We were invited to a party at the home of an area "how do ma'am" last week. For those of you not from Texas, a "how do ma'am", is generally one of the folks that society has smiled upon but the world of money has not.
These folks think their business doesn't stink and that the wash room attendant is there to actually wash their hands for them, all for no tip of course.
It was pretty obvious to us that Ms. Augratin, our hostess, had invited us for some specific purpose, we just were a bit unclear as to what that purpose was as we were repeatedly asked to fetch someone a drink, or get the door, or help with the trash.
We took no offense at being treated this way, since we don't care for drinks with more than one ingredient, and only accepted the invitation so we could watch Ms. Augratin all but actually "do" her neighbor's home from college son, something we think she has wanted for quite some time.
Finally Mr. Head, whom we learned owned a fashion store for non-athletic cross-dressers, happened to ask us what business we were in. We replied that our business was investing, that we ran a blog site called Wax Ink, and that we sold investing worksheets via the internet, in addition to holding down actual jobs.
Snickers and giggles from the cheap seats filled the room of course, until finally Ms. Ipoot asked as she grinned broadly enough that everyone in the room could see the food stuck between her teeth, what green energy stocks we recommended.
Methane companies came to mind, but instead of saying what we were thinking, our response was the same as it always is, which is that we do not recommend stocks. We also explained that to us, every investment is an investment in green energy, since green is the color of money.
Ms. Ipoot didn't seem to care for our response, since the food stuck between her teeth let go about the time she started to make a snippy reply and was quickly transferred with a bit of spittle into the hair Ms. Augrtin, whose attention was so firmly clued on the crotch of Joe College, she never noticed the fly that had followed the food to her hair, and was at the moment probably marking its territory with a line of fly feces.
We did explain that we liked Darling International, Inc. (NYSE: DAR) for that sector and when asked what business they were in we said they were in a similar business to that of the fly in Ms. Augratin's hair, which brought out the question what was a fly doing in Ms. Augratin's hair?
Assuming that the question was directed at us, we just said that Ms. Ipoot had spat it there, but before we could add the words "by accident", pandemonium ensued. Seizing the moment, we decided then was a great time to take out the trash and just keep going. Which is exactly what we did.
Basis
Financial information related to Darling International, Inc., contained in this report, is based on the company's most recent SEC Form 10-K filing for fiscal year ending January 02, 2010, as filed with the Securities and Exchange Commission on March 03, 2010.
What They Do
The company is a leading provider of rendering, recycling and recovery solutions to the nation’s food industry, collecting and recycling animal by-products and used cooking oil from food service establishments and providing grease trap cleaning services to many of the same establishments.
The company processes raw materials at 45 facilities located throughout the United States into finished products such as protein (primarily meat and bone meal, “MBM”), tallow (primarily bleachable fancy tallow, “BFT”), yellow grease (“YG”) and hides. These products are sold nationally and internationally, primarily to producers of livestock feed, oleo-chemicals, bio-fuels, soaps, pet foods and leather goods for use as ingredients in their products or for further processing.
During 1998, as part of an overall strategy to better commit financial resources, the company’s operations were organized into two segments, Rendering and Restaurant Services. The Rendering segment turns inedible food by-products from meat and poultry processors, butcher shops, grocery stores and food service establishments into high quality feed ingredients and fats for other industrial applications. This segment accounted for almost 77% of FY09 sales.
The Restaurant Services segment generates sales through grease collection and the sales of grease collection equipment in addition to expanding the line of other services the company provides, which includes grease trap servicing, and the National Service Center (“NSC”), a service offered to food service establishments and food processors. The NSC schedules services such as fat and bone and used cooking oil collection as well as trap cleaning for contracted customers using the company’s resources or third party providers.
The company was founded by the Swift meat packing interests and the Darling family in 1882, incorporating in Delaware in 1962 as the Darling-Delaware Company, Inc. In 1993 the company changed its name to Darling International Inc.
Short-Term Investment
The general movement of the stock price, at least to us, appears to be downward. But with that said, we notice that the stock has moved off its recent oversold condition and the MACD line appears to be bottoming out, leading us to wonder if now is not the right time to take a short-term position.
