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  • Sirius XM: It Seems The Buyback Has Started [View article]
    I have followed the stock since it went public. I have been an analyst that focuses on leisure and entertainment stocks for 30 years. I am aware of its history and merger with XM. There was a lot of debate at the time about it going through due to anti-trust issues. Seems the radio companies were right about the combo company being a very tough competitor.

    I have followed Liberty Media for as long as I can remember and their interest in SIRI has been strong along. The analyst day presentation last year should be read by everyone. BKS SIRI and LYV all presented. I have no investment interest in SIRI at this point and haven't done any specific research on it.

    Ignore the daily stock price change and news flow. Know what you own and why you own it. You own SIRI because you think it is going up 3-4X. You have your own estimates as to what will drive revenue higher (more subscribers and/or higher monthly fees adjusted for churn), boost EBITDA (higher gross margins on lower content costs and lower equipment fees and higher operating margins on leverage of SG&A). I am sure you have also looked at how all that translates into how free cash flow impacts net debt and how stock option issuance and share buy backs will impact total shares outstanding so you can calculate an EV/EBITDA ratio in order to derive your 3-4X return. I am sure you have your reasons for thinking that SIRI should trade at a certain EV/EBITDA valuation. And you know how much of that 3-4X return will come from higher multiple of EBITDA vs. higher EBITDA. Every stock price change is a function of that algorithm. Remember, if the stock is $4 in a year, then either the multiple increased by 33%, the earnings increased by 33% or a combination in the change in those factors occurred. Sentiment changes for lots of reasons, some predictable, some not. EBITDA growth is what it is..

    You can keep it simple and you will be fine.

    Successful investors have confidence in their process and analysis and the good ones do not substitute stock price movements explained ex-post by the "media" or bloggers to influence their decisions or change their analysis. An analyst's job is to try and see the "why" a stock did what it did ex-anti, not ex-post. I am amused by how much time is devoted in the media and on financial websites is spent trying to explain "why" a stock or the market did something on any given day. Everyone can sound like a genius in hindsight.

    If you think SIRI is going to go up 3X-4X, take it off your screen and look at it in three or four years. Watching it every day and reading news and posts like this is a waste of time if that is your time frame. Read the SEC filings when they come out, read the conference call transcripts (takes less time that sitting on a call for an hour listening to analysts babble on about worthless things like how the next quarter looks). Look at management presentations, but with a bit of skepticism. These things will help you become a better investor.

    If you think the media and short sellers are keeping the stock price down, you should be happy about that. Read Warren Buffett's comments on how an investor should welcome a lower stock price if you are buying stock or the company is.

    Remember, there are lots of studies that show that stock prices are up to 16X more volatile than the underlying fundamentals of a company. And smart investors take advantage of that fact..

    Too many investors think "new news" is the most important data point in their analysis. Most of the time it is irrelevant. Invest in a company, think like you own the whole thing and not a story.

    Good luck

    Mar 27 03:50 PM | 10 Likes Like |Link to Comment
  • Energy Recovery Inc.: The Little Company With The Big Technology [View article]
    Chris,

    I think you need to rethink a lot of your model assumptions..

    For example, your "downside" scenario seems too aggressive in terms of what the company can earn.

    I am just looking at the Op Ex line and not the revenue or gross margin line..

    You think their run rate on SG&A under your base scenario is $22M.. Their SG&A hasn't been that low since at least 2009.

    2009 $23M
    2010 $26M
    2011 $28M
    2012 $27M
    2013 $26ME

    So you seem to be starting with an SG&A assumption that is too low at $22M

    In your downside scenario, you are using $11M in OP Ex.. Do you really think they are going to cut Op Ex by 50% if sales disappoint? If they truly believe that the future is as bright as you say, don't you think they would continue investing in R&D (you have it being cut in half) and marketing and infrastructure?

    In 2011, sales dropped 36% ($17M) and Op Ex ROSE $2M. In addition, it appears as though you have ERII making $0.11 per share on $30M in sales, when the Street thinks ERII will make $0.02 on $51M in sales.

    It seems highly unlikely the company would make MORE money on 25% FEWER sales.

