Great way to play the Healthcare Market

Those looking into some catalyst might want to ponder over this name I read online on Barron’s.

Trinity Biotech (TRIB)

Price:  USD 19.36

Market Value: USD 392m

Est 2013 Revenue: USD 89m

Est 2013 Net Income: USD 18m

Est 2013 EPS: USD 0.80

Est 2014 EPS: USD 0.97

Est 2014 PE*: 15 (Stripped of cash)

Dividend Yield: 1.20%

Business: Trinity Biotech (TRIB), an Irish maker of medical-testing equipment.

Catalyst:

• Diabetes has reached epidemic proportions around the world. There are 250 mn diabetics living today, and by 2025 the number could soar to 380 mn.That has created a large opportunity for companies that make testing equipment to diagnose the disease. TRIB has seen strong demand for the Premier Hb9210, its diabetes-testing instrument, since it was launched in 2011. The Premier boasts noted advantages over existing devices, including speed, accuracy, and easy-to-use touch-screen technology.
• In 2012, its first full year of sales, Trinity shipped 202 of the Premier devices, which sell to hospitals and labs for about USD25,000. This year, Trinity estimates it will ship 320 or more devices, aided by its recent entry into China, a potentially large market for the device, with an estimated 54 mn undiagnosed diabetics.
• Trinity makes tests and clinical instruments that detect for Lyme disease, syphilis, legionella, diabetes and autoimmune disorders like lupus. The company is perhaps best known for its point-of-care tests for AIDS used in Africa and the U.S.Last year, clinical instrumentation accounted for 77% of revenue, with point-of-care testing chipping in the remainder.In addition to growth from Premier, Trinity could also benefit from its lineup of new rapid point-of-care tests. They include tests for syphilis, herpes, strep pneumonia and cryptosporidium, and are expected to come to the market this year. Sales could ramp up in 2014.
• Trinity is also making progress with its point-of-care cardiac test to determine if a patient has had a heart attack. With an estimated world-wide market of USD1 billion a year, the potential is large. Trinity acquired the test in March 2012 when it bought Fiomi Diagnostics, and reported in April, that the test has begun clinical trials in Europe for regulatory approval. Approval, if it occurs, could come as soon as the end of this year.
• Trinity has a solid balance sheet, with USD73 mn in net cash. Free cash flow for 2012 is USD17 mn. Management is committed to returning some of its cash to shareholders in the form of dividends and stock buybacks. According to industry, TRIB can be worth USD25 by the end of 2014.

Special Situation Ideas for week of 15-Jul-2013

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.  These are def. is worth a serious look.

Utility sector: As usual, people think this is a boring sector to dwell into. However, as power plants switch from coal into a more renewable energy mix, there might be an potential M&A opportunities in this sector, specifically with those firms that are into renewable space. This is not the time for huge LBO’s of buyouts especially In the sector that’s regulated on the revenue side. However, some small and mid cap names are worth a look, at they not only bring a client base but help the acquirer reduce cost and increase margins. Some names do come to mind : Hawaiian Electric (HE) - Approx 5% yield and capturing and generating solar energy in addition to non-renewable. Portland Electric (POR): approx. 3.6% yield and huge in renewable sector; Avista Corp (AVA); approx. 4.6% yield and into wid, landfill Gas and Hydro.

Intuit (INTU): This technology company might be poised for a huge dividend increase. The firm just sold its financial services unit to Thomas Bravo for USD 1bn and plans to sell its healthcare business. With USD 2bn in cash and USD 500m in debt, the completion of second divestiture, might either propel the firm o return cash to shareholders of make accretive acquisition. Its worth a look!

Maple Leaf Foods (MFI): IN light of the recent Canadian M&A, this firm might be worth taking a look at. The company has not only been cited repeatedly as a takeover target, there were rumors it was  looking to divest. If not for takeover, the fundamentals of the firm support organic growth in food sector, given the demand and consumption. Also, 33% owned by M. McCain, the CEO and 11.4% owned by canadian activist - west face capital. There is a chance, the firm might get sold in the future.

Citigroup (C): There was a good article this week on Citigroup (C) , which I believe is worth a read . Some in industry believe the stock is worth USD 70s to low-USD 80s: Some of the key points it made were as follows:

·       Management change : 17-April-12, Chairman Michael O'Neill, a former Marine known for turn around in banks and  a new CEO, Michael Corbat, a former banker.

