Paul Price - Seeking Alpha 'Paul Price' Tag RSS Syndication from SeekingAlpha.com SeekingAlpha.com http://seekingalpha.com/author/paul-price Tata Motors: License to Dive http://seekingalpha.com/article/174838-tata-motors-license-to-dive?source=feed 174838 Tata (TTM) is India’s largest automobile manufacturer and the world’s 5th largest medium and heavy commercial vehicle maker. They are #2 in medium to heavy bus manufacturing as well. They also provide financing for many of their buyers through their TML Financial Services unit. Tata acquired Jaguar and Land Rover from Ford in a (badly timed) $2.8 billion transaction that closed in June 2008.

I rarely write about ‘short’ ideas but this one seems to just jump off the page when you consider the fundamentals. Tata Motors closed at $13.78 last week and has jumped up to $14 /share in this morning’s rally (Nov. 23, 2009).

]]> Mon, 23 Nov 2009 10:24:26 -0500 Paul Price Paul Price submits:

Tata (TTM) is India’s largest automobile manufacturer and the world’s 5th largest medium and heavy commercial vehicle maker. They are #2 in medium to heavy bus manufacturing as well. They also provide financing for many of their buyers through their TML Financial Services unit. Tata acquired Jaguar and Land Rover from Ford in a (badly timed) $2.8 billion transaction that closed in June 2008.

I rarely write about ‘short’ ideas but this one seems to just jump off the page when you consider the fundamentals. Tata Motors closed at $13.78 last week and has jumped up to $14 /share in this morning’s rally (Nov. 23, 2009).


Complete Story »]]> TTM Paul Price Bank of NY Mellon – Taking Care of Business(es) http://seekingalpha.com/article/174586-bank-of-ny-mellon-taking-care-of-business-es?source=feed 174586
BK:NYSE Nov. 20, 2009 - $26.05
Dividend = $0.09 quarterly = 1.38% current yield
Bank of New York Mellon was created by the July 2007 merger between Mellon Financial and Bank of New York making it one of the world's largest financial services companies. BNY Mellon is a leader in providing back-office services to other financial firms. The bank's asset-management and private banking operations serve institutional and high-net-worth individuals globally.
BK took a huge ($2.54 billion) write-down of its investment portfolio in its September quarter. Management indicated at that time that 90% of the charges had been previously recognized and had already been deducted from their reported capital. Excluding the non-recurring write-offs they earned about $0.54 /share for Q3 with both assets under management and assets under custody both up nicely from Q2 levels.
On continuing operations the consensus views for 2009 and 2010 are now $2.07 and $2.40 respectively. That would put EPS at all-time highs this year and next. Here are BK’s per share (fully diluted) numbers (from cont. ops.) as reported by Value Line:
Year
EPS
Div.
B/V
Avg. P/E
52-Wk. Range
2002
1.24
0.76
9.21
27.1x
20.80-46.50
2003
1.52
0.76
10.87
18.4x
19.30-33.50
2004
1.85
0.79
11.93
16.8x
27.30-34.80
2005
2.03
0.82
12.81
14.9x
26.90-33.70
2006
1.93
0.86
15.34
17.9x
30.80-40.60
2007
2.18
0.95
25.56
19.7x
37.60-50.30
2008
1.20
0.96
22.00
31.8x
20.50-49.40
2009*
2.07
0.51
23.65
12.5x
15.40-33.60
* 2009 includes Q4 estimates
Value Line sees BK’s financial strength as ‘A’ rated and Standard and Poors lists BK as ‘low risk’. At today’s quote of $26.05 the shares trade for < 12.6x this year’s and about 10.9x the 2010 estimates. Compare those multiple to the historical levels from the chart above to see how cheap these shares look right now.
S&P has a 12-month price target of $33 and sees ‘fair value’ at $32.10 /share. Morningstar agrees and calls fair value at $32 /share. Even 13x next year’s estimate would bring BK shares back up to $31.20 or 19.8% above the current price. Add in the 1.38% current yield and a > 21% total return appears likely over the next year.
Is that $31 level reasonable? BK shares have actually traded well above that price at some point in each of the twelve years. With record earnings expected in 2010 that goal could prove to be too conservative.
Want a way to play with a built in margin of safety? Consider this buy/write combo for the next 14 months:
Cash Outlay
Cash Inflow
Buy 1000 BK @$26.05 /share
$26,050
Sell 10 Jan. 2011 $30 calls @$2.95 /share
$2,950
Sell 10 Jan. 2011 $30 puts @$7.00 /share
$7,000
Net Cash Out-of-Pocket
$16,100
If BK shares rise to $30 or better (+15.2%) by Jan. 21, 2011:
· The $30 calls will be exercised.
· You will sell your shares for $30,000.
· The $30 puts will expire worthless.
· You will likely have collected $360 in dividends.
· You will end up with no shares and $16,340 in cash.
· You will have no further option obligations.
This best-case scenario return would be a net profit of $13,540/$16,100 = 84%
achieved in just 14 months on shares that only needed to go up by $15.2% or more.
What’s the risk?
If BK shares remain < $30 on Jan. 21, 2011:
· The $30 calls will expire worthless.
· The $30 puts will be exercised.
· You will be forced to buy another 1000 BK shares.
· You will need to lay out an additional $30,000 in cash.
· You will likely have collected $360 in dividends.
· You will end up with 2000 BK shares and $360 in cash.
· You will have no further option obligations.
What’s the break-even on the whole trade?
On the original 1000 shares it’s their $26.05 purchase price
less the $2.95 /share call premium = $23.10 /share (ignoring yield).
On the ‘put’ shares it’s the $30 strike price less the
$7.00 /share put premium = $23.00 /share.
Your overall break-even would be $23.05 /share (ignoring dividends).
BK shares could drop by $3 /share or (-11.5%) without causing a loss on this trade.
Disclosure: Author is long BK shares and short BK options.
]]> Fri, 20 Nov 2009 15:59:04 -0500 Paul Price Paul Price submits:
BK:NYSE Nov. 20, 2009 - $26.05
Dividend = $0.09 quarterly = 1.38% current yield
Bank of New York Mellon was created by the July 2007 merger between Mellon Financial and Bank of New York making it one of the world's largest financial services companies. BNY Mellon is a leader in providing back-office services to other financial firms. The bank's asset-management and private banking operations serve institutional and high-net-worth individuals globally.
BK took a huge ($2.54 billion) write-down of its investment portfolio in its September quarter. Management indicated at that time that 90% of the charges had been previously recognized and had already been deducted from their reported capital. Excluding the non-recurring write-offs they earned about $0.54 /share for Q3 with both assets under management and assets under custody both up nicely from Q2 levels.
On continuing operations the consensus views for 2009 and 2010 are now $2.07 and $2.40 respectively. That would put EPS at all-time highs this year and next. Here are BK’s per share (fully diluted) numbers (from cont. ops.) as reported by Value Line:
Year
EPS
Div.
B/V
Avg. P/E
52-Wk. Range
2002
1.24
0.76
9.21
27.1x
20.80-46.50
2003
1.52
0.76
10.87
18.4x
19.30-33.50
2004
1.85
0.79
11.93
16.8x
27.30-34.80
2005
2.03
0.82
12.81
14.9x
26.90-33.70
2006
1.93
0.86
15.34
17.9x
30.80-40.60
2007
2.18
0.95
25.56
19.7x
37.60-50.30
2008
1.20
0.96
22.00
31.8x
20.50-49.40
2009*
2.07
0.51
23.65
12.5x
15.40-33.60
* 2009 includes Q4 estimates
Value Line sees BK’s financial strength as ‘A’ rated and Standard and Poors lists BK as ‘low risk’. At today’s quote of $26.05 the shares trade for < 12.6x this year’s and about 10.9x the 2010 estimates. Compare those multiple to the historical levels from the chart above to see how cheap these shares look right now.
S&P has a 12-month price target of $33 and sees ‘fair value’ at $32.10 /share. Morningstar agrees and calls fair value at $32 /share. Even 13x next year’s estimate would bring BK shares back up to $31.20 or 19.8% above the current price. Add in the 1.38% current yield and a > 21% total return appears likely over the next year.
Is that $31 level reasonable? BK shares have actually traded well above that price at some point in each of the twelve years. With record earnings expected in 2010 that goal could prove to be too conservative.
Want a way to play with a built in margin of safety? Consider this buy/write combo for the next 14 months:
Cash Outlay
Cash Inflow
Buy 1000 BK @$26.05 /share
$26,050
Sell 10 Jan. 2011 $30 calls @$2.95 /share
$2,950
Sell 10 Jan. 2011 $30 puts @$7.00 /share
$7,000
Net Cash Out-of-Pocket
$16,100
If BK shares rise to $30 or better (+15.2%) by Jan. 21, 2011:
· The $30 calls will be exercised.
· You will sell your shares for $30,000.
· The $30 puts will expire worthless.
· You will likely have collected $360 in dividends.
· You will end up with no shares and $16,340 in cash.
· You will have no further option obligations.
This best-case scenario return would be a net profit of $13,540/$16,100 = 84%
achieved in just 14 months on shares that only needed to go up by $15.2% or more.
What’s the risk?
If BK shares remain < $30 on Jan. 21, 2011:
· The $30 calls will expire worthless.
· The $30 puts will be exercised.
· You will be forced to buy another 1000 BK shares.
· You will need to lay out an additional $30,000 in cash.
· You will likely have collected $360 in dividends.
· You will end up with 2000 BK shares and $360 in cash.
· You will have no further option obligations.
What’s the break-even on the whole trade?
On the original 1000 shares it’s their $26.05 purchase price
less the $2.95 /share call premium = $23.10 /share (ignoring yield).
On the ‘put’ shares it’s the $30 strike price less the
$7.00 /share put premium = $23.00 /share.
Your overall break-even would be $23.05 /share (ignoring dividends).
BK shares could drop by $3 /share or (-11.5%) without causing a loss on this trade.
Disclosure: Author is long BK shares and short BK options.

