Monday, September 21, 2015

Special Situation Ideas for week of 21-September-15

Those looking into some catalyst might want to ponder over these names for the week. I have done research on few of them, the other I have read online on Barron’s and other publications

TransUnion (TRU) TransUnion whose services include providing credit scores for consumers went public on June 25. TRU TRU provides risk and information services to businesses and consumers. It offers consumer reports, risk scores and analytics to businesses, primarily in credit risk management. Businesses use its information services for a number of functions, including acquiring new customers, assessing a consumer's ability to pay for services, measuring and managing debt portfolio risk, collecting debt and verifying consumer identities.Consumers use its services to view their credit profiles and access analytical tools that help them understand and manage their personal information and take precautions against identity theft. TransUnion has operations in more than 30 countries. TRU has been doing well in the U.S. amid a strengthening housing market, rising auto sales and a brightening jobs picture. All of these trends have led to increased demand for financing and the credit checks. TRU is also positioned well in some good growth markets internationally, and they've gotten into some other domestic areas that have growth, like public records data and parts of the health care market. TRU is one of the 3 largest global credit reporting bureaus, and the last to go public. Other two are Equifax and Experian. TRU filed for an IPO in 2011 but withdrew the offering a year later after it was sold to Advent International and a unit of Goldman Sachs TRU’s core service is consumer credit data, but it has extended into data sets underutilized" by the consumer credit reporting agencies. They include public records data such as court judgments, bankruptcies and driver history data, including traffic tickets and other court records. An improving economy and jobs picture usually means more consumer debt, which increases demand for TRU products. TRU also owns majority stake of 55% in Credit Information Bureau CIBIL, biggest credit bureau in India. TRU is a bit smaller than Equifax and Experian in terms of market share, but it's still a major player. TRU is well diversified in its customer base. It offers services to customers in financial services, insurance, health care, real estate and other industries. Acquisitions have helped TransUnion broaden its lineup. For example, last year it acquired an 87.5% ownership interest in Drivers History Information Sales, which collects traffic violation and criminal court data.
Vitamin Shoppe (VSI), racked up same-store sales growth of more than 5% from 2006 to 2012. However this year sales at stores open at least a year are expected to grow by less than 1%, as demand for vitamins and supplements has weakened. VSI also has had trouble integrating the acquisition of FDC Vitamins. At about 6.5x EBITDA, below larger rival GNC Holdings at 9x—the shares look to be discounting ample turnaround potential.A new CEO, Colin Watts is a veteran of Weight Watchers and Walgreens. Watts is focused on cutting costs, overhauling stores, and completing the integration of FDC. Those actions are expected to lead to earnings growth in FY16. With a negligible $15m of net debt and a 7% free-cash-flow yield, VCI is well positioned to step up the pace of stock buybacks. Industry analyst put its value at $47, implying 9x FY16 EBITDA. VSI operates about 700 stores in 45 states; Puerto Rico; and Canada. Vitamin and supplement demand has been weak, due in part to negativity surrounding an investigation earlier this year by the NY AG’s office into herbal supplements. VSI, in particular, has seen sales of weight-management products fall sharply. As Vitamin Shoppe moved manufacturing from third-party contracts to FDC Vitamins, known as Nutri-Force, sales disruptions occurred, resulting in some out-of-stock products. Management has been remedying the issues, and expects any negative impact to be resolved by the end of FY15. In the next 3 yrs, the company plans to move 40% of the manufacturing of private-brand products in house, helping increase Gross Margins. While 20% of VSI sales come from higher-margin private brands, GNC’s private-label business chips in 55%. Management announced a $100 million buyback in May, and has $117 million authorized in total, equal to about 11% of shares outstanding. In April, activist investor Carlson Capital disclosed a stake in Vitamin Shoppe that now totals 6.6%.
Clifton Bancorp (CSBK), with $1.2 billion in assets, operates 12 branches in northeast New Jersey. The bank completed its $170 million conversion in April 2014. At a recent $13.99 the stock trades for 1.04 times tangible book value, a discount to peers that go for closer to 1.2 times. The dividend yield is 1.7%. Clifton is the second most overcapitalized bank in the country, with tangible common equity standing at 30% of total assets. As the bank deploys its capital into stock buybacks, earnings per share will rise. In time, the stock’s discount will narrow. In April, Clifton passed the one-year restriction on making share repurchases that follows an offering, and has since been aggressively buying its stock. By the end of June, it had bought back 1.5 million shares, reducing its share count by 5%. More buybacks over the next few quarters are likely. This year, Clifton is expected to earn $8.5 million, or 33 cents a share, on $30 million in revenue. Credit quality is pristine. Nonperforming assets are less than 1% of total assets. Residential mortgages account for nearly 90% of total loans, but Clifton plans to build out its commercial lending business. Success there would also provide a lift to earnings and its shares.

