Robert Rubin

Long/short equity, value
Robert Rubin
Long/short equity, value
Contributor since: 2011
Company: LDL Capital Management, LLC
Thanks for the shout out.
Deal would be nice but...would depend on what price ROST wants (probably not cheap) ... the good news is that it could be financed with a lot of debt as TJX is not levered and ROST has little to no debt ...
Thanks for the reply Agnmills. I do not often reply to comments but being that you seem so upset I figured a quick reply worthwhile.
I was keeping the argument simple re: merchandising. The point was that the ROSS business model is about going to the store and not the online experience. It was not really highlighting exactly where they get their stuff...
This article does a great job explaining where they (and TJX) get their stuff...
To your point, I could have been more detailed about where the merchandise comes from, but again, that was not really what I was trying to highlight.
Thanks very much for your thoughts...thus far...ROST and TJX have been able to grow and find stuff to sell. We'll see if that continues. I believe it will.
Quick replies:
The $1.20/share dividend is perfectly adequate. The company's yield is superior to that of the R&M sector at that level. Why increase? The cost is already very expensive.
Let's speak to patience: I am not speaking of 3-months of underperformance. I am speaking to several years now. The market is not buying the special dividend approach. The stock is massively underperforming peers (even on a day like today, there are no buyers for HFC stock...). This pristine balance sheet argument makes no sense. With $1.0 billion of debt and $1.0 billion of cash and equivalents, the HFC enterprise still has a pristine balance sheet! No net debt! And...the argument that the company should be opportunistic...well...I agree...they should be opportunistic now in acquiring their own stock...and a LOT of it...isn't that just as much of an opportunity as anything else? There has been a blow up...HFC's own valuation!
Finally, MSFT and AAPL are not comparable at all. I am speaking to (effectively) a levered (and cash driven) recapitalization, that would if fully played out take out 25% or more of the outstanding shares. AAPL has repurchased 2%-3% of the company. Very different.
Here is the bottom line: these special dividends are arbitrary and if you own HFC for the dividends, you are playing Russian Roulette. Management is not obligated to pay them, and has not made a commitment to them whatsoever. If HFC went out and bought a business for $1.0 billion, there goes your dividends. So, to tie it all up, let's let management aggressively buy a business...theirs...and align the overall capitalization with the business and the underlying fundamentals (that the market is not paying for).
No offense and right back at you...from the call transcript...
"We also continue working with the Department of Labor on a plan that would contribute a preferred interest in
our AT&T Mobility to fund our pension plans. We continue to be optimistic on the strategy, and expect approval of this
proposal in 2013."
Huh? Business FCF positive after dividends. They did not need to sell assets to fund the dividend.
Funding pension with preferred in wireless business...not common stock...
Interesting how you linked my first article on CAT, which completely debunked your thesis (as your rationale re: CAT specifically, was weak), and not my second, which recommended taking chips off the table...for reasons specific to CAT...
Bottom line is that you are not making a call on CAT. You are making a macro economic call on the Global Economy. Your thesis (as was specific to CAT) was very, very thin. The attempt to rebuke your arguments was to simply highlight that a weak argument is a weak argument, whether proven right or wrong. And to that point, the equipment guys are under pressure and the Global Economic environment looks challenging (you had that right, but substantiated the argument with no facts other than opinion...and investment based upon guessing can be problematic).
Appreciate the link. Not sure I agree with your argument here either, but I have said enough. Good luck to you!
Oh...I love DE here too.
I view the sale of stock by the CEO as irrelevant. You can focus on it if you wish. We'll call our disagreement a wash.
You are correct. Over the past week, HFC has under performed. That is a fact! Over the past 12-months however, HFC has outperformed VLO, the benchmark refiner (by 1.57%) and the S&P Energy Index (use the XLE, the ETF) by 51.43%. Considering the yield generated by the investment (last year they paid out $2.50 in dividends) and the overall performance, even if HFC hasn't outpaced other refiners, the company still represents a very sound investment in the energy landscape.
Further, I did not say Buy HFC on weakness on March 7. I said buy HFC on weakness on March 13 as we approached the close...and over the past two days HFC has outpaced peers (which is completely asinine to point out, but 2 days is just as arbitrary as 7...and I am on record for the past 2 in this article...)...
Oh, and isn't performance backward looking? Isn't the prospective performance of the recommendation more relevant??? FWIW, HFC has a stronger balance sheet than the peer group (and thus, is a more defensive refiner). That should be recognized over time.
I am amazed by the demands on professional money managers who have important responsibilities. Thanks for taking the time to respond to a lowly amateur posting.
RIN noise is vastly overdone and not considerable. RINs have come down and will ultimately get passed on to customers.
Jennings sold less than 25% of his outstanding shares. He still has 318,912 shares. And will likely be awarded more in the future...I give no credence to this as a "terrible" signal. Taking some money off the table after the stock goes 2x makes complete sense from an estate planning perspective and should not be construed as a signal by the CEO of any kind.
