JDA Software Group, Inc. (JDAS) reported its first quarter earnings on April 20th. Particularly notable on the earnings call was management’s renewed confidence in the company’s sales pipeline. I am keeping my 12-month price target at $18.00, but I have more confidence in this figure now, and believe there is more upside than downside.

This was a much better call than the Q4 call. On the Q4 call, given the lack of visibility into 2009, management said they would no longer provide annual guidance – just guidance on the coming quarter.

The market’s valuation of Jamba Inc. (JMBA) seems to reflect a consensus view that this chain of 729 smoothie stores will not survive. After a review of JMBA’s fourth quarter and full-year 2008 results, and several calls with management, I disagree. I predict that this company will not only survive but thrive. Below is an abbreviated version of my latest analysis of JMBA. A more detailed version is available at JohnAppel.com.

Current Valuation & Consensus View

A recent share price of $0.47 implies an enterprise value (equity + debt – unrestricted cash) of $25 million – approximately 0.6x store-level EBITDA and about 3.3x adjusted EBITDA, based on my 2009 forecast. For comparison, PEET trades at about 7.9x EBITDA, and SBUX trades at approximately 7.6x EBITDA. QSR concepts SONC and JACK trade at about 6.7x EBITDA.

XL Capital (XL) is a company that the market loves to hate. Its stock price has plummeted by 94% over the last twelve months, mainly over concerns about its investment portfolio. (For a more in-depth discussion of XL’s past troubles, please see my article from November 25th, “Reinsurer Stocks: A Fear-Driven Market Creates Opportunity.”) The stock could tick up a bit in connection with the unwinding of hedges related to forward share purchase contracts that settle on February 17th. The company’s fourth quarter earnings call on February 11th could also bring positive news that lifts share prices, perhaps accelerating the hedge unwinds, and potentially leading to further short covering.

Short interest in XL stock is the highest of all commercial lines insurance companies as a percentage of float, at 9.3%, according to a recent Credit Suisse report. One might be tempted to view this as a sign that many investors believe the stock is headed to zero soon. However, there is more to this story.

Cott Corporation (COT) announced that Wal-Mart (WMT) has decided to terminate its existing 10-year old exclusive supply agreement for carbonated soft drinks. This action gives Wal-Mart the option to transition to other suppliers over time: up to one third of its requirements can be moved this year and up to two thirds can be moved next year.

While the ultimate outcome is unclear and discussions between Cott and Wal-Mart are reported to be ongoing, this is certainly not good news for Cott. Wal-Mart represents 35%-40% of Cott’s sales. If Wal-Mart were to move its business to other suppliers, Cott could have difficulty servicing its debt.

Cott Corp. (COT) should be in crisis-mode: it is overleveraged, underperforming, and lacking both a permanent CEO and a compelling growth strategy. With an activist investor and some seasoned executives on the Board to shake things up, one would expect dramatic action, but it seems like little has been accomplished to date. Have they really been that ineffective, or have they perhaps been distracted? Shareholders need to know what is happening. If there is any material news, we should not have to wait for the next earnings call.

Last year, things began to look encouraging when:

CIC Advantage Holdings LLC, an affiliate of Dallas-based CIC Partners, has acquired a 5.6% stake in Jamba, Inc. (JMBA) according to a recent 13D filing. CIC Advantage paid an average price of $0.86 per share for its 3,077,900 shares.

Smoothie chain Jamba, Inc. (JMBA) lost $113 million in 2007 and an amazing $258 million for the twelve months ended October 7th, driving its market cap down to $36 million from over $500 million. Institutional investors have taken their losses and moved on. Insiders and individual investors now own nearly 90% of the shares. Mainstream sell-side analysts no longer cover the company because it is just too small – in terms of market cap – to matter to their clients.

Thus, it is likely that few people recognize that JMBA is profitable at the adjusted EBITDA level, and fewer still are likely to have gone through the exercise of translating management’s guidance into projections for 2008 and 2009. This is just the sort of stock for a value investor who likes to do their own research and analysis. The chart below shows adjusted EBITDA for 2007 and the latest 12 months ended October 2008, along with my forecasts for fiscal years 2008 and 2009 based on management’s publicly disclosed guidance.

