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Austin Lehman  

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  • Buyer Beware: 7 Stocks With Deceptive Earnings [View article]
    1ValueInvestor. Thanks for your comments. Just trying to highlight something that the company was required by GAAP to put in their FS but I felt like they did not draw any attention to, and I believe they should have.
    I do feel it is a desperate move, maybe one they had to make but a huge change from the past. From 05-10, VSEC has funded growth through cash from operations. Its debt to assets have been under 10%, and this takes them to over 100%. It is fairly unique for a company to buy someone for more than they are worth.
    In regard to CY earnings, the current analyst estimate is not realistic- honestly, I don't think the analysts pay too much attention to this company. See this Q2 expected is .84 (it may be a loss b/c of transaction costs) and Q3 is .90. Q4 would have to be 1.46 to hit $4- the math doesn't add up. Prior to the Wheeler acquisition they were on pace for $2.80-2.90, maybe as high as $3.20 but not much higher than that. For the Wheeler acquisition, there's a lot of unknowns in my mind. All I know is that Wheeler had pretax net income of $31M and VSEC paid somewhere between $180-220M depending on earnout payments. After tax income of $18.5M or so, so probably about a 10% return and maybe a 4% spread on the debt I would guess with the debt being variable and potentially rising. For a half year, that would mean about an additional $3.5M and after non-recurring transaction costs probably about a wash to the bottom line in 2011. I don't see an annualized EPS much higher than $4 honestly, but it's a lot of speculation until they report Q2 and give us more details on the transaction.
    If you believe the annualized EPS will be $6 that's a forward P/E of about 4, and you ought to be buying a lot of shares. If insiders expected that, I would think they would be buying in droves now as well.
    May 26, 2011. 10:07 PM | Likes Like |Link to Comment
  • Buyer Beware: 7 Stocks With Deceptive Earnings [View article]
    StockMD, originally I thought the company could match its 2010 earnings and thus thought the company's valuation should increase. After the Q1 earnings release, I think the company's recurring earnings prior to the Wheeler acquisition would come in around $2.80-2.90 (around $.73 per quarter, again excluding the earnout adjustments). Annualized, Wheeler's pretax was $31M, probably interest expense of $10M (6% $160M) and principal payments of maybe $3-5M, but I would assume the debt will be variable, so VSEC definitely became more risky as I believe interest rates will rise, thus my suggestion to sell down to $25 and wait and see.
    May 26, 2011. 05:55 PM | Likes Like |Link to Comment
  • Buyer Beware: 7 Stocks With Deceptive Earnings [View article]
    I sold at $28.50. At the current price, I am taking a wait and see approach but definitely not buying until I know more details on the acquisition.
    May 26, 2011. 05:49 PM | Likes Like |Link to Comment
  • Buyer Beware: 7 Stocks With Deceptive Earnings [View article]
    Great comments and thanks for the interest. I'll try to reply to what I have read in this one post and then will respond in more detail to individual posts, if necessary. A few comments:
    First, goodwill is simply whatever the company paid over the assets less liabilities of the company acquired. This is tested for impairment by comparing the undiscounted cash flows expected to be generated versus the amount of goodwill on the books and typically it just happens annually. Over 20 years undiscounted, VSEC may get back its investment but it still could be a bad investment, as that’s only about a 3.5% return annually using the rule of 72. I would argue the earnout is a better indicator of the merits of the investment.
    Second, since few analysts follow this stock, that is the role we at Seeking Alpha fill. A big item analysts concern themselves with is recurring earnings after backing out any 1 time items. This earnout adjustment is a one time item and without it, earnings would be $.73. This would put recurring EPS at $2.92. I’m not sure where Stock MD obtained the $4 estimate. If they hit $4, the stock is definitely undervalued. Also, I only said in the article that I thought the company was a sell down to $25 (which so far has proved true) and then Wheeler Brothers and the cost of debt the company took on plays a significant part in assessing the company’s upside going forward.
    Third, I do believe it was deceptive of the company only to mention in passing something that impacted the earnings by 15% in the quarter. I did not see it in the press release and only saw it one time in the 10Q and not at all in the management discussion and analysis. The other 6 companies all highlighted the earnout impact (even in their press releases I believe), even if it negatively affected their recurring earnings estimates.
    May 26, 2011. 05:48 PM | Likes Like |Link to Comment
  • Market Outlook and the Stock of the Week: Lululemon [View article]
    Jonathan, good analysis. Thanks for sharing. I agree with you that the company still has room to grow (the market does too at the current P/E). A clarifications: they do seem to be running into some expansion hiccups. Specifically, they did not have enough inventory to meet demand in Q4 and expect lower Q1 sales as they rebuilt inventory. They also had their online website down for a few weeks to bring it in house. Whether these hiccups turn into problems remains to be seen. This could cause some short term volatility.
    May 24, 2011. 07:19 PM | 1 Like Like |Link to Comment
  • Collectors Universe: Best Micro Cap on the Market Offering Dividends and Value [View article]
    Dbtunr, good clarification. We both would agree that recurring EPS is at .68 or so, as the tax items are non-recurring, and approximately 22 PE on recurring earnings.
