Maxxam Inc. MXM
February 22, 2004 - 1:09pm EST by
spence774
2004 2005
Price: 24.20 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 166 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT

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Description

Maxxam Inc. is a deeply undervalued, asset rich holding company that we originally posted last year at $8.20, and was first posted on VIC in 2002 by Alli718. At today’s price, the stock is still very cheap and safe.

Being that we posted this last year, and had a good Q&A string, this post will recap the idea and touch on the various issues that one should be aware of before investing in MXM.

Valuation:

TSO: 6,861,606 (down from 7.2 mm last year)

Share Price: $24.20

MVE: $166 mm

Unrestricted Cash: $145 mm

Real Estate Net Book Value: $98.5 mm

Forest assets: $0

Racing: $0

Per Share Asset Value: $35.50

Free call options:

1. The real estate may be worth more than net book value.

2. The timber grows in value every year, and if timber prices go up, there is a lot of per share value leverage once the asset value passes the debt level.

3. The Texas horse tracks are cash flow positive and could become more valuable if casinos are allowed at the tracks.

4. The company may get reimbursed for some of its legal costs associated with defending itself against the claim by the OTS (explained more below).

Management: Charles Hurwitz stills controls the company. He is a very controversial figure, especially the environmental circles.

Kaiser Aluminum: Kaiser is a deconsolidated, bankrupt subsidiary. It does not have obligations that are recourse to the parent.

FDIC and OTS: The FDIC has a pending civil action against MXM. The civil action was originally related to a claim by the Office of Thrift Supervision (OTS) against MXM stemming from the failure of a Savings and Loan named United Savings Association of Texas. MXM settled the case with the OTS last year and we do not believe that the FDIC action poses a material threat to the company.

Catalyst

1. timber prices rising
2. casinos allowed at Texas race tracks
3. the company continuing to buy back shares
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