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The Fair Warning Report - 12/29/2017


Johan Shakes His Junk.

Johnson Controls, Inc.
2016 was a busy year for the company, buying Tyco International plc, becoming an Irish domiciled company, and then spinning off their automotive business, what a whirlwind. 2017 began the hard work, consolidating what is left into a competitive, cost efficient organization. It is this consolidation period that investors hate and accountants can't wait for. In the end I did the best I could to determine a fair value for the company and I believe I have done that. The question is, what about tomorrow, what happens going forward? I wish I knew. I must not be alone since yoy the stock price is down 15% and ytd the stock price is down 7% even though the company posted earnings increases of 121% while only growing debt 6%. Over the next couple of years can the stock price get to $75? That is the question I suppose.

Johnson Controls, Inc. (NYSE: JCI) - FYE 09/2017 - FAIRLY VALUED - The stock is currently trading in line with my $38 fair value estimate - Please See Linked Worksheet

Science Applications International Corporation
In the end the company is a Boris and Natasha company that continues to acquire other Boris and Natasha companies and sell services to the government. Earnings continue to grow, up 21% for FY 2017. If free cash flow remains at current levels, $5.67 for FY 2017, and debt can be reduced in the 10% range, expect to see additional acquisitions.

Science Applications International Corporation (NYSE: SAIC) - FYE 01/2017 - SELL HALF - The stock is currently trading above my $62 fair value estimate but below my $99 close target - Please See Linked Worksheet

Thor Industries, Inc.
Management is doing a very effective job acquiring businesses that fit the long term business strategy of the company and actually keeping shareholder interests in mind by borrowing only what funds are need for an acquisition, paying the borrowed funds back timely, suspending stock buy backs until the debt is repaid, but keeping dividend payments in place. In short, management is preserving cash while still growing the business. Certainly I doubt if a YOY (FY 2017) growth rate of 48% is sustainable, but at least the company is putting itself in a position to have a real chance of making that a reality.

Thor Industries, Inc. (NYSE: THO) - FYE 07/2017 - FAIRLY VALUED - The stock is currently trading in line with my $144 fair value estimate - Please See Linked Worksheet

VeriFone Holdings, Inc.
Let me say now, I own shares of this most crappy stock. It is unfortunate that the company is managed by seemingly inept people. Over the last couple years management has wasted cash on repurchasing shares and overpaying to acquire businesses as evidenced by the company's Goodwill which for FY 2017 was $1.1billion. That's a lot of cash, cash that could have been spent finding replacements for the retreads currently running the company. In my opinion, with current management, I wonder if Verifone will even be around next year, which certainly makes me wonder, wonder why I didn't sell this dog when it was trading in the $30s. Put a collar on this one and take it to the park. Maybe it will find a fire hydrant and stop using my leg.

VeriFone Holdings, Inc. (NYSE: PAY) - FYE 10/2017 - OVER VALUED - The stock is currently trading above my $6 fair value estimate - Please See Linked Worksheet

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