The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.

UPDATE:  NCR Voyix Corp. (VYX)

October 17, 2023

NCR Completes Atleos Spin-Off; Rate NCR Voyix at BUY with a $23 FVE; Rate NCR Atleos at NEUTRAL with a $21 FVE

• On October 16, 2023, after the market close, NCR Corp. (formerly NYSE: NCR) completed the previously announced spin-off of its ATM-focused businesses.
• The spin company has adopted the corporate moniker NCR Atleos LLC and now trades on the NYSE under the ticker symbol “NATL”. The parent company has changed its corporate name to NCR Voyix Corp. and now trades under the ticker “VYX”.
• NCR shareholders of record as of October 2, 2023, received one share of NATL for every two shares of NCR held.
• We adjust our VYX fair value estimate to $23 per share (previously $27 per share) as we adjust our growth and margin expectations, as well as temper our valuation multiple to 9.0x (previously 11.0x), to reflect latest management commentary, pro forma capitalization, and current peer valuations.
• We rate shares of VYX at BUY as we view the current implied valuation as too heavily discounting the company’s growth potential as it transitions customers to its SaaS platform. Based on expectations, VYX is positioned to grow revenue at a mid-single digit rate through 2027 and expand EBITDA margins over that time from ~17% to 21-22% as high margin recurring SaaS revenue accelerates earnings and free cash flow generation.
• Our NATL fair value estimate is $21 per share (previously $16 per share) as we increase our valuation multiple to 6.0x from 5.0x. Our revised valuation multiple reflects increased confidence in NATL’s plan to accelerate revenue and earnings as it transitions customers to its ATMaaS platform. Based on our fair value estimate, and when-issued pricing, shares currently trade with an implied 3.8% dividend yield (based on an expected $0.20 quarterly dividend to be instituted in 1Q 2024) and a free cash flow yield of ~10% (based on management’s guidance for $150 million in FCF in 2024).
• We rate shares of NCR Atleos at NEUTRAL would become incrementally more positive if they trade at a significant discount to our fair value estimate.
• For more details, please refer to The Spin-Off Report dated July 20, 2023, and UPDATE dated August 3, 2023, and September 25, 2023.

Radar Screen – October 2023

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Goodyear Tire & Rubber, Inc. (FLT),  Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Spin-Off Report Calendar – October 2023

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – October 2023

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – April 2023

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – October 2023

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.

UPDATE:  NCR Voyix Corp.

NCR Completes Atleos Spin-Off; Rate NCR Voyix at BUY with a $23 FVE; Rate NCR Atleos at NEUTRAL with a $21 FVE

• On October 16, 2023, after the market close, NCR Corp. (formerly NYSE: NCR) completed the previously announced spin-off of its ATM-focused businesses.
• The spin company has adopted the corporate moniker NCR Atleos LLC and now trades on the NYSE under the ticker symbol “NATL”. The parent company has also changed its corporate name to NCR Voyix Corp. and now trades under the ticker “VYX”.
• NCR shareholders of record as of October 2, 2023, received one share of NATL for every two shares of NCR held.
• For reference, in when-issued trading, shares of VYX closed yesterday at $16.85 per share.
• We adjust our VYX fair value estimate to $23 per share (previously $27 per share) as we adjust our growth and margin expectations, as well as temper our valuation multiple to 9.0x (previously 11.0x), to reflect latest management commentary, pro forma capitalization, and current peer valuations.
• At current levels shares of Voyix trade at approximately 7.7x our 2024 EBITDA estimate of $614 million. (Again, our fair value estimate is based on a 9.0x multiple.)
• We rate shares of VYX at BUY as we view the current implied valuation as too heavily discounting the company’s growth potential as it transitions customers to its SaaS platform. Based on expectations, VYX is positioned to grow revenue at a mid-single digit rate through 2027 and expand EBITDA margins over that time from ~17% to 21-22% as high margin recurring SaaS revenue accelerates earnings and free cash flow generation.
• Shares of NATL closed yesterday at $20.94. We adjust our NATL fair value estimate to $21 per share (previously $16 per share) as we increase our valuation multiple to 6.0x from 5.0x. Our revised valuation multiple reflects increased confidence in NATL’s plan to accelerate revenue and earnings as it transitions customers to its ATMaaS platform. Based on our fair value estimate, and when-issued pricing, shares currently trade with an implied 3.8% dividend yield (based on an expected $0.20 quarterly dividend to be instituted in 1Q 2024) and a free cash flow yield of ~10% (based on management’s guidance for $150 million in FCF in 2024).
• We rate shares of NCR Atleos at NEUTRAL and note that shares of NATL may experience volatility in initial trading as we expect investors to favor the parent company over the ATM business, which could result in selling pressure on shares in initial trading. We would become incrementally more positive on shares of NATL if they trade at a significant discount to our fair value estimate.
• For more details, please refer to The Spin-Off Report dated July 20, 2023, and UPDATE dated August 3, 2023, and September 25, 2023.