    Also, your "conservative" 2015 revenue estimate is 2.3X 2013.. Quite a growth rate for a company that has shown a 20% decline in sales since 2008. I am not sure I would call that assumption "conservative". Your analysis may prove correct, but at least on the surface, your models seems to make some very simplistic assumptions that don't really reflect recent past in terms of expenses or execution of their sales plan.

    Revenue and gross margin assumptions are hard to make with this company, but your estimates could be as good as anyone. No one (including me or management) really has any idea. But Op Ex has a pretty good history to look at and there have not been many dramatic changes in them over the last five years. So I think it is much easier (still not easy) to estimate (really still a guess) Op Ex and your assumptions seem a bit out of whack with history and how a company like ERII would probably manage them.

    For example, what would you think about the company's future if they cut R&D expenses by 50% this year? It has grown almost every year. Would you think the company's apparently bright prospects has suddenly changed dramatically?

    Same with sales and marketing. If the company wants to double its revenue because it has a great product for a new market (O&G), what would cutting sales and marketing by 50% seem to mean in your downside scenario?

    Management truly believes in their products and their potential, so I do not think that they would suddenly cut expenses by 50% if things got "pushed out" a few quarters.

    You seem to be making a classic mistake that many young analysts are make. Your modeling expenses as a percentage of revenue and not what they might be based on how the business is actually run. Your expenses as a percentage of revenue are exactly the same in your base scenario and your downside scenario.

    Hope this helps.

    I used to work at Manalapan with your boss Joe. So I have followed ERII a long time.
    Jan 29 09:55 PM | 7 Likes Like |Link to Comment
  • Texas Pacific Land - The Ultimate Buy And Hold Stock [View article]
    I agree that at these prices it is not as attractive as before. I did try to make the point that most investors miss. The idea that as stocks go up they actually become less attractive to serious investors and as they go down they almost always become more attractive. I like the fact that they will by fewer shares the higher the price goes. Eventually the arbitrage between creating and destroying value for the long term shareholder by buying back shares goes away the higher the stock price goes. Are we there yet? Maybe. But unlike most companies, at least it will be doing less damage automatically and not do what most companies did in 2008-2009, which was buy a lot of stock at the highs and relatively less at the bottom.

    Also tried to help investors with a scenario that on its face would be taken as a "negative" to the typical retail investor (no land sales, declining income from lower oil prices or lower # of wells or production per well or all three and no easement income) to help them "get ahead of the news" so to speak and formulate a plan of action if the stock price reacted to such news or other extemporaneous events. We try and avoid thinking about the macro, even though it does have a direct impact on this type of company. So we try and look at it as if the macro is lousy and see what happens to the thesis.

    Our articles are as much about helping investors learn about how to analyze a company and develop a process as it is just for timely idea generation. Which is why it was great that SA selected it as an A-R idea even though it isn't the typical "buy or short it today" idea.

    What other stocks have similar properties to TPL? We would love to look at them.
    May 31 01:35 PM | 4 Likes Like |Link to Comment
  • Body Central Cheap For A Reason: Isn't That Always The Case? [View article]
    I agree about the long term. I tried to get the PM at my old firm to "load the boat" on AEO at $8-$10 when it was yielding 4-5% and had 25% of market cap in cash.. He told me they were in danger of cutting the dividend (nonsense) and talked about all the obivous things going on. So I bought it myself.. Time arbitage is still a great tool for investors. I have seen it for the last 15 years working with and for hedge funds..

    I own too many stocks. LOL. But at the right price most companies can be bought as a decent investment.

    The thesis on ARO is simple as are all my investment themes.. Out side of BODY, it has one of the lowest EV/sales ratios of any company that is not a grocer or office supply store. If margins just recover 40% of peak or so it will be more profitable and the valuation and multiple will expand.

    Most of the time I don't really make much of the fashion risk or current trends. I assume that most of the time eventually someone wil l get it right on a company that has been around along time and was very popular before. ANF AEO GPS LTD BKE COH FOSL URBN WSM ROST SKX M KSS etc.. the list goes on and on with retailers going in and out of favor. I have been doing this 30 years and nothing really changes.. Soon we will get the big seasonal sell off in retailers and for the 1 milionth time "the consumer is weakening". Happens almost every year going into the summer. Then investors start worrying about back to school and then Christmas. Then there is hope that things "aren't as bad as feared" and then the rally and then the selected sell offs on the ones that are "worse than we feared"....

