Category Archives: Stock Research Reports

Trident Microsystems (TRIDQ) – Value in Bankruptcy

Trident Microsystems (TRIDQ) is a recent bankruptcy where there might actually be a substantial recovery for the equity. There appears to be a. downside protection in the form of substantial value to the equity in a liquidation scenario, b. upside in a reorganization of the company as a going concern, and c. a party that will go to bat for the interest of the equity holders.

Hudson Technologies (HDSN) – Taking Advantage of an EPA Phaseout

Hudson Technologies (HDSN) is a distributor and recycler of refrigerant gases. The company is poised to benefit from an EPA mandated phase out of virgin gas production of the leading refrigerant that will boost market pricing and volumes of reclaimed refrigerant where Hudson is the dominant player. Hudson stock remains depressed due to investor fatigue with the slow to develop shift in market dynamics and a general lack of Street recognition. The stock trades at 2-3X projected earnings when the market shifts, while the EPA is set to finalize substantially reduced virgin gas production quotas in the coming months. In the meantime, the company has expanded market share and is substantially profitable.

Talbots (TLB) – A Specialty Retail Special Situation

Talbots (TLB) is a struggling specialty retailer of women’s apparel that has become an interesting risk arbitrage situation.

The stock closed at $1.56 on Tuesday. After the close the company revealed that 9.9% holder Sycamore Partners had made an unsolicited bid of $3 a share in cash for the entire company. The stock has since traded between $2.39 and $2.80. As the stock has been trading well under $3 it appears the market thinks that either TLB won’t sell or Sycamore won’t be able to complete the deal.

Tronox (TROX) – Going Vertical

Tronox (TROX) shares present an opportunity to invest in the only fully integrated producer of titanium dioxide. TROX has flown under the radar due to the market overlooking a post-reorg equity still trading on the pink sheets and uneconomic selling by post-reorg equity holders after the company did not opt for a quick sell out upon emergence from bankruptcy. The recently announced acquisition of the Exxaro mineral sands assets will allow TROX to capture value across the Tio2 supply chain and give them the most competitive cost structure in the industry. Over the next year TROX should be boosted by a range of macro and company specific catalysts, and yet the company is trading at just 2.4X 2012E EBITDA and less than 5X 2012 estimated free cash flow.

Kronos Worldwide (KRO) – They’ve Got the White Stuff

Kronos Worldwide (KRO) offers a timely investment opportunity in an oligopoly industry experiencing extremely favorable pricing dynamics for the foreseeable future. A structural supply/demand imbalance in the industry should lead to quickly growing margins, earnings, and cash flow for at least the next several years. KRO currently trades at just 3.9X my estimate of 2011 EBITDA, while comps in the chemicals space trade between 6-8X. In my 2012 base scenario EBITDA and earnings will rise another ~50%. At the current share price KRO offers over 100% upside potential in the next 18 months.

Providence Service (PRSC) – Look Past the Headlines to Find Value

Providence Service Corporation (PRSC) is a quality business whose stock is being depressed by misplaced headline risk relating to strained state government budgets and Medicaid reimbursement. The reality is that in a tight money environment PRSC can gain market share because they provide federally mandated services with low cost delivery models, and their strategy of handling government contracts with sustainable margins will enable them to maintain profitability. One can acquire this business with recurring revenue, minimal capex requirements, and strong free cash flow at 4.3X EBITDA and 8.5X earnings, and it is even cheaper in light of locked in contracts that will boost revenue going forward. I think the stock has 100% upside potential in the next 18 months based on a conservative earnings scenario, and substantial growth opportunities could provide even greater returns.

Christopher & Banks (CBK) – Specialty Retail Turnaround

Christopher & Banks (CBK) provides an opportunity to invest in an overlooked specialty apparel retailer with strong normalized earnings power and significant balance sheet strength at a rock bottom valuation. Recent earnings numbers have languished due to the general downturn in discretionary apparel spending as well as company merchandising missteps. A clearly defined turnaround is in progress with new management and a new design team. The company, which is debt free and has half of its market cap in cash, is cheap on an absolute basis and relative to sector peers. I think CBK can potentially generate $60 million in EBITDA with minimal ongoing capex needs while it is currently trading at a $105 million enterprise value. Additionally, a very safe 4% dividend will reward investors while the turnaround plays out.