September 13, 2011
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- Bu səhifədəki naviqasiya:
- Company Snapshot Volume XXXVII, Issue VII VIII
- Redevelopment Opportunities
- Management Team Heavily Incentivized to Unlock Shareholder Value
- Housing Recovery Participation and Estimate of Intrinsic Value
Company Snapshot Volume XXXVII, Issue VII & VIII
- 19 - The Home Depot, Inc. Ticker: HD $32.66 Background:
HD is the world’s largest home improvement retailer and second largest retailer in the United States based on net sales. The Company operates 2,245 Home Depot stores located throughout the U.S., Canada, Mexico and China. The Company sells a wide assortment of building materials, home improvement and lawn and garden products, and provides a number of services to three primary customer groups: Do-It- Yourself Customers (DIY); Do-It-For-Me Customers (DIFM); and Professional Customers (Pros). In fiscal 2010, HD had net sales of $68.0 billion and net income of $3.3 billion. Recent Developments: HD reported better than expected results for fiscal 2Q. EPS was $0.86 for the period, 4 cents above consensus projections and up 19% year over year. Same store sales increased 4.3%, driven by a recovery in seasonal business, storm-related demand, and overall strength across its core businesses. Importantly, positive comparisons were reported in depressed markets such as California, Florida, and Arizona. In conjunction with the 2Q report, management increased its forecast for full year FY 2011 EPS to $2.34 (16% growth).
Since becoming CEO four years ago, Frank Blake has enacted several key strategic changes. Blake has foregone new store openings and acquisitions in favor of focusing on existing store operations. In addition, management has embarked on a number of initiatives including bolstering the Company’s supply chain, improving customer service, and focusing on innovation and values. The Company believes it can achieve a 10% operating profit margin and 15% return on invested capital (ROIC) by the end of fiscal 2013.
Although housing market conditions have been challenging, HD should be well positioned for any recovery. As overall home sales rebound, we believe Home Depot will benefit from the investment new homeowners make to maintain and upgrade their homes. There is also pent up demand for building materials and supplies as a result of the record amount of foreclosed homes. Interestingly, approximately 37% of Home Depot’s store base is located in the nation’s top ten foreclosure markets, which include Arizona, California, Michigan and Nevada. Financial Position:
Over the last five years, HD cumulatively generated over $17.5 billion in free cash flow, or about $11 per share. The Company has used part of the free cash generated to strengthen its balance sheet. From its peak at the end of fiscal 2007, adjusted net debt (defined as total debt plus operating leases less cash) declined from approximately $20 billion to under $15 billion. In addition, HD returns excess cash flow though a $1.00 annual dividend (a yield of about 3%), and the Company plans to repurchase $2.5 billion of stock during 2011. Valuation:
HD shares have provided a total return of over 10% during the past 12 months, but the stock is down about 10% over the past 5 years. We estimate the Company can earn approximately $3.00 per share in 2014. Applying a 15.0x multiple to this level of earnings, we derive an intrinsic value of about $45 for Home Depot, representing a total return potential of over 30%. Meanwhile, the Company owns a vast real estate portfolio, which we conservatively estimate to be worth $26.3 billion or $16.50 per share, providing investors with downside protection.
Clients of Boyar Asset Management, Inc. own 87,965 shares of The Home Depot, Inc. at an average cost of $29.55 per share. Analysts employed by Boyar’s Intrinsic Value Research LLC own shares of The Home Depot, Inc. Company Snapshot Volume XXXVII, Issue VII & VIII
- 20 - The Howard Hughes Corporation Ticker: HHC $47.61 Background: The Howard Hughes Corporation was spun off from General Growth Properties (GGP) on November 9, 2011 when GGP emerged from bankruptcy. HHC, which was created from a subset of 34 assets previously owned by General Growth, currently owns, manages and develops commercial, residential and mixed-use real estate throughout the country. The board of General Growth Properties chose to create HHC because the REIT structure is less than ideal for the type of assets HHC owns, whose current cash flows are not reflective of their long-term potential.
The Company owns four master planned communities (MPC), which contain approximately 14,000 saleable acres of residential and commercial lots, representing the bulk of the Company’s book value. At June 30, 2011, these MPC’s were carried on the Company’s balance sheet at $1.3 billion ($33 per share), representing 63% of the Company’s book value ($52 per share).
HHC currently has significant development/redevelopment opportunities for trophy assets in its portfolio including Ward Center in Hawaii, South Street Seaport in New York City and the right to acquire, for nominal consideration, an 80% ownership interest in the air rights above portions of the Fashion Show Mall located on the Las Vegas Strip.
The Company’s stated goal is to convert each of its non or modestly income producing assets into an income generating property, while selectively monetizing assets when the Company believes a sale will generate more value for HHC on a present value basis than holding the asset for the long-term. While the development of the Company’s strategic development assets will require large amounts of capital, the Company intends to raise outside capital and/or joint venture many of its properties with other investors, operators, and/or developers. HHC believes this approach is a prudent way to manage risk and increase return on invested capital. Management Team Heavily Incentivized to Unlock Shareholder Value: We believe that management’s interests are tightly aligned with shareholders. The directors and senior management have invested a combined $260 million of capital and currently own 43.5% (~50% factoring in warrants etc.) of the Company. Notably, in November 2011, HHC CEO David Weinreb and President Grant Herlitz each purchased a warrant to acquire shares in HHC. Mr. Weinreb invested $15 million to purchase a warrant to acquire 2.4 million HHC shares while Grant Herlitz purchased his warrant for $2 million entitling him to acquire 316,000 shares. These warrants have an exercise price of $42.23 a share, became fully vested at the time of purchase, and generally become exercisable (except in the case of change in control) in November 2016 and expire in November 2017.
A housing recovery should allow HHC to aggressively pursue its strategy as it sells its vast land holdings and deploys funds toward redevelopment. It should be noted that HHC does not contain many of the issues currently plaguing the public homebuilders (reps & warranties, off-balance sheet exposure etc.) HHC’s long-term value creation will likely occur as the Company converts/redevelops its assets into operating assets. We view HHC as the “Liberty Media” of real estate. Over the years, Liberty Media has employed a similar approach to its hodgepodge of media assets and investors have been amply rewarded.
value substantially understates the intrinsic value of the Company’s assets. Given management’s goal (and equity incentive) to convert its assets to a higher and better use through development/redevelopment, we believe the shares should command a premium to current book value. Applying a 1.5x multiple to the HHC’s book value, we estimate the Company’s intrinsic value to be $78 per share. Clients of Boyar Asset Management, Inc. do not own shares of The Howard Hughes Corporation. Analysts employed by Boyar’s Intrinsic Value Research LLC do not own shares of The Howard Hughes Corporation. Yüklə 4,37 Mb. Dostları ilə paylaş:
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