    And anyone that follows the retailers that closely and worries about real time consumer or macro data or does "channel checks" or monitors sales or worries about cotton prices (remember that short term fear) is just wasting their time on the noise. Not so say that some retailers can't go out of business and that all cheap retailers are buys and that some people can't trade the noise and make some money. But I am too old to be bothered by all that stuff.
    Apr 2 01:37 PM | 3 Likes Like |Link to Comment
  • Sirius XM: It Seems The Buyback Has Started [View article]
    Googer, are you referring to me?

    I have no interest either way in SIRI. I saw this article in my in box and read it and thought I would clear up what appeared to be misconceptions about the workings of a stock buy back as it related to SIRI. It is unclear to me how giving out factual information to clarify the understanding of part of the investment thesis on SIRI would be considered "bashing".

    An investment, long or short in SIRI will be successful over time based on the fundamentals of the company and not really be influenced by a post on any website.
    Mar 27 10:51 AM | 3 Likes Like |Link to Comment
  • WPX Energy Trades Below Tangible Book Value, Smart Investors Are Buying [View article]
    Richard,

    Thank you for your comment. As non-energy company experts we welcome any insight you can present on this company.

    As far as the 4.1 TCF of nat gas number, Barbee appears to be using the number derived using the alternative price scenario provided on page 10 of the 10K. It is also on slide 17 of the Howard Weil presentation. It is my understanding that this scenario uses the 12-month average, first-of-month price during 2011. I have seen some comment letters about using this calculation compared to the "SEC Case" scenario. Here is a link to one such letter. http://1.usa.gov/11etpZ8

    Of course, depending on the direction of nat gas, this alternative scenario could boost reserves (as it has in this case) or lower them. I think the idea is to make a current year's reserves comparable to the previous year's reserves holding price steady from the previous year. I would love to hear your thoughts on the merits or lack there of of those two types of calculations.

    The NGL number from the table also seems to be derived from the alternative scenario that shows 4.1 TCF (4.07 TCF to be exact) referenced above.

    As far as the PUDS. It is my understanding that this is also a "squishy" number because it involves an assessment by management and the time line for development is limited to a 5 year time horizon. I believe a company must move PUD reserves to possible if the five year test is not satisfied, which would lower WPX's total proved reserves. It is also my understanding that part of the reason for this test was the "suspicion" to use CHK's wording, that some companies were/are booking PUDs that they never were intending to drill, which would inflate their proved reserves and therefore their NAV. Is my understanding correct on all this?

    As far as the $1.25 for proved reserves (I believe Mr. Gottfried is using a number over $1.35 per Bcfe in his presentations), I simply relied on their analysis and presented it here. If there is a better methodology or price point, please share it because it would be a good point for investors to consider.

    I do believe the other assets and liabilities you mentioned are netted for their purposes. The scope of this article was not intended to be that exact. Our work tends to be more general in order to by "generally right" and not try to be "precisely wrong." I think that anyone reading this article should do their own calculations and make their own decisions about how precise they want to be. A reasonable case can be made to net all of these together.

    As your comments point out, investing in E&P companies using NAVs requires a large leap of faith in the sense that most of the numbers used in deriving that number require estimates on the part of management or others that are, in fact, largely unknowable until after the fact. The discount to NAV "book value" case is certainly much weaker (much wider potential outcome scenarios) than a discount to "tangible book value" case.

    We would love to know if you have any insight into as to why this company is trading at a discount to tangible book value. It is a question we could not really figure out.

    As far as discounting back the G&A, I will have to look closer at that. One thought that comes to mind is that even this calculation may have a wide range of outcomes. Would a multi-national or large E&P company with a large amount of G&A assume that it would require that level of G&A to develop those assets or would it consider most of that G&A unnecessary and believe that it would require just a small amount of incremental G&A? This might lead to a small haircut to the capitalized G&A portion. A private equity buyer would probably have to use the whole amount since it wouldn't have any G&A in place to develop the reserves. As far as a cap rate, 8X seems reasonable. Let me think about that a bit more.

