Seeking Alpha

Francis Lynch

 
View as an RSS Feed
View Francis Lynch's Comments BY TICKER:
Latest  |  Highest rated
  • Ann Inc.: Two Activist Investors Square Off [View article]
    I've mentioned ANN as a take out candidate in the past. However with its share price down near $33 why hasn't it gone private if it was meant to happen? Not a huge fan of Engine's share repurchase program. Doesn't change the real headline issue of sale and margin pressure and may be a distraction for management as it was for Lululemon last year.
    Jan 31, 2015. 12:30 AM | Likes Like |Link to Comment
  • HBO thinks it can thrive in streaming and pay-TV worlds [View news story]
    I've noticed that Starz, Showtime, Cinemax, and Encore now all have apps for subscribers that own a Chromecast device. A move like this could be beneficial for all parties involved including Time Warner and Comcast.

    Pertaining to HBO, the question remains how valuable the unit is worth. Netflix is well of its high (Given the increase in HBO spin off rumors, investors may be knocking it down to a more reasonable valuation when compared to HBO, among other things). In addition you also have STARZ which is trading at a very attractive fundamental valuation. Though STARZ's content may not be as strong as HBO's, there has been constant speculation ever since its spin-off that STARZ would/will be acquired.

    So while HBO is being spun off, we have STARZ being shopped? Time Warner is a great parent company and I'm still having trouble figuring out why a standalone company would be more valuable to TWX.
    Ultimately I'm starting to think that this may be sell-side investment bankers looking to get deals done at the most exuberant of times.
    Nov 21, 2014. 01:32 PM | Likes Like |Link to Comment
  • Some heavy hitters eye Coca-Cola [View news story]
    Leveraged buyout? This appears to be nothing more than an attention grabbing headline. While the company may be the target of some upset hedge fund managers who think they know how to run the company better, the stock is up 7.18% YTD versus the DOW's 6.74% return (Behind that of Pepsi's 18.70% but 10% came over the last month). An experienced private equity firm such as 3G, who are notorious for cutting costs and operations, probably won't materialize either (Berkshire/3G partnership?). Coke has a great distribution system and exploiting this will be key to driving sales and earnings. While other companies such as PG downsize by shedding assets Coke needs to take a more diversified approach.
    Nov 20, 2014. 11:49 AM | Likes Like |Link to Comment
  • Sterne Agee moves to the bear camp on Lululemon [View news story]
    Like many, I've quickly become tired of analyst estimates and ratings. Firms maintained their overweight projections while the stock got hammered and now appear to be changing their estimates near a potential bottom? (Analyst consistently keep pointing to the same three issues, discontent founder, quality issues, and competition). We've certainly moved past boardroom drama, and quality has improved.

    Pollen Catcher makes a good point in that short sellers could easily get squeezed if the company can over deliver during their next earnings release. The recent uptrend in the stock looks to confirm an uptrend and I'm looking for it to stabilize going forward. My analysis calls for mid $55 for next year.
    Nov 20, 2014. 11:13 AM | Likes Like |Link to Comment
  • Brazil: The World's Greatest Value Right Now? [View article]
    Hey Charles,

    Thanks for providing the update, I am deciding on whether to get in ahead of the close.

    I'd highlight the fact that the ETF has an approximate 10% weighting in Petrobras (Through common and preferred). With WTI below $90 and Brent not far behind, I truly think that this will weigh heavily on the ETF (An analysis last year suggested that PBR needed oil to be above $100). While I am assessing a political bounce, as I'm sure most investors/traders are doing, medium to long-term things aren't looking too optimistic.
    Oct 3, 2014. 02:36 PM | 1 Like Like |Link to Comment
  • Terex - Following The Disappointment, An Appealing Valuation Is Not Necessarily An Opportunity [View article]
    In regards to lagging sales, you also have to take in consideration that Terex sold their mining division at the end of 2009 for $1.3 billion. Sales at that specific segment registered roughly a billion dollars annually. In addition the off-highway truck was fully divested last quarter ($160-200 million in annual sales). As a result I would emphasize on gross margin improvements which have consistently improved.

    While the environment is getting tougher for MTW and CAT, TEX is a diversified name like you mentioned. Management claims that 80% of sales come from markets in which it is a top 3 supplier.

    Great article and thanks for the insight! I'm long Terex but love to read the point of view of the other side!
    Sep 17, 2014. 09:43 AM | Likes Like |Link to Comment
  • Starz Remains Undervalued; 'Outlander' Is Latest Show To Demonstrate Original Programming Transformation [View article]
    Hey Chris, great article and I do see Starz as an intriguing investment. However I have some concerns that I hope you agree with me on.

