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January 2010



Is Mattel A Mess Worth The Toys?

January 31, 2010 – Comments (0) | RELATED TICKERS: MAT , HAS , JAKK

We read an article on the web a few days ago asking if Mattel, Inc. (NYSE: MAT) was a good buy at $20. Admittedly, the Toys and Games industry isn't one we pay much attention to. Not for any particular reason, we just don't seem to have much investment interest in the industry.

Certainly we have heard of Mattel, and because we had, we assumed that the $20 price tag stated in the article seemed pretty low to us, just based on the brands we were aware the company owned.

But once the toys were out of the box, we realized it was going to take some time to clean up the mess.

Financial information contained in this report is based on the company's most recent Form 10-K filing for fiscal year ending December 31, 2008 as filed with the with the Securities and Exchange Commission on February 26, 2009.

What They Do
The company designs, manufactures, and markets a broad variety of toy products through sales to its customers and directly to consumers.

It's portfolio of brands and products include Barbie®, Polly Pocket®, Little Mommy®, Disney Classics, High School Musical™, Hot Wheels®, Matchbox®, Speed Racer®, Tyco R/C®, CARS™, Radica®, Speed Racer®, Batman®, Kung Fu Panda®, Fisher-Price®, Little People®, BabyGear™, View-Master®, Sesame Street®, Dora the Explorer®, Winnie the Pooh™, Go-Diego-Go!™, See ‘N Say®, Power Wheels®, and American Girl Brands including Just Like You® and Bitty Baby®.

The company was incorporated in California in 1948 and reincorporated in Delaware in 1968.

Short-Term Investment
With a recent close of $20.04, and first resistance of $21.05, the stock currently has an upside reward of 5%. Conversely, with first support at $17.82, the stock currently has a downside risk of 11%.

The current trend line tells us that the stock is just coming out of an oversold condition, making for a nice short-term trade, assuming traders are willing to take on the risk, since we don't see the stock price moving above current resistance in the near future.

However, the markets seems to think that the company is going to announce very good fourth quarter and fiscal 2009 earnings, and in review of the company's recent Form 10-Q filings, we think the markets are grossly over enthusiastic about the stock.

Long-Term (5 Year Hold) Investment
The company's financial statements are to us, sickening.

We fail to understand how the management of a company that has been in business more than 60 years, with the easily recognizable brands the company owns, can in good conscience, justify their existence, much less their jobs.

To us the company's Current Ratio, Quick Ratio, and Cash Ratio, were all below what we consider investment quality.

In addition, Free Cash Flow at $0.82 per share was also well below what we consider investment quality. We were also not big fans of the company's Total Debt at $2.48 per share. Not because we think it is excessive, we don't, but because with that debt came an Average Interest Rate of over 9%, which we think given the world economic climate, is mind boggling!

Couple all of that with almost 23% of Total Assets being made up of Goodwill and Intangibles, and excuse us Mr. Eckert, why was your FY 2008 compensation package just a touch under $7 million?

Final Thoughts
We looked through the company's financials for the first three quarters of fiscal 2009 and see little changed from fiscal 2008.

In order for the company to exceed fiscal 2008 Sales, the final quarter of fiscal 2009 would have to above $2.5 billion, a quarterly Sales number the company has never seen.

We valued the company based on fiscal 2008 financial information in the $27 range.

Considering the financial information we looked at for fiscal 2009, and making allowances for a 4th quarter that we don't think will impress anyone, we believe that our valuation for the company will be adusted downward, closer to the company's approximate 10 year average price of $21.


For the Wax Ink Mattell Raw Value worksheet, please click here.  [more]



The Delivery Round?

January 27, 2010 – Comments (2) | RELATED TICKERS: RGR

They manufacture things that make loud noises. They manufacture things that if not properly used can hurt people. They have seven class action lawsuits filed against them. What can we say...we really like this company.

The company is Sturm, Ruger and Company, Inc. (NYSE: RGR) , a domestic firearm manufacturer, and from August 2009 through October 2009, the company has had numerous class action lawsuits filed against it.

The reason for the lawsuits? Because in October 2007, the company CEO, Michael Fifer, in a letter to shareholders regarding the company's 3rd quarter 2007 performance, was, in our opinion, forthright.

To read the Letter to Shareholders, please click here.

Because we think the CEO is a straight shooter, we decided to look down the sites and see if we could line the cross-hairs up on a reasonable investment opportunity.

Financial information contained in this report is based on the company's most recent Form 10-K filing for fiscal year ending December 31, 2008 as filed with the with the Securities and Exchange Commission on February 24, 2009.

