First of all...you have to watch out...these guys are biased (although so am i)...it is one of their largest holdings.
Second...I agree with most of what they said...this is a very good company for the long term and it is a pretty stable business.
However, three things you have got to watch out for....
Number one, is this a one off warm winter or a trend of warmer winters to follow. I know most warm winters are followed by cold harsh winters usually, but the whole global warming, or el nino or whatever you want to call it has got to at least be in the back of your head.
Number two, this is morningstar talking. Not to be a dick, but they are not exactly the sharpest knife in the drawer.
Number three, you have to watch out for their cash flow argument. If you look at it the last 3 years CMP's Q1 operating cash flows are about 100% of the yearly operating cash flows...if not over 100%.
This is a MAJOR point. Of course they can try to smooth out these cash flows by paying certain things later yada yada yada...but basically if Q1 Net income is weak so will their opcash flows be for the year. What we know is that the end of Q4 2005 was not exactly snowy...so in all liklihood cities had stock going into Q1...and we know that January set records for the least snowfall in many areas. To me that means that at least 1/3 of CMP's Q1 was basically lost.
There has been some snow recently...and like i said before if it snows more than normal for feb and mar then CMP will be fine...although I still think that they will miss Q1 estimates even with the pick up in weather.
BUT WHAT IF...
Let's just compare this year to last year. Q1 represented roughly 100% of CMP's yearly op cash flows....and last year saw a pretty snowy and harsh winter in Q1. So,...lets just say that feb and mar will be similar to last year. If you reduce 2005 Q1 revs and COGS by 30%...and then subtract 15M for SG&A...and then a conservative 12M (b/c of some of the refi's they did)...then tax it at 40% (also conservative b/c they had over 40% taxe rate last year)...you get a net income of roughly 14.5M...or ROUGHLY an eps of .45/share diluted vs. .69/share Q1 2005.
That is a pretty big miss...and I think I was more than fair on my assumptions...although they are back of the napkin.
So all things being equal...that takes more than the growth that analysts were expecting for 2006...so now you are paying 19 times a salt company that is not going to show much IF ANY growth in 2006.
I don't care what the dividend is...you don't pay 19 times for a company that isn't growing earnings...a lot of funds in this stock have been looking at this analysis and have decided to sell...which is what we have been seeing lately. They know they can always buy back after the sell-off.
Again, I don't think the dividend is in trouble...but instead of looking at the dividend as a reason to buy...you should be looking at it as THE reason that CMP has not dropped much more than it already has.
Also. you have to be careful with what Rohm & Hass said about Q4 salt sales...they had good results, but they are in many more markets than CMP...the Western part of the country had a ton of snow...that could be where a lot of their performance came from....but even with that performance and larger geographic footprint even they warned that Q1 would be weaker than normal due to the mild winter.
"I don't care what the dividend is...you don't pay 19 times for a company that isn't growing earnings"
At the risk of passing into the zone beating a dead horse (you have very solid arguments and a well-thought out analysis and, in a few months, the market will settle who "won" the debate), the above statement presumes that (a) investors can't discount a highly unusual event and (b) investors are driving looking in the rear view mirror. 1Q06 is very soon about to be history and will set a very low base for "growth" over the next 12 months by just returning to a normal winter in 1Q07.
Other factors to keep in mind: (1) CMP has 19% of EPS growth cumulatively vs. 2005 locked-in for 2007-08 by the refinancing of the 12.75% and 12.0% discount notes ($0.25/share EPS increase vs. $1.32/share 2005, assuming $13.1 MM/year interest savings and a 40% tax rate).
(2) Dividend increases are clearly in the cards, notwithstanding the fact that this extreme weather event may have pushed back the timing. New bank agreement allows them to pay $55 million/year dividend or $1.74/share vs. current $1.10 payout.
You made a great call with the short at $26/share. The only thing I'm debating with you is where the floor level is on the stock in the coming months. I just can't see it breaking below $20.
How does a salt co. grow when geography and the business seems to be static. Take business away from other firms? That has its limits for growth. Develope new products by invention from salt base? Is this possible and has it been done? Has this co. been able to expand the other parts of its product line like the fertilizer unit? I thought so far this also was static. Good safe dividend is all I can find to recommend this stock but future growth is based on what??? I am a long llooong term investor so I am not looking for get rich quick trade. But I do look for a combo of income and growth to beat creeping inflation.....Comments please. ***PinewoodsBear***