Complete Story »]]> BK Paul Price Tutor Perini: Constructing an Option Play http://seekingalpha.com/article/173897-tutor-perini-constructing-an-option-play?source=feed 173897 Tutor Perini Corporation (TPC) offers diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world. It provides general contracting, preconstruction planning and project management services, including the planning and scheduling of the manpower, equipment, materials and subcontractors required for a project. TPC also offers self-performed construction services including site work, concrete forming and placement, steel erection, electrical and mechanical, plumbing and heating, ventilation, and air conditioning (HVAC).
TPC shares have retreated from a 52-week high of $26.60 to Tuesday’s quote of $17.40, making them attractive again. An all-time high of $75.43 was hit during 2007 when better economic times permitted record EPS of $3.54.
In reporting Q3 earnings of $0.54, TPC management indicated expectations of $2.60 /share for 2009 and $2.40-$2.60 for 2010. Government sponsored projects will likely provide about 40% of 2010 revenues versus 20% of this year’s due to increased stimulus- related projects.
Here are the per share numbers from past years as reported by Value Line:
Year
Sales
C/F
EPS
B/V
Avg. P/E
2004
73.01
1.55
1.39
6.34
9.9x
2005
66.58
0.37
0.20
6.86
NMF
2006
114.59
1.85
1.54
9.18
17.2x
2007
171.50
3.94
3.54
13.65
13.9x
2008
117.14
1.72
2.07
23.56
14.3x
At the current price, TPC trades for just 6.7x this year’s and < 7.3x the low-end estimate for 2010. It doesn’t seem farfetched to expect TPC shares could again trade for about 10x the $2.40 estimate for 2010 bringing a 12-month price target about 38% above the current price.
Is that a reasonable goal? TPC has actually changed hands at $26.60 during 2009 and hit peaks of $27.30, $33.47, $75.43 and $44.80 during the calendar years 2005, 2006, 2007 and 2008, respectively. Earnings are higher now than in any of those years except 2007 (when the price was as much as 4x higher than today).
Standard and Poors gives TPC its highest ranking for ‘Fair Value’ at 5+ (on a 1- 5 scale) and calculates a $24.90 target based on their 2010 estimate of $2.51/share.
As of June 30, 2009 long-term debt was just 13% of capital and treasury cash equaled more than twice total debt.
If you’re comfortable with options you might consider this five-month play for a nice total return even if the shares do very little between now and next April.
Cash Outlay
Cash Inflow
Buy 1000 TPC @$17.40 /sh.
$17,400
Sell 10 Apr. $17.50 Calls @$2.30/sh.
$2,300
Sell 10 Apr. $17.50 Puts @$2.35/sh.
$2,350
Net Cash Out-of-Pocket
$12,750
If TPC shares merely creep above $17.50 (+1%) before April 16, 2010:
  • The $17.50 calls will be exercised.
  • You will sell your shares for $17,500.
  • The $17.50 puts will expire worthless.
  • You will end up with no shares and $17,500 in cash.
  • You will have no further option obligations.
That best-case scenario result would be a $4,750 profit on a net cash outlay of just $12,750 for a cash-on-cash profit of 37% over the approximately 5–month trade horizon.
That would occur on any move of 1% or better from the $17.40 starting price.
What’s the risk?
If TPC shares remain < $17.50 on April 16, 2010
  • The $17.50 calls will expire worthless.
  • The $17.50 puts will be exercised.
  • You will be forced to buy another 1000 TPC shares.
  • You will need to lay out an additional $17,500 in cash.
  • You will have no further option obligations.
  • You will end up with 2000 shares of TPC.
What’s the break-even on the whole trade?
On the original 1000 shares it’s their $17.40 purchase price less the $2.30 /share call premium = $15.10 /share.
On the ‘put’ shares it’s the $17.50 strike price less the $2.35 /share put premium = $15.15 /share.
Your overall break-even would be $15.13 /share.
TPC shares could fall be up to $2.27 /share (-13%) without causing a loss on this trade.
Disclosure: Author is long TPC shares and short TPC options.
]]> Tue, 17 Nov 2009 16:15:13 -0500 Paul Price Paul Price submits:
Tutor Perini Corporation (TPC) offers diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world. It provides general contracting, preconstruction planning and project management services, including the planning and scheduling of the manpower, equipment, materials and subcontractors required for a project. TPC also offers self-performed construction services including site work, concrete forming and placement, steel erection, electrical and mechanical, plumbing and heating, ventilation, and air conditioning (HVAC).
TPC shares have retreated from a 52-week high of $26.60 to Tuesday’s quote of $17.40, making them attractive again. An all-time high of $75.43 was hit during 2007 when better economic times permitted record EPS of $3.54.
In reporting Q3 earnings of $0.54, TPC management indicated expectations of $2.60 /share for 2009 and $2.40-$2.60 for 2010. Government sponsored projects will likely provide about 40% of 2010 revenues versus 20% of this year’s due to increased stimulus- related projects.
Here are the per share numbers from past years as reported by Value Line:
Year
Sales
C/F
EPS
B/V
Avg. P/E
2004
73.01
1.55
1.39
6.34
9.9x
2005
66.58
0.37
0.20
6.86
NMF
2006
114.59
1.85
1.54
9.18
17.2x
2007
171.50
3.94
3.54
13.65
13.9x
2008
117.14
1.72
2.07
23.56
14.3x
At the current price, TPC trades for just 6.7x this year’s and < 7.3x the low-end estimate for 2010. It doesn’t seem farfetched to expect TPC shares could again trade for about 10x the $2.40 estimate for 2010 bringing a 12-month price target about 38% above the current price.
Is that a reasonable goal? TPC has actually changed hands at $26.60 during 2009 and hit peaks of $27.30, $33.47, $75.43 and $44.80 during the calendar years 2005, 2006, 2007 and 2008, respectively. Earnings are higher now than in any of those years except 2007 (when the price was as much as 4x higher than today).
Standard and Poors gives TPC its highest ranking for ‘Fair Value’ at 5+ (on a 1- 5 scale) and calculates a $24.90 target based on their 2010 estimate of $2.51/share.
As of June 30, 2009 long-term debt was just 13% of capital and treasury cash equaled more than twice total debt.
If you’re comfortable with options you might consider this five-month play for a nice total return even if the shares do very little between now and next April.
Cash Outlay
Cash Inflow
Buy 1000 TPC @$17.40 /sh.
$17,400
Sell 10 Apr. $17.50 Calls @$2.30/sh.
$2,300
Sell 10 Apr. $17.50 Puts @$2.35/sh.
$2,350
Net Cash Out-of-Pocket
$12,750
If TPC shares merely creep above $17.50 (+1%) before April 16, 2010:
  • The $17.50 calls will be exercised.
  • You will sell your shares for $17,500.
  • The $17.50 puts will expire worthless.
  • You will end up with no shares and $17,500 in cash.
  • You will have no further option obligations.
That best-case scenario result would be a $4,750 profit on a net cash outlay of just $12,750 for a cash-on-cash profit of 37% over the approximately 5–month trade horizon.
That would occur on any move of 1% or better from the $17.40 starting price.
What’s the risk?
If TPC shares remain < $17.50 on April 16, 2010
  • The $17.50 calls will expire worthless.
  • The $17.50 puts will be exercised.
  • You will be forced to buy another 1000 TPC shares.
  • You will need to lay out an additional $17,500 in cash.
  • You will have no further option obligations.
  • You will end up with 2000 shares of TPC.
What’s the break-even on the whole trade?
On the original 1000 shares it’s their $17.40 purchase price less the $2.30 /share call premium = $15.10 /share.
On the ‘put’ shares it’s the $17.50 strike price less the $2.35 /share put premium = $15.15 /share.
Your overall break-even would be $15.13 /share.
TPC shares could fall be up to $2.27 /share (-13%) without causing a loss on this trade.
Disclosure: Author is long TPC shares and short TPC options.

Complete Story »]]> TPC Paul Price Investment Technology Group: POSIT-tively Cheap http://seekingalpha.com/article/173446-investment-technology-group-posit-tively-cheap?source=feed 173446 Investment Technology Group's (ITG) primary business is providing electronic trade execution to financial institutions. The company services the whole execution process from pre-trade analytics to post-trade processing. The company operates in the United States, Canada, Europe, and Asia-Pacific. ITG’s flagship POSIT system enables clients to trade confidentially amongst themselves using proprietary algorithms to match buy and sell orders without human intervention.

The frantic pace of trading in 2006 – 2008 pushed ITG’s revenues and earnings to all time highs in each of those years. 2009’s depressed market volumes have contributed to lower sales and earnings for 2009. Zacks now sees 2009 EPS of $1.56 versus 2008’s record level of $2.61. Consensus views for 2010 range around $1.85 - $1.90.

]]> Sun, 15 Nov 2009 23:31:06 -0500 Paul Price Paul Price submits:

Investment Technology Group's (ITG) primary business is providing electronic trade execution to financial institutions. The company services the whole execution process from pre-trade analytics to post-trade processing. The company operates in the United States, Canada, Europe, and Asia-Pacific. ITG’s flagship POSIT system enables clients to trade confidentially amongst themselves using proprietary algorithms to match buy and sell orders without human intervention.

The frantic pace of trading in 2006 – 2008 pushed ITG’s revenues and earnings to all time highs in each of those years. 2009’s depressed market volumes have contributed to lower sales and earnings for 2009. Zacks now sees 2009 EPS of $1.56 versus 2008’s record level of $2.61. Consensus views for 2010 range around $1.85 - $1.90.


Complete Story »]]> ITG Paul Price Knight Capital Group: Buying on the Dip http://seekingalpha.com/article/173177-knight-capital-group-buying-on-the-dip?source=feed 173177 NITE shares had hit a multi-year high of $23.11 in October before somewhat weaker than expected September EPS knocked their shares back to today’s $16.40 price.

Zacks now expects Knight to earn $1.43 this year and $1.60 in 2010.

Here are NITE’s per share numbers from continuing operations as reported by Value Line:

]]> Fri, 13 Nov 2009 05:37:58 -0500 Paul Price Paul Price submits:
NITE shares had hit a multi-year high of $23.11 in October before somewhat weaker than expected September EPS knocked their shares back to today’s $16.40 price.

Zacks now expects Knight to earn $1.43 this year and $1.60 in 2010.

Here are NITE’s per share numbers from continuing operations as reported by Value Line:


Complete Story »]]> NITE Paul Price InteractiveBrokers and OptionsXpress: Benefiting from a Market Rebound http://seekingalpha.com/article/172504-interactivebrokers-and-optionsxpress-benefiting-from-a-market-rebound?source=feed 172504 Both IBKR and OXPS are major players in the once-again booming options markets, as well as in equities, futures and FOREX. As risk aversion declines their businesses are expected to see gains in both absolute account numbers and trading volumes.

Both companies sport clean balance sheets and solid profitability with substantially better results expected for 2010. Each stock is down dramatically from their bull market valuations and now trades at nice discounts to the better-known industry competitors Charles Schwab (SCHW) and TD Ameritrade (AMTD) based on P/E and P/BV.

]]> Tue, 10 Nov 2009 10:45:26 -0500 Paul Price Paul Price submits:

Both IBKR and OXPS are major players in the once-again booming options markets, as well as in equities, futures and FOREX. As risk aversion declines their businesses are expected to see gains in both absolute account numbers and trading volumes.

Both companies sport clean balance sheets and solid profitability with substantially better results expected for 2010. Each stock is down dramatically from their bull market valuations and now trades at nice discounts to the better-known industry competitors Charles Schwab (SCHW) and TD Ameritrade (AMTD) based on P/E and P/BV.


