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View Jackson Thies' Comments
MedCath: A Hospital Operator for Uncertain Times
You’re correct on the accounting for intercompany loans; my intent was not to say they are not accounted for on the balance sheet, but that they are not explicitly shown. Indeed, the point of consolidation is to eliminate double counting that would otherwise occur.
My goal was to point out that book value should reflect the value of the company (including the intercompany loans in this case), but I don’t think it is the most accurate reflection here. And even if book value is accurate, it is well above the current stock price and there is a catalyst to close the valuation gap. Taking this approach the intercompany loans serve as my valuation floor and any equity consideration paid for MedCath’s interest in the hospitals is gravy. Given that recent sales have placed a positive equity value on MedCath’s hospital interests, it seems probable that the total value realized could be in excess of the value present solely in the intercompany loans, possibly by a significant amount. Thanks for the comment; I’ll be more explicit in the future.
Sep 8, 2010. 11:50 PM
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The Long Case for Horizon Lines
Jones Act – I did not discuss the sentencing of the 6 former Horizon executives because I am not an expert on the legal substance of the case. My understanding is that the executives were let go from Horizon and their prosecution and sentencing is separate from whatever judgment is made regarding Horizon. It may not bode well and could signal that that there is a higher likelihood of Horizon being subject to some type of unfavorable judgment, but I really don’t know. I would say that it seems counterproductive to punish an entire company, which provides a valuable service and whose customers are consistently satisfied, for the improper acts of a select few employees. That said, the discount from intrinsic value present at Horizon's current trading price leaves an acceptable margin of safety in the event of an adverse judgment. If you have further details or knowledge of the matter I would be appreciative if you shared as I could use it to refine my analysis.
Ships - Regarding the age of Horizon’s ships, my comfort comes from the fact that new Jones Act qualifying ships must be built by U.S. shipyards at a substantial cost. So while maintenance costs may continue to increase due to age, that expense will likely be covered by Horizon’s rates, and the price at which you can buy the future cash flow generated by these ships seems relatively cheap. I actually prefer they don’t purchase new ships as this would constitute a substantial cash outflow that could otherwise go towards paying down debt and distributions to shareholders.
May 20, 2009. 10:38 PM
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