    May 12, 2011. 04:36 PM | 1 Like Like |Link to Comment
  • Collectors Universe: Best Micro Cap on the Market Offering Dividends and Value [View article]
    Nicholas, thanks for the article. I agree that CLCT has been outperforming recently and continues to benefit from the surge in commodity prices. A few clarifications:
    1. CLCT's EPS was dramatically affected in the prior fiscal year by the releasing of net operating losses. Forward P/E is about 22 on 6/30/11 earnings (assumed EPS of $.68 and stock price of $15). Company will probably begin paying cash for taxes in FY '12. I would think your discounted cash flow valuation should be based on the $.68... re-run the numbers at that EPS and valuation is more like $13/share.
    2. CLCT will be hard pressed to increase its dividend once cash taxes begin being paid. The Company appears just to be focused on earning out its current dividend and projects to do that in the next 3-5 years, which implies 14-24% earnings growth to reach $1.30 in 3-5 years (

    Thus, CLCT may be slightly overvalued. I do agree with you, however, that it's a well managed company and offers an attractive dividend yield.
    May 12, 2011. 12:36 PM | 1 Like Like |Link to Comment
  • There's a Reason That Metropolitan Health Networks Is Cheap [View article]
    Interesting and informative article. You will enjoy I'm not sure about the concentration comparison to CNU, as CNU still receives 70% of its revenue from Humana. That to me is significant concentration. The fact that they trade at such different P/E's is somewhat surprising. A few questions/comments:
    1. How much of the insider trading related to exiting executives (part IV alluded to above)?
    2. Agreed that the net income to operating cash flow is an alarming trend and continued in Q1 of 2011. Is Humana just taking longer to pay because revenue is not up that much?
    May 4, 2011. 10:15 PM | Likes Like |Link to Comment
  • Why the SEC Should Look at Levered ETFs [View article]
    Basically, what I believe Redfish is trying to prove is that over a period of longer than 1 day, the TBT return is not double TLT. Redfish, I came to the same conclusion while being invested in UCO.
    I agree with Felix's premise- leveraged ETF's typically do not make sense for buy and hold investors (but I suppose may make sense for day traders).
    May 4, 2011. 10:02 PM | 1 Like Like |Link to Comment
  • Health Care Rising - Along With Investment Opportunities [View article]
    Alan, thanks for reading the article in detail. Not sure if you were referring to it being bought by insurance companies or as an investment. It can be bought by insurance companies, albeit with more difficulty because of having to go through demutualization and state approval typically. This is one of the ways Wellpoint has grown its business. It cannot be bought as an investment, which is why I did not put a ticker after it, but still is a potential target. Do you have any other ways to play the potential consolidation with government plans?
    May 4, 2011. 09:43 PM | 1 Like Like |Link to Comment
  • Note to Lululemon From a Potential Investor: Men Don't Buy 'Undies' [View article]
    Marc, good insights/going past the numbers. I agree that "undies" is not a sell to most American men. I noticed as well the discrepancy between the company's guidance, and the market's pricing, and I agree that market is pricing a large "surprise." I do believe this 25-30% earnings growth is realistic, though, at least for the next 2 years. More detailed analysis here: Beyond that, I agree that the growth seems like it will be difficult to maintain. Thanks again for the insightful article.
    Apr 25, 2011. 10:42 PM | Likes Like |Link to Comment
  • Lululemon Athletica: Robust Valuation but Growth Opportunities Abound [View article]
    Adam, good analysis and a very similar conclusion to the one I came to.
    Basically, taking the wait and see approach. Thanks for sharing.
    Apr 25, 2011. 09:28 PM | Likes Like |Link to Comment
  • Collectors Universe Is Not a Mark McGwire Home Run, But Is a Good Value Play [View article]
    Jyoung, great comments and that is good to know. From their 10k, they talked about a number of high priced collectibles they had valued, but it's nice to hear from someone in the industry as well about CLCT's reputation. While it shouldn't be a direct one for one correlation with the price of gold & silver, I would think CLCT's value should have some correlation. Commodity prices have continued to increase, and I believe CLCT may lag but should follow the trend of increased commodity prices. I also expect a robust Q3 earnings report.
    Apr 25, 2011. 09:22 PM | Likes Like |Link to Comment
  • Lululemon Set for Solid Revenue and Earnings Growth [View article]
    Thanks for the reply. While Lulu could fade quickly, that is not my expectation. I expect a well run company to continue and more realistic valuations to prevail once growth expectations slow.
    Apr 25, 2011. 09:15 PM | Likes Like |Link to Comment
  • Just One Stock: Warrants Offer Leveraged Opportunity to Tap JPM's Earnings Growth [View article]
    Joseph, makes sense. It is a lower risk high reward play and could give positive returns over the next 7-8 years. I'm good with that. With your cost at $16, it basically leverages JPM's stock price times 2.5 or so, which means 5-7% increases in the stock are 12.5-17.5% returns for you.
    Apr 22, 2011. 12:32 PM | 1 Like Like |Link to Comment