    Sorry for the "we" and "I" change in the article, but Gregg and I are more familiar with different aspects of all this.

    Again, thank you for your comments. Your expertise and understanding of the E&P space is multitudes of ours and your comments will certainly add to the ability of us and others to better understand the company's prospects.

    Tim
    Jun 14 11:50 AM | 2 Likes Like |Link to Comment
  • Texas Pacific Land - The Ultimate Buy And Hold Stock [View article]
    Here is a link to the largest shareholder of TPL, Horizon Kinetics (21%) and their recent thoughts on the copmany. This was published in April.

    http://bit.ly/13Fm7fn
    Jun 5 10:26 AM | 2 Likes Like |Link to Comment
  • Texas Pacific Land - The Ultimate Buy And Hold Stock [View article]
    wow. That is a lot of research on your part.

    here is the link to the annual report with the map in at the end for anyone that is interested.

    http://bit.ly/19va34J
    Jun 1 12:30 AM | 2 Likes Like |Link to Comment
  • Carhops, Coneys, And Healthcare: Why I'm Short Sonic Drive-Ins, Part I [View article]
    I think there are many things you could have done to improve your analysis. As a former professional/instituti... investor that is very familiar with SONC I thought I would make some points that relate to your analysis.

    1. I do not think you have ever been to a Sonic Drive-In. Your conclusion that their Carhop service is more like dine-in service is way off the mark. Basically a high school kid comes to your car and drops off your food. There are there for less than 2-3 minutes. They do not take your order, they do not bring you refills, they do not return to your car. That is not the reason for higher labor as a % of sales. Company leveraged labor by 130bps last quarter on a 4.3% comp. Although management has been talking about improving labor for years and it still is high. I also do not think you are aware that in 2010, the company changed its compensation structure for manager and partner level employees. This added 230bps to the company's labor line in one year and is not related to hourly employees, which also distorts your analysis.

    2. Your "plunge" in revenue is, in fact, almost completely accounted for by the sale of restaurants to franchisees. You didn't look past the gross numbers with your analysis. You can see this by just glancing at page 3 in the latest 10-K. In 2008, had 684 restaurants open at the end of the year doing $1m each or $689 million in revenue. In 2012 they had 409 restaurants doing $958K each or $392 million in revenue. If those 409 were doing the $1 million they were in 2008 revenue would be $409 million. So the decline in revenue is more like 4% on an adjusted basis and not the 43% implied on the restaurant line. And SONC gets 3.5% royalties on each franchisee so of course selling a restaurant that is going $1 million in revenue and replacing it with $35,000 in franchise income is going to look bad on the surface. The comp is down over that time, but that is a totally different point than you are making.

    3. I am not sure I understand what you are doing by grossing up the operating assets by 15X FCF. Normally you just take FCF ($45-$50 million) and multiply it by some multiple and apply that to the equity of the company, not the assets. So 15X $50 million = $750 million in equity value vs $700 million market cap. Can you explain the rationale for your valuation method?

    4. The reason shareholder equity is negative is because they took on a ton of debt to buy back a lot of stock well above book value, which negatively impacts shareholder equity.

    5. SONC, like DPZ, DIN, AFCE, BKW and others have all used the strategy of selling stores to franchisees to become a cap-ex light, free cash flow machine.

    6. The problem with SONC is that the never lowered their G&A and their depreciation after selling all those stores. G&A was $61 million when revenue was $800 million and it is $65 million on $543 million in revenue. That and stable depreciation is about 50% of the margin story. The other 50% is that the lost margin at the store level as comps declined and the new labor agreement with managers kicked in.

    7. Your examples of DRI EAT and DIN declines are using highly unusual events and are not examples of how small drops in demand, coupled with financial and operating leverage can lead to large declines in stock prices. Those were not the reasons for the declines. And a savvy investor was able to acquire those companies at prices that allowed for 5-7X baggers, returns a short seller never sees (I know I have been involved in professional short selling for almost 15 years). To discuss changes in stock prices without a context of valuation before and after is non-productive.

