Sunday, December 18, 2011

ABB Ltd (ADR) – 3.7% Dividend yield and turn around in global energy infrastructure cycle to provide 40% potential upside

This article is a summary of what I read online. I thought this was interesting to point to readers looking at dividend play and trying to play the upturn in energy infrastructure cycle. The valuation, like those published exclusive on seeking Alpha, is not mine.

ABB Ltd (ADR) - Currently trades at $17.79
Potential Upside by Industry Estimates: $7 - $9
Market Cap: $41B
Cash: $5B; Total debt: $4.6B
Dividend Yield: 3.7%
Shares Outstanding: Approximately 2.29B
Sector: Industrial Goods; Industry: Industrial Electrical Equipment
Trading timeline: 12 - 15 months

What does ABB do?
ABB, the electrical-engineering giant, is enjoying a power surge. The company, which specializes in power and automation technologies, occupies the sweet spot in energy efficiency, and is ringing up increased orders and revenue as corporations and governments around the world seek to modernize buildings, manufacturing practices and the power grid.

Whats the Story:
Despite flirting with bankruptcy less than ten years ago, and its ADR’s down 19%, to $18.26, since the start of the year, and off 34% from a late-April high of $27.58, I would consider this firm an investment candidate and a name to seriously analyze. Why? For starters, ABB is in one of the few firms best positioned to capture the piece of the growing energy infrastructure pie. The International Energy Agency expects global investment in energy infrastructure is going to average $1.5 trillion a year for decades, for a total of $38 trillion by 2035

Possible Catalyst:

·         ABB has spent heavily on research and development and acquisitions. Both types of investments are paying off so far. ABB earned $3.8 billion, or $1.12 a share, in 2010, on revenue of $31.6 billion, and is expected to generate per-share profits of $1.47 this year and $1.61 in 2012. Additionally, ABB returns some of its cash to shareholders via a 67-cent annual dividend per ADR, which equates, at the current stock price, to a sweet yield of 3.7%. The company is expected to shell out $1.48 billion in dividend payments this year, up from $1.26 billion in 2010.
·         ABB trades for 11.5x next year's estimated earnings, a valuation that discounts concerns about global economic growth. The stock can trade at a P/E multiple of 15 to 18 times earnings, which implies a target price of $26.50.
·         ABB's largest shareholder, Sweden's Investor (INVE-B.Sweden), purchased 1.5 million shares in the third quarter, lifting its stake to 7.3%. This marked the company's first ABB purchase in eight years.
·         ABB laid out a five-year plan projecting compound annual growth in organic revenue of 7% to 10%, with mergers and acquisitions potentially adding another 3 to 4 percentage points of growth. The company also modeled five-year Ebitda margins of 13% to 19%, up from a prior range of 11% to 16%.
·         ABB has been helped this year by a pick-up in its power-products division after two years lackluster performance - the division that accounts for 30% of revenue. ABB's profitability owes in part to cost cuts and is working to strip out about $1 billion in costs both this year and next, following $3 billion of cost reductions in the past two years.
·         ABB OPERATES IN ABOUT 100 COUNTRIES, and is benefiting from surging energy use, particularly in emerging markets. The International Energy Agency forecasts total global energy demand increasing by a third from 2010 to 2035, with 90% of the growth coming from developing countries. China, already the world's largest energy consumer, will account for 30% of that. ABB generated 50% of its revenue in 2010 from emerging markets, up from 42% in 2006
·         ABB'S DIMINISHING DEPENDENCE on mature markets however these markets are expected to account for about $4 trillion of the $9 trillion likely to be spent on infrastructure supply between 2010 and 2015. The U.S. and Europe urgently need to modernize aging infrastructure to accommodate more renewable-energy sources and meet anticipated demand for electric vehicles. In connection to this, R&D spending is expected to total $1.3 billion in 2011, or 3.5% of estimated sales, rising to 4% by 2015. ABB has high hopes for direct current, or DC, applications, and is putting the technology, which is more energy-efficient than alternating current, or AC, into data centers and fast chargers for electric vehicles.
·         Revenue from services grew at a compound annual growth rate of about 9% during much of the past 10 years, but ABB is targeting annual growth of between 15% and 20% through 2015. The company expects services to account for 20% to 25% of sales by the middle of the decade, compared with 15% to 16% now.
·         On the M&A front - ABB has shelled out $5 billion in the past 18 months on acquisitions. Its U.S. presence was strengthened with the January purchase of Baldor Electric, a maker of high-efficiency industrial electric motors, for $3.1 billion plus debt; it was ABB's biggest acquisition to date. With regulators demanding greater energy efficiency, Baldor so far has proved an excellent buy: The company's revenue rose 20% in the first nine months of this year, and Ebitda margins exceeded 20%.
·         ABB has also purchased software makers Ventyx and Mincom, which turned ABB into a leader in enterprise asset management, or the monitoring of mission-critical assets. Others seemed natural fits, including the near-$1 billion spent to raise ABB's stake in its Indian subsidiary. Those deals have added 7% points to sales and 9% points to profitability.
·         Management also has tidied up ABB's balance sheet, which boasted $5 billion of cash as of the end of September, against $4.6 billion of debt. Fitch Ratings raised its credit outlook on the company last month to Positive from Stable, putting further distance between ABB's promising present and its darker past.

