+ Watch POST
on My Watchlist
This holding company is a little over 2 years old andthe CEO has a track record of rewarding share holders.It has recently borrowed a lot of money but holds it in current assets.Some risk but it could turn into a big winner.
Bill Stiritz, a proven Outsider CEO, know how to allocate capital.
"Post Holdings competes for your capital allocation. To earn it we must deliver risk adjusted returns commensurate with your assessment of risk and your alternatives. Perhaps uniquely, we view Post as a hybrid of a traditional public company and a private equity fund. We use many of the same tools as a private equity company – relatively higher leverage, investment analysis and adaptive management. We also view our portfolio as dynamic, reacting to opportunities as they develop. However, unlike most private equity firms, we also provide Centers of Excellence to create competitive advantages for our operating companies. And we do this in the public forum allowing our investors greater transparency and, most importantly, the ability to act on their own accord."-- CEO Bill Stiritz, 2013 shareholder letterHe is repeating the same formula that worked marvelously for Ralston Purina shareholders in the 1980's and 1990's. POST is a recent spinoff from Ralcorp. There main business has been the Post cereal business (as the "Post" name implies). The cereal business has been in decline in recent years, but Stiritz is not interested in just the cereal business. After becoming CEO, they added "Holdings" to the company title. That says it all. The gameplan for Stiritz is not any different than what worked at Ralston Purina: improve market share and margins at Post Foods through more effective marketing and better efficiency of capital deployment, acquire other valuable packaged brands at single-digit multiples of cash flow, and buyback POST stock when it's cheap. Stiritz is an expert at consumer marketing. But the real story here is an official William Thorndike Outsider using excess cash and borrowing capacity to acquire other businesses at less than 10 times cash flow. Share buybacks are also part of his toolbox when POST trades at low multiples of cash flow. Based on the company's guidance for 2014 adjusted EBITDA, I estimate POST will generate about $170 million in free cash flow this year, which excludes any further acquisitions and also doesn't count the recent acquisition of PowerBar and Musashi brands. That puts the stock price today trading for 13 times free cash flow. For an Outsider CEO generating 15%-20% returns, that is pretty attractive.
Good brands, strong cash-flow and good capital allocation chops. Who could vote against Fruity Pebbles?
Spinoff lead by outsider-type CEO.
The best time to start shorting this was July, in retrospect, but now that it has rebounded and is starting to get touted again (they just had a segment on Post on CNBC this afternoon), it's time to whip out the red thumb. We're talking about a PEG of 7, people. They're going to have to sell a lot of cereal to justify a share price this high.
POTENTIAL BRK.B BUY?
Ralcorp spin-off that should benefit from improved sales efforts now that it is an independent company.Deej
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