The stock closed recently at $8.00, with resistance at $8.98, a 12% increase from its recent close, and support at $7.99, which is for all intents and purposes, its recent closing price, making us wonder if now wouldn't be the best time to start a short-term position.
Long-Term (5 Year Hold) Investment
While the company's Current Ratio at 2.05, Quick Ratio at 1.60, Cash Ratio, at 0.96, and Return On Invested Capital at 39.44%, are all what we consider investment quality, there are other areas that we believe need improvement in order for a long-term investment to sustainable.
We would like to see Goodwill and Intangibles reduced. Currently these two items make up 28% of the company's Total Assets, which to us, is simply to high. We would also like to see an improvement in Free Cash Flow, an area that had been continuously improving until FY09.
One other area in which we would like to see improvement is the spread between Accounts Payable and Accounts Receivable. While the 16% of the company's Total Assets come from Cash on Hand, we believe an increase in the days payables are outstanding to something closer to 30 days from the current 15 days, would serve to bolster the company's cash on hand.
And with the current economic climate as weak as we believe it is, such an increase we believe would go a long way toward allowing the company to expand its business without the need to increase debt levels.
Valuations
Based on our preliminary review of the company’s FY09 financial information, we think a Reasonable Value Estimate for the stock is in the $16 to $18 range, and that a reasonable entry target is in about $7.50.
Final Thoughts
The world of the small investor is often fraught with many twists and turns. Events that seem to be of little concern, many times create major market moves, reminding us that regardless how intently focused on the package hungry investors may be, there are times when the scent of fouled air can simply not be avoided.
Wax
Worksheet
To download the Darling International Raw Value Worksheet, please click here.
Google Analytics
Kaiser Aluminum - Roll or Rolled
There are 349 companies on our watch list from the Basic Industries Segment of the U.S. economy. Admittedly we have no clue what the vast majority of any of the 2600 companies on our watch list actually do.
What we do know is that every Saturday morning, we click a button and the weekly closing price for all 2600 companies, is updated, including the 349 in the Basic Industry Segment.
Just as we have no clue, about what all of the companies on our watch list actually do, we have no idea why the little voice that lives in all of the transistor radios in America decided that each quarterly earnings season should start with Alcoa, Inc. (NYSE: AA)? Why not Agilent Technologies, Inc. (NYSE: A), since the letter "A" is only used once in their ticker symbol.
What we do know is that every Saturday morning, we click a button and the weekly closing price for all 2600 companies, is updated, including the 349 in the Basic Industry Segment.
Just as we have no clue, about what all of the companies on our watch list actually do, we have no idea why the little voice that lives in all of the transistor radios in America decided that each quarterly earnings season should start with Alcoa, Inc. (NYSE: AA)? Why not Agilent Technologies, Inc. (NYSE: A), since the letter "A" is only used once in their ticker symbol.
No matter, Alcoa has been chosen by the transistor radio business community and that's that...even though we think Kaiser Aluminum Corporation (Nasdaq: KALU) would make a much better investment. Pretty cool transistor transition, ey?
And while we love the city of Pittsburgh, we just think it makes far better sense to invest in a company headquartered in an earthquake zone in southern California.
Basis
Financial information related to Kaiser Corporation, contained in this report, is based on the company's most recent SEC Form 10-K filing for fiscal year ending December 31, 2009, as filed with the Securities and Exchange Commission on February 23, 2010.
What They Do
Kaiser Aluminum is a manufacturer of semi-fabricated specialty aluminum products for aerospace / high strength, general engineering and custom automotive and industrial applications.
The company also owns a 49% interest in Anglesey Aluminium Limited, which owns a facility in Holyhead, Wales that had operated as an aluminum smelter until September 30, 2009 and commenced remelt and casting of secondary aluminum products in the fourth quarter of 2009.
The company has one reportable segment, Fabricated Products. The Fabricated Products segment is comprised of the company's production facilities and sells value-added products such as heat treat aluminum sheet and plate, extrusions and forgings which are used in a wide range of industrial applications, including aerospace, defense, automotive and general engineering end-use applications.
The company also has three other business units which are combined into All Other. All Other is comprised of all business activities relating to Anglesey’s smelting operations, the purchase and sale of value-added secondary aluminum billet produced by Anglesey for which the company receives a portion of a premium over normal commodity market prices.