    8. As far as your assessment that SONC may be less able to vary labor hours because their sales are outside of lunch and dinner rushes makes no sense to me. They would already know this and schedule accordingly. If you want to say that they get less labor leverage that may be closer to correct. In fact, SONC has a more balanced flow of sales than the standard QSR which would say it was a more efficient operating model.

    9. I am not sure that most investors view SONC as a “growth” stock anyway. The basic “bull case” is using FCF to delever further and shrink shares outstanding, boost to royalty income when new royalty rate kicks in in 2015, improve ROI on new buildings and grow SSS with differentiated food. The “bear” case has been pretty simple as well. Warm weather concept that can’t expand too far north, too much leverage, MCD will kill them with McCafe drinks, too many stores in TX, OK and other southern states.

    I am not long or short SONC. I was long with a cost basis below $8, but I have recently sold the stock as I think it is approaching “fair value” in terms of FCF multiple and have better opportunities in blown up retailers. I hope you take this post in the way it was intended, to help sharpen your analytical arguments and analysis. SA frankly doesn't have the best format for publishing complicated ideas. I have been writing analytical stock reports for 20 years and have learned how to make concise and compelling long or short cases to institutions who always want to debate your points endlessly. The less ammunition you give them up front, the more they will accept your points.

    Your ACA and macro thesis may play out and impact most consumer discretionary stocks in some form or fashion. I wish you well.
    Apr 30 04:33 PM | 2 Likes Like |Link to Comment
  • Sirius XM: It Seems The Buyback Has Started [View article]
    You are welcome. I will be launching a website soon with a friend that will go in to more detail in terms of sharing our 70 years of wisdom on investing and ideas!!! I hope you follow us. I will post more details on my profile.
    I have posted a few articles on SA that are Pro or Alpha-Rich.
    Mar 27 04:07 PM | 2 Likes Like |Link to Comment
  • U.S Global Investor: What You Need To Know Before Considering An Investment [View article]
    Shaun,

    I think you have made a significant analytical error in this article. You seem to be implying that the company's investment in its Ultra Short Bond fund is a bet that interest rates will rise and that it will make money when that happens.

    This fund is not a double inverse ETF type fund that goes up when interest rates rise. This is a short term bond fund that invests in T Bills and other government paper with a maturity of about 1 year. It used to be a money market fund that was converted to extend the maturity profile.

    Am I reading your point correctly?
    Feb 21 04:55 PM | 1 Like Like |Link to Comment
  • Buffalo Wild Wings: Growth Model Is Starting To Crack While Risks Grow [View article]
    Very similar to the Sumzero report written last week by Midsummer Capital and highlighted in their Institutional Investor Stock Pitch contest. Even your price target of $100 is the same.

    http://bit.ly/1kiPEFC

    I was a fraternity brother of one of the founders and have followed the company a long time.

    The premise is reasonable. The multiple expansion is certainly unsustainable. Having written investment reports on the both the long short side for over 30 years, I would quibble with your characterization that the 2.3M share decline in shares sold short was a major factor in the rise in the stock price. The long-term correlation between your chart and the stock price seems less clear as well. BWLD is a classic momentum driven long play because it has all the factors momentum investors need. Unit growth in a no growth industry, relatively strong SSS, margin expansion and momentum. While I agree that over-leveraged or over weighted shorts can be their own worst enemy (just like leveraged longs can become forced sellers), that is probably not the case here. No doubt the shorts had to reduce their positions as the stock has gone up 80% or whatever (70% decline in the number of shares short vs. 60% decline in the value of those shares seems to indicate that in aggregate the short sellers were reducing exposure due to dollar exposure more than share count exposure).

    High fliers's stock prices decline, not because the shorts push it down (as the main stream media and many investors seem to believe), but eventually the "story" or the numbers turn in a way that turns momentum buyers into sellers. Shorts need longs to give up and turn demand into supply, which almost always eventually happens. Especially with high EV/EBITDA names. Outside of Fidelity, which has certainly turned into a momentum shop vs. their old research focus, most of the top holders are passive indexes and ETF which buy on the way up and sell on the way down. Fido has turned into a seller and holds 13% of the shares. They will eventually be the ones to help the shorts out I would think. Shorts can add to the momentum selling by supplying more stock with short sales, but longs can supply much more stock faster and be more aggressive at hitting bids in size and when you add the lack of buyers because of negative momentum you decline your multiple contraction.

