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Pep Boys - Manny, Moe & Jack Message Board

  • daninfw04 daninfw04 Jan 22, 2009 11:36 AM Flag

    Ths GuY Is Dangerous

    The guy on seeking alpha is looney tunes. He talks about PBY getting taken over and projects it happening at $3 a share.......ain't gonna happen, maybe $9-12.

    "Pep Boys (PBY) has had its share of problems, and the market has certainly not shown any sympathy in the process, beating the shares down to all time historic lows. The stock is so low, that PBY’s annual cash dividend of 27 cents represents a mindboggling 10% yield. The company, which operates 562 locations, has significant real estate holdings (it just completed selling 22 properties for $77 million in a sale leaseback transaction while retaining 240 properties) and is the only company capable out of the big four (AZO, ORLY, AAP and PBY) of also installing what it sells through 6000 service bays. These service bays' bread and butter are the installation of new tires and brakes, which are nondiscretionary items.

    More consolidation in the sector? ORLY scooped up CSK Auto for next to nothing last year when it hit bad times. The deal was pure genius, as it acquired the company through a stock swap requiring it to dish out only $1 per share in cash, while assuming CSK’s debt. Will there be more acquisitions in the auto parts retailing sector? It would not be surprising at all, especially considering the decimated market caps some of the players have experienced.

    Enterprise value: EP is a good gauge of what a company would be required to lay out to acquire a competitor, because it takes into consideration how much debt must be assumed, less the company’s cash on hand. PBY’s current market cap is $157 million. If you subtract its cash of $38 million and add its debt of $331 million, an enterprise value of $450 million is computed.

    AAP’s buyout scenario: AAP could acquire PBY for about $450 million representing only 15% of its market cap of $2.98 billion, while juicing up its top line by 36% from $5.21 billion to $7.14 billion (by picking up PBY’s annual sales of $1.94 billion). AAP’s debt would increase by about 50% from $653 million to $984 million (it would assume PBY’s debt) and it would incur some dilution, but the deal would certainly be accretive to earnings right out of the gate. AAP’s shares outstanding would swell by about 5% from 95 million shares to 100 million shares.

    AZO’s high debt: If AZO acquired PBY, its debt would increase about 15% from $2.27 billion to $2.6 billion. The deal would represent about 6% of AZO’s current market cap of $7.64 billion. AZO’s top line would grow about 29% from $6.57 billion to $8.5 billion in a successful integration scenario. AZO would have to print up an additional 1.1 million shares required to swap to PBY holders, representing a 2% gain from 57 million shares to 58 million shares.

    ORLY buying one more time? If ORLY decided to pursue PBY, its debt would rise about 50% from $665 million to $996 million, with the acquisition representing about 12% of its current market cap. ORLY’s sales would increase 41% from $4.69 billion to $6.62 billion. Its outstanding shares would likely increase from 135 million shares to 140 million shares, if a deal with PBY was ultimately consummated.

    Why PBY is vulnerable: The stock has reached such low levels, it could be worth more dead than alive at this juncture. This scenario often produces opportunists wishing to exploit the situation. The vultures could be starting to circle. Management has done a poor job communicating its turnaround vision with Wall Street. The company has stressed it seeks to get back to basics by providing better customer service and more relevant inventories, but its quest to acquire 20-30 repair shops is perplexing and contradictory to say the least. Why would management want to take on another project, when they are still unsuccessful getting their own house in order?

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    • not that it would ever happen, but I would like to see Federal Mogul buy Pep Boys, Christ they make half the parts in these stores

    • His math is correct for $9 per share. EP/OS or BV is currently around $9.00.

      450M EP / 50M outstanding = 9.

      With only 10% insider holdings it is unlikely there could much of a fight, particularly since insiders are in around $3.

      The pot is a brewin and those who are listening and positioning are going to turn a 3 bagger one way or another. This is low hanging fruit. Time for more snacking.

      • 1 Reply to briskit44
      • Let me go in to more detail. I understand enterprise value and hitorical calculation. The problem is the idiot at Seeking Alpha. He calculates what PBY would be worth enterprise value wise, but then calculates that AAP would only have to issue 5 million shares and no cash and AZO just over a million shares and no cash. AAP would have to issue about 15 million shares not 5 million shares. This guy is long in PBY as I am butcontinues to spew out inaccurate informaion. I hope AAP doesn't offer just 5 million shares and the BOD's take it as then 99% of the people that ever bought PBY in history would lose money....this guy needs to proof read his stuff before he posts it. I can tell you AAP would buy this company in a minute for $3 share in stock.....even if the guys running it are from BBY. DaninFW

    • I don't think he's saying PBY should sell for $3 a share. He's saying it should sell for enterprise value or $450 million which would be $8.60 per share.

      "AAP could acquire PBY for about $450 million"

      That's my take on his article.

    • Repair shops are where it's at. They're hiring mechanics at lower wages, since the mechanics are coming from dealerships and smaller garages that are closing. Pep Boys maintenance and repairs are priced lower compared to many dealerships, so people like me are migrating to them.

      Pep Boys opening of repair shops is specifically targeted to areas easily serviced by their EXISTING parts hubs, so the warehouse overhead decreases per store/repair shop. They're not expanding into completely new geographic markets.

      Pep Boys enjoys vertical integration and the ability to buy parts in bulk. Independent garages have to buy from local distributors who mark up prices to sell to them.

    • danin: I might be "looney tunes" for investing in PBY, but what does that make you? I said it could be acquired near $3, which represents about a 10% premium, not that it would! I expect if it does get acquired, the price would be substantially higher than $2.65 it currently trades at.

    • I agree. PBY is not in financial trouble. Why would they sell at these prices and not for a premium. It makes no sense at all especially since insiders have been buying in the 3's. I could understand if they were in financial trouble but they just closed on a $300 million loan.

 
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