Capital-goods companies still require caution, but ABB is among the best in class. Who You Gonna Call? The Big Three global engineering outfits all could attract investors.

Siemens / SI*
Recent Price
52-Wk Change
Market Val ( bil)
EPS 2012 E
P/E 2012 E
Dividend Yield
*Fiscal year ending Sept. 30.
Source: FactSet

Thursday, December 8, 2011

Xylem-ITT Spin-Off Will Create Substantial Upside For Shareholders In The Medium To Long Term

I have posted an article on Seeking alpha which goes into details about how to profit from and why Xylem (XYL), which was spun off from ITT in Nov-2011 will create upside for medium term to Long term investors. The upside is between USD 6 to USD 8 a share in addition to a potential 1.1% dividend yield.

If anyone reading do invest in special situations, this might make a good read. Either you can click on the title or go to Seeking Alpha and  and check out "kedar special situations" Its under Long Ideas for Xylem (XYL)

Thank you

Sunday, December 4, 2011

Meredith Corporation – 5.7% Dividend yield and 2012 election cycle to provide potential upside of 25%

This article is a summary of what I read online on Barron's. I thought this was interesting to point to readers looking at Dividend play and the 2012 election cycle. The valuation, like those published exclusive on seeking Alpha, is not mine.
  • Meredith Corporation (MDP) - Currently trades at $30
  • Potential Upside by Industry Estimates: Approx. $5-$6 per shar
  • Dividend Yield: 5.7%
  • Market Capitalization: $1.36B
  • Cash: $18.95M; Total debt: $250M
  • Shares Outstanding: Approximately 45M
  • LT Debt/ Equity:20%; Leverage:2.7x
  • Sector: Services; Industry:Printing and Publishing
  • Main Catalyst: 50% increase in dividend yield; 2012 Election cycle
  • Trading timeline: 12 -18 months

What does MDP do?

Meredith Corporation (Meredith) is a media and marketing company. The Company is engaged in magazine publishing and related brand licensing, television broadcasting, integrated marketing, interactive media, and video production related operations. The Company operates two business segments: national media and local media. The national media segment includes magazine publishing, brand licensing, integrated marketing, interactive media, database-related activities and other related operations. The local media segment consists primarily of the operations of network-affiliated television stations, related interactive media operations and video production related operations. In July 2010, the Company completed its acquisition of The Hyperfactory. In December 2010, the Company acquired Real Girls Media Network. During the fiscal year ended June 30, 2011 (fiscal 2011), Meredith relaunched Websites, including and


The shares MDP have fallen 21% in the past year, and 51% in the past four years. Then why is MDP an interesting candidate to look into? Here is why -