The latest installment of the “Bailout” of American International Group (AIG) is not the good news that one might think it is from reading AIG’s press release.

AIG and the Federal Reserve Bank of New York announced on Tuesday that Maiden Lane II, an entity owned and controlled by the NY Fed, has purchased nearly $40 billion of mortgage-backed securities (RMBS) from AIG subsidiaries. This was part of the revised U.S. government bailout announced on November 10th. I described these arrangements in my article last week entitled, “AIG’s Bailout Needs a Bailout: A $150 Billion Problem.”

Catastrophes both natural and man-made have been hitting reinsurance companies, but the outlook is good. Shares of all the reinsurance companies were pummeled in October, with the combination of Hurricanes Ike and Gustav hitting underwriting profits while the capital markets carved a mark-to-market chunk out of investment portfolios.

Things seemed to improve around Halloween and into November, as signs of “hardening” premium rates began to emerge. But shares have recently retested their lows as the dysfunctional capital markets – especially for mortgage- and asset-backed securities – overshadow improving fundamentals for the group. This has created opportunity for the intrepid value investor.

Cott Corp. (COT) is the world’s largest supplier of retailer brand soft drinks, and the fourth largest nonalcoholic beverage maker.  Given the recent growth trends in private label, Cott should be doing well.  Unfortunately, in 2006, when faced with slowing growth and shrinking margins, instead of striving to become a better and more efficient producer, the company abandoned its historical business plan and entered the uncharted territory of enhanced waters and energy drinks - with its own brands.  This plan failed miserably: Cott alienated its core retail customers; healthy profits turned to losses; and debt mounted to the point that the company can barely service it.

In May 2006, Cott’s board pushed out its CEO, John Sheppard, who had built EBITDA to roughly $200 million through acquisitions and a focus on efficient manufacturing, and brought in a new CEO, Brent Willis, to execute the new plan.  From then until March 2008 when Willis departed, Cott’s stock dropped from $15 to $2 per share, wiping out nearly $1 billion of equity value.  Today, it trades at around $1.00 per share, less than tangible book value.  As I explain below, this could be an $8.00 stock if the company successfully implements its plan to cut costs and return to its roots.  But it is a long, long way from here to there.  If the company does not get capable leadership soon, it may never get there.

Jamba Juice (JMBA) announced last week that it has adopted a “poison pill” in the form of a Stock Purchase Rights Plan [1].  However, the rights plan I would like to see would have nothing to do with takeover defenses.  Instead, it would address a more fundamental issue: the company’s need for cash.  The depressed valuation that motivated the poison pill reflects investors’ fear that the company is headed for bankruptcy.  

Jamba needs an immediate balance sheet fix, to restore investor confidence and ensure the company’s long-term survival.  This should be funded by equity, not by debt, and not by selling stores for pennies on the dollar to franchisees that are smart enough to recognize a bargain.  A rights offering would be the fairest and most effective way to achieve this.

Jamba Juice (JMBA) is a BUY, especially for a private equity group with a longer-term view than the public markets, or for Starbucks (SBUX) or another industry buyer that can help develop the long-term opportunity in this space.  Jamba Juice certainly has its challenges, but for somebody that understands these challenges, a price of about $1.00 per share represents the opportunity to own a top “healthy lifestyle” brand, and the leader in the made-to-order smoothie market, for under 2x store-level cash flow (and a very attractive pro forma EBITDA multiple, as described below).

Why do I care about Jamba? I am a former director of Robeks, a 150-store premium smoothie franchise system, and I have a stake in the success of Robeks, and thus the success of the whole category, so of course I care about the category leader, Jamba Juice (yes, I’m also long JMBA stock).  From my due diligence before leading my former employer’s investment in Robeks, and my experience as a Robeks director, I have learned a lot about the smoothie category, and am in a unique position to evaluate Jamba.  First, let’s recap briefly what Jamba Juice is, then let’s take a look at the numbers.  Next, we’ll look at some of the big picture challenges facing the company.  At the end of this piece, I’ll give my views on what Jamba’s management should do to ensure that the company has an enduring reason for being.