Complete Story »]]> IBKR OXPS AMTD SCHW Paul Price AllianceBernstein: Still Worth Buying http://seekingalpha.com/article/171627-alliancebernstein-still-worth-buying?source=feed 171627 AllianceBernstein Holding L.P. (AB) is a limited partnership company. It provides research, diversified investment management and related services globally to a range of clients. Its principal services include Institutional Investment Services, Retail Services, Private Client Services and Institutional Research Services. Clients include institutions such as corporate and public employee pensions, endowments and governments. AB also serves various retail clients; private clients, trusts, estates, partnerships, and other entities. It also provides distribution, shareholder servicing, etc. to its sponsored mutual funds.
Both the profits and unit price of AB went way down last fall and winter along with the general market. Fundamentals dictated a drop but the extent appears to have grossly overshot to the downside. AllianceBernstein units peaked at $94.90 in early 2007 and fell as low as $10.10 at the nadir last March.
Earnings troughed in the March quarter but have recovered steadily since then. Q1 came in at $0.07, Q2 at $0.41 and the recently reported Q3 picked up to $0.67. Full year 2009 estimates have risen over the past month from $1.38 to $1.70, while analysts are now at $2.05 for 2010 versus a month-ago expectation of just $1.71.
The units have surged along with the earnings upgrades. AB has climbed back to $26.02 after going ex-dividend for a $0.67 quarterly distribution Thursday.
Here are the per unit figures for AB as reported by Value Line:
Year
Sales
C/F
EPS
Distrib.
Dist/C-F
Avg. P/E
Range
2000
10.21
4.10
3.12
3.18
89%
14.4x
29.30-56.70
2001
12.03
4.96
2.77
2.84
89%
17.8x
37.40-59.30
2002
10.96
3.72
2.19
2.30
104%
16.9x
23.20-50.80
2003
10.87
4.04
2.12
1.97
92%
15.6x
25.80-39.30
2004
11.92
4.17
2.43
1.19
54%
14.9x
31.50-42.30
2005
12.72
4.51
3.02
2.80
92%
15.7x
40.20-58.50
2006
15.25
5.24
3.82
3.56
93%
17.7x
55.40-82.90
2007
17.38
5.79
4.33
4.75
108%
19.8x
71.30-94.90
2008
13.33
4.10
2.79
3.45
122%
17.6x
11.50-78.00
As a master limited partnership, AllianceBernstein must pay out the bulk of its profits to its unit holders as cash distributions. Over the past decade, AB has paid out $27.48 per unit (including 2009’s declared $1.44) for an average annual distribution of $2.745 /unit.
That period from 2000 through 2009 includes the NASDAQ bust of 2000, the extreme bear market of 2002 as well as the 2008-2009 melt down. It includes the boom years of 2003 and 2005-2007. As such, I feel it represents a pretty good indication of what investors can expect over a full cycle or two of ‘normalized’ market action.
At the current price of $26.02 that average annual $2.74 distribution would equal about a 9.5% yield. That’s quite attractive in today’s low interest rate world.
The chart above shows that the average annual P/E for AB was 16.7x over the 9-year period 2000-2008. A return to even a 16 multiple on year-ahead estimates of $2.05 would bring AB units back to $32.80 or up 26% from the current quote. Add in the nice quarterly distributions and you have the recipe for a very nice total return play.
Is $32.80 a rational target? I’d say it’s probably too conservative based on the past trading history for AB. Take a peek at the high end pricing from the ’52-week range’ box on the table above to see where AB has typical gone during boom times.
The balance sheet is in good shape with total debt about half of net cash on hand and no maturities coming due anytime soon. Long-term debt equals less than 10% of capital.
Summary: AllianceBernstein units are good-yielding and moderately priced. Total annual returns could easily exceed 30% based on today’s estimates and could easily be better than that if markets continue to improve over time.
Disclosure: Author is long AB units and short AB puts.
]]> Thu, 05 Nov 2009 16:18:25 -0500 Paul Price Paul Price submits:
AllianceBernstein Holding L.P. (AB) is a limited partnership company. It provides research, diversified investment management and related services globally to a range of clients. Its principal services include Institutional Investment Services, Retail Services, Private Client Services and Institutional Research Services. Clients include institutions such as corporate and public employee pensions, endowments and governments. AB also serves various retail clients; private clients, trusts, estates, partnerships, and other entities. It also provides distribution, shareholder servicing, etc. to its sponsored mutual funds.
Both the profits and unit price of AB went way down last fall and winter along with the general market. Fundamentals dictated a drop but the extent appears to have grossly overshot to the downside. AllianceBernstein units peaked at $94.90 in early 2007 and fell as low as $10.10 at the nadir last March.
Earnings troughed in the March quarter but have recovered steadily since then. Q1 came in at $0.07, Q2 at $0.41 and the recently reported Q3 picked up to $0.67. Full year 2009 estimates have risen over the past month from $1.38 to $1.70, while analysts are now at $2.05 for 2010 versus a month-ago expectation of just $1.71.
The units have surged along with the earnings upgrades. AB has climbed back to $26.02 after going ex-dividend for a $0.67 quarterly distribution Thursday.
Here are the per unit figures for AB as reported by Value Line:
Year
Sales
C/F
EPS
Distrib.
Dist/C-F
Avg. P/E
Range
2000
10.21
4.10
3.12
3.18
89%
14.4x
29.30-56.70
2001
12.03
4.96
2.77
2.84
89%
17.8x
37.40-59.30
2002
10.96
3.72
2.19
2.30
104%
16.9x
23.20-50.80
2003
10.87
4.04
2.12
1.97
92%
15.6x
25.80-39.30
2004
11.92
4.17
2.43
1.19
54%
14.9x
31.50-42.30
2005
12.72
4.51
3.02
2.80
92%
15.7x
40.20-58.50
2006
15.25
5.24
3.82
3.56
93%
17.7x
55.40-82.90
2007
17.38
5.79
4.33
4.75
108%
19.8x
71.30-94.90
2008
13.33
4.10
2.79
3.45
122%
17.6x
11.50-78.00
As a master limited partnership, AllianceBernstein must pay out the bulk of its profits to its unit holders as cash distributions. Over the past decade, AB has paid out $27.48 per unit (including 2009’s declared $1.44) for an average annual distribution of $2.745 /unit.
That period from 2000 through 2009 includes the NASDAQ bust of 2000, the extreme bear market of 2002 as well as the 2008-2009 melt down. It includes the boom years of 2003 and 2005-2007. As such, I feel it represents a pretty good indication of what investors can expect over a full cycle or two of ‘normalized’ market action.
At the current price of $26.02 that average annual $2.74 distribution would equal about a 9.5% yield. That’s quite attractive in today’s low interest rate world.
The chart above shows that the average annual P/E for AB was 16.7x over the 9-year period 2000-2008. A return to even a 16 multiple on year-ahead estimates of $2.05 would bring AB units back to $32.80 or up 26% from the current quote. Add in the nice quarterly distributions and you have the recipe for a very nice total return play.
Is $32.80 a rational target? I’d say it’s probably too conservative based on the past trading history for AB. Take a peek at the high end pricing from the ’52-week range’ box on the table above to see where AB has typical gone during boom times.
The balance sheet is in good shape with total debt about half of net cash on hand and no maturities coming due anytime soon. Long-term debt equals less than 10% of capital.
Summary: AllianceBernstein units are good-yielding and moderately priced. Total annual returns could easily exceed 30% based on today’s estimates and could easily be better than that if markets continue to improve over time.
Disclosure: Author is long AB units and short AB puts.

Complete Story »]]> AB Paul Price Cedar Fair: Growth Opportunities in Amusements http://seekingalpha.com/article/171589-cedar-fair-growth-opportunities-in-amusements?source=feed 171589 Cedar Fair (FUN) is a publicly traded partnership headquartered in Sandusky, Ohio, and one of the largest regional amusement-resort operators in the world.
The Partnership owns and operates 11 amusement parks, six outdoor water parks, one indoor water park and five hotels. Amusement parks in the company’s northern region include two in Ohio: Cedar Point, consistently voted “Best Amusement Park in the World” in Amusement Today polls, and Kings Island; as well as Canada’s Wonderland, near Toronto; Dorney Park, PA; Valleyfair, MN; and Michigan’s Adventure, MI. In the southern region are Kings Dominion, VA; Carowinds, NC; and Worlds of Fun, MO. Western parks in California include: Knott’s Berry Farm; Great America; and Gilroy Gardens Family Theme Park, which is managed under contract.
The L.P. Units trade on the NYSE under the symbol FUN and closed Wednesday at $7.37.
They took a big hit right after the (reasonably good) third quarter earnings release simply due to a change in income distribution policy. FUN had been mainly seen as an income vehicle for its holders having paid generous distributions of $1.40 - $1.92 annually in each calendar year from 1999 through 2008.
With the recession hurting operating earnings and the very tight credit markets, management announced a suspension of distributions starting in 2010 in order to pay down debt. This seems like the proper long-term strategy even though the old income-seeking holders dumped the stock on the news.
FUN units briefly went under $7 before rebounding a bit to finish on Nov. 4th at $7.37. The 52-week range has been $5.75 - $19.80. Until late 2008’s market meltdown, the low from 1998 had never been less than $17.40 and the yearly highs had ranged from $20.90 to $36.00.
Ignoring the change in distribution policy, what are these units worth on fundamentals?
The business is seasonal with more than 100% of the profits generated in the spring-summer months. The nine-month results were $1.92 in 2009 versus $1.65 in the prior year’s same period. The Zacks estimates for the full years 2009 - 2010 are now running $1.16 and $1.36. That puts the multiples at < 6.4x this year’s and about 5.4x the 2010 expectation. Compare those with 10-year median P/E of 16x to see just how cheap FUN is right now.
Here are the per unit numbers for Cedar Fair as reported by Value Line:
Year
Sales
C/F
EPS
Dist.
Avg. P/E
Range
2001
9.45
2.22
1.36
1.58
15.5x
17.80-25.00
2002
9.95
2.24
1.39
1.65
16.7x
19.60-24.80
2003
10.06
2.58
1.67
1.74
16.0x
22.70-31.50
2004
10.13
2.41
1.47
1.79
21.4x
28.70-36.00
2005
10.57
2.68
1.61
1.83
19.0x
25.70-34.00
2006
15.37
3.29
1.59
1.87
17.2x
24.10-29.90
2007
18.19
3.20
0.79
1.90
33.9x
20.60-30.70
2008
18.09
3.62
1.34
1.92
18.9x
11.30-25.00
Cedar Fair remains quite profitable and management’s decision to suspend the distributions to reduce debt seems quite sound. It what almost every bank and S&L in America should have done (but didn’t) over the past few years.
A return to even 12 times 2010’s projected earnings of $1.36 would lead to a price point of $16.32 /unit or up 121% from yesterday’s closing quote. Somewhere in the future it is expected that the distributions will be reinstated as well.
This looks like an opportune time for investors to accumulate FUN for capital gains potential by buying from those downhearted income investors currently exiting these units.
Disclosure: Author has been a big buyer of FUN units over the past few days. I am now long FUN and short FUN puts.
]]> Thu, 05 Nov 2009 15:36:36 -0500 Paul Price Paul Price submits:
Cedar Fair (FUN) is a publicly traded partnership headquartered in Sandusky, Ohio, and one of the largest regional amusement-resort operators in the world.
The Partnership owns and operates 11 amusement parks, six outdoor water parks, one indoor water park and five hotels. Amusement parks in the company’s northern region include two in Ohio: Cedar Point, consistently voted “Best Amusement Park in the World” in Amusement Today polls, and Kings Island; as well as Canada’s Wonderland, near Toronto; Dorney Park, PA; Valleyfair, MN; and Michigan’s Adventure, MI. In the southern region are Kings Dominion, VA; Carowinds, NC; and Worlds of Fun, MO. Western parks in California include: Knott’s Berry Farm; Great America; and Gilroy Gardens Family Theme Park, which is managed under contract.
The L.P. Units trade on the NYSE under the symbol FUN and closed Wednesday at $7.37.
They took a big hit right after the (reasonably good) third quarter earnings release simply due to a change in income distribution policy. FUN had been mainly seen as an income vehicle for its holders having paid generous distributions of $1.40 - $1.92 annually in each calendar year from 1999 through 2008.
With the recession hurting operating earnings and the very tight credit markets, management announced a suspension of distributions starting in 2010 in order to pay down debt. This seems like the proper long-term strategy even though the old income-seeking holders dumped the stock on the news.
FUN units briefly went under $7 before rebounding a bit to finish on Nov. 4th at $7.37. The 52-week range has been $5.75 - $19.80. Until late 2008’s market meltdown, the low from 1998 had never been less than $17.40 and the yearly highs had ranged from $20.90 to $36.00.
Ignoring the change in distribution policy, what are these units worth on fundamentals?
The business is seasonal with more than 100% of the profits generated in the spring-summer months. The nine-month results were $1.92 in 2009 versus $1.65 in the prior year’s same period. The Zacks estimates for the full years 2009 - 2010 are now running $1.16 and $1.36. That puts the multiples at < 6.4x this year’s and about 5.4x the 2010 expectation. Compare those with 10-year median P/E of 16x to see just how cheap FUN is right now.
Here are the per unit numbers for Cedar Fair as reported by Value Line:
Year
Sales
C/F
EPS
Dist.
Avg. P/E
Range
2001
9.45
2.22
1.36
1.58
15.5x
17.80-25.00
2002
9.95
2.24
1.39
1.65
16.7x
19.60-24.80
2003
10.06
2.58
1.67
1.74
16.0x
22.70-31.50
2004
10.13
2.41
1.47
1.79
21.4x
28.70-36.00
2005
10.57
2.68
1.61
1.83
19.0x
25.70-34.00
2006
15.37
3.29
1.59
1.87
17.2x
24.10-29.90
2007
18.19
3.20
0.79
1.90
33.9x
20.60-30.70
2008
18.09
3.62
1.34
1.92
18.9x
11.30-25.00
Cedar Fair remains quite profitable and management’s decision to suspend the distributions to reduce debt seems quite sound. It what almost every bank and S&L in America should have done (but didn’t) over the past few years.
A return to even 12 times 2010’s projected earnings of $1.36 would lead to a price point of $16.32 /unit or up 121% from yesterday’s closing quote. Somewhere in the future it is expected that the distributions will be reinstated as well.
This looks like an opportune time for investors to accumulate FUN for capital gains potential by buying from those downhearted income investors currently exiting these units.
Disclosure: Author has been a big buyer of FUN units over the past few days. I am now long FUN and short FUN puts.

