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Clumsy Rick

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  • Sony Reminds Us of the High Cost of First Generation 3D TV [View article]
    The key is this is for early adopters and not a mainstream product. While there are more components, is this really that different than the early adopters that ran out and bought a 42-inch HDTV for about 4x what they cost right now when they first came out? Companies had announced content was coming, but there was really nothing to see yet. And non-HD TV looked WORSE on an HDTV than it did on an older analog set. Yet early adopters gobbled them up. Its about having the latest technology bragging rights and buying for the future. Clearly not for people on a budget. Its only for about 2%-4% of the US population right now, but that is normal for this stage of a technology upgrade. Doesn't mean this won't be a big driver of sales and profits for the industry in a couple years.
    Mar 9 12:08 PM | Likes Like |Link to Comment
  • Genuine Parts: Stronger than Expected Growth Should Boost Earnings [View article]
    What you are saying may be true, although I will point out that Motion and Grainger's sales have historically had a high correlation. Quarterly sales changes from 1Q 2002 through 3Q 2009 have 0.87 R-Square correlation. So if there is a lag, I don't think it will be a big one.
    Feb 12 09:24 AM | Likes Like |Link to Comment
  • Best Buy: Recent Pullback Provides Outstanding Opportunity [View article]
    Valuation points good. The market seems to swing back and forth between overly optimistic to overly pessimistic on BBY's prospects and the current valuation seems the latter. Add to that the fact that the estimates for 4Q and next year look too conservative and the stock looks even more compelling.
    Feb 5 07:39 AM | 3 Likes Like |Link to Comment
  • Rex Stores: Reaching an Inflection Point in Earnings [View article]
    Homework? That is old news AND lease income has never been a part of the core investment story as far as I am concerned. AD has been giving back stores for months, so the last 20 stores was no big surprise or hardship. Total lost income from original agreement is approximately $2.5 mm pretax, or about $0.10/share. Meanwhile, Rex has been finding tenants to replace AD in its stores as well as renting out its distribution centers. Rex now has more flexibility to sell its real estate as well.

    The real news is that ethanol margins have been skyrocketing, which should ramp up income for Rex slightly in 3Q and much more in 4Q. See article for more details:


    'Christmas' in October for Ethanol
    Rise in Cost of Energy Drives Up Margins; Support for Depressed Corn Prices

    By IAN BERRY
    CHICAGO -- Renewed life in the ethanol industry is drawing the attention of Chicago Board of Trade traders and analysts, giving the corn market a boost.

    Ethanol producers, which spent much of the past couple of years operating in the red, lately have been enjoying wide profit margins, and as a result have been seeking more corn and ramping up production.


    Just last week, with energy prices advancing, ethanol processing margins jumped to a dollar a bushel, almost doubling what they were the previous week, said Rich Feltes, vice president of research for MF Global.

    "They have every incentive to get their hands on every bushel of corn, and run these plants 24/seven, and push out as much ethanol as they can, pay down their debt," Mr. Feltes said. "This is Christmas time for ethanol plants."

    Producers are "clamoring" for cash corn, said Bill Gentry, a broker/analyst with Risk Management Commodities in Lafayette, Ind. He said that has probably removed a lot of grain from the commercial pipeline. He said he has noticed more truck activity related to ethanol for the past six to eight weeks.

    The improved ethanol outlook is due to expectations of a large corn crop that has lowered corn prices relative to crude oil and ethanol, Rabobank said in an October report. Friday, the U.S. Department of Agriculture estimated the U.S. corn crop at 13.018 billion bushels and corn used for ethanol at 4.2 billion bushels.

    From early June to early October, CBOT corn prices fell 28.5% while crude oil was roughly flat and ethanol futures increased 2%, the bank said.


