JohnD

The Idearc Fiasco: Stock Worth a Second Look?

The fundamental issue here is they are a cashflow monster that can manage short term expenses (payroll/overhead for the most part) with reduced advertising revenue and maintain a stable cash flow picture. With revenue falling about 2% a year, not considering short term economic fluctuations, they could continue their dividend level for the next 7-8 years along with a payout ratio of under 60%, pay their mandatory $12m debt reduction @ quarter, and buyback some of their stock to improve their EPS. The problem and concern is that they will try to be something they certainly fail at, migrate quickly (and at great capital cost) to a technology company (Superpages & the like). That would eliminate all excess cash after they pay the mandatory quarterly debt reduction. This scary story is further enhanced by insensitive [to the analyst community] statements from the original CEO and the recently departed Chair and acting CEO saying "more of the same, our last years capital spending strategy will be maintained, we will continue looking into M&A and grow our web-based directory business". These guys don't realize they are the furthest thing from a Google, they are all ex-phone guys. Get with the program ! Tell the world you will optimize your monsterous cash flow, cut expenses, and stop investing in M&A and organic web-based directory service. Use the cash to buy back the stock at a 50% return on capital, talk to the people who hold the debt covenants requiring $12 million a quarter payback (anyone/lender with half a brain would agree that buying stock with a 50% return on capital is more worthwhile than retiring debt that cost 6 or 8%). That will drive the stock, bring health to the company's fiscal situation and all Idearc to go buy someone for equity when their stock is back in the $18-22 range. Hello. - John D.