In addition, All Other includes the company's hedging activities in respect to its exposure to primary aluminum price risk and the British Pound Sterling exchange rate risk relating to Anglesey’s smelting operations through September 30, 2009, as well as corporate and other activities, expenses of which are not allocated to other business units.
The company was founded in 1946 and emerged from Chapter 11 Bankruptcy on 2006.
Short-Term Investment
Over the past month, the stock price has moved from the mid $32s, through the mid $41s, only to close recently in the mid $35s. With the trend of the stock continuing downward, the transistor static is telling us that the stock is currently trying to form an oversold bottom, something it may take another week to 10 days to actually do.
Based on a recent close of $35.50 and first resistance at $38, a 7% increase from the recent close, and support at $29, an 18% decline from the recent close, we think there is more downside risk with the stock at the moment, than upside reward.
Long-Term (5 Year Hold) Investment
With proper due diligence, the company has the prospect of becoming a very good long-term investment.
We noticed there is very little spread between the Days Payables are outstanding and the Days Receivables are outstanding, which tells us the company is paying their bills timely, and more importantly, the company' customers are paying their bills timely.
We note that the company's Current Ratio at 2.44 was at what we consider investment level, but the company's Quick Ratio at 0.94 and Cash Ratio at 0.25, were not.
We also note that debt was reduced by almost $150M during FY09, leaving the company with Total Debt of $7.1M at the end of FY09, an amount the company should have no trouble managing, especially with Free Cash Flow of $2.25 per share.
Valuations
Based on our review of the company's FY09 financial information, we think a Reasonable Value Estimate for the stock is in the $90-$105 range, and that a reasonable Entry Target is between $35 and $50.
It is important to understand that such a valuation is an estimate of where we think the price of the stock might be 5-6 years from now, and investors with shorter time horizons should enjoy our article and then run screaming into the night.
Final Thoughts
We believe management is in the game.
During FY08 the company wasted about $29M repurchasing company stock, but realized timely, that the economy was about to go nips up and decided to fore go that worthless activity during FY09.
We are constantly on the lookout for this sort of forward thinking, and finding it always gives us a warm fuzzy feeling, sort of like when we spill hot chocolate down the front of our pants, or when we replace the battery in our transistor radio and once again hang it next to the fuzzy dice on our rear view mirror.
Wax
To download the Wax Ink Kaiser Raw Value Worksheet, please click here.
Abercrombie and Fitch - The Art of the Thong
There was an on-line article several weeks ago, which quite frankly, we thought was a big lot of baloney. The article explained that consumer spending, supposedly 70% of economic activity, had surpassed it's pre-recession peak.
As we said, we think such a statement is big load of hot air, something a recent Gallup Poll seems to support.
So we were not at all surprised, given the news of recent weeks about consumer spending, to get several requests for our thoughts on T-shirt and thong retailer Abercrombie and Fitch Company (NYSE: ANF).
Basis
Financial information related to Abercrombie and Fitch Company, contained in this report, is based on the company's most recent SEC Form 10-K filing for fiscal year ending January 30, 2010, as filed with the Securities and Exchange Commission on March 29, 2010.
What They Do
The and company is a specialty realtor that operates stores and direct-to-consumer operations selling casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products and accessories for men, women and kids under the Abercrombie and Fitch, abercrombie kids, and Hollister brands.
In addition, the company operates stores and direct-to-consumer operations offering bras, underwear, personal care products, sleepwear and at-home products for women under the Gilly Hicks brand.
As of January 30, 2010, the Company operated 1,096 stores in North America, Europe and Asia.
In June 2009, the company's Board of Directors approved the closure of the Company’s 29 RUEHL branded stores and related direct-to-consumer operations. The determination to take this action was based on a comprehensive review and evaluation of the performance of the RUEHL branded stores and related direct-to-consumer operations, as well as the related real estate portfolio, and was completed during the fourth quarter of Fiscal 2009.
Short-Term Investment
The stock price is trending down, the problem at least to us, is that the time to have taken a short-term position was back in the first part of the month, although there are signs that is starting to change.
When we look for a short-term entry position, we like the Stochastic trend line to be in the oversold range and the short-term MACD trend lines starting to form a bottom. In the case of ANF, the MACD lines are favorable but the Stochastic lines are not.