    Revenue was down 20.74% from the same period last year while sales dropped 2.36% Q/Q. Net income was driven by a reduction in costs (EPS of 66 cents versus 54 cents from the same period last year).

    Though Starz will retain Sony Pictures through 2021 they lost Disney after 2016 and Sony Animation to Netflix last December.

    I've been rather disappointed with Starz original content. High expectations for Black Sails and Outlander haven't contributed materially to subscriber growth. While the company reached a deal with SyFy to distribute Sparticus I can't imagine how much of it will be cut out because of the graphic material (Loved the show by the way).

    While cash flow from operations can at times be strong, special attention needs to be paid to the dwindling cash position, and massive long-term debt position (As more of that debt comes due, will the company be able to pay its principle?). Furthermore original content can be expensive and co-producing pilot seasons is always a roll of the dice (Power?).

    Investors continue to speculate that the company will be acquired. But what value would an acquirer pay? I'd assess that a company would have to pay more than $4.27 billion based on its EV value (Current market cap+Debt-Cash).

    With Time Warner's HBO division valued between $10-$15 billion shouldn't investors put their money in something less risky and in a company that has other assets?

    Netflix likely won't make a move either despite a market cap of $27 billion. Current fundamentals wouldn't support it.

    While I agree that original content is extremely valuable, Starz hasn't hit a home run (Possibly Sparticus and Magic City, but no "Game of Thrones" or "House of Cards" yet).

    I'd say Starz is speculative at best, and while I don't see an acquirer coming in anytime soon I wouldn't be surprised to wake up one morning to some sort of deal.

    There is no doubt that Starz looks attractive on a fundamental basis, but investors should be asking why this stock is being discounted in the market (If markets where efficient than an opportunity like this shouldn't be open as long as it has been).
    Sep 17, 2014. 12:25 AM | Likes Like |Link to Comment
  • Buyout intrigue around Ann [View news story]
    Ann Inc has been on my radar as a takeover target for quite some time. Late last year, with the stock trading around $33-$34, the company looked very compelling on a fundamental basis (Strong cash position, great BVPS, Enterprise Value, manageable debt, and slow but steady sales growth).

    While I highlighted that the comparable fair value for the stock is around it's current range of $41, a private equity firm could be compelled to take the company out at a higher price (Above $50 a share).

    However a future bid is contingent on a few variables including, realistic future earnings (NPV calculation would help validate the company's true value), attractive capital structure, strong retail environment, and an on board management team. With a capital structure of nearly 50% equity and 50% debt, how much debt would a potential acquirer be willing to assume?

    Back of the Envelope Calculation:
    Supposing a purchase price close to $50 we would be looking at $500 million in debt that would need to be raised (25%-26% premium to its current price). Given historical volatility, interest expense on debt would likely be in the range of 5%-6% depending on positive/negative covenants and the bond issuer's financial strength. As a result, with potential annual interest payments around $30 million, net income would only be reduced by roughly $16 million ($100 million in each of the last two years would reduce it to $84 million). It is important for investors to note that interest expense is deducted before taxes, so pre-tax income of $170 million would now be $140 million. A proposition such as this one remains very attractive for an experienced firm. While I still expect a deal to get done soon, apparel retailers are always a tough sell. Unless its a distressed situation (For example American Apparel), Private Equity firms may have a tough time buying high and selling higher).
    Sep 15, 2014. 04:37 PM | Likes Like |Link to Comment
  • Analysts weigh in on Lululemon [View news story]
    Margins slipped roughly 3.5% to 50.5% Y/Y. As a long-term investor, I'm content with margin compression (within a reasonable range) as long as the company can achieve double digit top line growth and ROI. I'm glad to see that investors have looked past this figure and the stock finished up 16% on the week. As an example, Apple investors (While in a completely different business) put to much attention on product margins but if they held the stock over the last few years they where well rewarded. Lululemon may actually gain brand equity by going downstream as consumers who where unwilling or unable to purchase higher priced items now consider their products (Similar to Audi or Mercedes introducing entry level cars in the hopes of giving consumers a "taste" of luxury).
    Sep 12, 2014. 05:10 PM | 1 Like Like |Link to Comment
  • Terex: Great Prospects, Better Target [View article]
    Recently Credit Suisse James Cook lowered his price target on Terex to $44 from $52, reducing annual price targets through 2016. He now expects $4 a share in 2016 down from $4.80. As I highlighted in my analysis, efficiency drivers will help improve the bottom line but revenue should continue to grow at 15% annually. My concern is that the analyst has not fully factored in MHPS growth potential while suggesting that AWP will continue to be the primary earnings driver going forward.

