I looked at that possibility as well but found no satisfying answers. DOW has outperformed DD by about 15% since the beginning of July. If an activist fund's accumulation is the correct answer, then the dollar amount must be greater in DOW's case. This would almost certainly mean an investor different from DD's, since sector concentration risk would be too great for any one, rational portfolio manager. So I'm left asking myself, "What are the odds of two different activists going into DD and DOW simultaneously?" Possible, I guess... but unlikely.
DOW popped up on my radar in July, and I've exhausted my diligence at this point in trying to handicap whether the stock's current trajectory is sustainable and if yes, how long / to which price. Only major data source to which I don't have access is a flow desk that could tell me who has been buying seemingly indiscriminately since mid-July and the associated VWAPs.
Anyone have at least a halfway plausible theory for DOW's ~20% outperformance relative to the S&P 500 index since July 2013? After a lot of wood chopping, I have none...
...worth about $12M. By itself, nothing much can be extrapolated from the sales. Another matter, however, when coupled with other recent insider sales, run-up in equity value, high sum-of-parts value and lack of visibility on both strategy and timing of monetization of the company's perhaps most precious asset: spectrum.
What I wouldn't give for focus group results from interviews of institutional buyers at these valuation levels.
If a meeting took place, it's tough to make conclusions without knowing the agenda.. He could have been on his hands and knees pleading.
Soliciting a sanity check for a thesis on the three-day ramp from $34 to $37.. Combination of:
- Month-end window dressing to make active managers look smarter than they are;
- Increasing frequency and pitch of chatter about special dividends.
I give the latter low odds of realization, since three insiders sold something like $14M of shares in the week ending Wednesday before Thanksgiving. If even a remote possibility of a special dividend were in the offing, insiders would be hanging on to everything they own.
Short opportunity on Monday?
I considered the spectrum value.. a few days ago I mentioned in a post here that Morgan Stanley's bullish case is an extra $9 per share on top of their $35 target. I conceded then that spectrum value could also be driving the stock's recent meteoric rise, as institutional guys with access to the FCC front run public disclosure. Really high trading volumes since last week support such a thesis.
This was one reason for my considering jumping into a long bet, but unclear to me is the timing of the spectrum's monetization. The FCC gives a green light for terrestrial use, and then what? DISH, via a partnering agreement or solo, will then try to go head-to-head with T, VZ, and S? Complete black hole for CapEx... Or DISH then sells all or some of the spectrum? If you know a likely buyer that has strategic rationale for buying, please share. Thanks.
Bloomberg reported this morning that the case calendar for the AMC / DISH suit contains a "possible settlement" on Monday, October 22nd. Only news I could find that could explain today's market action... A couple of thoughts came to mind when trying to understand the stock's behavior:
1. The $2.4B suit and other related miscellany have been an overhang, and when the overhang is taken away, the stock finds its true level. Fine. But DISH is now trading at 14.8x forward earnings and 6.4x forward EBITDA. As a reference point, DTV is trading at 10.3x and 5.7x forward earnings and EBITDA, respectively. The implication is that DISH is superior operation? I thought it was the other way around.
2. This third pop since last Thursday is a short squeeze, as all the 'special situations' traders betting against DISH in the AMC suit are getting out of Dodge. Short interest at the end of September wasn't outrageous, but.... This would explain the aberrant multiples ascribed to DISH equity right now.
My kingdom for access to a flow desk for getting to the bottom of this. But as the old poker saying goes, if you look around the table and don't know who the sucker is, it must be you. Ergo, I'm on the sidelines.
Let's say you're the head of Corp. Dev. at Sprint. Softbank's $8B capital injection that will appear in your Treasury group's coffers (several months from now?) is already burning a hole in your pocket, and you're looking around for spectrum to build out at least halfway competitive 4G services.
Do you approach Clearwire, which you can bend over a barrel in negotiations, or do you approach DISH, which has no urgent need to do anything it doesn't want to do? I'd first try the former.
But perhaps this has already occurred and resulted in failure / impasse because of Clearwire's dogmatically sticking with WiMax and TD-LTE, both of which Sprint may not want to bet the farm on. I guess that would make DISH spectrum an alternative... but it seems like a stretch, at some indeterminate point in the future.
Dunno. I'm now wavering and thinking this run-up may be more of a short opportunity than a case for further gains.
Of the 11 debt issuances Bloomberg has listed for Clearwire, only three were trading meaningfully higher a bit earlier today when DISH equity was up 4%:
1. $2,027M of 12% Dec. 2015 bonds +6.250 to 105.750
2. $730M of 8.25% Dec. 2040 convertibles +4.681 to 99.095
3. $500M of 12% Dec. 2017 bonds +6.000 to 114.188
The problem is that even if DISH owned 100% of the $3.3B in debt cited above, the principal gain this morning would have been only about $191M, whereas the earlier 4% pop created an additional $605M in market capitalization.
Even if it is assumed that $200M of the $605M gain were attributable to beta (e.g., from above-consensus consumer spend numbers this morning), you'd still be shy by over $200M. I checked the holders of the three mentioned debt issuances, and they appear fairly widely held. DISH definitely does not own 100% of the paper, so the gap is much larger than $200M.
The debt holdings may be helping DISH equity, but it seems like only a small part of the story. Something else is going on.
Also.. checked Morgan Stanley's research, and their base case target is $35 per share, which assumes after-tax spectrum value of $3.8B. They peg the upside spectrum value at $7.6B, or another $9 per share on top of the $35.
