Auto production in China has reached 24 million per year.
Few are replacement vehicles so the "fleet" of autos in China is growing rapidly.
In the US it is 18 million and most are "replacement" vehicles.
Figure what all that does for global oil demand.
The thing I can't figure out is what took Carl so long to get involved here.
This one has been begging for him for quite a while.
The CEO has already done some of his work for him by buying back about
300 million shares over the past 3 years or so. The share count used to be around 1.3 billion,
now it is only 3 billion.
Frankly, a company with a strong brand name with on the order of $1.3 billion of annual free cash flow should NOT be selling for a $10 billion equity market cap.
There is a pretty easy fix here:
1) Sell the financing business and get around $4 billion of its debt off the balance sheet. Maybe get a few hundred million in cash for it from the buyer and use it to buy back some more stock.
With only $4 billion of remaining debt on the balance sheet, the Debt/EBITDA ratio will be only 2.0x.
Given the FCF generation capability, the company can EASILY borrow another 4 billion, bringing it up to 4x Debt/EBITDA. and they can buy back another 35% of the float with that.
You keep the rating agencies at bay by telling them the intention is to use the FCF to reduce the debt within 18 months by about $2 billion, bringing Debt/EBITDA to around 3x, leaving the company still IG rated.
2) You can make a decision about how you are going to allocate cash flow.
The company is using $300 million annually for dividends, targeting $500 million for M&A, and using the rest for buybacks.
Here's the problem:
1) Nobody is buying the stock for its yield. Can the dividend.
2) The M&A deals that they have done don't seem to have had any impact on results/performance.
Their impact is invisible. Stop doing M&A deals.
3) Focus the use of cash flow into a single channel: buybacks.
$1.3 billion of Free cash flow on 1 billion shares is $1.30 per share.
If you get the share count down to 600 million shares, that $1.3 billion of FCF is $2/share.
At the current FCF Yield of around 13%, buying back 40% of the stock will give us about a 65% boost in the share price.
They did it because they need to do options trading to supplement their incomes as government drones.
I really like how you support your argument with facts and reasoning.
I guess fitness is just a "fad."
You are assuming that the pipeline is not maintained.
Just because it has a 30-year life for depreciation/tax purposes, does not mean it has a useful life of 30 years.
And of course, since the asset IS depreciated over time, that depreciation represents cash flow that is in addition to the earnings of the pipeline.
There is no "emergency."
Are business conditions a bit uncomfortable right now?
They business is largely not based on commodity prices (outside the 18% of the CO2 segment which itself is largely hedged through next year and even into 2017), and they will deliver projects into service over the course of the coming year that will lead to continued growth in EBITDa and Cash Flow in absolute terms, though maybe not at as great a rate when measured in per share terms.
The dividend paid a year from now WILL be higher than the one most recently paid.
XOM is about the ONLY company in the Energy sector that is still buying back stock. The ONLY one. That's the reason they keep a AAA credit rating.
And by the way, XOM and KMI are not "in the same industry"
One is an oil and gas producer and refiner, the other stores and transports primarily natural gas, but some oil and refined products.
Production and Refining are totally unlike pipelines and storage.
As for KMI, one of several things will happen:
1) Either the stock will recover and reduce the cost of equity capital allowing it to continue to fund growth projects
2) The company will cut back on the amount of growth capital spending it does.
Icahn sees a few things that other investors either don't see or can't put into context.
Among them are:
1) Ineffectual leadership at the CEO level(ok, everybody sees this one).
Ursula did recognize the critical situation of the DocTech business and was successful
in diversifying the business base by acquiring ACS. She gets credit for that one.
2) Icahn sees a company that has reduced its share count over the past few years from
about 1.3 billion shares to about 1.0 billion shares.
3) Icahn sees that XRX can relatively easily sell the financing business because financing
a copier is little different than financing a car: You know the residual value, you get a 3-5 year lease,
and you know where it is and it can be repossessed.
Doing that will free up about $500-$700 million in capital used to support ~$4 billion in debt that
will come off the balance sheet.
4) Without the financing business debt on the balance sheet, Icahn sees that he can add leverage
to the core business because core debt of around $4 billion is supported by nearly $2.5 billion of EBITDA.
5) He sees a company that is generating on the order of $1.3 billion of free cash flow that has a market cap of $10 billion. With better management (remember, everybody thinks XRX is not well-managed) he probably thinks that FCF figure can get up to $1.5-$1.8 billion.
6) He sees that ACS competitors like Computer Sciences and Accenture trade at more than 20x earnings, and wonders why XRX is trading at 10x earnings.
In short, the deck is stacked in his favor at these prices and he has enough weight to throw around that he can make something happen.
Except you haven't looked at the coupon levels on the debt that is maturing like:
$850 million of 5.7% debt in January
$250 million of 8% debt in February
$67 million of 8.25% debt in February
They can borrow at rates under most of those rates.
Most of the maturing debt through 2020 is at substantially higher coupons than they would pay if the rolled over the debt.
In any event, they WILL roll over the debt AND issue new debt to fund new projects.
They will maintain a capital structure in which debt and equity are about the same size.
I haven't lost any money.
I have been selling $5 puts regularly and collecting the income looking for the best spot to put on a position in the expectation that the stock will eventually sell at 100% of tangible book value (around $7.25-$7.50).
Cash flow is going to continue to increase in coming quarters.
Each quarter they are completing on the order of $500-%700 million of new projects.
As each project goes on stream, it begins generating cash flow.
Aren't most of these people new?
Why would they pay a bonus to the exec running the Mexican business.
This is really egregiously bad.