What They Do
The company is engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 96% of the company's total sales for fiscal 2008 were from the firearms segment, and approximately 4% were from investment castings. Export sales represent less than 6% of firearms sales and the company's design and manufacturing operations are located in the United States, with most of its product content domestic.

The company has been in the business since 1949 and was incorporated in its present form under the laws of Delaware in 1969, and offers products in four industry product categories - rifles, shotguns, pistols, and revolvers.

The company's firearms are sold through a select number of independent wholesale distributors, principally to the commercial sporting market.

Short-Term Investment
With a recent close of $10.94, and first resistance of $11.83, the stock currently has an upside reward of 8%. Conversely, with first support at $10.62, the stock currently has a downside risk of 3%.

While the recent trend line seems to indicate the stock price is just entering and upward trend, we simply think that an $11.00 is to great a risk for a 5% return potential.

However, the markets seems to think that the company is going to announce very good fourth quarter and fiscal 2009 earnings, and in review of the company's recent Form 10-Q filings, we happen to agree with markets.

Riding the upward momentum being created by all of the market buzz may not be a bad move at this price point.

Long-Term (5 Year Hold) Investment

Overall, the company's fiscal 2008 numbers were, in our opinion, fair.

The company ended the year with a Current Ratio of 2.57, a Quick Ratio of 1.83, and a Cash Ratio of 0.96, all of which are above our metric targets.

In addition, the company's Debt number was very good, at $0.05 per share, and the company's Cash Conversion Cycle at almost 57 days was not bad.

One of the things we did not like was the company's Average Receivables Outstanding period at 52 days, while its Payables Outstanding Days was 27, meaning the company is providing almost 100% of its suppliers' financing for free, a practice we think management should stop today.

We also did not like the company's Return on Invested Capital number at 9%. We need 20% or better to get to investment grade.

The last thing we did not like at all, was the company's Free Cash Flow at $0.16. To us this is the single most important metric we track, and $0.16 is simply not going to keep us interested long.

Final Thoughts
We looked through the company's financials for the first three quarters of fiscal 2009 and were quite pleased.

Sales had already surpassed fiscal 2008, Marketable Securities had increased, Return on Invested Capital was up dramatically, Free Cash Flow had more than tripled, and the gap between Accounts Payable and Accounts Receivable had dropped from 25 days to 16 days.

We also noticed that company had started paying dividends again. All of these things should work well for investors willing to own this company over the longer-term.


For the Sturm Ruger Wax Ink Raw Value worksheet, please click here.   [more]



As Clear As Mud

January 24, 2010 – Comments (2) | RELATED TICKERS: CLWR.DL , GOOGL , VZ

The technical term is IEEE mobile Worldwide Interoperability of Microwave Access 802.16e-2005. The term we found during our research was WiMAX. We knew it wasn't going to be this simple, and we were right. We also found LTE, which we learned stands for Long Term Evolution.

LTE appears to us to be the main competitor to WiMAX and is being introduced by the wireless division of Verizon Communications (NYSE: VZ) in the United States market in 2010.

The main difference between WiMAX and LTE appears to be speed, with LTE providing faster data speeds at lower cost than WiMax.  [more]



Come In Dispatch

January 21, 2010 – Comments (3) | RELATED TICKERS: TESS

Growing up, one of my favorite television shows was called Highway Patrol . The thing that has stuck with me to this day, was Broadrick Crawford had a radio that would allow him to talk to dispatch from anywhere in the world, or so it seemed. I just thought that was the coolest thing.

Today, things are wireless. Police and emergency vehicles all seem to be equipped with laptop computers and a host of other wireless devices, which happens to be the business of TESSCO Technologies, Inc. (Nasdaq: TESS), a value-added provider of the knowledge, product and supply chain solutions needed to design, build, run, maintain and use wireless systems.

Company information suggested that the when it came to wireless products, they could do it all. So deciding we could "10-4" with the best of them, we tuned in to see what was what.

Financial information contained in this report, is based on the company's most recent Form 10-K filing for fiscal year ending March 29, 2009, as filed with the Securities and Exchange Commission on May 27, 2009.

What They Do
The company is in the wireless communications business, providing network infrastructure design, components, and installation for local area broadband networks, wide area broadband networks, and security and surveillance networks.

Short-term Investment
According to the trend lines we looked at, the stock is overbought and the MACD trend line appears to be leveling out, indicating the current upward trend may be about to fizzle.