Medallion Financial (Taxi) is a leading lender to individuals and companies seeking to own and operate yellow cabs through the purchase of a medallion, which is bestowed by the New York City Taxi and Limousine Commission and allows drivers to pick up passengers who hail them on the street. In all, there are only about 13,000 medallions available, which has at times made them a very secure commodity to lend against. At their peak in 2014, New York City medallions went for $1.3mn. However, Uber pulled up in 2011, and its influence began to grow with the popularity of smartphones. Uber’s promise of easy hailing of a car via smartphone and the possibility of a lower fare have proved extremely attractive to riders—and devastating to medallion prices. Recently, a medallion was valued at $875K, down about 30% from the peak. TAXI currently trades at 6x FY16 earnings and sports a dividend yield of 15.7%. The selling seems overdone, amplifying Uber’s effect, and obscuring the rest of Medallion’s business. Total yellow-taxi cab ridership has declined, but it hasn’t plummeted. The number of rides slid 8%, to 165m, in FY14, from a peak of 179m in YY12.  TAXI amid the volatility limited its risk by tightening its credit standards. In addition, TAXI diversified more than a decade ago. TAXI began lending to dry cleaners and laundromats, and bought a firm specializing in high-interest financing making home-improvement loans. The company also provides credit to recreational-vehicle dealers, and offers some medallion loans. A year later, TAXI bought an RV and marine lender from Leucadia National (LUK). Consumer loans accounted for 40% of managed loans and 64% of Medallion’s earnings in the second quarter. Cab medallion loans, about 70% of them made in New York, remain a significant line of business at 51% of managed loans, but account for just 19% of interest income. The loss rate on Medallion’s total portfolio is 1%. The firm also raised the stock-buyback authorization to $26 million, to counter a large short position of 3.3 million shares, or 15% of the float. New York’s cabs have faced all kinds of rivals—from limousines, to green cabs with limited travel parameters, to rogue drivers. Uber will take its share of the livery market, but is unlikely to wipe them out.
Procter & Gamble (PG) stock fell in July  to $82 from $94 and it started to look interesting. However, another 15% drop since then, to $69.94—below the high of the previous bull market—the stock is beginning to look cheap enough to discount a pretty gloomy future. Given its nearly 4% dividend yield, PG’s stock could provide a relatively safe, if unglamorous, return for a patient, income-seeking investor with a long-term outlook. PG could deliver an attractive return, especially if the broad market’s volatility continues or worsens. PG’s problems are known. The rising dollar is a drag, with the household- goods giant getting 60% of its sales from overseas. Yet that’s probably a short-term head wind, and few investors seem to acknowledge that a stronger dollar can also help P&G’s cost side. The company has shaved its brand portfolio significantly since mid-2013, selling noncore assets and cutting costs. It cut its portfolio to 65 brands from 180 a few years back. PG trade for 18x FY16 earnings $3.83, a share, not a bargain yet but lower than the historical ratio of 19x. An investor mentions that he noticed inflection point with an uptick in the operating margin to 19.7% in the fiscal year ended in June from 19.3% in FY14. Similarly, returns on equity and assets have inched up. P&G’s stock isn’t going to be a home run or even a three-bagger, but for an income investor seeking stable ballast in a future when markets might not be as cooperative as they’ve been for the past six years, P&G shares at this level represent a potentially attractive refuge.
Dollar Tree (DLTR), has seen an interesting trend lately. The discount variety-store retailer. Saw several company insiders purchasing shares lately, and the stock—down some 20% to $66.65—is worth a look, given the firm’s various attractions, such as average annual EPS growth of 15% over the past decade. The stock drop has mainly to do with the $9bn acquisition of Family Dollar. After some integration pain, that addition will contribute to Dollar Tree, whose long-term fortunes seem brighter than the stock price implies. When the integration is in the rearview mirror, the stock could give a double-digit return. Family Dollar chain needs upgrading to Dollar Tree’s higher operational and efficiency standards. The market isn’t looking beyond the speed bump caused by the acquisition. The company continues to expect $300 million in annual synergies within three years. In recent weeks, four insiders began buying shares and those purchases are a significant buy signal, given the number of insiders involved, their track records, and the size of transactions. An analysis of the longer buying history of the other two shows that their purchases were followed, on average, by the stock up 12 months later 93% of the time, and by an average return of 28%. The fundamentals need to pick up, but that doesn’t seem as unlikely as the market would have it. The $4 or so EPS consensus for the next fiscal year seems possible once Family Dollar starts hitting on all cylinders, and the forward P/E is 17 times, lower than Dollar Tree’s long-term average of 22 times. The shares can potentially rise 30% over the next 18 to 24 months, with 10% downside risk.

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