Tuesday, December 23, 2008

Buy FJA preferred (Embarq 2036 bonds)

FJA is a preferred listed on the nyse. The underlying asset interest that is owned in the preferred trust is embarq long- dated senior debt securities. The preferred pays dividends of 1.78, which equates to 17pct current yield and a discount to par of 55 percent (paying 45 cents on the dollar). Embarq is a decent, but not great credit... Wireline subscribers are shrinking 5-7pcercent, and debt leverage is high, but manageable for the business risk profile (2.2x levered). The company is switching subscribers of phone service over to dsl, which should limit the defections of subscriber base to digital cable. Another plus is that centurytel is acquiring embarq, which should result in better efficiency, larger size, and improved credit profile ( centurytel is more rural, thus more protected from cable penetration). Aside from these factors, long embarq debt trades around 65$, which is 20$ (42pct) higher than the implied purchase price via the FJA preferred. Thus the below-market price, high yield, and potential upside in credit profile make this security extremely attractive at prices below $12.50. Recommendation- buy FJA

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Thursday, December 11, 2008

BUY UZG/UZV Preferred

The UZV/UZG are preferred stocks traded on the NYSE. The preferreds represent ownership interest in a trust, which owns 7.5% and 8.75% US Cellular Senior Notes, due in the 2030s.

The "par" amount of the preferred shares is $25, although the UZV currently trades at $13.25 (14.16% yield) and the UZG currently trades at $18.9 (11.7% yield). There is another US Cellular baby-bond listed under GJH, which trades at $4.80 ($10 "par" value), for a yield of 13.2%. I am ignoring the GJH issue for now.

US Cellular is 70% owned by TDS and represents the primary asset of TDS.. US Cellular currently has $1Bln in debt vs. $177MMln cash. Trailing EBITDA over the past twelve months is $1.06Bln, on revenues of $4.2Bln (25% ebitda margin). US Cellular also owns some partnership interests in Verizon's Los-Angeles cell network In 2007, US Cellular generated operating cashflow of $863Mln, less capital expenditures of $565Mln, for free-cashflow of $298Mln. The company has adequate liquidity between its cash holdings and $700Mln revolver (expires 12/2009) and is currently profitable. USM is the last independent carrier, following the acquisition of Alltel by Verizon. Currently, Verizon bonds trade at +500/30yr (8.1% yield). Verizon Wireless bonds trade 50bp tighter than the holdco bonds.

As such, buying the US Cellular bonds appears to be attractively valued, in the form of this structured note. At current yields, I would recommend buying UZV, as the 14% yield and $13.25 price is very attractive (53% of par, a high discount for a non-distressed credit.. In fact, the dislocation in bond pricing actually presents an arbitrage opportunity, in which you can sell the high-priced UZG (76% of par, $18.90 price, 11.6% yield) and buy the lower-priced UZV notes for a positive arbitrage of 240 basis points and a significantly lower-dollar price relative to par. Its a win-win, or you could keep it simple and just buy UZV. I've tried a little of both, K-dawg

Thursday, December 04, 2008

Okay, if you bought CCS at my recommendation at $15, I am currently selling that at $17.10 ( 9.76% yield) and putting all proceeds into CCW at $17.35 (10.1% yield).

Even with a bit of commission, it is a nice pickup in yield. More importantly, CCW is larger/more liquid and generally trades at a lower yield than CCS (by like 20bps). That means CCS will normally trade $1.50 below CCW.... so this should be an easy trade.

Or, you can just sell CCS and pocket your 13% over the past week! I like the swap better though, as 10% is a nice yield.

Tuesday, February 12, 2008

ClearChannel for Cowards...

 ClearChannel for Cowards...

Right off the bat, I don't like ClearChannel, they seem to ruin every radio station. That being said, they can do whatever they want since Sirius/XM is the only real radio competition and I'm too cheap to pay (for now, anyway). CCU is currently involved in an LBO that appears to be on the rocks. The stock is trading below $30, in spite of the LBO bid at $39.25 (>33% higher).  The LBO bid is ridiculous and values a radio company at 13x EBITDA, which is about where recent station-sales have been executed at.

