Well, there is the potential for TRN to literally be bankrupted if they don;t win the lawsuit appeal.
The money they lost on that case won't bankrupt them, but there will be 49 other lawsuits, one for each state and that DOES have the potential to bankrupt them if they cannot use the "corporate shield" to limit the liability to the Highway Products Division.
It has been a long time since I have seen so many stocks seemingly gly being given away.
A few I have been looking at thst may be of interest
The company said it expects to file its initial brief "next month" with that followed by full briefs from both sides.
They do not expect the case to be resolved "before late 2016."
The buyback authorization is for $250 million.
It is for two years.
They will be wanting to maintain the cash balance at a level sufficient to pay the legal
claim if they lose the appeal.
I do understand the price that has been paid, but i am just wondering how that price is justified.
A value can be based on an asset value (inventory plus value of property).
or it can be based on cash flow generating capability.
I assume that these pawn shop purchases are elased locations, not real estate purchases.
What is the average inventory value per store?
How many times does inventory turn over?
Sorry for asking such basic questions.
Why would their "buddies" prop up the price if they could get it lower by NOT "propping up the price."
I love this amateur "manipulation #$%$"
Taylor values SPA on a sum-of-the-pats basis at
other ECP $3-$4/share
Debt $13/share (net of cash)
Total $31-$41 Sum-of-the-parts valuation
Alexalekhine speaking now:
Today, the stock is $14/share
If the company were to borrow $28 million additional dollars and use it to buy back
1.4 million shares at $20 in a modified Dutch Tender Auction, there would be 8.6 million shares outstanding.
That would change Taylor's "sum of the parts above using a prior outstanding share count of 10 million
Other ECP $30-$40mm
Debt $158mm ($130 previosuly plus $28mm new debt)
Sum of the parts: $282-$352 million
Per share = $32.79-$41.90/share
Incremental value 5.8%-2.2%
The buyback does not seem to create substantial incremental value.
Perhaps I did some math wrong, but it is laid out here for you to review.
I value the company on a FCF yield basis myself.
If Taylor's FCF of $25 million is correct, then at $14.50/share and a $145 million equity market value, then buying Sparton shares today is like buying the company at a "yield" of about 17.25%.
Note: SPA closed at $21.64 the day before this article was published.
*Company currently selling for a substantial discount to its sum-of-the-parts valuation and an even greater discount out 12 months.
*At today's price you are getting the MDS division and the rest of the ECP division (non-sonobuoy) for little to nothing.
*Should the stock not respond to the strong earnings growth, it could explore strategic alternatives.
*Company is run by one of the best small cap management teams we have encountered in over 3 decades in the investment business
*Fiscal first quarter (September) earnings were "much better than expected."
*No fundamental reason for the price decline
*Worth $32 on a sum-of-the-parts valuation, and worth $35-$40 a year from now on that basis.
*ECP Division (sonobuoy manufacturing) is the "Crown Jewel" and China and Russia both have greatly increased the number of sorties their sub fleets are conducting.
*Current revenue estimate for this business is $95-$105mm depending on level of foreign sales. Taylor estimates gross margins in the division at just under 30%.
*Taylor estimates the Sonobuoy business would command a 10x-12x multiple of divisional operating profits if sold to a strategic buyer. (Alexalekhine estimates 10x operating profit of $25mm, or $250mm = $25/share).
*The remainder of the ECP division has about 440mm in revenues, he estimates.
*The MDS division is likely to have $325 million in revenue this year with solidly positive FCF
*Taylor values the MDS division at 30%-40% of revenue, or $11/sh
Taylor is concerned that the Board has failed to do a better job of taking advantage of what he sees as the "temporary weakness of the MDS division" and thinks the Board should have already been buying back shares "at very favorable prices."
*Taylor reached out to the board in September (price range for the month $20-85-$23.95) recommending a Dutch Tender Offer buyback.
Speaking of book value, GATX (ticker: GMT) trades at 1.3x book value, so a 1x book value valuation for the leasing portfolio may well be conservative.
The railcar cycle is over.
Crude cars are overbuilt.
They are 40 year assets.
The downcycle may last a very long time.
They would do well to sell a big chunk of the leasing portfolio and use the cash to acquire some diversification away from rail cars manufacturing.
The wholly owned subsidiaries in the leasing division own $3.1 billion of rail cars at book value.
The amount of debt on those cars is 30.7% according to the press release, meaning that the company's "equity" in those assets is approximately $2.2 billion, as compared to the current equity market cap of about $2.5 billion.
Given that there are about 150 million shares, the wholly-owned railcar leasing portfolio alone is worth $14.50 per share.
In addition there is $800 million of cash on the balance sheet to go against $800 million of debt.
Interestingly, Carl Icahn own about 60% of ARII (American Railcar), so he knows this industry and business intimately.
"Once you buy there are more shares to short"
The share you own is the same share someone else had before.
It's not rare.
20% drops in one day have been commonplace during the current earnings season.
There have been many many dozens of them.