The market is not that short-term oriented. Look at motor gasoline inventories. The summer driving season could prove tight if you are a believer in the improved economy and consumer.
How can one run a DCF analysis on a business with highly unpredictable earnings? Further, you are guessing on the earnings cycle (peak or not) which is low impact analysis.
I prefer to measure the scenarios. It provides a better understanding of the risk / reward and gives a greater sense of understanding downside.
Your conclusion on peak earnings is interesting. Implies the low cycle is right as outlined. We'll see. I like the upside option value to the story assuming your guess on earnings is wrong.
You are speculating on an LBO (read your language). The math doesn't work. The original go private in 1986 was of a very different company and that management is long gone. Current management does not own a ton of this company either. Arguing value is fine. Adding to the speculation with your own commentary minus the facts is not sound.
I disagree with your thesis completely on this business. Middling department stores are in secular decline. Not sure where KSS fits in, around a struggling middle class paying higher taxes, with cost inflation and little pricing value. We'll see. Good luck.
Prove the LBO using the math please...
Interesting counter arguments...
1. Just because something is exclusive doesn't mean that someone will want to buy it...sales are not rising...the argument that KSS sells exclusive and you can only buy the exclusives at KSS so they are not subject to AMZN risk is thin...many of their "exclusives" are commodity items (such as clothing) where there are alternatives...
2. The online business had no place to go but up...growing at 50% is not a relevant statistic...look at online relative to overall sales...don't cite Facebook trends and stats...KSS is a big box department store retailer...not an online they get there and build a viable online business...maybe???...but at this point...that is a big leap of faith...
3. Or that Department Stores are losing share by the middle income customer to cheaper (or more convenient or direct sale) alternatives...your perspective is are a KSS more is clear that something is flatlining the sales and slowing growth and it might just not be the weakness is their core customer...
4. They have levered to repurchase shares...I am speaking to a full out going private transaction...there is no reason to conclude that KSS won't use FCF to buy back stock per annum...they probably will...I am simply speaking to the premise of a big go private deal alluded to by the analyst in the aforementioned report...
5. Interesting on the REIT...why haven't they done it then?
Another side presented...
Another perspective...look for other opportunities and avoid XOM...this is a lazy investment in an exciting and dynamic energy sector...
Not to keep this debate going...but to keep this debate going...
1. I firmly believe in the long-term outlook for investments. But in the case of XTO, XOM management made a strategic decision to buy into the natural gas market at a very questionable time. COP did this too (with the acquisition of Burlington Resources) and was penalized by shareholders for years. This is not about timing. It is about the decision making process of the company. The excuse that investors should have a long-term outlook when management does things that don't make sense is silly.
2. XOM has a declining reserve base. That could reverse, but over the past several years, XOM is lacking in this regard. I will do the math on the share repurchases: outstanding shares peaked in 1998, and are down by 32% since then. Over that time, XOM has seen a massive uptick in the price of oil, lived through a huge price cycle in natural gas and the golden age of refining. The price of the stock is also up considerably since 1998 (the peak retirements occurred in 2005-2008, and have slowed considerably in recent years). The pace of the share repurchase story is slowing (that story happened already), my friend, even with a modest rise in energy prices (from 2008-2011, shares have come down from 5,221 to 4,875 and are up since 2009). I don't know what you mean by "the market" is buying XOM.
3. Your comments indicated that you consider it a substitute to cash. It isn't. It is a defensive investment, for sure. But correlated to oil and natural gas, which are not defensive. Oh, and who says they will do a "smart" acquisition. You don't get credit being 5-10 years early on a deal to buy depleting assets.
4. Yes. No bankruptcy risk, which can be said of many companies.
5. Thanks!
That's silly. There are energy investments that don't require much skill and offer more upside. APA, EOG and OXY are far better plays on the uptrend in commodities prices with solid management, growing reserves, an excellent balance sheet (A-rated) and no wash from refining. VLO is an inexpensive stock that has also returned considerable capital to shareholders in refining, if you want the pure play there.
Over the past five years, the annualized return on XOM has been 4.17%. APA (6.55%), EOG (8.53%), OXY (15.37%) have all outperformed your XOM, and has been closer to your 8%-9%. During the past 10-years, XOM has returned 16.1%, versus APA (27.2%), EOG (29.5%) and OXY (35.7%). Your lazy investment has proven just that. I think your 8%-9% is ambitious, fwiw. Especially if commodities have a "down" year.
Oh, and since the recent "bottom" on 3/31/2009...XOM is up an annualized 10.2% (which pales in comparison to the move in oil) versus the S&P being up 23.0%.
Lazy is lazy. There is better out there.
1. The XTO acquisition was an expensive one. Further, natural gas prices aren't likely to improve for years. For the next several years, the XTO deal won't be helpful to either earnings or cash flow. You are simply justifying because you are long.