·         Truly global franchise, which is almost impossible to replicate: Citi is in 160 countries. All told, about 58% of Citigroup's revenue comes from outside North America. In contrast JPMorgan Chase (JPM) gets just 19% , while Bank of America (BAC), a mere 13%.

·          Bank is sitting on USD55 bn in deferred tax assets, or future tax write-offs, which will be increasingly valuable in using its capital more effectively. Helps improve earnings and create leeway for future stock buybacks and dividend increases.

·         Citi has received permission to buy back USD1.2 bn of its shares through the first quarter of next year, a relatively modest amount but an important symbolic victory.

·         Corbat plans to lift return on assets to 90 to 110 basis points from the 62 basis points recorded in 2012 (a basis point is one-hundredth of a percent). He's aiming to boost ROE to more than 10% from 5% in 2012, and to attain an efficiency ratio at Citi  in the mid-50% range, compared with 60% in 2012. Keeping with his promise, CEO has cut 11,000 jobs worldwide, sold or scaled back consumer-lending operations in Turkey, Romania, Paraguay, Uruguay, and Pakistan, and sold a consumer-finance unit in Brazil to focus on faster-growing business lines.  Also paid USD1bn to move past the financial crisis claims from Freddie and Fannie.

·         Many believe the bank is overcapitalized. Additionally,  Latin America contributes 13% to overall revenue -- Citigroup's corporate and retail banking revenues are increasing at double-digit clips compared with domestic growth that's been flat, excluding Citi Holdings.

·         The level of problem assets in Citi Holdings , a.k.a. the bad bank stands at USD149 bn, well off its peak of about USD800 bn in 2008. Just unlocking the capital connected to Citi Holdings could add as much as USD10 a share to his price target of USD60.

Personal Note: I am still long HES CALLS expiring in Jan-14. In addition, I have still held on to my DELL LEAPS.

Special Situation Ideas for week of 10-June-2013

The following are the name I have done research on read online, on Barron’s and other publications. 

NetScount Systems (NTCT): The firm designs, develops, manufactures, markets, licenses, sells and supports market application and network performance management and service assurance solutions for the Internet protocol (IP) based service delivery environments. The major plus is that NTCT is into analysis of data and trends. Every major mobile operator uses their technology and they provide analysis of network and real time analytics. No debt and USD 137m in cash. 20% operating margins and 12% profit margins. They can become a  potential takeover target.

Quanta Services (PWR): Services PWR provides include the design, installation, upgrade, repair and maintenance of infrastructure within each of the industries it serves, such as electric power transmission and distribution networks, substation facilities, renewable energy facilities, natural gas and oil transmission and distribution systems and telecommunications networks used for video, data and voice transmission. The major driver for the firm will be infrastructure spending. With the state of infrastructure in the US and the upgrades needed globally and in United States, this might be either a takeout target or a long term secular growth story. Firm has no debt, 366m in cash with 9% operating margin and 11% ROE. Worth  digging into.                     

Old National Bancorp (ONB) and Berkshire Hills Bancorp (BHLD): Both will ride the wave of consolidation that will happen in the US via consolidation in the financial sector and will benefit by acquiring small rivals or distressed assets. This will happen, because US is over branched for one (7100 banks in US with approx. 100k branches, with 90% banks in US with assets under USD 1bn) and two, banks especially medium size ones are overburdened with regulatory costs. ONB has been acquiring branches in Indiana and other regions. BHLD has good management, its CEO is a protégée of Larry Bossidy, a plus and it can acquire UBNK (UBNK’s CEO is 70+).  Plus, they are both under 1.5bn, so targets themselves!

Quality Distribution (QLTY) is the largest tank-truck operator in North America. QLTY operates a large network of 2,800 tractors, 5,200 trailers, servicing terminals, and other energy-related equipment. While it owns most of the trailers and some tractors, it relies on a network of independent trucking affiliates for most of the trucks, drivers, and terminals. Quality handles the sales and the back-office support, and gets a cut of shipping revenue. It also gets a fee for renting out its trailers.Quality's core chemical-logistics business accounts for 67% of revenue. The company also operates an intermodal tank-transportation business that ships liquids overseas. It chips in 16% of annual sales, and the energy business contributes the remainder.

Key Points:

Because of Quality's asset-light model, capital expenditures are low and it helps QLTY generate substantial free cash. FY13 estimated free-cash-flow yield is a hefty 18%. QLTY transports chemicals for the likes of Dow Chemical (DOW) and DuPont (DD), and could rally next year, partly aided by rising chemicals shipments.

