash flow. I wrote about them previously http://seekingalpha.co... and swapped out of XOM to free up capital to invest in them. In the comment section there is a link to an article interviewing the management team as they stress the company is undervalued.

    I view SBGI as a nice play in the upcoming election cycle as the candidates spend gobs of money trying to attract voters. SBGI free cash flow yield is over 11% with a dividend in the mid 2.5% range.
    Jun 7, 2015. 08:56 AM | 1 Like Like |Link to Comment
  • Long Kraft As The Heinz Merger Radically Transforms The Company [View article]
    GregT,

    The only food play I held in my portfolio before the KRFT news is HSY due to its high margins and ability to pass of price increases. I have shunned KRFT and others of its ilk for the same reason you mentioned, lack of meaningful top line growth. In my view 3G, will meaningfully expand the top line as the decade progresses. I wrote a second portion available to subscribers detailing exactly why I believe this will be the case. Follow the story closely, there is a lot to like here. In my view a purchase of KRFT here is a low risk play with above average overall cap gains as one of the best management teams in the business takes control of a company that has lost its way.
    Jun 7, 2015. 08:51 AM | Likes Like |Link to Comment
  • Long Kraft As The Heinz Merger Radically Transforms The Company [View article]
    Ernie,

    From what I can gather, we are not privy to the price WB paid. The $10 billion infusion will be used to pay the special dividend to shareholders which allows existing HNZ shareholders (WB being one) a 51% stake in the combined entity. The controlling portion is necessary as it allows 3G to control the operating aspects of the combined entity, the real key to the deal.

    WS in my view is blind and unimaginative here. This deal is really easy to evaluate, the EBITDA growth will be stunning over the next five. I suspect the final numbers will be higher than I have actually modeled; KRFT is overbloated by taking costs out it will have a very positive impact on the bottom line.

    As a value investor who has been investing since the mid 90's, I am constantly amazed at what the Street will get excited about. Right now its all about tiny biotech's that will more than likely never bring a viable candidate to market or a social media play with scant earnings or hopes of it. Just think we have a major merger in the food industry with a management team taking over with a stellar track record of results. The EBITDA growth should be stellar, its not dependent on the economic cycle which makes it in my eyes even more appealing and yet the shares are trading at the same level they were on the day the deal was announced. Perhaps its the summer doldrums because in my view, most aren't paying attention.
    Jun 7, 2015. 08:46 AM | 3 Likes Like |Link to Comment
  • Long Kraft As The Heinz Merger Radically Transforms The Company [View article]
    Ernie,

    Yes. If you purchase one share of KRFT Monday in the open market you will receive the following; a $16.50 special dividend along with one share of the combined entity dubbed Kraft-Heinz. 3G has made clear they will leave the dividend in place. If you subtract the $16.50 special dividend from the current share price of lets say $83.50 a value of $67 remains for the combined entity. At its current dividend rate, the yield is well north of 3%, not a bad payout. The exciting part for me is the EBITDA growth as 3G dramatically pares expenses.

    On a side note, WS seems disinterested in the merger. There seems to be some concern on how they plan on growing the top line. The team will focus primarily on EBITDA growth and will look to grow the top line in the later years of the decade.
    Jun 6, 2015. 04:54 PM | 2 Likes Like |Link to Comment
  • Time To Sell Colgate-Palmolive [View article]
    Ernie,

    I am using enterprise value divided by ebitda along with the current level HSY peers are trading at. Anything over 15 on the exit multiple is a tad expensive, I prefer companies in the 10-12 range. I will pay a higher multiple for a food company. Incidentally, KRFT is currently sitting at 26 for the single entity, as the combined the number falls well below 15.
    Jun 6, 2015. 02:50 PM | 1 Like Like |Link to Comment
  • Long Kraft As The Heinz Merger Radically Transforms The Company [View article]
    Ernie,

    Thanks, I am glad you enjoyed it.
    Jun 6, 2015. 02:41 PM | Likes Like |Link to Comment
  • Time To Sell Colgate-Palmolive [View article]
    Ernie,