Complete Story »]]> FUN Paul Price Calamos Asset Management: Undervalued http://seekingalpha.com/article/170487-calamos-asset-management-undervalued?source=feed 170487 Calamos Asset Management (NDQ:CLMS) Nov. 1, 2009 - $10.60

Dividend = $0.55 quarterly = 2.075% current yield

Calamos provides investment management advice and services to institutional and individual investors. The firm offers more than a dozen mutual funds and five closed-end funds, as well as separately managed accounts. Calamos has expanded its fund lineup to include equity, fixed-income, and alternative investments. Calamos Growth and Calamos Growth and Income--account for more than 40% of assets under management.

]]> Mon, 02 Nov 2009 05:57:03 -0500 Paul Price Paul Price submits:
Calamos Asset Management (NDQ:CLMS) Nov. 1, 2009 - $10.60

Dividend = $0.55 quarterly = 2.075% current yield

Calamos provides investment management advice and services to institutional and individual investors. The firm offers more than a dozen mutual funds and five closed-end funds, as well as separately managed accounts. Calamos has expanded its fund lineup to include equity, fixed-income, and alternative investments. Calamos Growth and Calamos Growth and Income--account for more than 40% of assets under management.


Complete Story »]]> CLMS Paul Price Central European Distribution Corp.: An Opportunity in Spirits http://seekingalpha.com/article/169663-central-european-distribution-corp-an-opportunity-in-spirits?source=feed 169663 Central European Distribution Corporation (CEDC) distributes, imports and exports alcoholic beverages primarily in Poland, Hungary and the Russian Federation. It produces and sells vodka and also distributes approximately 700 brands of alcoholic beverages (spirits, wine, and beer) as well as non-alcoholic beverages. It serves retail outlets, petrol stations, duty free stores, supermarkets and hypermarkets plus bars, nightclubs, hotels and restaurants.
As of December 31, 2008, CEDC operated 19 distribution centers and 124 satellite branches located throughout Poland. It imports well-known brands, including Corona, Budvar, Guinness, Carlo Rossi, Sutter Home, E&J Gallo and Concha y Toro wines, Metaxa, Remy Martin, Guinness, Grant’s, Jagermeister, Jim Beam, Sierra Tequila, Teacher’s Whisky, Campari, Cinzano, Skyy and Old Smuggler.
Shares are listed on the NASDAQ under the symbol CEDC and trade as at $31.00. Earnings had risen dramatically from 2000 through 2008 with EPS growing from a (split-adjusted) $0.07 to $2.93 over that 8-year period. The company now expects 2009 earnings to come in between $2.35 and $2.50 /share due to unfavorable exchange rates. Management indicates $3.00 - $3.15 as their best projection for 2010.
CEDC shares had been market darlings from 2003 through mid-2008 on the strength of their rapid growth. Peak prices of $61.10 and $77.50 were touched in 2007 and 2008. In the craziness of early 2009 they bottomed at an incredible $6.00 before rebounding strongly as the market recovered.
Here are CEDC’s per share numbers as reported by Value Line:
Year
Sales
C/F
EPS
B/V
Avg. P/E
2000
8.96
0.14
0.07
1.13
18.8x
2001
11.92
0.28
0.17
1.39
9.9x
2002
14.68
0.49
0.44
2.16
9.0x
2003
17.71
0.71
0.64
3.43
15.9x
2004
23.45
1.02
0.87
4.86
18.0x
2005
21.06
0.70
0.70
10.54
35.7x
2006
24.56
1.67
1.53
13.55
16.7x
2007
29.51
2.16
1.91
20.22
20.3x
2008
33.31
2.95
2.93
19.13
17.7x
2009*
26.60
2.90
2.42
21.72
11.1x
* 2009 data includes Zacks estimates
Based on the 2009 – 2010 expectations CEDC now trades for about 12.8x this year’s and 10x next year’s earnings. Those are pretty low for CEDC by historical standards. Buyers in 2001 – 2002, the last time P/Es were lower than today; saw their split-adjusted shares surge from $1 – 2 to $30 over the next few years.
If earnings rebound to next year’s lower end estimate of $3, even a 13 multiple would bring CEDC shares back to $39 or plus 25.8% from Wednesday’s quote. Is that a reasonable target price? CEDC shares actually traded as high as $31 in 2006 on EPS of $1.53. They hit peaks of $61+ and $77+ in 2007 – 2008 and have been as high as $36.41 already this year.
Here’s what I think is an even better play than just outright purchase of the shares.
Cash Outlay
Cash Inflow
Buy 1000 CEDC @ $31.00 /share
$31,000
Sell 10 June $30 calls @ $6.10 /share
$6,100
Sell 10 June $30 puts @ $5.10 /share
$5,100
Net Cash Out-of-Pocket
$19,800
If CEDC shares merely stay above $30 through the June 18, 2010 expiration:
  • The $30 calls will be exercised.
  • You will sell your shares for $30,000.
  • The $30 puts will expire worthless.
  • You will have no further option obligations.
  • You will end up with no shares and $30,000 in cash.
This best-case scenario will result if the shares:
  • Go up.
  • Stay unchanged.
  • Decline by up to $1.00 /share (-3.2%).
You would show a cash-on-cash net profit of $10,200/$19,800 = 51.5% in less than eight months even if the shares do nothing.
What’s the downside?
If CEDC shares finish above $30 on the June 18, 2010 expiration:
  • The $30 calls will expire worthless.
  • The $30 puts will be exercised.
  • You will be forced to buy another 1000 CEDC shares.
  • You will need to lay out an additional $30,000 in cash.
  • You will have no further option obligations.
  • You will end up with 2000 CEDC shares.
What’s the break-even point on the whole trade?
On the original 1,000 shares, it’s their $31.00 purchase price less the $6.10/share call premium = $24.90 /share.
On the ‘put’ shares it’s the $30 strike price less the $5.10 /share put premium = $24.90 /share.
Your break-even is $24.90 /share, or $6.10 below the price at the trade’s initiation.
CEDC shares could fall by up to 19.6% without causing a loss on this trade.
Summary: Central European Distribution looks like a good choice for a 20 – 30% move up over the next 12 months or so. The valuation is low by historical standards and the fundamentals appear strong. Buying shares and writing in-the-money calls and out-of-the-money puts mitigates much of the risk yet would still permit a cash-on-cash return of over 50% between now and June 18, 2010.
Disclosure: Author is long CEDC shares and short CEDC options.
]]> Wed, 28 Oct 2009 18:29:20 -0400 Paul Price Paul Price submits:
Central European Distribution Corporation (CEDC) distributes, imports and exports alcoholic beverages primarily in Poland, Hungary and the Russian Federation. It produces and sells vodka and also distributes approximately 700 brands of alcoholic beverages (spirits, wine, and beer) as well as non-alcoholic beverages. It serves retail outlets, petrol stations, duty free stores, supermarkets and hypermarkets plus bars, nightclubs, hotels and restaurants.
As of December 31, 2008, CEDC operated 19 distribution centers and 124 satellite branches located throughout Poland. It imports well-known brands, including Corona, Budvar, Guinness, Carlo Rossi, Sutter Home, E&J Gallo and Concha y Toro wines, Metaxa, Remy Martin, Guinness, Grant’s, Jagermeister, Jim Beam, Sierra Tequila, Teacher’s Whisky, Campari, Cinzano, Skyy and Old Smuggler.
Shares are listed on the NASDAQ under the symbol CEDC and trade as at $31.00. Earnings had risen dramatically from 2000 through 2008 with EPS growing from a (split-adjusted) $0.07 to $2.93 over that 8-year period. The company now expects 2009 earnings to come in between $2.35 and $2.50 /share due to unfavorable exchange rates. Management indicates $3.00 - $3.15 as their best projection for 2010.
CEDC shares had been market darlings from 2003 through mid-2008 on the strength of their rapid growth. Peak prices of $61.10 and $77.50 were touched in 2007 and 2008. In the craziness of early 2009 they bottomed at an incredible $6.00 before rebounding strongly as the market recovered.
Here are CEDC’s per share numbers as reported by Value Line:
Year
Sales
C/F
EPS
B/V
Avg. P/E
2000
8.96
0.14
0.07
1.13
18.8x
2001
11.92
0.28
0.17
1.39
9.9x
2002
14.68
0.49
0.44
2.16
9.0x
2003
17.71
0.71
0.64
3.43
15.9x
2004
23.45
1.02
0.87
4.86
18.0x
2005
21.06
0.70
0.70
10.54
35.7x
2006
24.56
1.67
1.53
13.55
16.7x
2007
29.51
2.16
1.91
20.22
20.3x
2008
33.31
2.95
2.93
19.13
17.7x
2009*
26.60
2.90
2.42
21.72
11.1x
* 2009 data includes Zacks estimates
Based on the 2009 – 2010 expectations CEDC now trades for about 12.8x this year’s and 10x next year’s earnings. Those are pretty low for CEDC by historical standards. Buyers in 2001 – 2002, the last time P/Es were lower than today; saw their split-adjusted shares surge from $1 – 2 to $30 over the next few years.
If earnings rebound to next year’s lower end estimate of $3, even a 13 multiple would bring CEDC shares back to $39 or plus 25.8% from Wednesday’s quote. Is that a reasonable target price? CEDC shares actually traded as high as $31 in 2006 on EPS of $1.53. They hit peaks of $61+ and $77+ in 2007 – 2008 and have been as high as $36.41 already this year.
Here’s what I think is an even better play than just outright purchase of the shares.
Cash Outlay
Cash Inflow
Buy 1000 CEDC @ $31.00 /share
$31,000
Sell 10 June $30 calls @ $6.10 /share
$6,100
Sell 10 June $30 puts @ $5.10 /share
$5,100
Net Cash Out-of-Pocket
$19,800
If CEDC shares merely stay above $30 through the June 18, 2010 expiration:
  • The $30 calls will be exercised.
  • You will sell your shares for $30,000.
  • The $30 puts will expire worthless.
  • You will have no further option obligations.
  • You will end up with no shares and $30,000 in cash.
This best-case scenario will result if the shares:
  • Go up.
  • Stay unchanged.
  • Decline by up to $1.00 /share (-3.2%).
You would show a cash-on-cash net profit of $10,200/$19,800 = 51.5% in less than eight months even if the shares do nothing.
What’s the downside?
If CEDC shares finish above $30 on the June 18, 2010 expiration:
  • The $30 calls will expire worthless.
  • The $30 puts will be exercised.
  • You will be forced to buy another 1000 CEDC shares.
  • You will need to lay out an additional $30,000 in cash.
  • You will have no further option obligations.
  • You will end up with 2000 CEDC shares.
What’s the break-even point on the whole trade?
On the original 1,000 shares, it’s their $31.00 purchase price less the $6.10/share call premium = $24.90 /share.
On the ‘put’ shares it’s the $30 strike price less the $5.10 /share put premium = $24.90 /share.
Your break-even is $24.90 /share, or $6.10 below the price at the trade’s initiation.
CEDC shares could fall by up to 19.6% without causing a loss on this trade.
Summary: Central European Distribution looks like a good choice for a 20 – 30% move up over the next 12 months or so. The valuation is low by historical standards and the fundamentals appear strong. Buying shares and writing in-the-money calls and out-of-the-money puts mitigates much of the risk yet would still permit a cash-on-cash return of over 50% between now and June 18, 2010.
Disclosure: Author is long CEDC shares and short CEDC options.

