Blackstone Group - Seriously Undervalued

Today's winner : BlackStone Group LP (BX)

About the Company :

The Blackstone Group, L.P., together with its subsidiaries, provides alternative asset management and financial advisory services worldwide. The company operates in four segments: Private Equity, Real Estate, Credit and Marketable Alternatives, and Financial Advisory. The Private Equity segment involves in private equity investing through five general private equity funds and one specialized fund focusing on communications-related investments. This segment engages in various transactions comprising leveraged buyout acquisitions of companies, transactions involving start-up businesses in established industries, minority investments, corporate partnerships, distressed debt, structured securities, and industry consolidations. The Real Estate segment manages opportunistic real estate funds, internationally focused real estate funds, European focused real estate fund, and real estate debt investment funds. This segment invests in lodging, urban office buildings, and various real estate operating companies. The Credit and Marketable Alternatives segment engages in the management of funds of hedge funds, credit-oriented funds, CLO vehicles, and publicly-traded closed-end mutual funds. The Financial Advisory segment offers corporate, and mergers and acquisitions advisory services; restructuring and reorganization advisory services; and fund placement services for alternative investment funds. Blackstone Group Management L.L.C. operates as the general partner of the company. The Blackstone Group, L.P. was founded in 1985 and is headquartered in New York, New York.


Analysis


Blackstone has been one of the flagship companies in the Investment management space.  In fact its one of the few companies which survived the financial crisis by being conservative on the derivatives and CDE based investments.


Here is the snapshot from recent Fourth quarter results



Economic Net Income (“ENI”) increased to $1.4 billion for the full year 2010, up 102% from 
$703 million for the full year 2009. ENI increased to $513 million for the fourth quarter of 2010, 
up 56% from $329 million for the fourth quarter of 2009. 
Distributable Earnings were $702 million for  the full year 2010, up 47% from $479 million in 
2009; Distributable Earnings increased to $239 million for the fourth quarter of 2010, up 12% 
from $213 million in the fourth quarter of 2009. 
GAAP Results Attributable to The Blackstone Group L.P. improved in 2010 with a net loss of 
$370 million, compared to a net loss of $715 million in 2009, in each case including net IPO and 
acquisition-related charges. GAAP Net Loss Attributable to The Blackstone Group L.P. was 
$11 million in the fourth quarter of 2010, compared to a net loss of $143 million in the fourth 
quarter of 2009. 
Fee-Earning Assets Under Management increased 14% to $109.5 billion at December 31, 2010, 
from $96.1 billion at December 31, 2009 while Total Assets Under Management increased 30% 
to $128 billion at December 31, 2010. 
Blackstone declares a quarterly distribution of $0.32 per common unit which brings full year 
distributions to $0.62 per common unit.


Lets see the valuation of the company versus future guidance..(as of 02/03/2011)

Market Cap (intraday)	6.38B
Enterprise Value (Feb 3, 2011)3:	11.76B
Trailing P/E (ttm, intraday):	N/A
Forward P/E (fye Dec 31, 2011)1:	11.73
PEG Ratio (5 yr expected)1:	0.81
Price/Sales (ttm):	2.25
Price/Book (mrq):	1.49
Enterprise Value/Revenue (ttm)3:	4.32

lets compare the valuation 




Valuation versus the Index and Financial Group

Name	P/E (TTM)	P/E (Fwd 12 Mo.)	PEG	1 Year EPS Growth Rate	Next 3-5 yrs EPS Growth Rate
BX	15.3x	11.9x	0.47x	28.4%	--
Specialty Finance Industry	16.6x	16.2x	-1.13x	8.1%	-12.4%
Financials Sector	17.8x	23.4x	-0.4x	31.0%	-2.9%
S&P 500	19.3x	17.2x	-0.19x	22.6%	10.3%

You can see that its way undervalued compared to the financial industry as a whole.


These are recent events of significance that will boost the stock price increase


1, Possible New real estate fund.
2, Acquisition of Polymer Group.
3, M&A activities involving Sara Lee.
4,  Last quarter earnings up by 180 % .(BX reported 4th qtr 2010 earnings of $0.46 per share on 2/3/11.)





Lets look at the Weekly chart


BX - Weekly Candlesticks: "

via StockCharts.com
"


The stock is on the upswing with high volume in last few trading sessions. I would see this trading above $20 in short time frame..


