My Own Analyst

Does CCC get an AAA or an FFF?

Calgon Carbon is a name I added to my watchlist this summer.  New CEO should be very positive, but this quarter was bad both top and bottom (per pre-announce last night).  Much of the bottom-line pressure is one-time in nature, and it's a lumpy biz.  This is a green company.  It's not particularly cheap - for it to work, it's all about improving the cost structure.  The new guy can and will do this.  The stock is near a 52-week low but holding near 13.  They report 11/2 and I will update then, but the bad news is out.  I am going with "Treasure".  My one-year target is 19, so it's reasonably attractive here.

Turnarounds and Takeovers

Big deal this morning, with the larger MTB buying HCBK.  Many, including me, expect small and even regional banks to disappear as they face compliance issues with Dodd Frank.  HCBK was already in some trouble and had cut its dividend.  I expect some of the other mergers may involve solid performers.

I think turnarounds could be a big story, probably after the market settles down in a month or two.  I have mentioned ELY.  Recall they brought in a successful-in-the-industry CEO from outside.  He has made some decisions already regarding focus and fixed the capital structure very accretively.  I like this one a lot!

Buy This Miss

I have mentioned ELY (Callaway Golf) before - it's a management turnaround story.  During the day, there were reports of layoffs, and the stock fell (6.20 to 5.70).  After the close, the company confirmed the layoffs and pre-announced.  Sales were 280mm instead of 285mm, but EPS hit the .05 consensus.  

The new plan is going to hit the balance sheet by $40mm (1/2 cash, 1/2 write-downs) but generate $52mm per year in cost savings.  To frame this, there are 65mm shares roughly.  The company has no debt and cash is $52mm.  Tangible book value is (was) over $400mm.

After-hours, the stock is down more!  It's offered near 5.40.  Let's use $6 for the analysis, cuz that's where the stock should trade in the short-term.  

1. TBV is currently 6.29
2. After adjusting for the restructuring, it drops to 5.70 roughly
3. Company still has cash and no debt afterwards.
4. Earnings in 2013 were forecast to be only .09
5. IF the company succeeds and reduces costs by $52mm, this boosts EPS to .60 or so 

Given how successful the new CEO was and the power of this brand, I think 10PE on 2013 potential is a real bargain...

APOG Reports

I will likely be raising my APOG target from 18 to 18.50 - the call is later this morning.  This is a nice turnaround story, with a new CEO already making substantial progress a year after his hire.  For its FY13 Q1, sales missed, rising just 1%.  Backlog, however, grew nicely, and the company was more profitable than expected (.06 EPS instead of .03).  The company raised guidance from .40-.50 to .48-.58, so it was a "beat and raise".  One negative was that net cash fell sharply due to CapEx and working capital.  My target is based on 20PE plus cash, so the net effect is likely a small increase in my target.

This story is interesting because the company could do better in a weak economy (that is how I am thinking about it), but it could rocket in a  recovering economy that leads to increased office building  construction.  Clearly, we aren't there yet.  

I like this stock a bit lower, but it might not get there...

Burger Bashing: RRGB Hit on Traffic Decline

4 or 5 years ago, I thought RRGB was a big short, and was right.  I liked BJRI.  You can read my articles on Seeking Alpha if you care what I was thinking then.  Just recently, I took a fresh look when it hit a screen I ran on the industry.  

RRGB has a new CEO from El Pollo Loco.  He has a smart plan and is executing.  The key points are to change up the size of new stores to include some smaller ones, focus on expanding the bar and changing the menu to include a value offering but also several upsells.  They are doing lots of other things to improve operations - this is primarily a margin expansion story, but with new store openings too.

This quarter, they beat on EPS but sales were a little light.  They did a poor job advertising their new tavern burger limited time offer, and traffic was weak.  Encouragingly, their customers spent more.  To me, this looks like a short-term phenomenon in terms of traffic.  It sounds like they are being somewhat conservative on their sales outlook, but the EPS growth will likely be similar to what was previously expected.