Potential Catalysts:
·         MDP disclosed last month that it will use a chunk of its cash to boost its dividend by 50%, to $1.53 a share, resulting in a yield of 5.7%. Those looking for cash flow in addition to capital appreciation potential of MDP might find this interesting.
·         Fundamentally -MDP trades at 10.2x for 2012 and under 0.9x sales—a valuation that discounts bad news and ignores some powerful drivers of future growth, including a coming tidal wave of political advertising and a recovery in food-industry ad spending. Buoyed by these trends, shares could rally to the mid-$30s in the next year, for a total return of more than 30%.
·         MDP's reliance on political advertising carried by its local TV stations makes its earnings fluctuate with the election cycle. EPS is expected to fall 6% in fiscal 2012, to USD2.62, only to rise 16% in fiscal '13, to USD3.05, as spending on the 2012 elections concludes
·         In a typical election year, candidates spend about $3.5 billion on TV ads, but some forecasters think the amount could double in this election cycle, given a 2010 Supreme Court ruling that loosens restrictions on corporate campaign spending. Meredith management doesn't anticipate such a surge, but the political climate suggests spending could be higher than usual. There are open U.S. Senate seats in Connecticut, Arizona and Nevada, three states where Meredith operates TV stations.
·         Another potential driver for the broadcast business is the fiscal 2013 renegotiation of five-year contracts for retransmission fees, which Meredith charges cable companies to carry their signals. Citigroup expects a double-digit fee increase.
·         Food advertising, which accounts for 25% of magazine-division revenue, was a weak spot in fiscal '11, as food companies faced rising commodity costs. While input prices aren't expected to drop, they are likely to level off, allowing the companies to pass through price increases to consumers. That should free up more funds for advertising.
·         In addition to funding a higher dividend, Meredith will use its cash to reinvest in the business, buy back stock and focus on small, accretive acquisitions.

Sunday, November 20, 2011

Vodafone –Verizon wireless dividend and emerging market growth creates 32% upside

This article is a summary of what I read online. The valuation, like those published exclusive on seeking Alpha, is not mine.

Vodafone Group Plc (ADR) - Currently trades at 26.96$
Potential Upside by Industry Estimates:  $8-$10. Including dividends, the total return could top 35%
Market Capitalization: $136B
Cash: 12.20$; Total debt: $42B
Shares Outstanding: Approximately 5B
Sector: Services; Industry: Communications Services
Main Catalyst: Potential future regular dividend from Verizon wireless, growth emerging market growth, increase in dividend yield
Trading timeline: 24 months

What does Vodafone do?
Vodafone Group Plc (Vodafone) is a mobile communications company operating across the globe providing a range of communications services. The Company offers a range of products and services, including voice, messaging, data and fixed-line solutions and devices to assist customers in meeting their total communications needs. Vodafone has a global presence, with equity interests in over 30 countries and over 40 partner markets worldwide. It operates in three geographic regions: Europe, Africa and Central Europe; Asia Pacific, and the Middle East, and has an investment in Verizon Wireless in the United States. In October 2010, Vodafone Global Enterprise, the business within Vodafone, announced the acquisition of two telecom expense management (TEM) companies, Quickcomm and TnT Expense Management. In November 2011, the Company sold 24.4% interest in Polkomtel in Poland.

Despite a defensive profile that should serve investors well in volatile markets, shares of British mobile-network operator Vodafone have been weighed down with the negativity that has burdened many European stocks as the sovereign-debt crisis rolls on.

Potential Catalyst:

·         Vodafone (VOD) received its best news in years on July 28—the announcement of a 2012 $4.5 billion special dividend from Verizon Wireless, of which it owns 45%—its stock  has risen 4%. But over the past 12 months, it's underperformed the market slightly. It's also badly trailed shares of Verizon (VZ), which owns the other 55% of Verizon Wireless—even though the mobile-communications outfit is each company's most important asset.
·         The decision by Verizon Wireless (VZW) to pay a special $10B dividend in January is a watershed event. Vodafone will pass its portion along to shareholders, leading to a total dividend of $2—and a 7.5% yield—per American depositary receipt. Best of all, a big payout is likely to become an annual and growing event.
·         divesting smaller, unstrategic minority interests in France, China and some other markets
·         VOD is No. 1 or No. 2 telecom service provider in fast-growing Turkey, India and Egypt, as well as South Africa and other sub-Saharan nations. Countries like these already generate over 25% of Vodafone's Ebitda. When VZW's strong results are included, less than half of Vodafone's Ebitda comes from mature European markets.
·         Revenue from mobile data, rising at more than 20% annually, and from messaging, climbing at an 8% yearly clip, easily are outrunning the drop in voice revenue. And earnings are expected to rise about 8% in the company's next fiscal year, which starts on April 1.
·         Last week, Vodafone reported that revenue in its fiscal 2012 year's first half, ended Sept. 30, had risen 4%, to £23.5 billion, while basic earnings per share had slid 9%, to 13.06 pence (21 cents), mainly because of higher taxes and because the comparable fiscal 2011 stretch included a large extraordinary gain on the sale of China Mobile.
·         While there's no formal annual commitment, Verizon Wireless has little net debt and produces about $1 billion monthly in Ebitda. "Absent massive investment, VZW could pay out a regular annual dividend.

