JS = James Smarson
All right, I finished going through the analyst day. I plan to read the TEX 10-K tomorrow. Hopefully I finish it.
However the analyst day shows me the 2015 $5 EPS is conservative. Even if we assume no margin expansion and just revenue growth then TEX would make $4.20 a share in 2015. (That is adding back $37 M of intanigble asset amortization or 22.8 M after tax)
Based on the analyst day I would expect interest expense to decline to $128M next year which includes (10M of amortization of debt issuance costs) Then I would expect it to drop to $91 then $61M.
Another note is I didn't include the convertible notes in my interest expense. I just added the entire share count to outstanding shares which would be 7.9M additional shares. This is consistent with how GAAP would calculate it and it makes logical sense.
Anyways these projections make me even more bullish on TEX. I would say Fair value is $60 today. I am upping my $45 target price which I have declared since 2011 to $60.
The company definitely is quite a growth story and it seems to be more attractive.
Also TEX's estimates for 2015 are much more realistic than Oshkosh. OSK says they will double margins in their AWP from 2012 - 2015. TEX is only predicting a margin growth of 2.2%.
James ---- With a PPS forecast of $60 you are thinking that the earnings will probably be closer to $6 EPS than $5 EPS ???? ( $6 would be a PE of 10 VS a PE of 12 @ $5 ) or do you think the market will give TEX a PE of 12 ??. Are my assumptions correct ??? Jim
So I am out of town without a computer, just a smart phone, so numbers and dates are ballpark. But here goes: LF 2012 EPS was 0.56/share. Was $1.20 counting tax advantages, which are good for 2 or 3 more years. EPS, not counting tax advantages has tripled each year for the last 2 years. In 2012 EPS tripled on like 28% revenue increase. They have guided for high single digit revenue growth in 2013 and long-term growth of mid to high single digit rev growth. They always guide very conservatively and have beaten estimates 9 or 10 quarters in a row. They have also said they will have $3 per share in cash at the end of Q1.
I can't imagine they will triple EPS again this year, but they are a bargain even with 20% EPS growth and I'm thinking more like 40% per year for the next couple years.
The stock went from $12 to $8.50 in October when shorts came in heavy on the theory that Toys R Us and Innotab would eat into Leappad 2 sales in the Holiday season. The shorts were wrong and Q4 EPS beat estimates again, but the stock price dropped sharply the morning after earnings only to close 1% lower than before earnings. When the next short interest was released it was up another 3 million shares. So about 24% of total shares are now shorted and it seems clearly that that's how the price got so low. To me, this has given me a bargain, but I'm patient enough to wait for the shorts to leave, or for a nice short squeeze.
The CFO just gave a nice presentation at the Roth conference the other day, which is on their website. It really convinced me that it's a great investment. But I would love to get Master James' analysis. Any thoughts from everyone else would be appreciated too.
All right you have done some great analysis to start and Ill add my 2 cents where I see fit.
The first thing that comes to mind is a quote from Buffett about being a patient investor and only swinging and the pitches you can knock out of the park.Well looking at Leap Frog, Qualitatively it is certainly in an industry where I would want to give a larger margin of error for in the numbers because Its not an industry I love. Technology, cyclical learning has to be one of the riskier industries. Having said that lots of companies have success in this indstry.
First thing, I looked you are right the tax advantages should give them tax free income for 2-3 years which is a positive.
I think you're bring too optimistic on 40% EPS growth though. Considering their 4Q operating income only rose 28% year over year it wouldn't be prudent to be modeling something far and above that.
The company also doesn;t pay a dividend. It is holding a lot of excess cash on its balance sheet and when excess cash is kept that lowers the present value of future profits. If LF instituted a dividend That would help the valuation. However I modeled for them 60% payout and 30% revenue growth for 2 years and 10% thereafter and I only get a value of $11.5. If the payout ratio stays at 0 for a while that really lowers the valuation.
A final thought is I don't invest in companies with dual class shares. LF has it so management can never pay dividends if they don't want. I don't like it and I feel companies with dual class shares should trade at a significant discount to a company without dual class for the reasons noted above relating to the dividend. Also a control aspect and getting things done.
So finally. You have a pretty risky business that. I don't feel has much upside if everything goes well. Certainly not a bad investment but not something I would bet a lot on. I would say it trades in the range of fair value perhaps a tad cheap.
I'm liking your analysis James. I haven't finished reading the analyst day transcript, but it sounds like they have their #$%$ together. I would have expected a bigger pop. I guess the market wants to see the proof. It's like at the end of last year, when we all knew a run up was coming. Just a matter of time. There are probably some big boys accumulating now though.
Sentiment: Strong Buy
well LF does look interesting. What is you analysis so far on the stock and ill tell you if you are considering the things.
Also, This $5+ of TEX earnings per share doesn't consider that the corporate tax rate may drop by 2015 to 25% which would boost earnings to over $6.2 a share. I haven't modeled that but I am cautiously optimistic that the US government will get it together