    On Sep 18 01:37 PM just_great wrote:

    > Is everybody missing the 1000 lb gorilla? There biggest tenant (Appliance
    > Direct) backed out of the entire gig. So much for the steady stream
    > of lease income. Do ye homework!
    Oct 14 01:04 PM | Likes Like |Link to Comment
  • Rex Stores: Reaching an Inflection Point in Earnings [View article]
    Good question. I'd say the biggest landmine is management and what actions they take or don't take to increase shareholder value. Even if they just sit on their cash, at least you still have a floor under the stock while you wait to see if ethanol is ultimately a sustainable, profitable business.

    My biggest fear is that management uses the cash in a risky way. Rather than accelerate a stock buy back program to a sustainably higher level, offer to take the company private or some other actions to increase shareholder value, I fear management decides to invest a large portion of its cash (shareholder's cash, I should say) in one or two big projects over the next year that ultimately fail.

    It could be more ethanol plants, which is what it sounds like they are looking at. At this stage, I believe the outlook for ethanol is improving, but I'm sure I don't need to tell you how uncertain the long term outlook for the industry still is. So investing a lot more money in ethanol would essentially raise Rex's risk and potential payoff, but would at least temporarily cut the base out from under the stock, in my opinion, as the cash per share value drops.


    On Sep 10 11:14 AM microcaptrader wrote:

    > So what are we missing here Rick? Given the obvious fundamental value
    > of rsc and the woefully misrepresentative stock price combined with
    > Mr. Rose's opinion of the company's future over at least the next
    > few quarters, i'm tempted to take every available penny I have and
    > plow it into RSC shares. It seems like such an obvious intermediate
    > term trade. Where are the hidden landmines? Email me at jaylelbe
    > @ hotmail . com if you care to discuss offline. I've been a RSC
    > shareholder for what seems like ages now.
    Sep 13 06:37 PM | 1 Like Like |Link to Comment
  • Ambercrombie, American Eagle Out; PacSun, Wet Seal In [View article]
    The "new" trends you are referring to have been going on for about two years now. This would have been good insight back then. Retailers are responding in different ways. American Eagle has begun to change its mix- dresses and prints have been doing very well- and will continue to adjust into back-to-school. And the "miss" you refer to in May for AEO was a rounding error- less than 1%. Abercrombie, I agree, has work to do.

    As for WTSLA and PSUN being "in", I disagree. PSUN doesn't know who their customer is anymore and it shows, in both their merchandising and sales. Sales reports show PSUN is bleeding customers and, I believe, only holding on to its remaining ones because of aggressive pricing. WTSLA is not much better with similar sales trends at its namesake, although its Arden B chain at least is doing better.

    I agree BKE is doing well, but, again, pointing this out after their sales have been growing at a double-digit rate for two years now is not only useless, its dangerous. Sales have been so strong for so long, I worry that it is inevitable they slow at some point. With men's sales down last month, I would be particularly wary right now.
    Jun 7 12:00 PM | 4 Likes Like |Link to Comment
  • Rex Stores: Low-Risk, Pure Play on Ethanol [View article]
    Dan,

    Rex has majority positions in two ethanol companies (LLCs) and therefore has to consolidate the balance sheets of these entities on its own balance sheet. However, with the exception of approximately $10 million in mortgage debt that I accounted for in the real estate valuation (net $4/share real estate), all the debt belongs to the ethanol LLCs. It is all non-recourse debt, meaning its separate from Rex, the corporate entity. If these ethanol LLCs ever had to declare bankruptcy, the debt holders (banks) could only go after LLC assets, not Rex corporate assets including the $90-$100 million in cash and its real estate.

    So when building up a value for RSC shares, I looked at unencumbered corporate cash (roughly $10/share), real estate (estimated at $4/share, including mortgage debt) and tax credits (roughly $3/share). With this coming to $17/share, you are getting all leftover net assets (modest corporate assets and ethanol LLC investments, less debt) for free.