Complete Story »]]> CEDC Paul Price An ITT Educational Services Options Play http://seekingalpha.com/article/169156-an-itt-educational-services-options-play?source=feed 169156 While the recession has hurt most companies across the USA, ITT Educational Services (ESI) has actually benefitted. Enrollment trends have been strengthening as unemployed workers have signed on to upgrade skills and other students continue on towards advanced degrees to become more employable in the future.
ITT Educational Services, Inc. is a leading provider of technology-oriented postsecondary degree programs. ESI operates more than 105 Technical Institutes in 37 states, which predominantly provide career-focused degree programs of study in fields involving technology to approximately 65,000 students. ESI has been actively involved in the higher education community in the United States since 1969. Shares are traded on the New York Stock Exchange under the symbol "ESI."
October 26, 2009 - $99.15
52-week range: $65.31 - $133.75
Since their IPO in June 1968 at a split-adjusted $2.50 /share ESI has done little to disappoint its investors. Year after year they have posted higher sales and earnings with the stock price reflecting the great numbers.
Here are ESI’s per share numbers from continuing operations as reported by Value Line:
Year
Sales
C/F
EPS
Avg. P/E
Y.E. Close
1999
6.43
0.72
0.48
25.9x
$7.72
2000
7.40
0.89
0.57
16.1x
$11.00
2001
8.86
1.13
0.72
24.1x
$18.43
2002
10.31
1.44
0.94
22.4x
$23.55
2003
11.51
1.76
1.27
28.6x
$46.97
2004
13.43
2.37
1.94
20.8x
$47.55
2005
15.06
2.81
2.34
21.6x
$59.11
2006
18.46
3.42
2.72
23.9x
$66.37
2007
21.91
4.40
3.71
27.4x
$85.27
2008
26.22
5.82
5.17
14.8x
$94.98
2009*
35.25
8.50
7.80
15.0x
N/A
* 2009 figures include VL estimates for Q4
With consensus views for EPS of about $7.75 this year and $9.10 or better for 2010 the current multiple is about 12.8x and the forward P/E is just 10.9x. Those are exceedingly low for this consistent growth company. Compare those with the normalized P/Es of the previous 10 years to see just how cheap these shares are right now.
ESI’s balance sheet looks great with no short-term debt and just $150 million in total debt versus treasury cash of about $300 million. Value Line gives ESI a ‘B++’ for financial strength while noting 95th percentile scores for both ‘earnings predictability’ and ‘share price growth persistence’ (with 100th being best). ITT Educational Services shares have outperformed 19 of 20 companies in the Value Line universe over the long haul.
Standard & Poors sees ‘fair value’ as $125.60 while Morningstar is even more bullish with a (recently raised) $139 ‘fair value’ estimate and a 4-star ranking (out of 5).
About the only negative is the lack of a dividend. The company seems to have done pretty well with the cash though. Shares outstanding have been pared from 49.23 million at YE 1999 to 37.76 million as of Sep. 30th. EPS have grown from $0.48 to $7.07 in that same (less than 10 year) period. Shareholders have seen over 1100% gains [NOT a misprint] during the past decade.
With macro-economic tailwinds and nothing but great results this seems like an opportune time to pick up some ESI while the valuation is historically low.
A return to even fifteen times next year’s $9.10 estimate would bring these shares to $136.50 or 37.6% above today’s close. Is that a stretch? Hardly. ESI touched $131.80 in 2007 on just $3.71 in full year earnings and they’ve been as high as $133.75 already in 2009.

*****************************************************************************************************
For the option savvy crowd…
Consider this buy/write combo for Jan. 21, 2011:
Cash Outlay
Cash Inflow
Buy 100 ESI @ $99.15 /share
$9,915
Sell 1 Jan. 2011 $125 Call @ $8.20 /sh.
$820
Sell 1 Jan. 2011 $125 Put @ $33.20 /sh.
$3,320
Net Cash out-of-Pocket
$5,775
If ESI shares move to $125 or better (+ 26.1%) by Jan. 21, 2011:
  • The $125 call will be exercised.
  • You will sell your shares for $12,500.
  • The $125 put will expire worthless.
  • You will have no further option obligations.
  • You will end up with no shares and $12,500 in cash.
That best-case scenario would lead to a net profit of $6,725 / $5,775 = 116.4%
achieved in less than 15 months on shares that only needed to rise by 26.1% or more.
What’s the downside?
If ESI shares remain under $125 on Jan. 21, 2011:
  • The $125 call will expire worthless.
  • The $125 put will be exercised.
  • You will need to buy another 100 ESI shares.
  • You will be forced to lay out an additional $12,500 in cash.
  • You will have no further option obligations.
  • You will end up with 200 ESI shares.
What’s the break-even on the whole trade?
On the original 100 shares it’s their $99.15 /share purchase price less the $8.20 /share call premium = $90.95 /share.
On the ‘put’ shares it’s the $125 strike price less the $33.20 put premium = $91.80 /share.
Your overall break-even would be $91.38 /share or $7.77 below your starting price. ESI shares could fall by up to 7.8% without causing a loss.
While that’s far from impossible a glance at my data chart will show that there hasn’t been one calendar year in the past decade when ESI closed lower on December 31 than the year before – including the horrendous market of 2008!
Summary: ITT educational Services is a high-quality growth stock at a very reasonable valuation. All signs point to continued success in one of the few expanding areas of our economy.
Outright purchase of the shares could easily see 30 – 40% returns over the next 12 – 18 months. Buying and writing as described could lever that same gain into a cash-on-cash return of over 116% if you’re well capitalized and willing to play with options.
You’d be protected against loss on the first 7.8% drop if we’re totally wrong on this one.
Disclosure: Author is long ESI shares and short ESI puts.
]]> Tue, 27 Oct 2009 12:18:15 -0400 Paul Price Paul Price submits:
While the recession has hurt most companies across the USA, ITT Educational Services (ESI) has actually benefitted. Enrollment trends have been strengthening as unemployed workers have signed on to upgrade skills and other students continue on towards advanced degrees to become more employable in the future.
ITT Educational Services, Inc. is a leading provider of technology-oriented postsecondary degree programs. ESI operates more than 105 Technical Institutes in 37 states, which predominantly provide career-focused degree programs of study in fields involving technology to approximately 65,000 students. ESI has been actively involved in the higher education community in the United States since 1969. Shares are traded on the New York Stock Exchange under the symbol "ESI."
October 26, 2009 - $99.15
52-week range: $65.31 - $133.75
Since their IPO in June 1968 at a split-adjusted $2.50 /share ESI has done little to disappoint its investors. Year after year they have posted higher sales and earnings with the stock price reflecting the great numbers.
Here are ESI’s per share numbers from continuing operations as reported by Value Line:
Year
Sales
C/F
EPS
Avg. P/E
Y.E. Close
1999
6.43
0.72
0.48
25.9x
$7.72
2000
7.40
0.89
0.57
16.1x
$11.00
2001
8.86
1.13
0.72
24.1x
$18.43
2002
10.31
1.44
0.94
22.4x
$23.55
2003
11.51
1.76
1.27
28.6x
$46.97
2004
13.43
2.37
1.94
20.8x
$47.55
2005
15.06
2.81
2.34
21.6x
$59.11
2006
18.46
3.42
2.72
23.9x
$66.37
2007
21.91
4.40
3.71
27.4x
$85.27
2008
26.22
5.82
5.17
14.8x
$94.98
2009*
35.25
8.50
7.80
15.0x
N/A
* 2009 figures include VL estimates for Q4
With consensus views for EPS of about $7.75 this year and $9.10 or better for 2010 the current multiple is about 12.8x and the forward P/E is just 10.9x. Those are exceedingly low for this consistent growth company. Compare those with the normalized P/Es of the previous 10 years to see just how cheap these shares are right now.
ESI’s balance sheet looks great with no short-term debt and just $150 million in total debt versus treasury cash of about $300 million. Value Line gives ESI a ‘B++’ for financial strength while noting 95th percentile scores for both ‘earnings predictability’ and ‘share price growth persistence’ (with 100th being best). ITT Educational Services shares have outperformed 19 of 20 companies in the Value Line universe over the long haul.
Standard & Poors sees ‘fair value’ as $125.60 while Morningstar is even more bullish with a (recently raised) $139 ‘fair value’ estimate and a 4-star ranking (out of 5).
About the only negative is the lack of a dividend. The company seems to have done pretty well with the cash though. Shares outstanding have been pared from 49.23 million at YE 1999 to 37.76 million as of Sep. 30th. EPS have grown from $0.48 to $7.07 in that same (less than 10 year) period. Shareholders have seen over 1100% gains [NOT a misprint] during the past decade.
With macro-economic tailwinds and nothing but great results this seems like an opportune time to pick up some ESI while the valuation is historically low.
A return to even fifteen times next year’s $9.10 estimate would bring these shares to $136.50 or 37.6% above today’s close. Is that a stretch? Hardly. ESI touched $131.80 in 2007 on just $3.71 in full year earnings and they’ve been as high as $133.75 already in 2009.