I think a more reasonable multiple for a monopoly provider is closer to 8-9x Ebitda, which is way below any historical trading level for this company. The last time it traded at $20/share was in the recession of 2002 (its debt was $2.2Bln more than current levels) and before that, you have to go back to 1996 when it was much smaller.  This company should generate around $2Bln Ebitda, which puts valuation around $16-18Bln EV. Minus $7Bln debt=$9-11Bln market cap/500 mln shares= $18-22/share.    

I am not willing to buy the stock at $29 on the hopes an overpriced acquisition goes through. However, I am willing to sell one-month puts at $20 for $.40 (2% absolute yield b/f commissions) on the notion that the stock will be a decent buy if hell-freezes-over and the share price drops 30+% within the next month. I do not view this as highly likely, although I do expect weakness when the company reports earnings on February 14th.  If you are a little bit braver, you can sell $22.50 puts for $.90 (4% absolute yield).  I have only done this on a couple contracts per account, but its an interesting idea and arb play.

Friday, February 01, 2008



- Snipes found not guilty of defrauding the government, after not paying taxes for 7-8 years, filing fraudulent tax returns, and fraudulently applying for tax refunds. He was also bouncing checks that he did send into the IRS.

I have a new favorite action hero.  It is you, Mr Snipes.  (Even if you do have a bad-taste in neckties)


Wednesday, January 30, 2008

Joke of the day

Joke of the Day-  " Hey Ben Bernanke, Home Depot called, they want their tools back".

I'd better start making a lot more money in my stock portfolio, because inflations gonna be rippinig America a new asshole...as if it hasn't started already.

In other things, Robert Olstein listed his twenty financial-analysis criteria....thought it was worth posting
1 Material deviations between net income and free cash flow
2 Material differences between the tax books and shareholder books as
measured by deferred taxes
3 Material changes in balance sheet debt and liquidity ratios
4 Inventories, especially finished goods or raw materials, increasing or
decreasing faster than sales
5 Accounts receivable increasing or decreasing faster than revenue
6 Deviations between depreciation and capital expenditures
7 The repetitiveness and materiality of non-recurring write-offs
8 The role that non-trend line changes in reserves contribute to, or negatively
impact, current earnings
9 The repetitiveness and materiality of non-recurring gains such as sales
from venture capital portfolios
10 The impact and reality of a company’s deferred expense capitalization
policies as it effects reported free cash flow
11 Discretionary expenses deviating materially above and below trend lines
12 The reality, consistency and conservativeness of revenue recognition
techniques when measured against the passing of cash
13 The impact that acquisitions have on sustainable free cash flow and the
growth thereof
14 Changes in other asset accounts
15 The impact of transactions with special-purpose vehicles
16 Pension income and expense recognition measured against the pension
plan’s assumptions and the funded status of the plan
17 Large deviations between pro forma and reported earnings
18 The impact of option transactions on reported free cash flow and the
impact on future results and valuations of the company
19 The capabilities of management as measured by their long-term decision-
making capabilities; especially when problems develop; their attitude
toward risk as measured by the quality of the balance sheet; and
their preparation for a rainy day; their methodology of communicating
with shareholders; and finally their ability and emphasis on returning
value to shareholders
20 Disclosure of material information needed to assess the value of the

Troy Peterson, CFA
Credit Analyst- Americo Life
Phone- 816-391-2039
Fax-       816-391-2037
Email-   Troy.Peterson@americo.com

300 W. 11th St.
Kansas City, MO. 64105

SELL FDX and WM- I'm starting my shot clock

SELL FDX and WM- I'm starting my shot clock

Markets maybe got a week or two to rally more, but think the lows will be retested

Troy Peterson, CFA
Credit Analyst- Americo Life
Phone- 816-391-2039
Fax-       816-391-2037
Email-   Troy.Peterson@americo.com

300 W. 11th St.
Kansas City, MO. 64105

Tuesday, January 29, 2008

CTL- Centurytel at $35, this is a phone-line company in mostly rural areas, about a $3.8Bln market cap and $3Bln in debt. 11.5x P/E, with approximately $600Mln in trailing free cashflow (actual). Calculated a different way (with more onerous tax assumptions), Centurytel's profitability is mapped out below.