    If you were to try and value its ethanol LLC interests, then you would have to net the approximately $100 million in LLC debt against the substantial LLC assets on Rex's balance sheet, including much of the $235 million in PP&E. I didn't bother trying to value this, since ethanol is so controversial and any estimate I made would be highly uncertain. I simply look at the stock as approximately $17 in solid assets and a free option on ethanol.


    On Jun 01 12:58 PM Dan Williams wrote:

    > Rick, I went to CNN.COM and did a stock quote for Rex. The screen
    > also shows the balance sheet. According to it, there is over $100M
    > of long term debt. Is this right? If so, do your figures take it
    > into consideration?
    Jun 1 01:51 PM | Likes Like |Link to Comment
  • Consumers Still Aren't Buying Gadgets [View article]
    I think your comment on CC is spot on. CC looks like it made up almost 10% of Electronic Store sales at this time last year. Some percentage...maybe half?...clearly is going to WMT, TGT, AMZN, COST, etc. Thus, down 12% for Electronic Store sales is not representative of consumer electronic industry sales as a whole, which in my example would be down 7% instead. More importantly, retailers like Best Buy are likely getting some of CC sales, suggesting that specific retailers like Best Buy are seeing sales even better than the 7% decline I noted above. Bottom line, commerce department data will look much more negative than actual CE retailer sales when they report.
    May 14 09:00 AM | Likes Like |Link to Comment
  • AutoZone: No Repeat [View article]
    I don't think its people just buying fewer cars, its people are scrapping fewer old ones as well. Analysts refer to it as increasing the avg age of vehicle on the road sometimes. I read reports that say it is increasing sharply right now, but i haven't seen the original source data myself.

    The negative equity is an accounting fiction. Its negative because they bought back so much stock, not from losses. They haven't lost money in over 15 years, or at least as far as my model goes back (1992). That's why analysts don't care about...it doesn't matter to earnings or earnings potential going forward real solvency. Lots of retailers have declared BK over the last few years that looked like they had plenty of equity and assets for that matter, per accounting terms. TWTR, SHRP, ULTE, are ones I've followed. CAO was on the verge as well

    2Q has historically always been a low cash generating quarter, often negative. But they still manage to average $500 mm over the last five years and $350 mm over the last 10 years by generating lots of cash in 2H of the year.

    Buying back the stock adds leverage to the model, yes. But they generate enough cash to pay it all down in a few years.

    They could fix both of the "problems" of negative equity and high debt anytime they want by simply doing a sale lease back on the +2,250 stores they own. This would payoff a large chunk, perhaps most, of the debt. And given many of the properties are worth more a lot more than book value (they have been depreciating for years, some for decades, while real estate has generally been up until last year), so selling them would generate an "accounting gain:" to erase the negative equity.

    But why would they do that? The book value/equity statistic misses the real value of the firm- its ability to generate cash and huge returns for equity holders. Or if you prefer raw statistics:

    ROE=208% in 2008, +100% the four years before that
    ROIC (incl off-BS leases), +20% for last 6 years
    Operating margins & profit margins, 17% & 10% last year, highest in industry
    ROA=15% in '08

    I would much prefer a company that generates large amounts of cash with few assets and less equity than one generating the same cash with more assets and more equity. Let alone a company with lots of assets and little cash generation to show for it.



    On Mar 07 12:29 PM Chris coxblocks wrote:

    > Hey Marcap I am glad someone finally brought up this point...I have
    > searched through a ton of analysts and been watching this fast Eddie
    > special for a while and I was totally flabbergasted that no one brought
    > up the fact they are functionally insolvent...
    >
    > they also had negative cash flow this Q and used borrowed money to
    > buy back stock...
    >
    > Having said that AZO is tightly controlled and ESL has about 40+%
    > last time I checked
    >
    > IMO Dan's article would be far stonger had he brought up these points
    >
    >
    > here is a link to latest release for anyone wishing to check out
    > the #'s for themselves
    >
    > nocache-phx.corporate-...;p=irol-newsArticle&am...
    Mar 7 07:01 PM | Likes Like |Link to Comment
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