*****************************************************************************************************
For the option savvy crowd…
Consider this buy/write combo for Jan. 21, 2011:
Cash Outlay
Cash Inflow
Buy 100 ESI @ $99.15 /share
$9,915
Sell 1 Jan. 2011 $125 Call @ $8.20 /sh.
$820
Sell 1 Jan. 2011 $125 Put @ $33.20 /sh.
$3,320
Net Cash out-of-Pocket
$5,775
If ESI shares move to $125 or better (+ 26.1%) by Jan. 21, 2011:
  • The $125 call will be exercised.
  • You will sell your shares for $12,500.
  • The $125 put will expire worthless.
  • You will have no further option obligations.
  • You will end up with no shares and $12,500 in cash.
That best-case scenario would lead to a net profit of $6,725 / $5,775 = 116.4%
achieved in less than 15 months on shares that only needed to rise by 26.1% or more.
What’s the downside?
If ESI shares remain under $125 on Jan. 21, 2011:
  • The $125 call will expire worthless.
  • The $125 put will be exercised.
  • You will need to buy another 100 ESI shares.
  • You will be forced to lay out an additional $12,500 in cash.
  • You will have no further option obligations.
  • You will end up with 200 ESI shares.
What’s the break-even on the whole trade?
On the original 100 shares it’s their $99.15 /share purchase price less the $8.20 /share call premium = $90.95 /share.
On the ‘put’ shares it’s the $125 strike price less the $33.20 put premium = $91.80 /share.
Your overall break-even would be $91.38 /share or $7.77 below your starting price. ESI shares could fall by up to 7.8% without causing a loss.
While that’s far from impossible a glance at my data chart will show that there hasn’t been one calendar year in the past decade when ESI closed lower on December 31 than the year before – including the horrendous market of 2008!
Summary: ITT educational Services is a high-quality growth stock at a very reasonable valuation. All signs point to continued success in one of the few expanding areas of our economy.
Outright purchase of the shares could easily see 30 – 40% returns over the next 12 – 18 months. Buying and writing as described could lever that same gain into a cash-on-cash return of over 116% if you’re well capitalized and willing to play with options.
You’d be protected against loss on the first 7.8% drop if we’re totally wrong on this one.
Disclosure: Author is long ESI shares and short ESI puts.

Complete Story »]]> ESI Paul Price A ‘Conn’ that’s Good for You http://seekingalpha.com/article/169113-a-conn-thats-good-for-you?source=feed 169113 Conn’s Inc. (NDQ:CONN) - Oct. 26, 2009 $7.12
52-week range: $4.64 - $17.67

Conn’s was founded in Beaumont, Texas in 1890 as a plumbing company, started selling appliances in 1937 and expanded to a second storefront in 1959. Currently the company operates 69 stores with 22 units in Houston, 17 in Dallas-Ft. Worth, 10 in San Antonio, 4 in Beaumont, 5 in Austin, 3 in the Texas Rio Grande Valley, and 1 in Corpus Christi, Texas. They also have 6 stores in Louisiana and one in Oklahoma City. Conn’s came public via an IPO on November 25, 2003. ]]> Tue, 27 Oct 2009 09:59:29 -0400 Paul Price Paul Price submits:
Conn’s Inc. (NDQ:CONN) - Oct. 26, 2009 $7.12
52-week range: $4.64 - $17.67

Conn’s was founded in Beaumont, Texas in 1890 as a plumbing company, started selling appliances in 1937 and expanded to a second storefront in 1959. Currently the company operates 69 stores with 22 units in Houston, 17 in Dallas-Ft. Worth, 10 in San Antonio, 4 in Beaumont, 5 in Austin, 3 in the Texas Rio Grande Valley, and 1 in Corpus Christi, Texas. They also have 6 stores in Louisiana and one in Oklahoma City. Conn’s came public via an IPO on November 25, 2003.

Complete Story »]]> CONN Paul Price Value Line's Timeliness Ranking System Failing Miserably http://seekingalpha.com/article/169109-value-line-s-timeliness-ranking-system-failing-miserably?source=feed 169109 Value Line published their own numbers for the nine-month period Dec. 31, 2008 through Sep. 30, 2009 in today's new issue.

Here are their figures:

]]> Tue, 27 Oct 2009 09:53:37 -0400 Paul Price Paul Price submits:

Value Line published their own numbers for the nine-month period Dec. 31, 2008 through Sep. 30, 2009 in today's new issue.

Here are their figures:


Complete Story »]]> Paul Price Ambassadors Group: A Good Addition to a Well Diversified Portfolio http://seekingalpha.com/article/168879-ambassadors-group-a-good-addition-to-a-well-diversified-portfolio?source=feed 168879 Ambassadors Group (EPAX) is an educational company that organizes and promotes international and domestic travel programs for students, athletes and professionals. Its travel business includes the ‘People to People Student Ambassador Programs’ for grade school, middle school and high school students to visit domestic and foreign destinations. Their ‘People to People Sports Ambassador Programs’ provide opportunities for middle school and high school athletes. Their ‘People to People Leadership Summit’ and ‘World Leadership Forum’ are Leadership Programs which provide domestic travel experiences for grade school, middle school and high school students. Ambassador’s ‘People to People Citizen Ambassador Programs’ provide foreign travel experiences for business professionals.

NDAQ: EPAX - October 25, 2009 $13.08

]]> Mon, 26 Oct 2009 11:50:17 -0400 Paul Price Paul Price submits:

Ambassadors Group (EPAX) is an educational company that organizes and promotes international and domestic travel programs for students, athletes and professionals. Its travel business includes the ‘People to People Student Ambassador Programs’ for grade school, middle school and high school students to visit domestic and foreign destinations. Their ‘People to People Sports Ambassador Programs’ provide opportunities for middle school and high school athletes. Their ‘People to People Leadership Summit’ and ‘World Leadership Forum’ are Leadership Programs which provide domestic travel experiences for grade school, middle school and high school students. Ambassador’s ‘People to People Citizen Ambassador Programs’ provide foreign travel experiences for business professionals.

NDAQ: EPAX - October 25, 2009 $13.08


Complete Story »]]> EPAX Paul Price Nasdaq OMX Group Appears Undervalued http://seekingalpha.com/article/168340-nasdaq-omx-group-appears-undervalued?source=feed 168340 NDAQ: Oct. 22, 2009 - $19.85 /share

52-week range: $14.96 (Nov. 21, 2008) - $33.94 (Nov. 5, 2008)

]]> Thu, 22 Oct 2009 17:33:12 -0400 Paul Price Paul Price submits:

NDAQ: Oct. 22, 2009 - $19.85 /share

52-week range: $14.96 (Nov. 21, 2008) - $33.94 (Nov. 5, 2008)


