RJ Towner

Long/short equity
RJ Towner
Long/short equity
Contributor since: 2011
Love the pod, keep it up!
Very enjoyable read, thanks for sharing. This isn't the sort of upside that I'm usually interested in, but in this market, it seems attractive to me.
Just curious...how are they paying for these athletic endorsements like Kaepernick, Michael Vick, etc?
Is it stock?
We've materially lowered our fair value to the single digits as the firm's Wisconsin business has deteriorated at an accelerating rate.
That's a very good question. We continue to believe the stock is cheap, but there's a lot of headwinds in the business/stock.
1. Walmart/Woodman's stealing share in Wisconsin. Roundy's still has the #1 market share, but we think it's slipping.
2. The dividend probably isn't sustainable. We think it's a way for the private equity owners to extract more capital from the business. This money would also be better spent paying down debt/spending on store improvements.
However, the dividend isn't really part of our investment thesis.
SVU pointed to cutting prices at Jewel (Chicago-based) and that's because it's getting killed. The stores don't offer the same shopping experience as Treasure Island, Mariano's (RNDY), Potash Market, Whole Foods, Trader Joe's or even Dominick's. There's a very big opportunity in the Chicago market, and Mariano's has executed well thus far. Not long ago Mariano's attempted to raise prices, but it backfired, so about 2 weeks later, pricing returned to previous levels.
If you think Mariano's can win share in Chicago and the various Roundy's outlets in Wisconsin and Minnesota can defend share and post flat/slightly-up same-store sales numbers, then the story is very compelling. We think it can --but the dividend might get slashed in the next year or two which will likely hurt the stock in the near-term.
If you have any other questions, feel free to email me.
Thanks,
RJ Towner
Associate Director
Valuentum Securities
rj@valuentum.com
Any mention of Footlocker should include how much of its business is driven by Nike.
A few questions though. With how well D.Rose and Dwight are doing for adidas, why do you have a hold?
What are your thoughts on the huge inventory build at UA and its "SKU rationalization"? Doesn't this signal that they are producing too many products and don't have the demand to keep up?
Gordon Johnson of Axciom Capital actually called this a short well above $100 and got me interested in the name. I wouldn't necessarily trust anyone on CNBC, but he's a very good analyst.
I think we'll learn a lot from this earnings report. Currently trading at under 10x earnings, possible 9% dividend, and they are entering a VERY attractive Chicago market.
I couldn't agree more, u068653. I spend some time in Libertyville every month and finally went in and now shop there for 80-90% of my groceries.
It will be interesting to see if they can replicate the success of Vernon Hills, Palatine, and the two Chicago locations. I've noticed plans to build them in Glenview/Northfield and Wheaton thus far.
Agreed, one of the reasons why we're a bit worried in the Appleton/Neenah/Oshkosh markets.
Wholesale here is great, but I could see them pawning off different divisions to competitors who are week in certain geographies.
For instance, it makes a lot of sense for Kroger to acquire Jewel.
Good article Paolo.
I tend to disagree that sales are going to go up much, particularly given higher fuel costs and a stagnant economy. I just don't see a lot of upside (though the stock has run quite a bit).
Competition from McDonald's is nothing to scoff at either.
Perfect example of PE not really caring about investors with that high dividend. I really really like the story here though once Willis-Stein is gone.
Excellent stuff again, Sam. Some of the best work on Seeking Alpha.
I think I'm too young to understand the title, but this is a nice overview of the business.
Great article. This company is mediocre, and has been for a long-time. People love the lotto ticket stocks.
Couldn't agree more on RAD. Could easily see it going to $0.
This is a great article, Jason. Unfortunately, it doesn't seem like people are accounting for how mediocre the company's cash-flow generation is.
Fair points, Cameron.
I don't think they've been miserably wrong --especially in Q4. Commodity hedges gone wrong should be a one time issue.
I generally agree that they should be held to a high standard. Just remember the amount of exogenous variables that affect something like auto demand that you can't plan for -- EuroZone crisis and Cash for Clunkers come to mind.
Overall, I think we mostly agree, I just think guidance isn't as important to the Ford story as it is to many other companies.
Great discussion.
Cameron,
I see the usefulness of guidance, especially when we have companies like Sears that give little to no information to investors.
However, I'm not really worried about them beating/missing the quarter, especially with Ford. It's pretty difficult to predict auto sales. They were a bit too bullish last year re profitability, but probably subdued this year if the SAAR accelerates like many think it will.
Guidance, in my opinion, is a bit more valuable and reliable for more predictable businesses.
I think guidance is irrelevant. I like to think of myself as a long-term owner of the business, and I'm perfectly fine with high returns on invested capital and returning cash to shareholders.
Unemployment falls, the economy grows, Ford is at least a 2 bagger from here.
Thanks for the kind words.
Our fair value is actually $42, but we run a scenario analysis in which we assume extremely optimistic assumptions, which left us around with a fair value of $60.
I don't think it's overvalued at $65, assuming it remains popular.
I can easily see this stock run up to $70-75, assuming earnings are strong. It could be a fad, but there's no signs of it cooling off right now, especially the 2+ hour waits for gear at their recent tent sales.
I put a ridiculous price I didn't think they would touch as my trigger...and in the hoopla, boom it hit.
You never lose money taking profits. Taking some off the table and playing with the house's money is always fun.
No offense taken my friend.
To answer your question: we often use different valuation methods. We believe, over the long-term, the true value of a business is determined by returns on invested capital, and discounted cash flows to the firm.
Some other firms use multiple analysis (build an income statement, find EPS, and assign EPS/EBITDA multiples). Others (Credit Suisse for instance) use multiples and DCF analysis.
It's a great brand, and there are certainly reasons to be bullish on the company. We just don't think it will be the next Nike.
Good research Brian. I think Sprint's a call without any expiration, but good field work.
For the sake of full-disclosure, Valuentum includes full discounted-cash flow models to arrive at a fair value range.
Our model for UA has some generous assumptions, and in even our best-case scenario, we are left with a fair value of $60.
We've written extensively on UA, as well as the reasons why we think the stock is undervalued. Feel free to check our archive of previous posts for issues we didn't touch on in this note.
I think it's a wait on see on inventory.
One thing I do know: Nike is going directly at UA with their workout gear, and with a very similar product at a lower price, it looks like it's working.
I appreciate the defense, Hoosier. We have no position in UA, nor any competitors.
MNKD will probably go to 0. $22 was prior to severe dilution, so it's not apples to apples.
Any insight on why you think WWW could takeover Collective Brands PLG unit?
I personally don't know if it's a good fit, but would like to hear you elaborate.
Excellent article, Gary.
I'm making the switch to bulk caffeine and making my own drinks...should be quite cost effective.
Our thesis is centered around the fact that Android isn't great.
We think it's more likely that Apple gains a Microsoft like-share of the smartphone/tablet market rather than a duopoly with Android.
They have a better chance creating a good product than having a poor product that no one likes.