Ebitda- 1325
-interest -220
-taxes(.35)- -350
Capex -300
FCF- $455 (ebitda method fcf)

That equates to about a 12% FCF yield ($455/$3.8Bln), but its actually closer to a 16% yield since I overstated their actual cash taxes. They have a share repurchase authorization for $750Mln, which is like 18% of their shares outstanding. 10% of their stock is held up in 401K/esop plans which means even fewer sellers will be out in the marketplace. This should easily trade up until the implied freecashflow yield is something closer to 8%, which would equate to about $48.80/share , based on a low-end free cashflow forecast of $430Mln/8%= $5,375Mln $5,375Mln/110Mln shares= $48.86 per share This implies 40% upside in the stock.

The company has a lot of debt, which will likely increase given the buyback, but they continue to do a good job switching old phone-line customers over to DSL packages and they should trade at a premium to Citizens Communications (CZN). Currently, CZN trades at EV/sales of 3.7x and ev/ebitda of 6.7x, while CTL trades at 2.6x sales and EV/Ebitda of 5.14x. Both of these multiples imply a 30-40% valuation gap between these similar companies. The free-cashflow numbers make Citizen's still look cheap ($740Mln/$3600= 20% FCF yield), but I believe this represents lower capital investment spending in their infrastructure, which may ultimately come back to bite them. I think the valuation gap mostly exists due to CZN paying a cash dividend of 9%, while CTL pays a yield of .8% (CTL pays its cash through share repurchases, which should prove more efficent as long as they avoid dilutive acquisitions).

Thought this was an interesting equity idea, but would be hesitant to buy the bonds due to the fact that they pay out all of their cash.

Monday, January 14, 2008

Next Idea- Long/Short on MW/JOSB

MW is 3x the size of JOSB, but both in the same business. Both have ebitda
margins of around 16%, but MW has been growing faster than JOSB. MW recently
warned on sales growth and their stock tanked. MW trades at .45x EV/sales, JOSB
trades at .76x sales. I think this is likely to converge, with most likely
outcome being that JOSB falls to MW (rather than MW rising significantly).
I'll map out the idea more fully this afternoon, but it looks pretty
interesting, given how obvious and straightforward the valuation disconnect
appears to be. The JOSB store I drive by every other day always seems to be

Thursday, January 10, 2008

New spec plays possibly worth a multi-day trade.....

Mostly reflective of the market and possibly a number of other stocks, I noticed that these two stocks had interesting island formations. My personal experience is that stocks that are A) Sold off more than 30% from their 52 week highs B) Trading at/near their 52 week lows C) Shown an Island formation at the lows (that resulted in a stock falling at least 3% intraday, but recovering and ending near the opening price of the day) and D) followed up that island formation with a strong bullish-engulfing candle (long white candle) - tend to have the potential for significant outsize gains over the next few weeks. Sometimes the reactions are very explosive, and my target would be for a significant rebound.

In Wamu's case, a minimum of 25% should maybe be targeted, FDX maybe 10%? In either case, the chart pattern shows strong buying and a major reversal on good volume and on oversold conditions. If the chart pattern closes below the bottom of the island formation, its definitely busted and you should just take a loss on the trade. I would tend to say if the stocks close below the top of the island formation that the upside is likely to disappoint, so I may set my stop-loss there.

Since you are reading this blog online, the best way to explain it is that Island-reversal formations are the Jenna Jameson of chart patterns. And by that I mean the Jenna from 10 years ago, not the old-and-busted anorexic Jenna from now. Hope that gives ya some good perspective.

PS- Sadly, my fondness for historical valuation multiples and Chili's salsa has me licking my chops over the 15% decline in EAT (within the week after i bought, of course :), nonetheless this was a long-term trade 6-18 months thats targeting $30/share. The biggest hindrance may be the fact that management blew a bunch of money on share repurchases at high prices in 2007, but restaurants are definitely looking very interesting to me... think the Darden's and Brinker's of the world have the financial wherewithal to outlast a lot of the smaller, lower-margin also-rans. (by comparison, recent LBO's of Outback Steakhouse and Applebee's both occured at >10x Ebitda, with Chili's trading for 5x trailing Ebitda, there appears to be a significant margin-of-safety even if earnings were to temporarily decline for these guys. I may look to add to this position if it declines further, although seeing some insider buying might make me a bit more bullish.