In addition, should our short-term strategy not work to our advantage, we also want as large a delta between resistance and support as we can get. With a recent close at $40.22 and first resistance at $45.36 and first support at $37.03, the 5% positive delta is simply not enough for us to get to excited about a short-term trade at this time.
Long-Term (5 Year Hold) Investment
We admit that we were surprised with several of the metrics that we initially focus on, assuming that with the economic climate of the past 18 months or so, these metrics would not be to exciting. However, the company's Current Ratio at 2.79, Quick Ratio at 1.79, and Cash Ratio at 1.59, all impressed us.
The company's Total Debt per share of $1.25 was up about $0.11 year over year, but considering that the cost of money is fairly inexpensive, we considered the increase negligible.
We also noted a significant improvement in the company's receivables collections with a year over year decrease in Days Receivables outstanding of 43. This is a dramatic improvement and highlights at least to us, that management is exhibiting a strong entrepreneurial spirit.
Valuations
Based on our review of the company’s FY10 financial information, we think a Reasonable Value Estimate for the stock is in the $56 to $61 range, and that a reasonable entry target is in the $25 to $30 range, an entry point supported by our Graham number of $32, and our Relative Value number of $43.
Final Thoughts
The company reported a decline in April of 7% for same store sales, something we assumed would be the case for all of FY10. However, having had an opportunity to take a short peek at the company's financials, we're not so sure that the stock price won't just weather the ongoing economic slump.
Certainly, the winds of change are becoming stronger and stronger, and it is our opinion that over the next several quarters, retailers in general are going to have some pretty tough times.
But if company management can continue to keep their collective heads in the game, the longer time outlook for the company should remain fairly positive, what with bikinis, T-shirts, and thongs, seeming never to go out of vogue.
Wax
To download the Wax Ink Abercrombie and Fitch Raw Value Worksheet, please click here.
As we said, we think such a statement is big load of hot air, something a recent Gallup Poll seems to support.
So we were not at all surprised, given the news of recent weeks about consumer spending, to get several requests for our thoughts on T-shirt and thong retailer Abercrombie and Fitch Company (NYSE: ANF).
Basis
Financial information related to Abercrombie and Fitch Company, contained in this report, is based on the company's most recent SEC Form 10-K filing for fiscal year ending January 30, 2010, as filed with the Securities and Exchange Commission on March 29, 2010.
What They Do
The and company is a specialty realtor that operates stores and direct-to-consumer operations selling casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products and accessories for men, women and kids under the Abercrombie and Fitch, abercrombie kids, and Hollister brands.
In addition, the company operates stores and direct-to-consumer operations offering bras, underwear, personal care products, sleepwear and at-home products for women under the Gilly Hicks brand.
As of January 30, 2010, the Company operated 1,096 stores in North America, Europe and Asia.
In June 2009, the company's Board of Directors approved the closure of the Company’s 29 RUEHL branded stores and related direct-to-consumer operations. The determination to take this action was based on a comprehensive review and evaluation of the performance of the RUEHL branded stores and related direct-to-consumer operations, as well as the related real estate portfolio, and was completed during the fourth quarter of Fiscal 2009.
Short-Term Investment
The stock price is trending down, the problem at least to us, is that the time to have taken a short-term position was back in the first part of the month, although there are signs that is starting to change.
When we look for a short-term entry position, we like the Stochastic trend line to be in the oversold range and the short-term MACD trend lines starting to form a bottom. In the case of ANF, the MACD lines are favorable but the Stochastic lines are not.
In addition, should our short-term strategy not work to our advantage, we also want as large a delta between resistance and support as we can get. With a recent close at $40.22 and first resistance at $45.36 and first support at $37.03, the 5% positive delta is simply not enough for us to get to excited about a short-term trade at this time.
Long-Term (5 Year Hold) Investment
We admit that we were surprised with several of the metrics that we initially focus on, assuming that with the economic climate of the past 18 months or so, these metrics would not be to exciting. However, the company's Current Ratio at 2.79, Quick Ratio at 1.79, and Cash Ratio at 1.59, all impressed us.
