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In case you missed the last issue, our most recent sale recommendation--Time, Inc.--resulted in 45% stock profit for Turnaround Letter readers. We added this mid-cap print and digital media icon to our active portfolio in November 2016, when its stock price was approaching all-time lows. Despite its roster of highly-valuable brands, the company had struggled to adapt to a Web-based business model and its aggressive belt-tightening effort was offset by Time's spending on digital-based operations.
With the sting of Wall Street disdain battering its stock, we saw promising value investing opportunity here and felt its depreciated price failed to reflect Time's implementation of several important changes that indicated that a successful turnaround was in the works--including senior management changes.
We also liked that Time felt further pressure to improve its strategy, execution and capital allocation as a result of activist investor JANA Partners' 5% stake. Putnam told investors, "The new executive leadership combined with the presence of an activist shareholder provides a lot of encouragement that the company will soon begin to generate more value from its iconic brands."
In addition to these positive indicators, Time's financials at the time of the purchase recommendation remained solid, with strong cash flow, low debt levels and generous 5.8% dividend yield.
We provided several key purchase recommendation updates, beginning in April 2017 when Time’s board and management terminated discussions with a number of potential buyers, opting instead to pursue its strategic plan CEO Rich Battista. The following month, Time reported disappointing 1Q17 financials, and its stock fell 14% on the day. Despite the grim outlook, we continued to view other changes as positive and told Turnaround Letter readers, "The shares are essentially at the same price as our initial recommendation. Time’s outlook is more uncertain now, but clear positives remain…"
In November 2017, Time announced that it had agreed to sell to Meredith in an all-cash deal for $18.50/share, or $2.8 billion including the assumption of debt; and we moved the stock to hold status. The January 2018 Turnaround Letter advised readers to sell Time and lock in 45% gains: "As the proposed acquisition by Meredith draws closer, we see diminishing likelihood of a higher competing bid."
Time, Inc. is just one of countless examples reflecting how The Turnaround Letter continues to monitor and update all its recommended stocks--from purchase through sale recommendation--to further educate our readers and help maximize potential stock profit.