UPDATE:  WK Kellog Co.

Following Initial Selloff, Upgrade WK Kellogg to BUY; Maintain $15 Fair Value Estimate

• On October 2, 2023, before the market open, Kellanova (formerly Kellogg Co.) (NYSE: K) completed the spin-off of its North American Cereal business into a stand-alone publicly traded company. The spin company adopted the corporate moniker WK Kellogg Co. and now trades on the NYSE under the ticker “KLG”.
• Since the close of when-issued trading on September 29, 2023, shares of KLG have declined by 30.6% and have traded 40.9 million shares. (For context, KLG has 85.6 million shares outstanding.)
• Given the precipitous sell-off, which was somewhat to be expected given the spin company’s exclusion from the S&P 500 (while K remained in the index) as well as company specific issues (discussed below); that said, we now view shares as attractively priced and consequently upgrade shares of KLG to BUY.
• We note that shares may still exhibit volatility over the next several trading days, however we view most of the forced selling has likely been completed and we would expect volumes to normalize in coming days, which should reduce volatility.
• At the current share price, KLG is trading at less than 5.0x our 2024 EBITDA estimate of $256 million. For reference, peers General Mills Inc. (NYSE: GIS) and POST Holdings Inc. (NYSE: POST) trade at 11.6x and 9.2x their respective 2024 consensus EBITDA estimates.
• For its part, KLG management’s 2024 EBITDA guidance is $255 million to $265 million (implying <10% margin at the mid-point), and it projects “mid-teens” EBITDA margins by year-end 2026.
• We fully acknowledge that KLG operations are in the early stages of a turnaround, including efforts to stabilize sales in a declining category and plans to revamp production lines, which management highlights as a reason for the company’s below peer margins. That said, with shares trading at less than 5.0x we now view KLG’s share price as too heavily discounting the industry and company-specific risks; thus, we now recommend shares for purchase.
• More broadly, if WK Kellogg’s management is able to successfully implement its turnaround plan, investors may be seeing an early opportunity to invest in a “classic spin-off” where an “unloved” and underinvested in entity is able to significantly improve operations and offer significant out-sized returns over the longer term.
• In terms of company specific priorities, management is focused on stabilizing sales and widening margins by approximately 500 basis points by 2026, which would bring the company’s margins in line with peer POST (which, again, trades at more than 9.0x). To accomplish its financial targets, the company will incur debt in the near term to fund capital expenditures but following the investment phase, the company’s earnings and free cash flow profile will significantly improve, which will help reduce leverage and likely lead to the initiation of a dividend.
• Our $15 per share fair value estimate is based on a 6.5x multiple on our 2024 EBITDA estimate. We view the discounted multiple versus peers as appropriate given the current state of KLG’s business. (For reference our valuation Exhibit shows an illustrative example of widened margins and the expected offsetting debt levels valued at a constant 6.5x multiple.)
• For more details, please refer to The Spin-Off Report dated August 16, 2023, and UPDATEs dated September 11, 2023, and October 2, 2023.

Radar Screen – October 2023

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Goodyear Tire & Rubber, Inc. (FLT),  Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Spin-Off Report Calendar – October 2023

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – August 2023

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – April 2023

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – October 2023

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 

Newest Publications & Updates

UPDATE: IDT Corporation (NYSE: IDT)

October 13, 2023

IDT reports 4Q F2023 and full-year results; buybacks accelerated during 4Q F2023 (and into 1Q F2024) while the net cash balance expanded to nearly $6 per share; fair value moves to $52 per share on F024E forecasts 