The company's Total Debt per share of $1.25 was up about $0.11 year over year, but considering that the cost of money is fairly inexpensive, we considered the increase negligible.
We also noted a significant improvement in the company's receivables collections with a year over year decrease in Days Receivables outstanding of 43. This is a dramatic improvement and highlights at least to us, that management is exhibiting a strong entrepreneurial spirit.
Valuations
Based on our review of the company’s FY10 financial information, we think a Reasonable Value Estimate for the stock is in the $56 to $61 range, and that a reasonable entry target is in the $25 to $30 range, an entry point supported by our Graham number of $32, and our Relative Value number of $43.
Final Thoughts
The company reported a decline in April of 7% for same store sales, something we assumed would be the case for all of FY10. However, having had an opportunity to take a short peek at the company's financials, we're not so sure that the stock price won't just weather the ongoing economic slump.
Certainly, the winds of change are becoming stronger and stronger, and it is our opinion that over the next several quarters, retailers in general are going to have some pretty tough times.
But if company management can continue to keep their collective heads in the game, the longer time outlook for the company should remain fairly positive, what with bikinis, T-shirts, and thongs, seeming never to go out of vogue.
Wax
To download the Wax Ink Abercrombie and Fitch Raw Value Worksheet, please click here.
Cubist Pharmaceutical - Acutely Aware
We were asked last week why we never investigated biotechnology companies. To set the record straight, we own shares in a biotechnology company, Oncothyreon, Inc. (NASDAQ: ONTY), a clinical stage company developing cancer treatment therapies.
But to answer the question directly, we don't investigate biotechnology companies because the vast majority offer little in the way investment risk mitigation, which is a polite way of saying that an investment in companies in the biotechnology sector is a very big gamble, and if we wanted to gamble we would just go to Las Vegas where we think there a better odds.
Enter Cubist Pharmaceuticals, Inc. (NASDAQ: CBST), a company focusing on acute care. It was the "acute care" part that piqued our curiosity.
Basis
Financial information related to Cubist Pharmaceuticals, Inc. contained in this report, is based on the company's most recent SEC Form 10-K filing for fiscal year ending December 31, 2009, as filed with the Securities and Exchange Commission on February 26, 2010.
What They Do
The company is a biopharmaceutical company focused on the research, development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment.
The company's products are used, or are being developed to be used, primarily in hospitals but also may be used in acute care settings, including home infusion and hospital outpatient clinics.
The company currently derives substantially all of its revenues from CUBICIN® (daptomycinGram-positive organisms, including methicillin-resistant Staphylococcus aureus (S. aureus), or MRSA, and, as of December 31, 2009, has been used in the treatment of more than an estimated 880,000 patients.
CUBICIN is approved in the U.S. for the treatment of complicated skin and skin structure infections, or cSSSI, caused by S. aureus, and certain other Gram-positive bacteria, and for S. aureus bloodstream infections (bacteremia), including those with right-sided infective endocarditis, or RIE, caused by methicillin-susceptible and methicillin-resistant isolates.
In the European Union, or EU, CUBICIN is approved for the treatment of complicated skin and soft tissue infections, or cSSTI, where the presence of susceptible Gram-positive bacteria is confirmed or suspected and for RIE due to S. aureus bacteremia and S. aureus bacteremiaRIE or cSSTI.
The company was as incorporated as a Delaware corporation in 1992 and has been a publicly traded company since 1996, with principal offices in Lexington, Massachusetts.
Short-Term Investment
It looks to us as if the stock is in a downtrend and is heading towards an oversold condition.
Coupling an oversold condition with a retraction in the MACD is exactly what sets up the potential for a profitable short-term trade, and while the MACD has broken through zero, we would want to see this indicator at or below -0.5 before we decided to commit to a short-term investment.
The stock closed recently at $20.15 with resistance at $20.19, a 0% increase from current levels, and support at $16.19, a 20% decline from current levels.
Coupling the current confusion in the markets with no immediate upside potential and a 20% downside potential, we simply don't believe a short-term trade is advisable at this time.
Long-Term (5 Year Hold) Investment
Admittedly, we were impressed that a biopharmaceutical company that derives almost all of its revenues from a single product has any financial metrics that we would consider investment quality, but Cubist seems to be the exception rather than the rule.