My best guesstimate at this point is one or more institutional guys believe a spectrum sale is in the offing at an above-market price. The question I'm now asking myself is how much additional upside this stock has in the near-term.
I haven't (yet) delved deeply into all of DISH's moving parts but know enough to be confused by the ramp this morning on high volume. Anyone have at least a semi-literate guess for the ~8% rise in 2.5 trading sessions?
I checked consensus forward multiples on Bloomberg, and both the P/E and EV / EBITDA multiples are now at or above the May 2008 peaks. As widely tracked as DISH is, I doubt consensus numbers are egregiously off... which makes the multiple expansion a head-scratcher.
People will debate the degree to which the company is broken, but cash flows are cash flows. So whether you're looking at this on a forward P/E or P/FCF basis, the valuation appears absurd at these levels even if Street consensus is off by a wide margin. Doesn't mean the stock can't continue its downward trajectory, however.
Checked the Bloomberg terminal this morning and saw that HPQ currently trades at 4.5x next four quarters' consensus earnings. Just to put this into perspective, this level is not a one-, three- or even five-year low. It's the lowest in Bloomberg's database, which goes back to 1985 for HPQ.
My thesis is that institutional value investors are on strike. Even if Street consensus is wrong by a large percentage, the forward multiple is still ridiculous.
A guess is that no manager wants to touch this turd before quarter end, so we may see some support begin next week, though volumes will be low because of the 4th falling in the middle of the week.
Sold naked Sep. $36 and $38 calls before the latest earnings release as a downside hedge. Position was in the red for a decent while before the market began pricing in the underlying fundamentals. I wouldn't recommend selling (naked) calls on STX at this point.
I thought I'd share a few data points I just pulled from the Bloomberg terminal.. As of 11 AM PST on May 2nd:
Consensus 2012 Non-GAAP EPS = $0.03, so in case there was doubt, the stock is no longer trading off of a P/E multiple.
Consensus 2012 EBITDA = $771M, which puts the enterprise value / '12 EBITDA multiple at 7.3x when the stock is at $8.50 / share. For reference, the average EV / next four quarters EBITDA multiple has been 6.4x, 5.9x and 5.8x since the beginning of 2010, 2011 and 2012, respectively. Take an average of the three averages, and you get 6.0x.
If you believe 6.0x could be a floor, then the company's enterprise value could still fall (7.3x - 6.0x)($771M) = (1.3x)($771M) = $1B. At $8.50 per share, the enterprise value is $4.8B. Subtract $1B, and you get $3.8B.
Now back out the net debt to arrive at an equity value of about $825M, or $3.90 per diluted share. This is a 54% discount to the current share price. Yikes.
The obvious follow-up question is whether looking at ACI on an EV / forward EBITDA basis makes sense. If P/E multiples lose relevancy, why not EBITDA multiples? Past a certain point, I think even EBITDA multiples go by the wayside.
In distressed situations, you make valuation decisions (in part) based on tangible book equity value. I can't say a company that generated something like $0.23 / share of free cash flow last quarter qualifies as 'distressed', but it sure is beginning to trade that way.. At $8.50 / share, the company is being valued at 0.61x tangible book value.
Since the beginning of 2010, 2011 and 2012, the company has averaged 1.8x, 1.6x and 0.9x LTM TBV, respectively. It's these last data points that make me believe the stock is highly unlikely to crater to $3.90, or about 0.28x tangible book value.
So what is the likely bottom for the TBV multiple? No idea. When large institutional guys decide to take a dump like today, all sense of 'floor value' goes out the door. Split the delta between $8.50 and $3.90, and you get $6.20, which is as good a guesstimate as any at this point.
Unless you believe that liabilities would exceed the market value of assets in a liquidation scenario, then the Seeking Alpha comment holds true.
Funny how two people can interpret an event in completely opposite ways.. my takeaway was the dividend announcement's timing was set to build positive momentum going into a potentially disappointing earnings release.
According to Bloomberg, ACI closed today at 14.9x next four quarters' consensus earnings. The average since Jan. 2010 is 11.9x, and consensus '12 earnings per share are $0.64.
If the (admittedly arbitrary) 11.9x multiple is a floor, then ACI could lose another (14.9x - 11.9x)($0.64) = $1.92 per share from today's close of $9.40. That's a bottom of around $7.50.
Scary? Perhaps if you're already in the name and leveraged. But if you're waiting patiently.. it's another story.
Funny how when one bounces from one deep value opportunity to another on these boards, the themes and uninformed drivel tend to be the same..
For example, prior to its recent earnings announcement, SuperValu (NYSE: SVU) was getting its equity value crushed, and the knuckleheads on Yahoo's SVU board speculated to no end whether the company would file for Chapter 11, break some debt covenant or another, etc. Yet prices of the company's bonds remained above par, indicating that the conversative fixed income community of investors was quite comfortable with SVU's solvency.
And here we are with ACI.. please refer to the following FINRA market data link to see the price of ACI's $600M 8.75% bonds due August 2016:
In case anyone is too lazy to click on the link, I'll save you the effort. The bonds are trading above par. Hint: that's a good thing for equity investors - it means insolvency worries are nowhere in sight. About the worst that could be said is that the bonds have tanked from mid-March, when they were trading at around 110 - 112. They closed today at 102.50.
My prediction is that this message in a day or so gets buried in an avalanche of new idiocy about bankruptcy or something related, but anyone paying attention now and looking at a potentially compelling deep value opportunity to ladder into, ACI is worth a look.