Assessing Dividend Plays in the Trash Industry
June 1, 2011
This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/272847-assessing-dividend-plays-in-the-trash-industry Companies in the municipal solid waste sector are well-known for their cash-flow generating prowess and relatively stable operating performance. As outlined in this waste industry primer, a trash-taker’s residential collection operations are on a service-based model (not-volume based) and help to mitigate cyclical pressures in other economically-sensitive lines of their business (industrial roll-offs, etc.). Further, cell-by-cell landfill development provides additional flexibility with respect to capital outlays, as rubbish handlers can scale back expenditures during troubled economic times, bolstering free cash flow. Such consistent, cash-rich business models have translated into a nice flow of dividends, particularly at the largest two domestic players, Waste Management (WM) and Republic Services (RSG). [Click to enlarge]With
How to Play the Coming Upswing in Commercial Aerospace
June 1, 2011
This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/272730-how-to-play-the-coming-upswing-in-commercial-aerospace In this, the follow up to our analysis of the narrowbody airplane market, let’s dive into just how robust the delivery upswing will be in commercial aerospace during the next few years and highlight a couple interesting, diversified ways to play the coming boom. We’ll also dive into one of the best aerospace names to own for the long haul, but leave open for Part III of this saga, an in-depth look at this firm’s valuation and the analysis of yet another intriguing play to capitalize on this multi-year cyclical upswing. First, let’s get a feel for what to expect from Boeing (BA) and Airbus during the next five years in terms of
The Future of the Narrowbody Airplane Market
May 30, 2011
This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/272454-the-future-of-the-narrowbody-airplane-market As many long-time followers of Boeing (BA) understand, the firm’s decision on what to do next with its workhorse 737 (the plane best known for being flown by low-cost leader Southwest) could make or break the company during the latter part of this decade and into next. One of the key things Boeing has been trumpeted for in the past has been its keen foresight in building the revolutionary, mostly-composite, point-to-point aircraft–the 787 Dreamliner–while its main rival Airbus pursued the gargantuan A380 double-decker, the latter betting on the proliferation of the hub-and-spoke model and high-density flights between major airports across the globe. Though there is a market for both the
Boeing Has Upside, Suppliers to Benefit From Boom
May 26, 2011
With the first delivery and ramp up of Boeing’s (BA) revolutionary 787 Dreamliner, the reintroduction of its 747 platform, and rate increases on its workhorse 737 line, investors should expect a fairly significant ramp up in commercial aircraft deliveries, which remain supported by a massive backlog of unfulfilled orders. Impressively, Boeing’s commercial backlog of 3,400-plus planes is roughly 7x this year’s expected commercial revenue, in dollar terms. Needless to say, parts suppliers like Spirit Aerosystems (SPR), Precision Castparts (PCP), Rockwell Collins (COL), Goodrich (GR), Honeywell (HON), United Technologies (UTX) and a variety of others (including engine-makers like GE) will benefit from the coming boom in aerospace. Click to enlargeFurther, drawdowns in inventories, which have been a cumulative drag of over $15 billion
Despite Spirit Airline’s Appeal, Investors Should Avoid Aviation Stocks
May 25, 2011
This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/271723-despite-spirit-airlines-appeal-investors-should-avoid-aviation-stocks Spirit Airlines, expected to eventually trade under the ticker SAVE, seems to have what it takes to be a long-term survivor in the airline industry. The firm boasts ultra low-cost operations and has shown resiliency despite rising jet fuel costs and a recent labor strike. The carrier is far from immune from the structural pitfalls of the airline industry, which include severe pricing pressure, labor unions (about 50% of the workforce in Spirit’s case), and volatile jet-fuel prices. But Spirit Airlines has the correct business strategy (an ultra low-cost focus) and capital structure (no debt following its eventual IPO and recapitalization) to best weather any cyclical troughs or temporary exogenous
Southwest Is the Most Efficient Airline, But Cost Advantage Narrows
May 24, 2011
This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/271527-southwest-is-the-most-efficient-airline-but-cost-advantage-narrows In the commodified airline industry, the lowest-cost provider often dictates the price for any given route. And as outlined in “Why Airline Stocks Are Not Long-Term Investments,” real pricing growth continues to elude this troubled industry. As a result, efficient and low-cost operations are paramount to success, and in many cases, essential for long-term survival. The primary metric used to gauge the cost structure of an airline is cost per available seat mile (CASM) — or the cost to fly one seat one mile, whether it’s occupied or not. Unfortunately, comparing one airline’s consolidated CASM with that of another offers little insight into which airline is truly more cost efficient,
Sizing Up the Long-Term Growth Potential of Buffalo Wild Wings
May 24, 2011
This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/271459-sizing-up-the-long-term-growth-potential-for-buffalo-wild-wings A restaurant focused on the concept of wings, beer, and sports seems like nothing special, but Buffalo Wild Wings (BWLD) certainly has carved out a solid presence in this arena. With each restaurant boasting an extensive multi-media system (projection screens, 50 televisions, etc.), a full bar and open layout, “B-Dubs”, as it is commonly known, has become the place of choice for many social chicken-wing lovers. Thanks in part to its widespread appeal, the firm has experienced tremendous growth during the past number of years as revenue has more than doubled since 2006. Management also expects to open more than 100 new restaurants in 2011. But how long can this
Initiating Coverage of LinkedIn at $45 Fair Value
May 22, 2011
This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/271173-initiating-coverage-of-linkedin-at-45-fair-value Although LinkedIn (LNKD) appears to have carved out a nice niche in the professional-networking arena, the firm has quite a bit of work to do to effectively maximize its revenue platform, and competition from a plethora of potential rivals (including Facebook and Google) may inevitably cause long-term head winds. Still, the firm’s revenue trajectory will be stellar during the next few years, and translating this growth to the bottom line will largely hinge on its ability to leverage infrastructure and marketing costs. I am initiating coverage of LinkedIn with a $45 per share fair value estimate; revenue estimates at $496 million in 2011, $831 million in 2012, and $1.2 billion
Is AMR’s Equity Practically Worthless?
May 19, 2011
This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/270933-is-amrs-equity-practically-worthless As outlined in “Why Airline Stocks Are Not Long-Term Investments,” pegging a fair value on an airline’s equity is a nearly impossible task due to the tremendous operating leverage inherent to their business models and the fact that key valuation drivers such as unit revenue and unit cost are largely out of their control. That said, let’s take a look at what AMR’s equity investors have to overcome to recognize any value in their holdings. AMR’s pension obligations are staggering: ~$24 per share. Unlike peers that passed along their pension obligations to the Pension Benefit Guaranty Corporation via Chapter 11 reorganization (United Continental (UAL), Delta (DAL), etc.), AMR still retains
Republic Services: A Trash Stock Worth Picking Up
May 19, 2011
This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/270758-republic-services-a-trash-stock-worth-picking-up As Benjamin Franklin once said, “nothing is certain but death and taxes.” If he had lived during our time, Franklin would probably have added a couple other certainties – and garbage would have been among them. The US non-hazardous solid-waste services industry generates annual revenue in excess of $50 billion, a staggering number just to keep our streets clean. Public companies (like Waste Management (WM), Republic Services (RSG), Waste Connections (WCN), etc.) dominate this market, generating greater than 60% of industry revenues and controlling an equal percentage of valuable disposal capacity. The top line for the group can be expected to expand at a nominal-GDP rate, with pricing growth in