    You are correct to point out that with almost every growth restaurant company that is public, the company eventually expands its store base into lower and lower return markets in order to maintain its growth multiple and that eventually impacts ROICs, first with lower asset turns (lower unit volumes), then with lower margins (Occupancy and operating costs are higher as a % due to lower unit volumes) and growth rates. This eventually translates into lower growth rates and hence, a lower multiple. Building smaller stores is a classic sign of this. The Law of Large numbers eventually catches up to every rapid grower. You can't constantly increase your YOY unit growth in order to maintain or accelerate store growth.

    So far in its history, wing price spikes have almost always been recovered within two quarters of their first impact on gross margins. I have looked at this as a short for years and that has always been one of the short points. If you go back over the last 10 years and look on a quarterly basis, I believe you will see in every instance, gross margins recovered from the spike in wing prices. Swings in commodities in restaurants is just a part of the biz. BWLD is wings, others is fish or beef or wheat. Changes in those commodities (up or down) has never really been a long term driver of the long or short case in a restaurant unless something permanently alters their pricing and value proposition and there are no substitutes or their competitors have some way to get supply at an advantaged price.

    But like I said, the premise is reasonable, mean reversion and lower ROICs will eventually will lead to lower growth and therefore a lower multiple. It could happen over a long period of time (WMT) or a short one (any teen retailer it seems).
    Dec 18 03:22 PM | 1 Like Like |Link to Comment
  • A H Belo: Value Creation Continues At An Accelerated Pace [View article]
    hfw27, thank you for your comment and question.

    The EBITDA used would include any pension accounting expense. We think simple is better than complicated and that philosophy has served us well over our careers.

    The debate on what to do with unfunded pension liabilities is too complicated to address in this forum. We do not believe it should be added to the enterprise value (or thought of like term debt or lines of credit debt) for a variety of reasons. But we do acknowledge that others do so and that is fine with us too.

    We do not recall ever reading a fairness statement in merger documents that adjust the enterprise value for an over/under funded pension liability. But it does play a roll in a reorganization.
    Oct 15 03:32 PM | 1 Like Like |Link to Comment
  • Invest In Stocks With A Margin Of Safety To Reduce Risk And Enhance Returns [View article]
    Mr. Carnevale,

    Thanks for your frequent contributions to Seeking Alpha. I always enjoy reading your articles.

    However, I must strongly disagree with your use of the term "margin of safety" to describe your investment recommendation of stocks like AGL, LKO, MMM, ... . I agree that all these stock are consistent with Mr. Buffett's investment philosophy, but they are not consistent with Mr. Graham philosophy.

    While in graduate school I helped gather some of the data for Dr. Henry Oppenheimer's well received investigations of Graham's investment methods. I have studied and debated Graham's ideas for 30 years. Every investment recommendation I have ever made has carefully considered the "margin of safety". In my opinion "margin of safety" requires some consideration of asset value, not just an evaluation of past and future cash flows.

    For example, I present 3 stocks we have recommended (ATI, BODY, and CENT) in the past few months that are consistent with Graham's definition of margin of safety. Mr. Buffett would consider these stocks as "cigarette butts" and discard them rapidly. In my opinion, Mr. Graham would be happy owning ATI, BODY, and CENT, and would never consider the stocks recommended in your article.

    I have a narrow view of the term, "margin of safety", you have a broad view. We will never know for sure who is correct, but we can always enjoy debating the issue.

    Gregg Jahnke
    Co-founder Investing501
    Sep 13 01:51 PM | 1 Like Like |Link to Comment
  • WPX Energy Trades Below Tangible Book Value, Smart Investors Are Buying [View article]
    VD,

    Thank you for your comment. I agree that authors need to provide, clear, balanced, objective analysis that readers can use as a starting point for their own analysis and not an end point.

    Keep up the good work.

    Tim
    Jun 21 09:11 AM | 1 Like Like |Link to Comment
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