2. Who is buying XOM (as per your personal example)? I want you to tell me how effective the share repurchases have been for both price appreciation and in terms of reducing share count (%). Also, there have been a large number of studies that have called to question the effectiveness of share repurchases. XOM has been great about returning cash to shareholders. But they haven't been great about enhancing the underlying business. What's more important?
3. This statement is a bad idea. XOM common is a risk asset. If oil goes to $60, will XOM be a good place to park your money? You need to be careful. You might be willing to live through the downside but not everyone is. XOM is not a cash substitute and not a sub for a money market account.
4. The company is strong financially. They are not going bankrupt. You can sleep at night with XOM. Agreed.
5. Most energy companies are run by energy guys. I could list 20. This is not relevant.
You have been active in defending XOM. Good for you. But XOM isn't a "keeper" for anyone looking to make money investing in the energy sector beyond a low beta market correlated return. It is a lazy investment...there is so much better out there!!!
Good luck.
Last year was a down year for FCF (consolidated).
I would venture, considering the recent performance of the markets, that the underfunded pension and benefits will improve a bit, but over the next several years, that funding gap will need to be closed by a portion of FCF generation (to which, the company is sitting on a consolidated $13.0 billion + of cash and equivalents, so this is not a substantive concern).
The healthcare costs are pay as you go, if I am not mistaken. That liability is not going to require a check to be written anytime soon...
But the ability to do shareholder activities is going to be impacted by pension liabilities, for sure.
Your catch was correct re: interest expense.
Adjusting for interest and taxes (I pulled the wrong number from my model)...FCF is $10.1 billion. I adjust the EBITDA of Verizon Wireless to 55%, as well as the capital spend.
Using the adjusted figure, FCF Yield is still a very attractive 9.3%.
I don't include discretionary purchases (non-capex) in the FCF calculation. You could choose to for your own analysis.
Wireline EBITDA of $9.417 billion less capital expenditures of $6.4 billion. The interest is a corporate allocation.
Hope that helps, and thanks for pointing out my omission.
The Hyperlink in the final bullet is is the story to which I was referring...
A few quick replies to all (and thanks for your comments):
1. I am not speaking to technical indicators or momentum. I am not looking to "trade" VLO. I am speaking strictly to the underlying fundamentals of the business, the value of the enterprise and the relative opportunity of scare capital deployed toward long-term investments. For the technical guys, this article wasn't for you.
2. To Huskers, read my previous blogs. I am out (and sold) because the risk/reward (relative to a $31.50 price objective) is skewed toward my deploying capital elsewhere. I also, in thinking about the business, feel underwhelmed...the company used the considerable cash balance on adding assets (and not repurchasing stock at a heavily discounted price)...and when you evaluate the impact of a prospective spike in oil, the translate may not drive higher margins (we'll see)...the dividend is fine...but you can find the payout elsewhere...with a less volatile underlying...should margins hold in 2012 and the company set 2013 as a "shareholder' year with the expected drop in spending and otherwise...VLO could very well move higher than my $31.50...but for me...I just like other things better...
Bonds in the 63 context, with a 2015 maturity. I would aruge that the 37 points of upside, if the company lucks out and survices, is meaningful option value...think of the 11.875% coupon as the return on investment...
Comment from long_on_oil:
At the present time I am not adding to my RIG position but if it falls below $33 I will be. Short term RIG is an AVOID but as the author says if you have the patience, you will be rewarded.
My response:
You are throwing good money at bad, if RIG hits $33. Why not wait for it to rally a bit, to show that there are buyers of the stock?
You got the wrong guy, Chicago? I said RIG would hit $33? Read the comments again.
The call was a good one...
I have no dog in the fight (neither long nor short)...
Just not a fan of touting.
And the stock closed nowhere close. Back below $47.00.
The article is an interpretation and not hard core analysis...of the company's financial condition and "opinion" piece if you opinion on the new CEO...and his early communication...
You asked if I thought he was an idiot. No idea. Haven't met him. But he sure sounded like one in his remarks. can pull what you want from his remarks (I read them differently)...opinions are like belly buttons...we all have them...fwiw though...Bloomberg ran an article similar to mine this AM...and I think the market had a similar reaction to the new CEO as evidenced by the stock getting wrecked on his first day...
As for UK subs...I can't explain...nor will I try...not my point in the article...if you want to bet the company has turned the corner...go ahead...I am not there yet...
Management change was needed...however, the guy chosen inspired little confidence...
Buy RIMM when they start to make a product that regains mass appeal...and they stop losing share.
Thanks for the comment. I have not been called an ignoramus in a while. Humbling.
I am aware that the iPhone is in India (at a steep price of $900 per unit). I was making a comment that was highlight my point about the fact that Blackberry isn't getting it right.
Good luck waiting for the Playbook 2 to help turn RIMM around.
I think you are right. I think listening to the new CEO...that doesn't seem to be the plan at the moment!!!