The company's Current Ratio at 3.57, its Quick Ratio at 2.99, its Cash Ratio at 2.53, and its Free Cash Flow of $1.85 per share, got our attention in a pretty big way.
Another item that attracted our attention was the company's Debt to Cash Ratio at 0.77, meaning that for every dollar in Cash the company has, it has $0.77 in Debt.
Put another way, the company could pay off all of its Debt with the Cash it has, and still have $0.23 left over. That, to us, is a pretty fair accomplishment for any company, much less a fairly young biotech company.
Valuations
Based on our review of the company’s FY09 financial information, we think a Reasonable Value Estimate for the stock is in the $28 to $33 range, and that a reasonable entry target is in the $14 to $17 range, an entry point supported by our Graham number of $14, and our Relative Value number of $28.
Final Thoughts
When we started our miniature journey of discovery, the idea was to get a little understanding of what acute care actually was, since it was that particular term that got our attention in the first place.
Along the way, we found a fairly young company that manufactures a single product, a company that at least at first glance, appears to be very well managed and very much focused on providing not only the best product to their customers, but perhaps the best investment value for its shareholders.
Worksheet
To download the Cubist Pharmaceuticals Wax Ink Raw Value Worksheet, please click here.
Wax
But to answer the question directly, we don't investigate biotechnology companies because the vast majority offer little in the way investment risk mitigation, which is a polite way of saying that an investment in companies in the biotechnology sector is a very big gamble, and if we wanted to gamble we would just go to Las Vegas where we think there a better odds.
Enter Cubist Pharmaceuticals, Inc. (NASDAQ: CBST), a company focusing on acute care. It was the "acute care" part that piqued our curiosity.
Basis
Financial information related to Cubist Pharmaceuticals, Inc. contained in this report, is based on the company's most recent SEC Form 10-K filing for fiscal year ending December 31, 2009, as filed with the Securities and Exchange Commission on February 26, 2010.
What They Do
The company is a biopharmaceutical company focused on the research, development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment.
The company's products are used, or are being developed to be used, primarily in hospitals but also may be used in acute care settings, including home infusion and hospital outpatient clinics.
The company currently derives substantially all of its revenues from CUBICIN® (daptomycinGram-positive organisms, including methicillin-resistant Staphylococcus aureus (S. aureus), or MRSA, and, as of December 31, 2009, has been used in the treatment of more than an estimated 880,000 patients.
CUBICIN is approved in the U.S. for the treatment of complicated skin and skin structure infections, or cSSSI, caused by S. aureus, and certain other Gram-positive bacteria, and for S. aureus bloodstream infections (bacteremia), including those with right-sided infective endocarditis, or RIE, caused by methicillin-susceptible and methicillin-resistant isolates.
In the European Union, or EU, CUBICIN is approved for the treatment of complicated skin and soft tissue infections, or cSSTI, where the presence of susceptible Gram-positive bacteria is confirmed or suspected and for RIE due to S. aureus bacteremia and S. aureus bacteremiaRIE or cSSTI.
The company was as incorporated as a Delaware corporation in 1992 and has been a publicly traded company since 1996, with principal offices in Lexington, Massachusetts.
Short-Term Investment
It looks to us as if the stock is in a downtrend and is heading towards an oversold condition.
Coupling an oversold condition with a retraction in the MACD is exactly what sets up the potential for a profitable short-term trade, and while the MACD has broken through zero, we would want to see this indicator at or below -0.5 before we decided to commit to a short-term investment.
The stock closed recently at $20.15 with resistance at $20.19, a 0% increase from current levels, and support at $16.19, a 20% decline from current levels.
Coupling the current confusion in the markets with no immediate upside potential and a 20% downside potential, we simply don't believe a short-term trade is advisable at this time.
Long-Term (5 Year Hold) Investment
Admittedly, we were impressed that a biopharmaceutical company that derives almost all of its revenues from a single product has any financial metrics that we would consider investment quality, but Cubist seems to be the exception rather than the rule.
The company's Current Ratio at 3.57, its Quick Ratio at 2.99, its Cash Ratio at 2.53, and its Free Cash Flow of $1.85 per share, got our attention in a pretty big way.
