PRO Weekly Digest - December 3, 2017

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Includes: ARSUF, BRCD, CONN, DESP, HNGR, ISCA, SSW
by: SA PRO+ Editors

Summary

We highlight two noteworthy PRO ideas - a GARP idea in the online travel industry and a contrarian idea on a stock with a clear mispricing and catalysts to correct it.

Our idea screen of the week takes a look at short ideas with a variant view to the “consensus” bullish thesis.

Welcome to the latest issue of the PRO Weekly Digest in which we publish highlights from our PRO coverage. Comment below or email us at pro-editors at seekingalpha.com to let us know what you think. Find past editions here.

Click here to read the interview with Alpha Apache.

PRO idea playing out

In October 2017, Uncorrelated Returns said Brocade (NASDAQ:BRCD) offered an 8% return in the next six weeks for this merger arb play as the market was mispricing the risk of obtaining CFIUS approval, and even in the event of a deal-break, there was only 7-15% downside. In an update comment, Uncorrelated Returns noted that the deal closed in mid-November, so the original premise of 8% in 6 weeks proved conservative though the mechanism for obtaining CFIUS clearance was somewhat surprising.

Call from the archive - SSW

Seaspan (NYSE:SSW) is down ~10% since J Mintzmyer shared his bullish contrarian thesis in August 2017. However, as the thesis appears to be playing out (accepted delivery of three vessels on long-term charters and entered into three-year time charter contracts for two containerships under construction, sold four vessels for a ~$14M gain, completed a refinancing, reduced ship OpEx ~11% and achieved pro-forma vessel utilization of 98% in the mrq) and the original price target calls for ~70% upside, this may be worth another look.

Noteworthy PRO articles

We wanted to highlight a few of our PRO editors' favorite PRO ideas this week:

SA Editor John Leonard, CFA: Ian Bezek makes a compelling bullish case for Despegar.com (NYSE:DESP), the largest online travel agent in Latin America with a long growth runway, improving profitability metrics, and attractive relative valuation.

SA Editor Jeffrey Fischer, CFA: With progress on governance and accounting but accompanied by only a modestly increased share price, Alpha Apache reminds investors that their thesis on Hanger (OTCPK:HNGR) remains actionable. Further resolution to accounting restatements and eventual uplisting from OTC are foreseeable catalysts.

New Seeking Alpha contributors to watch

Burt Ross shared a bullish thesis on Fagron (OTC:ARSUF), an undervalued turnaround play led by a proactive management with a strong balance sheet/cash flow, while a new facility in Wichita is expected to grow revenues to >€100M over the next 3-5 years.

Idea screen of the week

Each week, we use the PRO Idea Filter to find potential ideas based on a recent news event. This week, PRO Editor John Leonard, CFA looks at short ideas with a variant view to the “consensus” bullish thesis.

Sometimes, the best trades are found when the crowd is leaning the wrong way. I ran a screen of PRO Short ideas from the past six months.

2 ideas turned up in this screen that might be of interest (prices as of November 30 close):

Conn's (NASDAQ:CONN) by Eric Chung, Esq.: Published on November 9, 2017, up ~5% since publication. The huge run-up in the stock creates a short opportunity as the business model is unsustainable, it is overleveraged and aggressive changes to credit policies will worsen the problem of rising delinquencies.

International Speedway (NASDAQ:ISCA) by Vince Martin: Published on October 12, 2017, up ~5% since publication, author's price target offers ~25% downside. The rally following Q3 makes little sense as attendance is still declining, while NASCAR remains a sport in secular decline, and much of the cash flow is being reinvested in the business at questionable returns. ISCA does not deserve a growth multiple, and sentiment should eventually reverse.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Check with individual articles or authors mentioned for their positions.