Sunday, November 13, 2011

Equifax - New products and strategy to provide potential upside of 25%

This article is a summary of what I read online on Barron's. I thought this was interesting to point to readers looking to play financial services. The valuation, like those published exclusive on seeking Alpha, is not mine..
  • Equifax Inc.(EFX) - Currently trades at $36.16
  • Potential Upside by Industry Estimates: Approx. $8 per share
  • Market Capitalization: $ 4.38B
  • Cash: $102M; Total debt: $1.04B
  • Shares Outstanding: Approximately 121M
  • Sector: Financial; Industry: Credit Services
  • Main Catalyst: New product called Decision 360; revenue diversification leading to growth even in recessionary markets; emerging market growth; Fundamentals
  • Trading timeline: 12 to 18 months

What does EFX do?

Equifax a provider of information solutions for businesses and consumers. The Company has a group of clients and customers, including financial institutions, corporations, governments and individuals. Its products and services are based on databases of consumer and business information derived from various types of credit, financial, employment and income, public record, demographic and marketing data. It operates in three regions: North America, Europe (the United Kingdom, Spain and Portugal) and Latin America (Argentina, Brazil, Chile, Ecuador, El Salvador, Honduras, Paraguay, Peru and Uruguay). It operates in five segments: the United States Consumer Information Solutions (USCIS), International, TALX, North America Personal Solutions and North America Commercial Solutions. In March 2011, it acquired Workload Financial Business Consultants Limited. In August 2011, the Company acquired DataVision Resources. In September 2011, it acquired Datum.


The Atlanta-based database outfit has been compiling information on the creditworthiness of individuals for more than a century, offering its insights mostly to lenders. After the stock topped at $46.26 in 2007, financial performance peaked in 2008. In 2008, revenue topped out at $1.94 billion with $2.48 a share in profits; revenue slid to $1.82 billion in 2009 when earnings dropped to $2.33 a share. The shares hit bottom in 2009 at $19.79.

Some of the potential revenue drivers:
·         Revived appetite for debt is a big propellant for Equifax's business. Total U.S. consumer debt recently hit $11.2 trillion, a little more than the $11.1 trillion posted before the recession hit, according to Equifax's own National Credit Trends report.
·         Trends in home and car sales leading to less demand for credit reports

Facts to know:
·         In all, the company has introduced 137 new products and services over the past two years, according to Boyar's Intrinsic Value Research.

Potential Positives:
·         Even before the recession, Equifax had begun to launch products and services that broadened its picture of consumers and expanded its potential market beyond banks and a few other, mostly U.S.-based customer categories. In 2007, EFX purchased TALX, a company that gathers employment and income information about individuals. It can combine this data with that of another purchase, IXI, which gathers wealth data based on zip code. The two companies contribute to a new product called Decision 360°, an attempt at a more granular portrait that may be of use to small businesses, auto lenders, banks and insurers.
·         Goal to generate 10% of our revenue from new products generated within the last three years. EFX crossed that threshold last year. CEO is a former senior executive at General Electric who's been chairman and CEO since late 2005. The diversification, reducing reliance on mortgage-related business, has enabled Equifax to "weather the storm better," he notes.
·         Diversification lead EFX to beat Street expectations by 1 cent a share. Despite a double-digit decline in mortgage activity, revenue increased to $490 million, up from $474 million in the year-earlier quarter, an 8% increase. Analysts expect EPS to grow from $2.52 a shareon revenue of $1.95B to $2.73 a share on $2B in 2012.
·         According to industry, stock trades relatively cheap—about 13 times projected 2012 earnings, well below its 10-year median of 15.2 times. Another basis of comparison: Private-equity fund Madison Dearborn bought effective control of rival TransUnion for an implied 9x EV/ Ebitda in 2010. Equifax trades at 8.5x.
·         EFX strains against the same headwinds as consumers, but technological gains in an era of real-time data and new customers are helping it push forward. Smith envisions new types of clients, like health-care providers who want to verify a patient's identity and confirm that he has the right medical benefits before admitting him; or a merchant who wants added information before approving a credit-card charge at the cash register. Mobile devices like smartphones open up other opportunities.
·         Private-equity firm Veronis Suhler Stevenson projects a 6.5% average compound growth rate for business-information providers like Equifax over the next five years. "Equifax is one of the largest players in a little-known but fast-growing part of the trillion-dollar communications industry," says John Suhler, a founding partner.
·         Equifax has only just started to tap the possibilities in emerging economies with burgeoning middle classes, such as Russia, Brazil and India. It recently joined up with Boa Vista, Brazil's second biggest credit bureau. At present, the company gets just 29% of its profits overseas.