Complete Story »]]> NDAQ Paul Price Get Your Just Desserts by Selling Cheesecake Factory Puts http://seekingalpha.com/article/168213-get-your-just-desserts-by-selling-cheesecake-factory-puts?source=feed 168213 The Cheesecake (CAKE) factory operates 160 upscale casual dining restaurants- 146 Cheesecake Factories, 13 Grand Lux Cafes and 1 Rock Sugar Pan Asian Kitchen. They also license two limited-menu bakery café outlets. Their baked goods are sold through their restaurants as well as through third party outlets.
From its founding year of 1978 right through 2005 the Cheesecake Factory did nothing but grow. Sales and earnings grew rapidly and consistently. Since then the weakening economy took its toll with a slight EPS drop off in 2006 and then a larger one last year before an expected partial rebound this year.
Here are CAKE’s per share (split-adjusted numbers) as reported by Value Line:
Year
Sales
C/F
EPS
B/V
Avg. P/E
Range
2001
7.53
0.79
0.53
4.04
34.6x
13.30-24.20
2002
8.70
0.96
0.64
5.07
36.2x
16.60-29.00
2003
10.11
1.12
0.75
5.98
31.5x
18.20-30.00
2004
12.44
1.36
0.88
6.97
33.0x
25.00-33.50
2005
14.94
1.68
1.09
8.22
31.1x
29.30-38.50
2006
16.81
1.72
1.02
9.09
29.0x
21.70-39.30
2007
21.86
2.03
1.04
8.14
24.5x
21.20-29.80
2008
26.89
2.10
0.82
7.57
19.7x
5.00-20.00
Sales and cash flow continued to grow during the past three years even as EPS declined. The company took advantage of the big drop in share price to retire more than 25% of the outstanding shares since the end of 2005 with just 60.069 million shares as of June 30th versus YE 2005’s 78.83 million. This should help EPS rebound nicely once economic conditions start picking up again.
Even in today’s depressed conditions Zacks see 2009 – 2010 earnings of $0.92 and $1.04 respectively. At today’s close of $17.88 /share CAKE’s multiples at 19.4x this year’s and 17.2x next year’s estimates. While not absolutely cheap, those are historically low for this company as can be readily seen in the table above.
Cheesecake’s balance sheet is solid with no short-term debt and long-term debt at just 29% of capital. Total interest coverage is about 6x.
Morningstar and Standard and Poors carry ‘Fair Value’ estimates of $21 and $20 respectively. Value Line’s normalized P/E assumption of 19x would lead to a year-end 2010 price target of $19.76 based on the $1.04 estimate for next year. CAKE shares hit a September 21, 2009 high of $21.01 before pulling back to today’s price.
How do I play a stock that looks somewhat, but not radically, undervalued?
I sell LEAP puts to lock in nice potential gains while giving myself even more margin of safety. Here are some of the puts I wrote today along with prices that are reasonable to expect based on the $17.88 closing price.
Put Option / Strike
Premium /share
Net Price (if Put)
Discount to Close
Jan. 2010 $12.50
$1.35
$11.15 /sh.
37.6%
Jan. 2010 $17.50
$3.40
$14.10 /sh.
21.1%
Jan. 2010 $20.00
$4.80
$15.20 /sh.
14.9%
Jan. 2011 $15.00
$3.10
$11.90 /sh.
33.4%
Jan. 2011 $17.50
$4.40
$13.10 /sh.
26.7%
Jan. 2011 $20.00
$5.80
$14.20 /sh.
20.5%
You can be ultra conservative by writing (selling) the $12.50’s or ratchet up to $15 - $20 strikes for bigger potential gains if CAKE shares rebound to $20 or above over the next 15 - 27 months (depending on whether you choose the 2010 or 2011 expiration date).
No matter which puts you write you’ll have a decent margin of safety from today’s quote. If you leave the puts alone until expiration you will also get to defer any potential tax gains until April 15th of the year following the expiration date.
Maintenance margin requirements on naked put writing are typically 20% of the net exercise price (assuming you keep the option premiums received in the same margin-type account).
Examples from the chart above:
Put Option / Strike
Net Price (if Put)
20% Margin Requirement
Jan. 2010 $12.50
$11.15 /sh.
$2.23 /share
Jan. 2010 $17.50
$14.10 /sh.
$2.82 /share
Jan. 2010 $20.00
$15.20 /sh.
$3.04 /share
Jan. 2011 $15.00
$11.90 /sh.
$2.38 /share
Jan. 2011 $17.50
$13.10 /sh.
$2.62 /share
Jan. 2011 $20.00
$14.20 /sh.
$2.84 /share
You could meet the above requirements with any combination of cash, t-bills or marginable stocks or bonds.
Summary: Cheesecake Factory is a high-quality stock trading at a moderate discount to fair value. A 12-month price target of at least $20 seems reasonable based on all past history and future projections.
Selling LEAP puts for 2010 and/or 2011 can provide for break-even points well below today’s close while bringing in from $1.35 to $5.80 /share in upside.
If you’re comfortable owning CAKE shares a net price of $11.15 - $15.20 you might consider selling these puts for excellent returns with not too much risk. Excepting the insane market period of 2008 – 2009, the absolute low trade on CAKE shares was $21.20 for the four calendar years 2004 – 2007. Even in 2002 – 2003 when EPS were $0.64 and $0.72 the shares never touched lower than $16.60- a level still well above the break-even point on all the suggested trades.
Disclosure: Author is long CAKE shares (bought earlier this year) and short CAKE puts from recent trades.
]]> Thu, 22 Oct 2009 14:02:46 -0400 Paul Price Paul Price submits:
The Cheesecake (CAKE) factory operates 160 upscale casual dining restaurants- 146 Cheesecake Factories, 13 Grand Lux Cafes and 1 Rock Sugar Pan Asian Kitchen. They also license two limited-menu bakery café outlets. Their baked goods are sold through their restaurants as well as through third party outlets.
From its founding year of 1978 right through 2005 the Cheesecake Factory did nothing but grow. Sales and earnings grew rapidly and consistently. Since then the weakening economy took its toll with a slight EPS drop off in 2006 and then a larger one last year before an expected partial rebound this year.
Here are CAKE’s per share (split-adjusted numbers) as reported by Value Line:
Year
Sales
C/F
EPS
B/V
Avg. P/E
Range
2001
7.53
0.79
0.53
4.04
34.6x
13.30-24.20
2002
8.70
0.96
0.64
5.07
36.2x
16.60-29.00
2003
10.11
1.12
0.75
5.98
31.5x
18.20-30.00
2004
12.44
1.36
0.88
6.97
33.0x
25.00-33.50
2005
14.94
1.68
1.09
8.22
31.1x
29.30-38.50
2006
16.81
1.72
1.02
9.09
29.0x
21.70-39.30
2007
21.86
2.03
1.04
8.14
24.5x
21.20-29.80
2008
26.89
2.10
0.82
7.57
19.7x
5.00-20.00
Sales and cash flow continued to grow during the past three years even as EPS declined. The company took advantage of the big drop in share price to retire more than 25% of the outstanding shares since the end of 2005 with just 60.069 million shares as of June 30th versus YE 2005’s 78.83 million. This should help EPS rebound nicely once economic conditions start picking up again.
Even in today’s depressed conditions Zacks see 2009 – 2010 earnings of $0.92 and $1.04 respectively. At today’s close of $17.88 /share CAKE’s multiples at 19.4x this year’s and 17.2x next year’s estimates. While not absolutely cheap, those are historically low for this company as can be readily seen in the table above.
Cheesecake’s balance sheet is solid with no short-term debt and long-term debt at just 29% of capital. Total interest coverage is about 6x.
Morningstar and Standard and Poors carry ‘Fair Value’ estimates of $21 and $20 respectively. Value Line’s normalized P/E assumption of 19x would lead to a year-end 2010 price target of $19.76 based on the $1.04 estimate for next year. CAKE shares hit a September 21, 2009 high of $21.01 before pulling back to today’s price.
How do I play a stock that looks somewhat, but not radically, undervalued?
I sell LEAP puts to lock in nice potential gains while giving myself even more margin of safety. Here are some of the puts I wrote today along with prices that are reasonable to expect based on the $17.88 closing price.
Put Option / Strike
Premium /share
Net Price (if Put)
Discount to Close
Jan. 2010 $12.50
$1.35
$11.15 /sh.
37.6%
Jan. 2010 $17.50
$3.40
$14.10 /sh.
21.1%
Jan. 2010 $20.00
$4.80
$15.20 /sh.
14.9%
Jan. 2011 $15.00
$3.10
$11.90 /sh.
33.4%
Jan. 2011 $17.50
$4.40
$13.10 /sh.
26.7%
Jan. 2011 $20.00
$5.80
$14.20 /sh.
20.5%
You can be ultra conservative by writing (selling) the $12.50’s or ratchet up to $15 - $20 strikes for bigger potential gains if CAKE shares rebound to $20 or above over the next 15 - 27 months (depending on whether you choose the 2010 or 2011 expiration date).
No matter which puts you write you’ll have a decent margin of safety from today’s quote. If you leave the puts alone until expiration you will also get to defer any potential tax gains until April 15th of the year following the expiration date.
Maintenance margin requirements on naked put writing are typically 20% of the net exercise price (assuming you keep the option premiums received in the same margin-type account).
Examples from the chart above:
Put Option / Strike
Net Price (if Put)
20% Margin Requirement
Jan. 2010 $12.50
$11.15 /sh.
$2.23 /share
Jan. 2010 $17.50
$14.10 /sh.
$2.82 /share
Jan. 2010 $20.00
$15.20 /sh.
$3.04 /share
Jan. 2011 $15.00
$11.90 /sh.
$2.38 /share
Jan. 2011 $17.50
$13.10 /sh.
$2.62 /share
Jan. 2011 $20.00
$14.20 /sh.
$2.84 /share
You could meet the above requirements with any combination of cash, t-bills or marginable stocks or bonds.
Summary: Cheesecake Factory is a high-quality stock trading at a moderate discount to fair value. A 12-month price target of at least $20 seems reasonable based on all past history and future projections.
Selling LEAP puts for 2010 and/or 2011 can provide for break-even points well below today’s close while bringing in from $1.35 to $5.80 /share in upside.
If you’re comfortable owning CAKE shares a net price of $11.15 - $15.20 you might consider selling these puts for excellent returns with not too much risk. Excepting the insane market period of 2008 – 2009, the absolute low trade on CAKE shares was $21.20 for the four calendar years 2004 – 2007. Even in 2002 – 2003 when EPS were $0.64 and $0.72 the shares never touched lower than $16.60- a level still well above the break-even point on all the suggested trades.
Disclosure: Author is long CAKE shares (bought earlier this year) and short CAKE puts from recent trades.

Complete Story »]]> CAKE Paul Price IBM: Take Advantage of Sell-Off After Good Earnings http://seekingalpha.com/article/167162-ibm-take-advantage-of-sell-off-after-good-earnings?source=feed 167162 After Thursday’s close, IBM reported Q3 EPS of $2.40 versus $2.05 and said it expects to have full year results of at least $9.85 /share – up from 2008’s $8.93. You’d think that would have been received well but instead, the shares dropped by $6.34 (-4.95%) Friday to close at $121.64.

2009 will be the sixth consecutive year of improved EPS and Zacks sees another record on tap for 2010. They match the consensus view of about $10.75 /share in 2010. That puts IBM’s multiple at< 12.4x this year’s and about 11.3x next year’s expectation.

Here are IBM’s per share numbers from the past few years as reported by Value Line:
]]> Sun, 18 Oct 2009 10:11:52 -0400 Paul Price Paul Price submits:
After Thursday’s close, IBM reported Q3 EPS of $2.40 versus $2.05 and said it expects to have full year results of at least $9.85 /share – up from 2008’s $8.93. You’d think that would have been received well but instead, the shares dropped by $6.34 (-4.95%) Friday to close at $121.64.

2009 will be the sixth consecutive year of improved EPS and Zacks sees another record on tap for 2010. They match the consensus view of about $10.75 /share in 2010. That puts IBM’s multiple at< 12.4x this year’s and about 11.3x next year’s expectation.

Here are IBM’s per share numbers from the past few years as reported by Value Line:

Complete Story »]]> IBM Paul Price Clean Up with ABM Industries http://seekingalpha.com/article/166924-clean-up-with-abm-industries?source=feed 166924 ABM Industries Incorporated (ABM) is the largest publicly traded facility services contractor in the United States. ABM and its subsidiaries provide janitorial, parking, security and engineering services for commercial, industrial, institutional and retail facilities in cities throughout the United States. About 5% of revenues come from Canadian operations. The Company operates through four segments: Janitorial, Parking, Security and Engineering.

ABM stands for American Building Maintenance. When A/C, elevator, janitorial and other services are needed in office buildings they cannot generally be deferred. This makes ABM a very predictable business. Their long-term sales and earnings have grown nicely, as have book value and dividends.