Another item that attracted our attention was the company's Debt to Cash Ratio at 0.77, meaning that for every dollar in Cash the company has, it has $0.77 in Debt.
Put another way, the company could pay off all of its Debt with the Cash it has, and still have $0.23 left over. That, to us, is a pretty fair accomplishment for any company, much less a fairly young biotech company.
Valuations
Based on our review of the company’s FY09 financial information, we think a Reasonable Value Estimate for the stock is in the $28 to $33 range, and that a reasonable entry target is in the $14 to $17 range, an entry point supported by our Graham number of $14, and our Relative Value number of $28.
Final Thoughts
When we started our miniature journey of discovery, the idea was to get a little understanding of what acute care actually was, since it was that particular term that got our attention in the first place.
Along the way, we found a fairly young company that manufactures a single product, a company that at least at first glance, appears to be very well managed and very much focused on providing not only the best product to their customers, but perhaps the best investment value for its shareholders.
Worksheet
To download the Cubist Pharmaceuticals Wax Ink Raw Value Worksheet, please click here.
Wax
Hawk Corporation - Prey or Pray?
We stumbled across what to us was a very strange thing, a page on the MarketWatch site about Hawk Corporation (AMEX: HWK).
What we found so strange was there not a single newsletter about the company, not one. There were no recommendations, no limit orders, no upgrades, no downgrades, no related equity holdings, no wrap that rascal signs, no nothing. It was almost as if the company did not exist.
When we mentioned our findings to several of our investment manager friends, they all said the same thing, don't waste your time it must be a crappy company.
Yippie!!!; just the kind of company we love to check out.
Basis
Financial information related to Hawk Corporation contained in this report, is based on the company's most recent SEC Form 10-K filing for fiscal year ending December 31, 2009, as filed with the Securities and Exchange Commission on March 10, 2010.
What They Do
Hawk Corporation is a leading supplier of friction products for industrial, aircraft, agricultural and performance applications, focusing on designing, manufacturing and marketing products requiring sophisticated engineering and production techniques for applications in markets in which the company has achieved a significant market share.
Their friction products include parts for brakes, clutches and transmissions used in construction and mining vehicles, agricultural vehicles, trucks, motorcycles and race cars, and brake parts for landing systems used in commercial and general aviation.
The company's friction products typically provide the wear surface in a brake or clutch application, which is highly engineered to perform in a given application. These products are principally made from proprietary formulations and designs of composite materials and metal powders. The company also manufactures fuel cell components.
The company was founded in 1989, and is a holding company that through its subsidiaries enjoys customer relationships that span 50 years or more, with a manufacturing history dating back to 1920.
Short-Term Investment
The trend for this stock is upward, with price just coming off of, but not quite reaching, an oversold condition. With current price levels almost 2.5% above the 13 day moving average, and 11% above the 50 day moving average, we simply don’t see an opportunity for a short-term trade at this time.
Short-term traders should also pay attention to current resistance and support levels. Current resistance for the stock is $23.94 and current first support is $19.52, with second support at $16.50.
Based on a recent close of $23.14, reaching resistance would be a 3% gain, while falling to first support would be a 16% decline, which should reinforce for short-term investors there is far more downside to the stock than upside.
Long-Term (5 Year Hold) Investment
We like what the company does. We think that the company’s products lead the industry. We wonder, going forward, if demand for the company’s products will increase?
The company does have several investment quality metrics in its Current Ratio at 4.55, its Quick Ratio at 3.47, its Cash Ratio at 2.61, and its Free Cash Flow of $2.40 per share, all exceed our investment criteria.
There also several metrics in which we would like to see improvement. To us, Return On Invested Capital, ROIC, is poor at 10%, and while the Debt to Cash Ratio is positive at 0.93, the company simply pays to high an average interest rate at almost 10.5%.
In addition, that management allowed the company to spend more on stock repurchases than on debt reduction is almost unforgivable, since to us, there is simply no reason this should ever occur.
Admittedly, such a misstep on the part of management, coupled with recent SEC filings calls into question the entrepreneurial spirit of management, at least in our opinion, and makes us wonder why the long-term investor doesn’t seem to fit in, to management’s considerations.