My target price for BX is $25 in next 3 months


Happy Investing.


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Visa Swipe or Don't Swipe - Earnings Wednesday

Today's winner: Visa




About the Company:


Visa Inc. operates retail electronic payments network worldwide. It facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities. The company owns and operates VisaNet, a global processing platform that provides transaction processing services linking issuers and acquirers. It also offers a range of payments platforms, which enable credit, charge, deferred debit, debit, and prepaid payments, as well as cash access for consumers, businesses, and government entities. The company provides its payment platforms under the Visa, Visa Electron, Interlink, and PLUS brand names. In addition, it offers value-added services, including risk management, debit issuer processing, loyalty, dispute management, and value-added information services. The company was incorporated in 2007 and is headquartered in San Francisco, California




Analysis:


 Visa  is one of the Hybrid Financials in the overall Financial market dominated by Banks and Investment management company.   Its is either credit card company or a Bank, They make money when you swipe the card or pay online for a service or a product. Its a great business model evolved out of century old middleman services. They make money whether economy is good or bad or in recession. Thats why Visa and MasterCard with their global presence and wide acceptance has strong balance sheet and deliver consistent financial results.


One of the recent key changes or regulations set by the Federal Government has been causing setting a serious setback to the stock price...  Please reference this article which states the risk from the new regulations in the Credit card and debit card market.


 http://www.ft.com/cms/s/0/8c37024e-2c8d-11e0-83bd-00144feab49a.html#ixzz1CkUR4dn9

Lets do technical analysis of the stock,

lets start with 52 week stock price chart

V - Daily Candlesticks: "

via StockCharts.com
"


You can see that stock got beaten up pretty badly making a 52 week low around December 2010. It was major drop in the stock price, Master card also took a big nosedive the same day.. I would consider that a big overreaction on the market sentiment towards a Government regulation which was seen coming for many months. It really surprised me that it came right around the Holiday season when the whole world was spending using the Debit and Credit card processed by Visa.

lets see the  current valuation based on its posted earnings

Market Cap (intraday): 50.66B Enterprise Value (Feb 1, 2011): 45.81B Trailing P/E (ttm, intraday): 17.04 Forward P/E (fye Sep 30, 2012) 12.72 PEG Ratio (5 yr expected): 0.79 Price/Sales (ttm): 6.21 Price/Book (mrq): 2.00 Enterprise Value/Revenue (ttm) 5.68 Enterprise Value/EBITDA (ttm) 9.53

This shows that the stock is grossly undervalued when 4th qtr 2010 earnings of $1.06 per share on 10/27/10. This beat the $0.94 consensus of the 28 analysts covering the company.

Considering the great holiday season and renewed consumer confidence Visa will surpass the $1.29 EPS high estimate with ease. The stock price is currently undervalued based on the earnings last few quarters  and additional earnings and high revenue will boost the stock price to a historic rally in next few months .

We also need consider the fact that credit card disclosure and the additional fees will be passed to the underlaying banks by Visa and MasterCard , so i see a very minor effect to its balance sheet on the long run..

I start Visa with Stock price target of $85 in next 3 months

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Obama Approval Ratings versus Stock Market Direction - Big Picture

Today's winner : Obama Ratings

There are many variables that affect the stock market as whole. Let’s talk about some of the Major one's. 

1. Interest Rates – Decision by Federal Reserve during the FOMC meetings.

2. Tax Cuts - Government decision to cut or raise Individual and/or Corporate Tax rates.

3. U.S Employment or Job Growth.

4. War, Terrorist Attacks, Regional Instability for U.S allies and Foreign Policies.

5. Market Regulations affecting the Core Economy.

How these are related to Political decisions, we will come to know shortly.  Let’s look at the Stock Market Direction; I’ve chosen Dow Jones because it represent the Biggest companies in the world across every Business area in the U.S and world Economy.

The Dow Jones had dipped to the lowest point in decades following the financial crisis around March 2009 when we hit the lowest point 6,469 which represented extreme difficulties with the Financial World. Most of the too big to fail companies like Bank of America, Citi Group, and almost every Regional & National bank was under the risk of going belly up. The FOMC under the direction of newly formed U.S Government under Obama and the Henry Paulson initiated major policy changes and rescue efforts negotiating with the more Stable Players to take over the struggling financial giants.