]]> Fri, 16 Oct 2009 06:00:30 -0400 Paul Price Paul Price submits:

ABM Industries Incorporated (ABM) is the largest publicly traded facility services contractor in the United States. ABM and its subsidiaries provide janitorial, parking, security and engineering services for commercial, industrial, institutional and retail facilities in cities throughout the United States. About 5% of revenues come from Canadian operations. The Company operates through four segments: Janitorial, Parking, Security and Engineering.

ABM stands for American Building Maintenance. When A/C, elevator, janitorial and other services are needed in office buildings they cannot generally be deferred. This makes ABM a very predictable business. Their long-term sales and earnings have grown nicely, as have book value and dividends.


Complete Story »]]> ABM Paul Price Jacobs Engineering: A Constructive Long-Term View http://seekingalpha.com/article/166575-jacobs-engineering-a-constructive-long-term-view?source=feed 166575 Jacobs Engineering Group (JEC) provides engineering, procurement, construction, and maintenance services to a wide range of customers, including oil and gas, chemical, pharmaceutical companies as well as for U.S. federal government agencies. Most work takes place in the USA, U.K. and Ireland.
Jacobs has had an enviable long-term record of increasing sales, earnings and book value. It has done this all with internally generated funds. As of June 30th, the company held $1.059 billion in cash against less than $48 million in total debt.
Here are its per share (split adjusted) numbers as reported by Value Line:
FY (end Sep.)
Sales
C/F
EPS
B/V
Avg. P/E
2002
41.59
1.32
0.99
6.30
17.5x
2003
41.33
1.46
1.14
7.54
17.1x
2004
40.51
1.44
1.13
8.86
19.3x
2005
48.47
1.71
1.29
9.81
20.2x
2006
62.90
2.08
1.64
12.03
23.4x
2007
70.49
2.85
2.35
15.34
21.6x
2008
91.70
3.98
3.34
18.30
24.1x
Zacks sees FY 2009 and FY 2010 EPS at $3.26 and $2.98, respectively. That takes into account both the slow economy as well as the less than robust market conditions in the oil and gas industry. That puts the trailing multiple at about 13.7x and the forward year’s P/E at less than 15x. Compare those with the historical P/E valuations in the prior 7 years from the chart above. A return to about 17 times what should be cyclically low FY 2010 earnings would bring these shares back to over $50 again.
Value Line projects EPS of $4.60 over the next 3 - 5 years, and Morningstar has assigned a current ‘fair value’ of $53 /share. Standard and Poors assigns JEC its highest (5-Star) rating and carries a 12-month price target of $57 /share. Value Line also notes that Jacobs Engineering has 90th percentile rankings in both ‘price growth persistence’ and ‘earnings predictability’ (with 100th being best).
How can you best play a high-quality stock like Jacobs when you feel the year-ahead earnings will be lower? Consider buying the shares and selling LEAP options for 2012.
Why so long? By then earnings should be picking up with the broader economy. If you leave both the shares and the options alone through their early 2012 expiration (if things go as expected) you will get tax deferment on the gains until you file your tax-year 2012 Schedule D in April 2013.
Jacobs has a fairly high (1.45) Beta making options premiums quite attractive for sellers. Here’s a play that looks quite good to me right now:
Cash Outlay
Cash Inflow
Buy 1000 JEC @$44.60 /share
$44,600
Sell 10 Jan. 2012 $50 calls @$10.30 /sh.
$10,300
Sell 10 Jan. 2012 $50 puts @$14.30/sh.
$14,300
Net Cash Out-of-Pocket
$20,000
If Jacobs Engineering rises to at least $50 (+12.1%) by the Jan. 2012 expiration date:
  • The $50 calls will be exercised.
  • You will sell your shares for $50,000.
  • The $50 puts will expire worthless.
  • You will have no further option obligations.
  • You will end up with no shares and $50,000 cash.
That would be a best-case scenario gain of $30,000/$50,000, or 150% profit
on shares that only needed to rise by 12.1% over the 27-month term of this trade.
That’s a very nice annualized return.
What’s the risk?
If JEC fails to rise to $50 by expiration date in Jan. 2012:
  • The $50 calls will expire worthless.
  • The $50 puts will be exercised.
  • You will be forced to buy another 1000 JEC shares.
  • You will need to lay out an additional $50,000 in cash.
  • You will end up with 2000 shares of JEC.
What’s the break-even point on the whole trade?
On the original 1000 shares, it’s their $44.60 /share purchase price less the $10.30 /share call premium = $34.30 /share.
On the ‘put’ shares it’s the $50 strike price less the $14.30 /share put premium = $35.70 /share.
You average cost would be $35.00 /share.
JEC could drop by as much as $9.60 /share or (-21.5%) without causing a loss on this trade. While it’s not impossible that Jacobs could be that low it seems unlikely. The absolute lows in calendar 2006 and 2007 were $33.60 and $38.30, respectively, on EPS of $1.64 and $2.35. Book Value has increased about 80% since 2006 and EPS by almost 99%.
Disclosure: Author is long JEC shares and short JEC options.
]]> Wed, 14 Oct 2009 17:59:04 -0400 Paul Price Paul Price submits:
Jacobs Engineering Group (JEC) provides engineering, procurement, construction, and maintenance services to a wide range of customers, including oil and gas, chemical, pharmaceutical companies as well as for U.S. federal government agencies. Most work takes place in the USA, U.K. and Ireland.
Jacobs has had an enviable long-term record of increasing sales, earnings and book value. It has done this all with internally generated funds. As of June 30th, the company held $1.059 billion in cash against less than $48 million in total debt.
Here are its per share (split adjusted) numbers as reported by Value Line:
FY (end Sep.)
Sales
C/F
EPS
B/V
Avg. P/E
2002
41.59
1.32
0.99
6.30
17.5x
2003
41.33
1.46
1.14
7.54
17.1x
2004
40.51
1.44
1.13
8.86
19.3x
2005
48.47
1.71
1.29
9.81
20.2x
2006
62.90
2.08
1.64
12.03
23.4x
2007
70.49
2.85
2.35
15.34
21.6x
2008
91.70
3.98
3.34
18.30
24.1x
Zacks sees FY 2009 and FY 2010 EPS at $3.26 and $2.98, respectively. That takes into account both the slow economy as well as the less than robust market conditions in the oil and gas industry. That puts the trailing multiple at about 13.7x and the forward year’s P/E at less than 15x. Compare those with the historical P/E valuations in the prior 7 years from the chart above. A return to about 17 times what should be cyclically low FY 2010 earnings would bring these shares back to over $50 again.
Value Line projects EPS of $4.60 over the next 3 - 5 years, and Morningstar has assigned a current ‘fair value’ of $53 /share. Standard and Poors assigns JEC its highest (5-Star) rating and carries a 12-month price target of $57 /share. Value Line also notes that Jacobs Engineering has 90th percentile rankings in both ‘price growth persistence’ and ‘earnings predictability’ (with 100th being best).
How can you best play a high-quality stock like Jacobs when you feel the year-ahead earnings will be lower? Consider buying the shares and selling LEAP options for 2012.
Why so long? By then earnings should be picking up with the broader economy. If you leave both the shares and the options alone through their early 2012 expiration (if things go as expected) you will get tax deferment on the gains until you file your tax-year 2012 Schedule D in April 2013.
Jacobs has a fairly high (1.45) Beta making options premiums quite attractive for sellers. Here’s a play that looks quite good to me right now:
Cash Outlay
Cash Inflow
Buy 1000 JEC @$44.60 /share
$44,600
Sell 10 Jan. 2012 $50 calls @$10.30 /sh.
$10,300
Sell 10 Jan. 2012 $50 puts @$14.30/sh.
$14,300
Net Cash Out-of-Pocket
$20,000
If Jacobs Engineering rises to at least $50 (+12.1%) by the Jan. 2012 expiration date:
  • The $50 calls will be exercised.
  • You will sell your shares for $50,000.
  • The $50 puts will expire worthless.
  • You will have no further option obligations.
  • You will end up with no shares and $50,000 cash.
That would be a best-case scenario gain of $30,000/$50,000, or 150% profit
on shares that only needed to rise by 12.1% over the 27-month term of this trade.
That’s a very nice annualized return.
What’s the risk?
If JEC fails to rise to $50 by expiration date in Jan. 2012:
  • The $50 calls will expire worthless.
  • The $50 puts will be exercised.
  • You will be forced to buy another 1000 JEC shares.
  • You will need to lay out an additional $50,000 in cash.
  • You will end up with 2000 shares of JEC.
What’s the break-even point on the whole trade?
On the original 1000 shares, it’s their $44.60 /share purchase price less the $10.30 /share call premium = $34.30 /share.
On the ‘put’ shares it’s the $50 strike price less the $14.30 /share put premium = $35.70 /share.
You average cost would be $35.00 /share.
JEC could drop by as much as $9.60 /share or (-21.5%) without causing a loss on this trade. While it’s not impossible that Jacobs could be that low it seems unlikely. The absolute lows in calendar 2006 and 2007 were $33.60 and $38.30, respectively, on EPS of $1.64 and $2.35. Book Value has increased about 80% since 2006 and EPS by almost 99%.
Disclosure: Author is long JEC shares and short JEC options.

Complete Story »]]> JEC Paul Price Hudson City Bancorp: Yielding Total Returns for Option Writers http://seekingalpha.com/article/166424-hudson-city-bancorp-yielding-total-returns-for-option-writers?source=feed 166424 HCBK:NDQ - Oct. 13, 2009 Close: $13.17

52-week range: $7.46 (Mar. 9, 209) - $18.93 (Nov. 4, 2008)
Dividend = $0.15 quarterly = 4.55% current yield

Hudson City Bancorp, Inc. (HCBK) offers offering traditional deposit products, residential real estate mortgage loans and consumer loans. In addition, the Company purchases mortgages and mortgage-backed securities and other securities issued by United States government-sponsored enterprises. Its revenues are derived principally from interest on its mortgage loans and mortgage-backed securities, and interest and dividends on its investment securities. They have about 131 branches in NY, NJ, and CT. HCBK converted from a chartered mutual savings bank into its current form in two stages. The first came in 1999 and the final step took place on June 7, 2005.

]]> Wed, 14 Oct 2009 08:21:46 -0400 Paul Price Paul Price submits:

HCBK:NDQ - Oct. 13, 2009 Close: $13.17

52-week range: $7.46 (Mar. 9, 209) - $18.93 (Nov. 4, 2008)
Dividend = $0.15 quarterly = 4.55% current yield

Hudson City Bancorp, Inc. (HCBK) offers offering traditional deposit products, residential real estate mortgage loans and consumer loans. In addition, the Company purchases mortgages and mortgage-backed securities and other securities issued by United States government-sponsored enterprises. Its revenues are derived principally from interest on its mortgage loans and mortgage-backed securities, and interest and dividends on its investment securities. They have about 131 branches in NY, NJ, and CT. HCBK converted from a chartered mutual savings bank into its current form in two stages. The first came in 1999 and the final step took place on June 7, 2005.


Complete Story »]]> HCBK Paul Price