The stock recently closed at $18.22, with resistance at $19.14, first support at $15.69, and second support at $13.79. Considering our interpretation of the trend line, a 5% upward ceiling to resistance, and a 14% drop to support, we believe a short-term trade at this time would be ill advised.

Long-Term (5 Year Hold) Investment
For a company with a market cap of less than $100 million, the financials were just so so. We would like to see the company increase its cash, ending fiscal 2009 at $0.12 per share, and while certainly not excessive at $0.78 per share, we would also like to see the company further reduce its debt.

Debt was reduced in fiscal 2009 by $0.74 per share, yet we couldn't help but notice that the company spent $1.74 per share on the repurchase of company stock. As we have said many times, we believe that such actions by management show fiduciary irresponsibility, and should we decide to investigate this stock for future investment, will focus our attentions on the specific reasons management allowed that to occur.

The company ended fiscal 2009 with a tangible book value of $10.72, shareholder equity of $12.04, and free cash flow of $2.40. Our reasonable value estimate for the stock based on fiscal 2009 numbers is between $48-$52.

Based on the financial metrics we employ, we believe the stock carriers a risk multiplier of near 40% which places our current risk adjusted buy target at $18-$19.

In addition, we anticipate at least a 25% reduction in our Reasonable Value estimate as fiscal 2010 unfolds, something that investors may want to consider since management seems more preoccupied with stock buy backs than the economy.


For the TESSCO Technologies Raw Value worksheet, please click here.   [more]



Rex Rells

January 17, 2010 – Comments (8) | RELATED TICKERS: RICK

What a crazy weekend!

I received a last minute invitation to an equities seminar, and having nothing else to do, and even less brain power, I accepted. What I didn't realize until I got there was the seminar was to teach Japanese investors about investing in American equities.

Arriving, I noticed that the banquet room was spacious, but not overly so, making my wonder just how many people were going to turn out on a Saturday night to learn about investing in American equities? Still, I was willing to be open minded, and since I was already there...

I found a spot to sit that would allow me a bit of a fast escape should my eyes close and my dreams return me home, and waited, I mean this is not my first rodeo when it comes to investing seminars.

Right on time, out came the Master of Cerimonies for the evening, a Mr. Satoru Ishikawa. He didn't speak at first, instead he raised his arms above his head and began to clap his hands. Next thing I know, the room became lighter, and then the floor began to shake. This went on for some minutes before I realized what was going on.

Since parking myself next to an exit, I had paid little attention to the crowd. Now as I watched Mr. Ishikawa jump up and down as he clapped his hands, I realized that's what the entire crowd was doing. I also noticed, I was the lone gaijin in the room.

At last the the din was silenced and Mr. Ishikawas said simply, "Rex Rells". Damned if the clapping and jumping didn't start again. Naturally I'm thinking this Rex Rells guy must be a pretty big deal in the Japanese investment community, like maybe he is the end all be all to Japanese investors.

Being the only gaijin in the room, it took me a few minutes, but at last I understood that what Mr. Ishikawa was saying was not Rex Rells, but Sex Sells.

Sure enough, before I could blink, up on the miniature diamond vision screen pops the website for Rick's Cabaret International, Inc. (Nasdaq: RICK).

Having now taken a peek at what Rick's has to offer the average investor, we think it best that our money is not the only thing we keep in our pants.

Financial information contained in this report, is based on the company's most recent Form 10-K filing for fiscal year ending September 30, 2009, as filed with the Securities and Exchange Commission on December 17, 2009.

What They Do
Rick's Cabaret International, Inc. operates upscale gentlemen's clubs, nightclubs, bars and restaurants in the U.S. and has a licensing program in Latin America.

Founded in 1983, the company pioneered the creation of elegant gentlemen's clubs featuring topless dancers and high quality restaurant service.

The company went public in 1995 and since that time has built powerful brand name awareness for its upscale environment and enjoyable adult entertainment. Many performers from Rick's have become Penthouse Pets and Playboy Playmates.

Anna Nicole Smith, met her oil billionaire husband while dancing at Rick's Cabaret in Houston.

The principal business lines of Rick’ Cabaret are nightclub entertainment and the principal brands are Rick's Cabaret (high-end clubs in New York City, Philadelphia, Minneapolis, Houston, San Antonio, Ft. Worth, Austin); Club Onyx (upscale nightclubs in Houston and Charlotte catering to African-American gentlemen); XTC Cabaret (non-alcohol clubs in several Texas cities); and Tootsie's Cabaret (popular Miami adult nightclub).