Equifax's price/earnings ratio is near the bottom of business-information providers.

-----Est. EPS*-----
-----Est. P/E*-----




*All earnings per share and P/E estimates are on a calendar- year basis except for Experian. EPS and P/Es for Experian are for the March 2012 and March 2013 fiscal years.
Source: Thomson Reuters

Monday, October 31, 2011

By Offloading Timeshare Business, Marriott Will Create Upside For Shareholders

I have posted an article on Seeking alpha which goes into details about how to profit from and why the spin off of Marriotts (MAR) timeshare business on 21-Nov-2011 creates upside for medium term MAR investors. The upside is between USD 8 to USD 10 a share in addition to the 1.1% dividend yield.

A classic spin-off story; a repeat of 1993 spinoff by Marriott of its real estate into Host Marriott.. If anyone reading do invest in special situations, this might make a good read.

Go to Seeking Alpha and  and check out "kedar special situations" Its under Long Ideas ideas for Marriott (MAR) titled as "By Offloading Timeshare Business, Marriott Will Create Upside For Shareholders"

Thank you

Thursday, October 20, 2011

AMAG Pharmaceuticals - Activism may yield 32% upside

 Source : From Barron's filings : Mostly for small cap investors

AMAG Pharmaceuticals (AMAG)

Business: The development and commercialization of a therapeutic iron compound to treat anemia.
Stock-Market Value:
$296 million ($13.94/share)
What's Happening: MSMB Capital
is opposing the company's proposed merger with Allos Therapeutics (ALTH), announced a tender offer to acquire AMAG for $18.00 per share and is commencing a consent solicitation to replace a majority of the board.
Key Numbers:
the percentage of common shares owned by MSMB Capital.
the percentage of common shares owned by Adage Capital and Palo Alto Investors.
50.1%: the percentage of votes needed to approve the Allos merger.
Behind the Scenes: AMAG and Allos entered into a merger agreement that states that AMAG would acquire Allos in an all-stock deal valued at $260 million. The deal has received widespread criticism and raised strong conjectures that AMAG shareholders, including Adage Capital and Palo Alto Investors, would vote against it. Palo Alto has a history of activism when it is necessary to protect shareholder value, and Adage recently converted from a 13G filing to a 13D filing, indicating that it may not support the merger. To be consummated, the deal may need to be reworked to include a cash element. MSMB does not consider itself an activist but a "corporate raider," in that it is interested only in making money for itself, and not the other stockholders. It wants to buy the company at the best price it can. However, there is no indication that MSMB has the capital to acquire the company. While AMAG's directors have consistently received significant withhold votes in past elections, it is also doubtful that MSMB has the experience or credibility to consummate a successful consent solicitation for a majority of the board. If MSMB did win the consent solicitation, it would likely pressure the new board to remove the poison pill and sell the company to MSMB at a favorable price.

Monday, October 10, 2011

October 27 Proxy Battle Between Regis / Starboard Presents Trading Opportunity

I have posted an article on Seeking alpha which talks about how the RGS AGM creates trading opportunity for investors.
Go to Seeking Alpha and  and check out "kedar special situations" Its under Long Ideas ideas for Regis Regis Corporation (RGS) titled as "October 27 Proxy Battle Between Regis / Starboard Presents Trading Opportunity "

Thank you

Wednesday, September 28, 2011

Dell's Transition From Phase I To Phase II Restructuring Creates Best Buying Opportunity

I have posted an article on Seeking alpha which goes into details about how to profit from and Why Dell makes a great buy in 2H-2011 for medium term investors.

A classic turnaround story, not been written about yet by the street analysts.. If anyone reading do invest in special situations within tech space, this might make a good read.