The U.S government performed various austerity measures like reducing interest rates, issuing more Government debt, buying toxic mortgage assets, and other deflationary m to revive the ailing economy.

In addition to the austerity measures the U.S Government, under Obama, made policy decisions affecting job growth; like Jobless Benefits and Incentives for companies who hire. Well some of these measures have not been very fruitful to spur job growth, but they did increase the coffers of large companies who took in the incentives reflecting in their Balance Sheets as Profits.

So most of the decisions affecting the Stock Market have been directly influenced by Obama's New Government which came into power around the end of 2009.

If we try to track the Dow Jones performance starting in Dec 2009 until now, we can see that we hit a new low in March 2009 and made a new high around March 2010 (Dow Jones: 11,258). Let us watch this following chart which tracks the job approval rating for the same period of time. We can see that Obama's approval rating peaked around March 2009 and started dipping down when Market direction was in the Recovery Mode.    

When th Dow Jones made a new high around March 2010, Obama's approval rating was at its lowest point of 47 with a 2 point spread against the disapproval rating. So far we can see that the negative correlation between two charts or we can say that Obama's approval rating is inversely proportional to the stock market direction.

Quite recently the President's approval rating has improved after tax cuts, poll results, increased job growth, less debt issued by the government, and the end of the War in Iraq.  The last few FOMC meetings were focused on keeping the Interest Rates stable and/or considering aspects of increasing them in near future. 

If history is right, any of the policies (Fed policies) or Geo Political changes (Middle East crisis, Afghan War) will and is proving to affect the direction of the overall Market.

Quite recently the U.S economy showed some bullish signs of recovery in job growth: companies paying back money borrowed from the government, increased hiring, positive GDP growth,  increasing Inflation (seriously that’s good, look at China and India),  Increasing Dividends,stable market regulations, and effective market speed breakers put on by SEC helping avoid sudden crashes in the Financial Markets.

All of the above add up to a positive job approval rating for our President crossing the 50 mark (please move the cursor on the approval rating chart to get the current rating). We also noticed that the recent Middle East crisis will require major changes in our President's approach to Foreign Policy. 

If the trend we saw in last few years of our current government continues, we will see another dip in the Stock market. I think it’s time to take some Profits and Raise Cash! because there would some major policy changes in Middle-east that will cause fluctuations in Oil prices, New Friends and see-saw Stock Market , or even people dumping stocks to head back to hedging instruments like Gold and Bonds. I Hope the events will be resolved in coming months for a More stable and Growing world Economy

Note : This is not a politically motivated article, i am trying to show how Political Decisions can affect your Individual Portfolio more than the fundamentals of a company and its Business. It always helps to see the Big picture before venturing your precious funds into the Financial Markets.  

Harley Davidson Cruising towards High Growth

Today's Winner : Harley Davidson (HOG)

About the Company:

Harley-Davidson is an American motorcycle manufacturer with wide International Fan base. The company operates in two segments: Motorcycles and Related Products and Financial Services. The Motorcycles segment designs, manufactures and sells heavyweight touring, custom and performance motorcycles as well as a complete line of motorcycle parts, accessories and general merchandise. The Financial Services is engaged in the business of financing and servicing wholesale inventory receivables and consumer retail installment sales contracts (primarily motorcycles).


Analysis


One of the Sectors that turn around coming out of Recession is Automobile Manufacturing especially the luxury segment. Harley sales was very negatively impacted during the recession that lasted officially around 1 year and 9 months .During that period Harley held up well by launching targeted models and distribution in Asia where two wheeler was welcome whatever economic conditions existed during the recession. In fact recession did not exist technically in China, India and some parts of Asia due to internal consumption keeping their Economic Engines well oiled.
Harley recently launched some interesting model in India. The company launched 5 Harley Davidson models which will be available in the Indian market from 2011 onwards. The models announced are - Night Rod Special,Fat Boy, customized model Legend Harley and Roadster. In countries like India, the two wheelers are a day of life versus in America its still a hobby for most.


Even though the price tag is high for most of Indians, there seems to be increased interest in high level car segments which was considered non affordable by many Indians in the last decade. In short launching to new and enormous markets like India and China would benefit American Companies to weather future recessions with ease. Pepsi, Coke and McDonald are some clear winners of Global Diversification..