Licensed clubs are now open in Buenos Aries and the company also owns an upscale club in Dallas. The company has also signed letters of intent to buy other clubs, as well as to license a Rick's Cabaret in New Orleans.

The company also has internet activities and under the flagship and the company owns and operates adult auction sites. Rick's also owns an adult entertainment subscription website serving people in the "swingers" lifestyle.

The company's media division purchased ED Publications, Inc. in April 2008, the leading trade magazine serving the multi-billion dollar adult nightclubs industry. In addition, the company owns three industry trade publications, two industry trade shows, and more than 25 industry-related websites.

Short-Term Investment
The stock entered an upward trend in the middle of December and now appears to be overbought. Coupling the ovebought condition of the stock with first resistance at $12.33 and first support at $8.04, and given a recent close of $11.54, it simply doesn't seem to make much short-term investing sense to have the stock in our portfolio at this time.

Long-Term (5 Year Hold) Investment
To us, the company's basic metrics, the current ratio, the quick ratio, and the cash ratio, are close to what we would consider investment qualtiy, and we liked free cash flow at better than $2.10 per share, but we think that the company's debt at more than 50% of gross revenue is much to high.

We note that the company's acquisition costs for fiscal 2009 were only 7% of its acquistion cost for fiscal 2008, yet debt was reduced year over year by less than 15%.

So despite a year over year increase in sales of more than 25% we simply don't find that prior acquisitions have been immediately accretive to earnings. And as the US economy continues to struggle, we don't believe that net income will increase for the company during fiscal 2010.

Our 5 year hold Reasonable Value estimate for the company based on year end fiscal 2009 data is $26-$28, and we note that approximately 60% of the financial metrics we focus on, are what we would consider investment quality.

In addition, we anticipate at least a 25% reduction in our Reasonable Value estimate as fiscal 2010 unfolds, since we believe that management will continue its laissez-faire attitude toward debt reduction.


For the Ricks' Cabaret Raw Value worksheet, please click here.  [more]



Flies in the Ointment

January 10, 2010 – Comments (6) | RELATED TICKERS: FOSL , STE , TNL.DL




IAC/Interactive Makes the Connection

January 10, 2010 – Comments (0) | RELATED TICKERS: IAC




Delek The Dud

January 06, 2010 – Comments (6) | RELATED TICKERS: DK

We noticed on the Wiki Invest site, there seemed to be a lot of activity surrounding oil and gas refiner Delek US Holdings, Inc. (NYSE: DK). Curious, we decided to take a little looksee.

Financial information contained in this report, is based on the company's most recent Form 10-K filing for fiscal year ending December 31, 2008, as filed with the Securities and Exchange Commission on March 9, 2009.

What They Do
Delek US Holdings is a diversified downstream energy company with operations in three primary business segments: petroleum refining, marketing and supply, and retail convenience stores. The company completed its sixth consecutive year of profitability in 2008, on revenues of more than $4.5 billion.

Headquartered in Brentwood, Tennessee, the company currently employs more than 3,500 people across eight states, and has been publicly traded on the New York Stock Exchange since 2006.

The Refining segment operates a 60,000 barrel-per-day high-conversion, moderate complexity refinery in Tyler, Texas.

The Marketing and Supply segment transports and sells refined products on a wholesale basis in west Texas through company-owned and third-party operated terminals.

The Retail segment markets gasoline, diesel and other refined products through a network of 440 company-operated fuel and convenience stores located in eight states under a number of regional brands, including MAPCO Express®, MAPCO Mart® East Coast®, Discount Food Mart™, Fast Food and Fuel™ and Favorite Markets®.

The company's convenience store operations were recently ranked among the 20 largest company-operated convenience store chains in the United States.

In addition, the company has a minority (34.6%) interest in Lion Oil Company, a privately-held, 75,000 barrel-per-day refinery in El Dorado, Arkansas.

The company's philosophy has been to merge the acquisition expertise of a private equity firm with the management and operational expertise of energy industry veterans. The result is a company that is an active acquirer of downstream energy assets.

The company's growth is a result of the ability of management to consistently enhance the efficiency and profitability of purchased assets. Since 2001 the company has completed 11 acquisitions in the refining, marketing/logistics and convenience store industries.

Short-Term Investment
According to its MACD trend line the stock has recently begun an upward trend.

With a recent close of $7.31, and first resistance at $8.41, an approximate 15% upward delta as compared to first support at $6.74, an 8% downward delta, we believe the stock is setting up for a short-term trade.

