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Arvind S's  Instablog

Arvind S
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  • Will Suitors Pay More For Payless Shoes?

    Ever since Collective Brands (Symbol: PSS), the parent company of Payless Shoes announced its strategic review in August 2011, it has been constantly on the news. According to reports, Collective completed its first round of bidding in January and narrowed 10 companies to have more choices in the second round. The final bidders include Brown Shoe and South Korea's e-Land group.

    There was news that e-Land is planning an aggressive bid for Collective at $1.8 billion and MKM partners contended that the bid was way too aggressive and there was no bidding war developing. According to another rumour , e-Land's bid of $1.8 billion is for the whole of Collective Brands along with its debt of 500 millions and this would value the company at $20. Then, last week there was news that Collective is expecting bids in the range of $20-22. So, there are mixed messages coming from the media and analysts have different opinions which add to the confusion. While I have no inside information, I would like to take a stab at this.

    I think Collective announced the price range of $20-22 based on the first round of bidding. In a way, the company has tipped its hand. The companies that had bid and won the first round didn't have a way of knowing the price range. Now that they know the price band, they can prepare their final bids accordingly. A company that bid $20 in the first round may want to bid more if it wants to be a serious contender. Since most companies will go for $22 range, the aggressive bidders might go even higher to increase their chances.

    In the worst case scenario, Collective will get at least $20 and in the best case scenario, it will get a price north of $22. Based on the current market price of $19.51, I believe the odds favor the investors. However, there is an inherent risk to the analysis since I am basing my hypothesis based on rumors only. Since this bidding process is not public, there is no way of knowing the exact situation. But, if everyone knows the exact scenario, the price would be already reflecting that. Due to the inherent risk, I would risk only very little capital on this investment.

    Disclaimer: This article is author's opinion only. The author is not a registered investment/financial advisor. Please do your due diligence before investing.

    Disclosure: I am long PSS.

    Tags: PSS, Rumour
    Apr 19 10:20 PM | Link | Comment!
  • How Long Can Apple Sustain Its Run?

    Can Apple keep going higher? This is a question that is on everyone's mind. Analysts are pounding the table with price targets greater than $1000. Gene Munster is an analyst that I greatly respect and he was way ahead of other analysts when it comes to Apple. When Apple was a slow compounding stock, he predicted Apple TV, return of capital to shareholders, etc. Now that Apple has announced dividends and dividend investors are piling in, Apple stock had a pretty good run within a short period of time.

    So, what is Apple's future? Apple is a product company. As long as it keeps coming up with innovative products, the stock will keep going higher. When I look at Apple's recent history, the success started with the introduction of iPods, then iPhones and now iPads. Among these products, iPhones are their biggest revenue driver. How can Apple increase revenue? 1. By signing up more carriers. Initially Apple started with AT&T, then signed on with Verizon and Sprint. So, still there is some opportunity left with T-Mobile. When it comes to China, there is still one behemoth carrier still left. If Apple can get China Mobile onboard, then that would add to its earnings. 2. By introducing new models: IPhone 4s was a big success despite pundit's complaints that it didn't offer any new features other than Siri. So, IPhone 5 will be a big blockbuster device for Apple. 3. By introducing new products: ITV/IPanel would also add to Apple's earnings. The interesting thing here would be to see if Apple is going to be satisfied with selling devices or to get recurring revenue from users by offering TV channels, movies, music, games and what not. Integrating with other Apple devices would be a huge boost.

    So, Apple still has gas left in its tank to sustain the momentum for another 3-4 years. But, all good things come to an end. Kingdoms fall and that's the nature of the beast. Now, there are still plenty of people without iPhones and iPads in China and elsewhere. But, once you sign on with all major carriers and have covered the globe with a huge market share, where would you go? Can Apple pull the perennial rabbit out of the hat forever? Will people keep swapping their old iPhones for the new models every year or two? Will people update their iTV every 3 years? Despite these lingering questions, Apple still has plenty of room for growth. Until then, buckle up and enjoy the ride.

    Disclaimer: The article is author's opinion only. Author is not a registered investment adviser. Please do your own due diligence before investing.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.

    Tags: AAPL
    Apr 09 12:23 PM | Link | Comment!
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