    While risks do remain (Slowdown in Western Europe should have a material drag on earnings), infrastructure growth still remains one of the most effect ways to create jobs, improve transportation bottle necks, and foster GDP growth.

    My earnings projections and price targets remain unchanged.
    Sep 11, 2014. 11:49 PM | Likes Like |Link to Comment
  • Lululemon: Looking For A Reason To Get Excited Again [View article]
    Mark, thank you for your kind comment and interest in reading my article.

    Unfortunately when I submitted this article (Around noon Wednesday) well ahead of the closing bell), Seekingalpha.com hadn't approved of it until early the next morning. So I do apologize for any inconvenience.

    Earnings came in 1 cent above my estimates while the street average was 4 cents below actual results. I also highlighted a potential short squeeze coupled with unusual options activity that could push shares higher, which is what appeared to have happened.

    My intention was to also point out future earnings estimates for investors. As I mentioned Lululemon should not be considered a "value" investment because if it was then future risk/reward isn't favorable (Industry average of 22 would yield minimal gains 2 years out using earnings of $2.50 a share).

    Shares are trading $1 below the low end of my price range of between $45-$47 for the year.

    Recent articles on Lululemon have primarily focused on a year and half old product recall, a disgruntled founder, and growing competition. I simply wanted to point out a few key things.
    Sep 11, 2014. 08:43 PM | Likes Like |Link to Comment
  • Bloomin' Brands Looks Like A Good Contrarian Play [View article]
    Hey Asean Century,

    Nice article. While I am not a fan of any of the company's brands, its hard to argue that shares don't look attractive on a P/B, P/E, P/S, or D/E level. Furthermore I think that the stock is more reasonably valued between $19-$21 a share from its current $16.40 (15.8%-28.4% return). While an activist shareholder might materialize and push for change, I wouldn't bet on it.
    With the market due for a correction, a shakeup would likely take at least six months depending on managements willingness to execute the plan, and in that time frame restaurant chains such as Bloomin Brands would likely "Take it on the chin" (the risk/reward simply isn't favorable for an activist, nor is it cheap enough for a distressed player to come in).

    Its definitely worth watching, thanks again for the article! I enjoyed reading it!
    Sep 4, 2014. 12:33 PM | Likes Like |Link to Comment
  • Terex: Great Prospects, Better Target [View article]
    To anyone interested, I will gladly send along my Excel financial statement spreadsheets. I've setup formulas for the most part in which you can change sales, margins, tax rate, interest expense, and the share count among other things so you can derive your own EPS estimates. If interested send me a message.

    Best and thanks for your interest and time in reading my article.
    Sep 3, 2014. 05:44 PM | 1 Like Like |Link to Comment
  • Popeyes Louisiana Kitchen's Shares Aren't Too Appetizing At These Price Levels [View article]
    We should see an increase in Same Store Sales going forward as the company continues to close under performing locations in over saturated markets in its home market of Louisiana. International growth should also gain as I believe that SSS should continue to outpace that of the domestic market. Popeyes may also deserve a slight "Political Stability" premium as larger competitors such as McDonald's and Yum Brands suffer losses and uncertainty at their Russian and Chinese locations.

    On the other hand we should pay close attention to the price of certain key ingredients, in particular, chicken. Earlier this year I wrote a piece on Popeyes detailing a bullish opinion and with Chicken prices comparatively low versus that of beef I predicted that Popeyes would enjoy larger profit margins. While I predicted correctly that Americans would continue to move towards consuming more chicken I did not see the immediate risk of Yum Brands and McDonald's increasing their chicken product offerings. As a result Chicken prices have consistently been rising with chicken farms earning the most revenue on average since 1996.
    As a smaller competitor, Popeyes might not have the same "negotiating" power as some of its larger competitors. Ultimately however it will rely on product innovation and creating offerings that excite consumers (McDonald's with the McRib and Taco Bell with the Doritos Locas Taco).
    Aug 30, 2014. 10:39 PM | Likes Like |Link to Comment
  • Lululemon loses another bull call [View news story]
    Fortunately I'm not putting much stock into this latest rating. Firms like D.A. maintained their buy rating throughout the route over the past 9 months (Down 32% YTD). Like Gordon Gekko once said "Analyst don't know the difference between live stock and preferred stock." In this case D.A. may be a little late to the party again.
    Aug 28, 2014. 10:05 AM | 1 Like Like |Link to Comment
COMMENTS STATS
33 Comments
13 Likes