Go to Seeking Alpha and  and check out "kedar special situations" Its under Long Ideas ideas for Dell (DELL) titled as "Dell's Transition From Phase I To Phase II Restructuring Creates Best Buying Opportunity

Thank you

Sunday, September 18, 2011

BCSI’s share price might undergo major upward movement after 25-Oct-2011

  • Blue Coat Systems, Inc. (BCSI) - Currently trades at $ 16.00
  • Market Capitalization: $ 675M
  • Cash: $342M; Total debt: $78M
  • Share Float: Approximately 35M
  • Dates to watch out for: 25-October- 2011
  • Sector: Technology; Industry: Technical & System Software
  • Main Catalyst: Standstill agreement with Elliott Associates set to expire on 25-October
  • Trading timeline: 1 months
What does Blue Coat do? – Blue Coat Systems, Inc. designs, develops and sells proxy and other appliances, and related software and services that secure the delivery of business applications, Web content and other information to distributed users over a wide area network (WAN), or across an enterprise’s gateway to the public Internet (also known as the Web). Its business consists of two categories: products and services. As of April 30, 2011, the Company categorized its products and services into three service and product offerings: Web Security, WAN Optimization and Cloud Service. On January 25, 2010, it acquired 84.5% of the outstanding shares of S7 Software Solutions Pvt. Ltd. (S7), which is an information technology (IT) research and development outsourcing firm based in Bangalore, India. In July 2010, it acquired an additional 8.4% of the outstanding shares of S7. On November 22, 2010, the Company acquired the remaining 7.1% of the outstanding shares of S7. (Source: Google Finance)

Situation - Elliott Associates filed its first 13D in Dec-10 declaring a 6.4% stake in Blue Coat Systems (BCSI) at an average price of USD 25 to USD 26 a share. 27% of Elliot’s stake is in form of common shares while another 65% in the form of convertibles notes due Jun-2013. Elliott has steadily been increasing its stake by buying equity and through use of derivative contracts. Since Dec-10, BCSI share price have declined more than 50%. Elliott filed a 13D/A on 01-Sep-11, according to which Elliott collectively owns 9.9% of BCSI. Still probably under water, the fund, entered into an agreement with BCSI pursuant to which Elliott agreed that until 25-Oct-11, unless extended, Elliott will not without Bluecoat’s prior written consent acquire or knowingly facilitate the acquisition or ownership of, any securities or assets of BCSI or group with other shareholders or seek to restructure the company.

But the agreement does not preclude Elliott from approaching BCSI’s Board of Directors until such time that the matters discussed are not disclosed in public. Elliott has been involved in activism in firms such as Brocade, Swiss biotech company Actelion, Iron mountain and Epicor software. Epicore did get sold to Apax in 2010; however in other situation where Elliott lost proxy fights, it was able to push through with management changes. Despite the management changes at BCSI where SVP of operations left and the firm named Greg Clark as its new CEO on 18-Aug-11, Elliott signed a standstill agreement with the company. This may signal that the fund might be negotiating a potential sale or a breakup of the company behind closed doors.

BCSI traded as high as USD 30 a share on 03-Jan-11.

Tuesday, September 13, 2011

Carroll bank - Shares apparantly offered at half their tangible book value

So i read  that :  Carroll Bancorp, Inc., announced today that on August 12, 2011, got approvals required to commence the Bank’s conversion from a mutual to stock form of organization and Company’s common stock was declared effective by the U.S. Securities and Exchange Commission on August 12, 2011.The Company is offering for sale between 331,500 and 448,500 shares of common stock (subject to a 15% increase to up to 515,775 shares) at a purchase price of $10.00 per share. First priority to depositors of the Bank with a qualifying deposit as of January 31, 2010, second to the Bank’s employee stock ownership plan, third to depositors of the Bank with a qualifying deposit as of June 30, 2011 and fourth, to all other depositors and borrowers of the Bank as of August 4, 2011.  Shares of the Company’s common stock that are not subscribed for in the subscription offering may be offered to members of the general public in a community offering, with preference given first to natural persons residing in Carroll and Howard counties in Maryland. 

Barrons states that USD 10 per share is "HALF" the tangible value of the bank. A little bit of more analysis  might make it a worthwhile buy in the beaten down market for financials where everyone is stuck on the big 5's!

Tuesday, September 6, 2011

ACIW - Takeover Target

I have posted an article on Seeking alpha which goes into details about how to profit from and Why ACIW is a 2012 takeover target..

A classic M&A opportunity. If anyone reading do invest in special situations within tech space, this might be it.

Go to Seeking Alpha and  and check out "kedar special situations" Its under Long Ideas ideas for ACI World Wide (ACIW) titled as " ACI Worldwide: A Potentially Great Buy Given Current Market Movements"

Thank you

Monday, August 22, 2011

RalCorp and POST

I have posted an article on Seeking alpha which goes into details about how to profit from shorting RAH and going long POST later..