Most of Quality's problems can be traced to an ill-timed acquisition spree in FY11-FY12 spending about USD 110mn to buy trucking-logistics companies, which service the hydraulic-fracturing energy market. This segment was negatively affected by the downturn in the gas drilling market. Management has already taken action to address weakness in the energy business. Part of its strategy involves shifting tractors and trailers from the gas-heavy Bakken and Marcellus shale deposits to more oily deposits like Eagle Ford. The equipment will be used to transport crude oil. Furthermore, QLTY announced in May-13 that it had struck an agreement with a trucking affiliate to take over management of three terminals in the Marcellus and Utica shales. The company will sell equipment to the affiliate, which will lower Quality's costs and boost its profitability.

Industry estimate QLTY to earn USD24 mn this year, down from USD 50 mn in FY12. EPS could total 79 cents, on revenue of USD 947 mn. FY14 EPS could rise to USD1.05 a share, on higher revenue. QLTY has a leveraged balance sheet, with net debt of USD 405mn stands at 4.5 times estimated Ebitda. But the debt is manageable given free cash flow, which could hit USD 42mn this year. FY12 interest expense was USD1.12 a share. Management appears committed to paying down debt, and a reduction in debt could be a meaningful driver of earnings.

Personal Note: I recently bought long position in HES CALLS expiring in Jan-14. There is also a wave of spin-off’s for those like me, who look at special sits. I told in my last post, that the coming time will be feast for special situation investors. Its my personal feeling that this market will trend up, atleast for a year after a slow correction in the summer.

On Break

Kedar has been on a break and will remain on a break until June 1st week. Thanks.

Wild Buffalo Don't Fly On Wings: The Short Case For Buffalo Wild Wings

I have posted an article on Seeking alpha which goes into details about how to profit from going short Buffalo Wild Wings (BWLD). It’s for medium to long term investors. 

 
If anyone reading do invest in special situations, this might make a good read. Either you can click here or go to Seeking Alpha and check out "Kedar special situations" Its under short ideas for NetSuite (N).

Thank you

Special Situation Ideas for week of 8-Apr-2013

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.  These are def. is worth a serious look.

Hess Corporation(HES) – This firm might present a good opportunity for investors looking to benefit from two definite catalysts – ongoing divestitures and shareholder activism by Elliott Associates.

On 4-Mar-13, in a press release, HES outlined several initiatives; to transformation HES into a pure play exploration and production (E&P) company after divesting upstream and downstream assets . Part of this initiative is also to increase the dividend to USD 1.00 per share, an increase of 120% and to buyback USD 4bn of stock (16% of HES market cap), dependent on asset sales. HES has already divested certain assets to date, which includes ones in Eagle Ford for USD 265m, its ACG fields USD 1.0bn and its  Russian subsidiary, Samara-Nafta, to OAO Lukoil for USD 2.05bn.

However, this announcement comes after Elliott filed with the SEC on 29-Jan-13, asking for nomination of its own 5 directors and for the breakup for the company after divesting HES’s downstream and midstream assets. A detailed plan with the SEC on 13-Mar-13,  in which Elliott values downstream and midstream assets at USD 3bn-3.5bn and USD 2bn-2.5bn respectively.  It also calculates that value of HES shares to be between USD 97 to USD 128 per share, a substantial premium to where they trade today, at USD 71.00. The value realization is possible, if HES executes on Elliott’s plan to breakup of HES into two entities, divest assets and gain operational efficieny.

However, HES has refused to breakup the company and instead has decided to follow its own course of action. HES’s future will be decided at the AGM which will be held on 16-May-13.  Shareholders can chose to either vote for Elliott’s directors, paving the way for a breakup of the firm, or they can vote for HES’s nominees and stay with the current plan leading to a pure play transformation, an increased dividend and USD 4.0bn share buyback plan.  No matter what the outcome, this seems like a good trade with a definite catalyst for investors looking to trade energy names.

Valero Energy (VLO) - Continuing with the energy theme, this is another name worth a serious look. Valero Energy (VLO) that said it will spin off its retail operations.