    The value in HSY is the consistent mid single digit revenue growth combined with 22% plus EBITDA margin. I am watching EBITDA growth, HSY continues to take cost out while being able to hand down price hikes. HSY would have been swallowed up BRK.B a long time ago if the trust would have allowed it. The bulk of HSY growth is US based allowing ample room for overseas expansion. Outside of HNZ, HSY has the best margins in the business. I value them at 15 times their exit EBITDA multiple which nets you 110-114. From a strict EPS metric, you are looking at roughly $4 this year which implies a multiple of say 23. Most of the competitors are hard pressed to match margins and have had increasing difficulty passing down price hikes. For this reason, HSY will continue to command a premium valuation similar to CL. Unlike, CL the currency issue is not a concern. Incidentally, 5% revenue growth nets out low single digit eps. When combined with a roughly 2.5% dividend you have safe, low risk play that should return a compounded low double digit rate for the rest of the decade.
    Jun 6, 2015. 02:40 PM | 1 Like Like |Link to Comment
  • Long Kraft As The Heinz Merger Radically Transforms The Company [View article]
    Ernie,

    I believe my estimates are quite conservative. I am quite certain 3G will strip out an abundance of costs which will help KRFT EBITDA margin grow. Take a look at what has been accomplished with HNZ, EBITDA margin was roughly 20% pre merger and now 2 years later we are at 26% and rising. The initial jump was the excitement of the deal, there is far more to come. Thanks for reading and commenting.
    Jun 6, 2015. 02:31 PM | 1 Like Like |Link to Comment
  • Time To Sell Colgate-Palmolive [View article]
    GregT,

    Check out the following article on KRFT, my highest conviction pick for next year. http://seekingalpha.co...

    If you like the idea, I would appreciate if you could leave a comment expressing it.
    Jun 6, 2015. 11:19 AM | Likes Like |Link to Comment
  • Time To Sell Colgate-Palmolive [View article]
    youngdiv,

    You may get your wisher sooner rather than later. The supposed "strong jobs report" galvanized the dollars advance. It seems the Fed is quite intent on raising rates, more than likely in September. CL traded off once again on the news, the equity is within 5% of new lows. If you are interested in Dividend growth, may I suggest HSY in the food space.

    HSY has sold off quite aggressively since the recent earnings reports. The culprit is weak sale sin China which make sup roughly 5% of revenues. HSY is predominantly a US based entity with significant overseas growth. The company generates the best margins in the food sector (HNZ is higher yet they are private for now)with a yield similar to CL. HSY is a bargain with minor headwinds, whereas CL has major headwinds beyond their control.

    See http://bit.ly/1MvTbgL for HSY and http://bit.ly/1MvTdVG for KRFT/HNZ a recent addition. KRFT is my highest conviction pick for next year as 3G massively cuts costs to boost earnings. Best of luck and thanks for reading and posting your comment.
    Jun 6, 2015. 11:18 AM | Likes Like |Link to Comment
  • Sinclair Broadcast Group: Prodigious Cash Flow Augurs Well For Additional Upside [View article]
    Management seems to be quite confident in their future prospects as they again tout how undervalued they are.

    http://seekingalpha.co...
    Jun 6, 2015. 11:05 AM | Likes Like |Link to Comment
  • Why I Am Bullish On Dollar General [View article]
    CuriousObserver,

    Thank you for the well written article. Just to expand on the "secret sauce" you mention, DG is able to price their wares in-line with WMT. Notice the emphasis on in-line, WMT will not allow itself to be undersold. The trick here to beating WMT is to offer better service and more convenient locations while being price competitive. DG is doing exactly this with 12k stores and plans to open 900 more in 2016. DG estimates they will reach saturation level at 25K stores, lots of runway left.
    Jun 5, 2015. 08:20 AM | 1 Like Like |Link to Comment
  • Expanding Further On Gilead Sciences [View article]
    ST Juste,

    Some of the analysts simply have a hard time wrapping their hands around the GILD story. The fear is the treatment is a cure which will negate the long annuity like revenue stream to be had from a blockbuster product. They expected a sudden rush for treatment with peak sales in 2015 followed by a swift fall. The reality is the budgets worldwide are unable to suddenly cope with the sudden rush of patients seeking treatment. Some will inevitably be pushed out a few years creating the annuity stream that is sop sought after. Feel free to follow as I adjust the model in lock step with managements updated guidance.
    Jun 4, 2015. 08:34 PM | 2 Likes Like |Link to Comment
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