The stock has traded down to about 32 - now bid a bit higher.  I think that this could be a great entry into a reasonably priced improving story.  Between 31.50 and 33, this is "Treasure"

Take a Swing at This One

I have followed ELY from afar for a long time - poorly run company, strong brand.  They have a new CEO who seems like a winner compared to the unqualified guy who took over for founder Ely Callaway.  This stock has been in the sand-trap for quite some time and trades near TBV (about 1.3X).  There is almost $1 per share in cash.  2013 earnings are expected to rebound sharply but will still be way down from recent levels (.28 is the current estimate).    Golf will be introduced to the Olympics in 2016.  It's early to factor this in, but people will start to talk about it this summer.  This seems like a good spec buy, a bet on the new guy who succeeded at ADFG...

Good news on STJ

There was data this week from both Edwards LifeSciences (EW) and STJ on their transcatheter valves.  This is a huge growth opportunity, and EW has a lead (already in Europe, about to be in the US).  I don't understand this exact issue, but EW stock is down hard the past few days and has been trading like crap of late since the approval or FDA panel approval.  STJ's data on this issue is apparently better.

I mention this because its an important longer-term growth driver.  These new valves are able to avoid open heart surgery and will apparently double the patient population by including elderly and infirm.  STJ has a very rich pipeline in several areas but it is struggling with its large cardiac device franchise (best house in a rough neighborhood). 

The medical device sector has had a tough time.  It's very cheap, but near-term growth is challenged in the developed world.  My target of 61 is realistic if investors start to look further out and allow the multiple to return to 16.

ORN: Trash or Treasure

ORN was trashed last week, but I like it here.  Sidoti just upgraded it to a buy.  The company is debt-free, has $25mm cash and trades well below TBV.  The times are tough, but the company is making some cuts now.  I expect better times in 2013 - not too early in my view to start a position...

KBALB Post-Call

Unlike TECUA, where I have very little confidence, I feel like KBALB, which is similarly cheap, is on the right track and with a lot less risk. What I learned on the call is that furniture orders were up 28% from a year ago and that they expect to continue to improve margins.  The EMS issue for the quarter was primarily related to Japan - they are expecting recovery here from the recent dip.  The lack of profitability bothers me, but I am confident that they won't destroy value.  My biggest knock is that they do need an improving economy most likely to generate meaningful profits.  I am sticking to my 11 target, though it may be somewhat wishful in this environment.

FIRE: Strong Quarter Despite Big Gov Biz

I added SourceFire to my watchlist recently - it's a company that has done very well but pausing more recently.  The company is run by a bunch of big-time security software veterans.  When I looked into it, I saw that they had very big federal government biz, which they project will shrink this year due to budgetary issues.  The biz did shrink badly this quarter, but they still made their numbers.  Their guidance for the full year sounds in line (high teen sales growth, 17% OM).  They have been looking for 10-15% decline in federal govt for the full year - this quarter was a lot worse and it is down 14% YTD.  Unfortunately, this will likely be an overhang, though the stock is up right now in AH after getting pounded the last week or so.

Longer-term, this company looks very attractive. I have already mentioned that they have a very talented management team.  They focus on the high-end and have an end-to-end solution.  They have new products launching later this year, and they have been aggressively growing their sales capacity through more salespeople as well as an expansion of the channel.  They just announced their first North American distribution agreements with Synnex and another company.  This dual strategy will allow them to continue to penetrate their Fortune 2000 customer base and also to go a little lower too.  Very impressively, the number of $500K deals increased from 4 a year ago to 10 in this quarter.

This was my first time to hear their call, and I am glad that they are on my watchlist - I need to focus on more companies like this one.  With that said, given how large their federal exposure is and the questionable assumption that they have made regarding Q3 and Q4 activity, I want to be patient on the name.  If the analysts hold up their estimates, the stock, at 25, is about 32 PE.  Adjusting for their large cash position, I come up with a PE closer to 26.  Not bad for a high growth company with a big ramp ahead...