|Shares Out. (in M):||0||P/E|
|Market Cap (in M):||276||P/FCF|
|Net Debt (in M):||0||EBIT||0||0|
However, the near term catalyst that will drive the stock is the upcoming September ending quarter earnings announcement. There are number of reasons to believe earnings are going to hit record levels this quarter and therefore see the stock perform extremely well. This is a name that moves, and moves big when both sales and earnings are growing year-over-year. This is a quant-hedge fund favorite, and when certain key metrics are growing (esp. sales and earnings), there will be immense upward technical pressure, especially given where the stock is today in the low $3s. Every quarter that the company has shown growth on both sales and earnings, the stock has been up over 50% in a matter of weeks. Given how much the stock has gotten crushed along with the general market, I expect the stock to move even higher than it has historically when reporting a good quarter. The stock could easily more than double within a few weeks if the quarter comes in as I expect.
This company is recession-resistant from a fundamental standpoint. It is directly tied to global cigarette volumes and consumption (not just U.S. consumption volume). See Philip Morris International (PM) earnings results today. PM posted strong results today, beating estimates for the quarter and reaffirming guidance. Global volumes are strong. In addition, combine that with the fact that global tobacco leaf supply / demand is tight (AOI's business; good for pricing),
and you have very good dynamics for strong performance for the upcoming quarter.
I believe AOI is going to have the best quarter in its history since the merger with the #3 competitor in 2005. It is going to be a historical record in terms of sales AND earnings. Any time this has happened, the stock has done extremely well. I believe sales will come in at around 700 mm+ and earnings at .45 cents or greater for the quarter ending September 2008. This would imply a year-over-year growth of 23% and earnings growth of 131%. Even if I am off by a lot (I actually think my numbers have conservatism built in), the company will show very strong numbers. My numbers are not based on anything fancy. If you lay out the past eight historical quarters, and listen to the conference call for the assumptions, which are again very reasonable (pricing, volume, gross margins, etc.), you will get to my forecasted estimates. If you want to see my one page excel spreadsheet that highlights this email me and I will send it to you. Also, if you plot a historical stock graph versus sales and earnings year over year growth on a quarterly basis, you will see why this stock is so compelling.
Also, a weak Brazilian currency (Brazilian Real) is extremely good for the company (it has been negatively plaguing company past two years). The weakenss of the Braziian Real (currency) is a huge positive for AOI. The strength of the real has plagued the company for the past few years, but all that's reversing. If the Brazilian real stays where it is at around the 2.15+ levels, this should add another 40 cents plus of EPS to full year EPS for next year.
For fiscal year March 2009 I am estimating 75 cents plus for EPS. So assuming, no other growth, and assuming Brazilian real stays around here, I would expect $1.15 of EPs for March 2010!
Here is the summary of the major points on the stock:
- Recession resistant business fundamentally (tied to GLOBAL cigarette volumes and overall health of the GLOBAL cigarett industry, which is doing great right now)
|Entry||10/22/2008 06:34 PM|
Thanks for the write-up JY543. You didn't put your email down. I would love to see your spreadsheet if possible. Based on the charts and what you're saying, and given low liquidity, seems like it could really move. Does look very cheap. Any idea why is is at such a big discount to UVV? Is it just less followed?
|Entry||10/22/2008 06:40 PM|
I've been following this company for awhile and the valuation gap is temporary. When the stock does well, the vaulation gap closes. AOI delayed some volume from last quarter to this quarter, so last quarter seemingly looked weak. This quarter is going to look very strong. I expect the vaulation gap to disappear once AOI rallies. This has happened many times before. Look at the chart, you'll see it come to the 3s and 4s and then move to 6-8s+. It's like clockwork. I think a big part of it has to do with the fact that this is a big quant hedge fund name. I know it seems odd given the small cap nature of the company, but look at the holders list - Renaissance, Goldman, and other. I have a friend of mine who is more familiar with the trading flow on the name and he agrees. So the movements for AOI get exaggerated both on the up and down. The risk reward here is very compelling for a trade that should work in about a month.
|Entry||10/23/2008 09:25 AM|
|since the company is so levered, where does it trade on an ev/ebitda basis? thanks.|
|Entry||10/23/2008 09:54 AM|
stock price: 3.06
fully diluted shares: 89 mm
mkt cap: 273 mm
avg. net debt: 800 mm (seasonality in business, so need to use avg)
EV: 1,073 mm
EBITDA (mar 2009): 198 mm
|Subject||RE: RE: valuation|
|Entry||10/23/2008 10:05 AM|
At 3.5x FCF, and the company's commitment to use FCF to pay down debt, this is accreting value to the equity very fast.
|Entry||10/23/2008 05:36 PM|
It's hard to use CFFO-capex for AOI because of the lumpiness of the business, shipments, seasonlity, etc. When referring to FCF, I was using net income plus D&A (which has been more higher than capex) minus capex.
I am using my estimates for fiscal year ending March 2009.
net income: 67 mm
D&A: 28.5 mm
Capex: 16.7 mm
FCF: 81 mm
81 mm / 267 mm (mkt cap) = 30% FCF yield
|Entry||10/23/2008 05:41 PM|
This is not a fantastic business. You don't need to buy fantastic businesses to make money. You can buy cheap stocks with good risk rewards with short term catalysts.
AOI and competitor UVV are essentially distributors / processors. These are commodity, cyclical, low-margin businesses. There is nothing proprietary about manufacturing. Having said that though, between the two of them, they control 90% plus of the tobacco that sell to the tobacco manufacturers. This business has been around for over 100 years and the tobacco manufacturers will never bring this stuff in-house. AOI and UVV basically have relationships with farmers throughout the world and make sure supply of tobacco. It is essentially a cost plus model. The tobacco manufactuers want to make sure these guys are happy otherwise, supply would be in danger. The industry used to have more players and have not whittled down to two - AOI and UVV. Pricing has shown to be strong.
It's a cheap stock that's going to run in the upcoming quarter as the quant hedgies come in from seeing sales and earnings come in at record levels.
|Entry||10/31/2008 12:59 PM|
|So, AOI massively bouncing off it's low of $2.44... |
The stock is running into the quarter... earnings will be released within the next week or two.... earnings date has not been set, but will shortly...
I am guessing, as long as the general mkt doesn't tank (I don't think it will as earnings season is coming to an end), I think AOI will naturally trade to high $3s to the low $4s.... so say $3.80 to $4.15.... before earnings....
after earnings, i think the stock jumps at least 20-25%, so the stock goes to high $4s, to low $5s...since I am predicting a great quarter...
and then from there, if the past is any guide, i think the stock makes it to $7 to $8
|Subject||RE: Stock working...|
|Entry||03/10/2009 05:24 PM|
JY, so what did you ever think of earnings and the current stock price? Anything jump out at you? Thanks