A classic arbitrage opportunity. If anyone reading do invest in M&A opportunities, this might be it.

Go to Seeking Alpha and  and check out "kedar special situations" Its under short ideas for RalCorp ( RAH).

Thank you.

Thursday, July 28, 2011

ACIW - Potential Takeover Target

For those of you, who want to benefit from cost cutting within the technology sector and the M&A going on, especially by IBM, a worthwhile company to look into it ACIW.

IBM holds warrants to purchase 9% of the firm. Additionally, it fits into IBM's strategy, because its a tech company, into software catering to financial sector and with a market cap around USD 1.2bn.

Since I wrote about it last, its already up from USD 30 to USD 37....but i believe there is still much more to go...

Saturday, July 23, 2011

Sara Lee (SLE) - Assured 20% Return and some more - Case of Special Dividend

* I hold a position in this company since the last 4 months.

Company: Sara Lee. Currently trading at: USD 19.59
Situation: Upcoming USD 3.00 a share special dividend in addition to the current 2.5% dividend yield.
Timeline: 6 months
Catalyst : This stock will see a huge uptick when this special dividend gets announced. Next earnings call is on 11-Aug-2011. Investors not only earn the dividend but will also make money from capital appreciations.

For those of us wanting some cash in hand, given the possible market downturn in the 2H-2011, SLE might be a good stock to invest in. There have been many reasons I invested in SLE, but one that might interest investors in the near future is the special USD 3 a share dividend that the company stated it will pay investors.

How do we earn 20%?  Here is how -

* SLE stated that it will pay USD 3.00 a share special dividend as part of its separation plan; a 15.4% return on the current share price of USD 19.59.This is expected in the next 6 months.

* Additionally, SLE has a current dividend yield of approx. 2.5%.

* Another few points can be earned from appreciation in the stock price as everyone rushes in to earn the dividend. Adding the capital appreciation will generate more than 20% return on the investment.

Friday, July 1, 2011

Manitowoc (MTW) - Short Idea

Buy if stock comes down to USD 11. Potential downside from current price is USD 7
Company: Manitowoc Company (MTW). Currently trading at: USD 16
Market Capitalization: USD 2.3bn; Shares Outstanding: Approximately 131m
Industry: Capital Goods, Machinery
Situation: Highly leveraged post M&A situation making MTW a high beta stock
Probable timeline: 6 to 12 months
Main Point of Contention: Everyone on Wall Street is modeling for uptick in the Crane business and remains bullish on the company. However, numbers tell a different story.
What are the catalysts for the down move?
  1. Expiration of accelerated depreciation Tax laws in Dec-2011 might lead to further decline in Crane Segment (55% of total revenue) backlog. The uptick in Crane backlog in 1Q-11 was partly due to this tax law giving temprory uptick to the shareprice. This law expires in 6 months.
  2. High Leverage (5x Debt/EBITDA; 1x Interest coverage Ratio), which puts pressure on MTW earnings due to high interest expense and high level of debt.
  3. Slowdown and increased competition in MTW's biggest Crane growth markets of China & Brazi that will lead to decline in crane segment operating margins ( Already declined from 8.2% in 1Q-09 to 2.7% in 1Q-11)
  4. New sales as opposed to renewed contracts generated 83% of Crane Revenue. Crane has 50% exposure to residential & commercial construction and road sectors. Government spend and consumer spend, main drivers for roads & construction to which Crane is 50% exposed expected to decline further.
  5. Volatile FCFE (negative in 4 of the last 9 quarters). FCFE excluding borrowing for 1Q-11 is negative USD 162m compared to negative USD77m for 1Q-10
  6.  Steady decline in Capex. Company generates cash flow just enough to cover debt expense and some more. In an event of a market downturn in addition to expiration of tax law by Dec-2011, MTW’s stock might see a significant decline. Markets that are expected to decline in 2H-2011, will have a huge negative impact on the share price.
  7. One of the historical growth strategies for MTW has been growth via acquisitions. Debt covenants due to high Leverage will discourage MTW to follow an acquisitive strategy and further hamper its growth prospects. As of 31-Mar-11, MTW’s Consolidated Senior Secured Leverage Ratio was 3.02x, while the maximum ratio dictated by its covenants under the credit facilities is 4.50x, and its Consolidated Interest Coverage Ratio was 1.94x, above the minimum ratio of 1.50x
  8. The closest competitors trade at 1.14x P/B and 0.66x P/S as opposed to MTW’s 4.3x P/B and 0.77x P/S.
Potential Positive Catalyst:
  1.  MTW’s Foodservice Equipment business which constitutes 45% of total revenue. It has reported steady increase in operating margins and revenues. 
  2. A potential spin-off of the Crane business or separation of two segments namely Crane & Foodservices, might unlock shareholder value. However, management might not be inclined to do so.