Valuations
Based on our review of the company’s FY09 financial information, we think a Reasonable Value Estimate for the stock is in the $31 to $34 range, and that a reasonable entry target is in the $14 to $17 range, an entry point supported by our Graham number of $15, and our Relative Value number of $23.
Final Thoughts
The company may indeed manufacture products far superior to those of its competitors, just as it’s subsidiaries may continue to enjoy business relationships established more than 50 years ago.
What we wonder however, is just how much friction will be generated by investor’s rear ends if voters, (aka consumers) continue to apply their brakes to the world economy?
Worksheet
To download the Wax Ink Hawk Corporation Raw Value Worksheet, please click here.
Wax
What we found so strange was there not a single newsletter about the company, not one. There were no recommendations, no limit orders, no upgrades, no downgrades, no related equity holdings, no wrap that rascal signs, no nothing. It was almost as if the company did not exist.
When we mentioned our findings to several of our investment manager friends, they all said the same thing, don't waste your time it must be a crappy company.
Yippie!!!; just the kind of company we love to check out.
Basis
Financial information related to Hawk Corporation contained in this report, is based on the company's most recent SEC Form 10-K filing for fiscal year ending December 31, 2009, as filed with the Securities and Exchange Commission on March 10, 2010.
What They Do
Hawk Corporation is a leading supplier of friction products for industrial, aircraft, agricultural and performance applications, focusing on designing, manufacturing and marketing products requiring sophisticated engineering and production techniques for applications in markets in which the company has achieved a significant market share.
Their friction products include parts for brakes, clutches and transmissions used in construction and mining vehicles, agricultural vehicles, trucks, motorcycles and race cars, and brake parts for landing systems used in commercial and general aviation.
The company's friction products typically provide the wear surface in a brake or clutch application, which is highly engineered to perform in a given application. These products are principally made from proprietary formulations and designs of composite materials and metal powders. The company also manufactures fuel cell components.
The company was founded in 1989, and is a holding company that through its subsidiaries enjoys customer relationships that span 50 years or more, with a manufacturing history dating back to 1920.
Short-Term Investment
The trend for this stock is upward, with price just coming off of, but not quite reaching, an oversold condition. With current price levels almost 2.5% above the 13 day moving average, and 11% above the 50 day moving average, we simply don’t see an opportunity for a short-term trade at this time.
Short-term traders should also pay attention to current resistance and support levels. Current resistance for the stock is $23.94 and current first support is $19.52, with second support at $16.50.
Based on a recent close of $23.14, reaching resistance would be a 3% gain, while falling to first support would be a 16% decline, which should reinforce for short-term investors there is far more downside to the stock than upside.
Long-Term (5 Year Hold) Investment
We like what the company does. We think that the company’s products lead the industry. We wonder, going forward, if demand for the company’s products will increase?
The company does have several investment quality metrics in its Current Ratio at 4.55, its Quick Ratio at 3.47, its Cash Ratio at 2.61, and its Free Cash Flow of $2.40 per share, all exceed our investment criteria.
There also several metrics in which we would like to see improvement. To us, Return On Invested Capital, ROIC, is poor at 10%, and while the Debt to Cash Ratio is positive at 0.93, the company simply pays to high an average interest rate at almost 10.5%.
In addition, that management allowed the company to spend more on stock repurchases than on debt reduction is almost unforgivable, since to us, there is simply no reason this should ever occur.
Admittedly, such a misstep on the part of management, coupled with recent SEC filings calls into question the entrepreneurial spirit of management, at least in our opinion, and makes us wonder why the long-term investor doesn’t seem to fit in, to management’s considerations.
Valuations
Based on our review of the company’s FY09 financial information, we think a Reasonable Value Estimate for the stock is in the $31 to $34 range, and that a reasonable entry target is in the $14 to $17 range, an entry point supported by our Graham number of $15, and our Relative Value number of $23.
Final Thoughts
The company may indeed manufacture products far superior to those of its competitors, just as it’s subsidiaries may continue to enjoy business relationships established more than 50 years ago.
What we wonder however, is just how much friction will be generated by investor’s rear ends if voters, (aka consumers) continue to apply their brakes to the world economy?
Worksheet
To download the Wax Ink Hawk Corporation Raw Value Worksheet, please click here.
Wax
Subscribe to:
Posts (Atom)