This global services company has fallen out of favor as investors worry about its uninspiring revenue and EBITDA growth, as well as its history of overpaying for otherwise strategically smart acquisitions. Its large net debt balance and ability to sustain its dividend also weighs on investors.
We think the company’s improvement plan under its new CEO, its solid and improving EBITDA and large cash hoard, along with its low valuation, offers investors the potential for significant upside.
Despite the impressive new management, these shares fell sharply. This value stock's shares trade at a relatively modest valuation of 8x current year EBITDA. Although waiting for a five-year plan to unfold may seem as dull as watching cement dry, the shares pay an appealing 3.7% yield and should provide rock solid gains when the recovery is completed.
The turnaround at media and entertainment company Viacom (NYSE: VIAB) rests on an improving balance sheet, combined with higher margins and revenue stability/growth, led by new CEO Robert Bakish. First quarter 2018 results showed progress in the first two, but some slippage in revenues.
Telecom equipment maker Nokia (NYSE: NOK) reported improved fourth quarter results. It appears increasingly ready to capture and profit from the growing opportunities in the 5G technology that will replace the current 4G/LTE wireless technology.
Ford Motor (NYSE: F) reported mixed results for the fourth quarter and full year 2017, reiterating its pre-announced results and guidance from the Detroit auto show earlier this month. Their turnaround under new CEO Hackett is in the early stages and remains on track. We don't anticipate meaningful financial progress for 2018 although the changes underway at Ford should become more visible.
Subsequent to the release, Ford announced that Ford Credit's current CFO, Marion Harris, will become a senior officer at Ford Mobility as that group ramps up its staffing and funding. Also, Ford Mobility acquired Autonomic and Transloc, two technology firms that will help accelerate Ford's mobility efforts. We like the urgency and attention that this group is now receiving.
Document technology company Xerox (NYSE: XRX) reported better 4Q17 revenues and profits. More strategically relevant: It announced that it will combine with long-time joint venture partner Fuji Xerox. Xerox shareholders will receive a cash dividend of approximately $9.80/share and will own 49.9% of the combined company. The combination makes a lot of sense to us as the Fuji Xerox partnership created an added layer of expenses and complexity that hobbled both its own success and Xerox Corp.'s performance. We're not entirely convinced that this deal will be completed, and the financial picture of the new combined company remains unclear; so we moving Xerox shares to a HOLD for now.
In nearly every case, the shares of a company in bankruptcy become worthless. In very rare cases, however, they can become great investments. W.R. Grace (NYSE:GRA) shares produced a 75-fold return, as an example. With California utility PG&E (NYSE:PCG) now in bankruptcy, the range of possible outcomes for its equity is wide.
In reading recent editions of The Turnaround Letter, you have probably noticed that we are increasingly using EV/EBITDA as a valuation measure, rather than the better-known price/earnings multiple. We thought it might be useful to describe this measure and why we like it.
This Forbeswrite-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.
George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."