One year chart for Harley-Davidson

You can see that we lost a Great opportunity to catch the Stock during peak of recession in 2009. The stock price has grown almost 400% from its lows in 2009, due to increasing revenue and sales .


Lets us recent earnings and valuation

Name	P/E	P/E	PEG	1 Year EPS Growth Rate	Next 3-5 yrs EPS Growth Rate
Automobiles Industry	13.9x	62.7x	0.0x	-24.5%	-18.6%
Consumer Goods Sector	19.9x	25.0x	-0.04x	2.8%	12.3%
Hog	35.8x	18.4x	1.31x	94.6%	-26.9%
S&P 500	19.4x	14.8x	-0.32x	22.1%	8.2%

Looks like the Stock price is still way undervalued compared to rest of the industry. With a Forward PE far below the current Industry valuation. Let us look at the recent earnings report versus consensus.


HOG reported 3rd qtr 2010 earnings of $0.40 per share on 10/19/10. This beat the $0.35 consensus of the 9 analysts covering the company.


The stock price adjusted almost 20% upwards placing it comfortably above the Support line. The consensus for the current quarter is 0.55c to high estimate of 0.60c . I think the company would be able to meet the consensus or even beat it, as the Automobile sector posted some good numbers last few quarters signaling economic turnaround.


With increased presence abroad and keeping the future turnaround in consumer confidence and spending, American flagship brands like Harley will be a big winner..


My Target price for Harley-Davidson is $60 by next quarter or end of the Year.


Please comment ,it helps us to see different viewpoints.




Happy Investing and Happy Riding

Netflix - Buy or Sell - Earnings Today

Netflix before and after Earning

Today's winner : NFLX !!!

About the Company:
Netflix, Inc. provides online movie rental subscription services in the United States. The company offers its subscribers access to a library of movie, television, and other filmed entertainment titles on digital versatile disc (DVD).

Analysis

Netflix online has been a major competitor to Movie Rentals like BlockBuster for many years.. Netflix has carved itself a monopoly space among online rentals where companies can take market shares just by word of mouth.

Netflix really launched itself when they switched from traditional DVD shipping business to Download movie business using Media players and Gaming Machines (PS3, XBOX,WII) . Its not until they launched into this domain that the stock price skyrocketed to triple digits gains.

One of the areas of concern is that the company recently announced on its blog a few new developments that could be of interest to customers. Most recently, Director of Product Management Jamie Odell chimed in to inform that users will no longer be able to add movies to their DVD queue from streaming devices. As far as we know, the functionality has only been available on a few platforms, but if you're apt to do all or most of your queue management then it could be an issue, if you only use the website then everything will be the same. 

The Stock price nearly tripled starting around 2009 to post triple digits gains due to failures by BlockBuster, Walmart etc. So we should think about what is the real driver for this stock now...I would say Smart Phone based users will be the primary customers in near future , with Verizon and Apple posting Good results . We do have a major Mobile media provider going forward. One thing that the Netflix lacks is the International Subscribers restricting users from abroad to subscribe due to copyright issues.

The Stock performance for One year is given Below.

You can see that the Netflix has been consitently bouncing off the 50 Day moving average, but the overall trend is up.. Going by the pattern we are due for another bounce from 50 MA , but also keep in mind that any major news or earning disappointment will breach the pattern towards a 40$ drop..

I see this as a consolidation pattern going forward...

Lets see how they did in the last Quarter

NFLX reported 3rd qtr 2010 earnings of $0.70 per share on 10/20/10. This missed the $0.71 consensus of the 28 analysts covering the company.

But when news hit the wire, stock was already trading at a 52 week high which is a very bad entry point for small investors..

Now lets see the consensus

Not changed from last quarter, its again $0.71 which is pretty lame considering that the Holiday season and winter are when people watch lots of movies from Home (I do it too by the way).

But still NFLX is high PE , high Beta stock which bring very high risk on both sides.. If they beat the estimates and post a good forward guidance you might see the Stock popping $10 tomorrow to $195.

If they just meet the estimates or Disappoint you see the stock dropping to $155 ..

So I suggest open your position two days after the earnings report and the good entry point will be around $178 if the stock price settles above the 50 MA .

Happy Investing