Federal Mogul (FDML) - Long Idea

Buy: Between USD 20 and USD 22. Potential Value can go up to USD 32
Company: Federal Mogul (FDML) Trade: USD 21
Market Capitalization: USD 2.5bn; Shares Outstanding: Approximatly 100m
Industry: Industrial – Auto
Situation: Post bankruptcy play
Main Catalyst: Hiring of Lazard in Mar-2011, CEO Compensation structure, Cost basis of the largest shareholder, large cash position, unique business model & upside from Improving fundamentals, turnaround in auto industry business cycle
Probable timeline: 6 to 24 months
Main Shareholder: Carl Icahn. Acquired 75% equity through bankruptcy process

What can happen?

  1. Carl Icahn can potentially sell the entire company to entities wanting to participate in emerging market growth in addition to capitalize on the upturn in the upturn in the auto industry cycle in the US and EU.
  2. Carl Icahn can give up his controlling shares, thereby creating higher liquidity for FDML stock. This helps other potential bidders/ shareholders to participate in FDML upside due to the improving fundamentals. Furthermore, more liquidity makes it easier for a potential buyer to build up a stake in the company keeping M&A rumors alive and providing a floor for the stock.
  3. Third option is a possible deleveraging of the balance sheet and small acquisition accretive to earnings. A potential sale to 2012

     What are the catalysts for the Owners to sell:

    *       Carl Icahn who has approx. USD 1bn invested in FDML since 2008 has earned no dividend on his investments due to debt covenants. The only returns have been in the form of capital appreciation of stock. With his cost basis as USD 14 to USD 17 a share, this may be a good time to take some cash off the table. The point is further verified by FDML’s hiring of Lazard. Icahn is chairman of the board.
    *       Mr. Alapont, the CEO, agreed to an amendment to the CEO compensation structure in 2010. In the new compensation structure, the CEO gave up the put options he held on the original call options. He holds options on “4%” or “4m shares” of FDML. As of 2010, he holds only call options on 4m or 4% of FDML at strike price of USD 19.50. In addition to giving up the put, he extended his employment agreement until 2013.Mr. Alapont, the CEO, has been at the helm since 2005 and has led the company through bankruptcy. His options expire in 2014 and remain unexercised. In an event of sale or liquidation of stock, the CEO has an incentive to maximize the sale price.
    *       Turnaround in the auto cycle in the west and continued growth in Emerging markets might lure some buyers to pay hefty premiums.

    What are the catalysts for the potential buyers:

    *       Fundamentally, the company is doing really well. Good margins, 20% to 30% growth in emerging markets, substantial increase in net and operating income in addition to growth in YoY EBITDA margins. Company has USD 1bn in Cash and USD 2.8bn in debt. High cash is an added bonus for PE bidders.
    *       FDML’s business model gives any buyer unique access to both side of the markets, namely the auto parts after markets and the OEM markets. This dual access creates a hedge during potential market downturns.
    *       The board structure has been simplified since emerging from bankruptcy, meaning, annual meetings and no poison pills. Moreover, the structure now allows for a sale of the company
    *       A upside in auto cycle with added global growth for FDML serves as an added incentive
    *       2 Board members are former executives at Dana and Lear Corp, FDML’s direct competitors. They may help generate interest on the strategic side.

    Potential Value if the sale occurs:

    *       FDML’s 2011 fundamental value from competitive analysis and industry estimates can be approximated to be around USD 26 a share.
    *       An approximate 40% transaction premium for M&A deals within the Industrial sector in 2011 remain undiscounted.
    *       Additional value beyond the 2011 fundamentals and potential M&A come from FDML’s unique business model, furthering restructuring of the business, emerging market growth and improving business fundamentals that may still not be discounted in the share price.

    Downside hedge if the sale does not occur:

    *       Assuming that FDML is in active discussions, what might derail the process is a much higher ask price for the firm from Icahn. If that happens, fundamentals in addition to CEO compensation structure may provide floor to the equity price. Stock may see volatility in the short term