Sally Beauty Holdings, Inc. (NYSE:SBH)

jericson (99.77) Submitted: 11/29/2006 4:07:47 PM : Start Price: $8.50 SBH Score: +215.63

Sally Beauty is the largest consolidator in a very fragmented business. Whenever a stylist sells a bottle of shampoo or conditioner to a salon customer, she has to get resupplied. She can't go to Wal-Mart or a drug store, so she has to get product directly from the manufacturer or from a middle-person like Sally. (Beauty product companies work hard to promote "salon-quality" products and they would loose their cachet if they could be bought just anywhere.) Sally's biggest competitor is Regis, which is attempting to consolidate the highly-fragmented salon business. I think Sally Beauty will be more successful since shampoo is a commodity and stylists aren't.

This is your chance to participate in LBO mania. Usually, leveraged buyouts remove a stock from the public markets for a few years while management restructures, which means the public sees little of the investment gains. Fortunately, CD&R has left a slice of equity on the market for you and I to invest in. The huge debt is scary looking, but if viewed in terms of an LBO it should be seen as mostly positive.

Also, see my ACV pitch.