Long-Term (5 Year Hold) Investment
The company touts it's ability to merge acquisitions into a cohesive, well oiled (pun intended) money making machine. Please excuse us if we call BS at this point. While the company may indeed make lots of money for it's private equity firm owners, in our opinion, a viable long-term investment for the average working person, it is not.

None of the company's basic financial ratios, the current ratio, the quick ratio, or the cash ratio are even close to the levels we require to consider a company a viable investment candidate. The company also only managed to generate $0.51 in free cash flow, an amount well below what we consider investment quality.

The company's available cash at $0.28 per share is an an issue for us, as is the company's debt at $5.25+ per share. We did check, and found that for the first nine months of fiscal 2009, the company has increased net debt by just less than $90 million.

Yes we realize the company is in the "oil bidness" and that debt is part of that business. But our thoughts are these. The company has $0.28 cash on hand, and pays out $0.44 per share in interest payments on debt of $5.25 per share. Because we checked, we know that for fiscal 2009 the company has already increased debt by about $1.65 per share. We also know that the company's average interest rate for fiscal 2008 was 8.29%.

So our concern, simple minded as it may seem, is what happens when the Fed starts to increase interest rates, or in year or so inflation becomes an issue? All of a sudden the company's cost of sales at 91+% is an issue and that $0.28 of available cash looks like a flea on a the deck of an aircraft carrier.

Instead of an investment in this stock, we suggest a relaxing afternoon watching Gilligan's Island reruns, an acitivity we think would be much more rewarding than in an investment in Delek US Holdings.


For the Delek US Holdings Raw Value worksheet, please click here.   [more]



If It's Tuesday It Must Be Ruby's

January 02, 2010 – Comments (5) | RELATED TICKERS: RT




Werner Is That You?

January 02, 2010 – Comments (0) | RELATED TICKERS: WERN , YRCW , ARCB

We noticed a news article last week that said the Board of Directors of Werner Enterprises, Inc. (Nasdaq: WERN) had declared a regular quarterly dividend and that the declaration marked the 23rd year the company had paid a quarterly dividend.

Admittedly we aren't the sharpest pencils in the drawer, but considering the economic conditions of the past year, we figured what the heck, let's at least look at the financials and see what else might be up besides the company's dividends.

Financial information contained in this report, is based on the company's most recent Form 10-K filing for fiscal year ending December 31, 2008, as filed with the Securities and Exchange Commission on February 27, 2009.

What They Do
Werner Enterprises, Inc. is a premier transportation and logistics company, with coverage throughout North America, Asia, Europe, South America, Africa and Australia.

The company was founded in 1956 and maintains offices in the United States, Canada, Mexico, China and Australia, and is among the five largest truckload carriers in the United States, with a diversified portfolio of transportation services that includes dedicated, medium-to-long-haul, regional and local van capacity, expedited, temperature-controlled and flatbed services.

The company's Value Added Services portfolio includes freight management, truck brokerage, intermodal, load/mode and network optimization and freight forwarding, and through its subsidiary companies, is also a licensed U.S. NVOCC, U.S. Customs Broker, licensed Freight Forwarder in China, licensed China NVOCC, TSA-approved Indirect Air Carrier and IATA Accredited Cargo Agent.

The main commodities of freight transported are retail store merchandise, consumer products, manufactured products and grocery products.

Short-Term Investment
With first resistance at $21.40, a recent close of $19.80, and first support at $19.54, a short-term trade may not be a bad choice at this point.

Another thing that lends itself to a short-term trade at current levels is the 50 day moving average, which has moved upward by almost $0.40 in the past two weeks. With the 52 week high unchanged, we believe the stock is currently in an uptrend.

Long-Term (5 Year Hold) Investment
We looked through the company's latest audited annual financials, and to be quite honest, with the exception of the company's free cash flow of $0.39, nothing really screamed "hey! look over here!".

The company's current, quick, and cash ratios were a little lower than we would have preferred, and we hope that management will get the word and stop providing interest free loans for its suppliers, which is exactly what they are doing since on average the company's receivables are outstanding almost 35 days while payables are outstanding 16 days.

The company has an equity value of just over $20, and tangible book value of almost $10.50. Total debt stood at slightly more than $0.40 and the company's average interest rate on that debt was 0.33%.

Lastly we note that basis the closing stock price on the day the company filed its 10-K of $13.50, the fiscal year 2008 dividend yield was 16.98%.  [more]



Eaton Eats It

January 01, 2010 – Comments (7) | RELATED TICKERS: ETN , BRK-A




Bristow Flies Helicopters

January 01, 2010 – Comments (0) | RELATED TICKERS: BRS


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