Nabors Industries (NBR): I wrote about  Nabors Energy on my Seeking Alpha blog a while ago. Here is the link to the writeup - Nabors(NBR) . Recently it was reported that NBR’s biggest shareholder convinced the management and thereby got the right to up its stake just below 15% in the company. NBR has also agreed to additional board appointments and what’s more important is that the firm has agreed to undertake a strategic review of the company. The poison pill NBR had expires in July 2013. Firm was rumored to be a takeout candidate. Its actively looking into and is divesting assets and restructured its operation in 2012. Recent DB research note suggests the firm’s fair value at USD 25 per share – which was my best case scenario. My base case was $18.00 a share, still 14% above where it trades today.

Brookfield Property Partners(BPY) – BPY is suppose to be spun-off from from Brookfield Asset Management (BAM) on 15-Apr-13, and will contain BAM’s commercial real estate holdings, to become one of the world’s largest property companies. What makes this opportunity interesting is BAM’s history of successful spin-off in the past. For example, shares of Brookfield Infrastructure Partners (BIP), in which BAM owns 28%, have doubled since they began trading in 2008. Additionally, BAM owns 68% of Brookfield Renewable Energy Partners (BRPFF), whose stock is up 260% since early 2001. On 15-Apr-13, BAM plans to distribute 7.5% of BPY to BAM shareholders of record March 26 in the form of a tax-free special dividend of one BPY unit for each 17.42 BAM shares held. BPY is targeting a distribution growth-rate target of 3% to 5% annually and expects to pay USD 1 per unit annually which will yield 4.7%. BPY is suppose to benefit from a recovering U.S. economy, and further expansion into Brazil and Europe will drive growth. The firm according to some in the industry should be valued at USD 30 a share.

On a Personal Note: I think its always good news, when you make money and help people make some too! My SLE spin-off, DE Master Blender got an offer at a 33% premium to its trading price. My HSH is up 30% and I am long DELL LEAPS, which have made money for me so far. Last long I wrote about was Gentex (GNTX) – I believe it’s worth another look for those looking at investing in decent firms. Also, a recent short I wrote is something I believe people should keep on their radar. It was on NetSuite (N)

I personally expected volatility in this month and going forward and believe there will be better opportunities to buy. However, its hard to fight so much liquidity getting pumped into the market, helping the market move higher without strong underlying fundamental. I think the coming times will be a feast for special situation investors! Stay tuned!

Special Situation Ideas for week of 27-Feb-2013

Those looking into some catalyst might want to ponder over these names for the week. I have not done extensive research on them, but this is a way for me to share names on my list that others can work with since I have too many ideas to work on.  These are def. is worth a serious look.

ADT Corp (ADT):  Read it in Barron's. Makes for a good read. ADT was  spun off from Tyco International in Sep-2012. The firm is trying to move beyond normal security business by using its access to 6.43M homes. The growth might come from ADT’s efforts to have its current customers use its equipment to monitor their children, lock doors, control thermometers, turn on lights, and start dinner prep. Moreover, these functions can us operation remotely via new ADT technology – something that will ease the adaptation. The technology is currenylu sold to only 4% of its customer base, leaving large leg room for growth. Management's revenue growth targets for 2013 are 5%-to-7%. Subscription-based, recurring revenue is 92% of total sales.  Firm has a 25% share of the home-alarm business and 14% of the small-business segment. Firm plans to buy back $2B of shares over next 3 years, with $600M in 2013.

Computer Task Group (CTGX): It’s an information technology (IT) solutions and staffing company with operations in North America and Europe. Tech and Healthcare constiture approx 64% of total revenues. Given the impending M&A cycle, it should be noted that IBM is CTG’s largest customer with 30% of revenue, making this mid-cap name a potential takeover target.; P/E: 21x, no debt, ROE 14%, Margins 5% with EPS growth 20%.

MasTec, Inc (MTZ): It is an infrastructure construction company operating mainly throughout North America across a range of industries. Its customers are primarily in the utility, communications and government industries. The Company’s core services are the engineering, building, installing, maintaining and upgrading of infrastructure for communications, utility and government customers.  I have spoken about the upgrade cycle long due in the US and this might be a name to look into for potentially playing that theme. I work about Xylem a while ago, as a play on water infrastructure. It can also be potentially taken out, if the upgrade cycle starts. MTZ does not trade cheap, with  forward P/E: 16x with  ROE of 12%. My concern is the debt on the firm, that should be looked into.

Tessera Technologies (TSRA): The battle is heating up between Starboard and the company. The most recent board feud in addition to the pressure from the activist may bring this company back into play, thereby making it an interesting trade. I wrote about Tessera (TSRA) a while ago and might be worth revisiting.