• Last night, after the market close, IDT reported full-year F2023 consolidated sales down 9% to ~$1.24 billion, as growth across the NRS (up 50%), net2phone (up 24%) and BOSS Money (up 38%) businesses was offset by on-going/expected declines at the Traditional Communications segment (down 16%).  Adjusted EBITDA rose 9% to $86.2 million while GAAP and Non-GAAP EPS increased to $1.58 and $1.86, respectively (versus $1.03 and $1.12 in the prior year).
• For 4Q F2023 specifically, consolidated sales declined 8% to $304 million, as declines at Traditional Communications again offset gains at IDT’s “growth businesses”.  Adj. EBITDA fell 25% to $18.1 million while GAAP and Non-GAAP EPS were $0.31 and $0.66, respectively (versus $0.36 and $0.67 in 4Q F2022).
• During F2023, the company repurchased 511,546 common shares for $13.1 million, of which 231,416 were bought back in 4Q 2023 (from $5.6 million), representing nearly 2% of the outstanding shares.  (Anecdotally, the company indicates it has repurchased an additional 124,530 shares so far in 1Q F2024, for $2.8 million or ~$22.50 per share, suggesting management was astutely aggressive on the repurchase front prior to the favorable court decision received in early-October; please see our note from 10/3/2023 for more info).
• Despite the repurchase activity, IDT ended F2023 with no debt and ~$152 million (or ~$6 per share) compared with ~$138 million (or ~$5.40 per share) at the end of F2022.
• Looking into F2024E, while IDT does not provide formal financial guidance, management sees the strong growth in its terminal & payments footprint during 4Q F2023 as a tailwind to growth at NRS (despite on-going weakness in the advertising market).  At net2phone, IDT thinks pending introduction of two premium services, net2phone AI and Call Center Essentials, as being accretive to both growth, ARPU and margins.  At Boss Money, IDT expects the synergies between its retail & DTC channels along with the continued roll out of its new mobile banking app, Elroy, as tailwinds to further growth.  Traditional Communications will continue to be managed to preserve profitability/cash flow (in fact, tight control of SG&A will be a priority across the organization in F2024).

Our base case fair value estimate for IDT moves to ~$52 per share (from $55 per share), which values IDT’s Traditional Communications segment at 1.0x F2024E EBITDA (previously 2.5x 2023E EBITDA), applies sales multiples of 2.0x (previously 2.5x) and 6.0x (previously ~7.5x) to the company’s net2phone and Fintech businesses, respectively, and accounts for projected net cash (see Exhibit #1 on page 2).

Radar Screen – October 2023

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), Bloomin’ Brands (BLMN), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Goodyear Tire & Rubber, Inc. (FLT),  Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.

UPDATE:  WK Kellog Co.

Following Initial Selloff, Upgrade WK Kellogg to BUY; Maintain $15 Fair Value Estimate

• On October 2, 2023, before the market open, Kellanova (formerly Kellogg Co.) (NYSE: K) completed the spin-off of its North American Cereal business into a stand-alone publicly traded company. The spin company adopted the corporate moniker WK Kellogg Co. and now trades on the NYSE under the ticker “KLG”.
• Since the close of when-issued trading on September 29, 2023, shares of KLG have declined by 30.6% and have traded 40.9 million shares. (For context, KLG has 85.6 million shares outstanding.)
• Given the precipitous sell-off, which was somewhat to be expected given the spin company’s exclusion from the S&P 500 (while K remained in the index) as well as company specific issues (discussed below); that said, we now view shares as attractively priced and consequently upgrade shares of KLG to BUY.
• We note that shares may still exhibit volatility over the next several trading days, however we view most of the forced selling has likely been completed and we would expect volumes to normalize in coming days, which should reduce volatility.
• At the current share price, KLG is trading at less than 5.0x our 2024 EBITDA estimate of $256 million. For reference, peers General Mills Inc. (NYSE: GIS) and POST Holdings Inc. (NYSE: POST) trade at 11.6x and 9.2x their respective 2024 consensus EBITDA estimates.
• For its part, KLG management’s 2024 EBITDA guidance is $255 million to $265 million (implying <10% margin at the mid-point), and it projects “mid-teens” EBITDA margins by year-end 2026.
• We fully acknowledge that KLG operations are in the early stages of a turnaround, including efforts to stabilize sales in a declining category and plans to revamp production lines, which management highlights as a reason for the company’s below peer margins. That said, with shares trading at less than 5.0x we now view KLG’s share price as too heavily discounting the industry and company-specific risks; thus, we now recommend shares for purchase.
• More broadly, if WK Kellogg’s management is able to successfully implement its turnaround plan, investors may be seeing an early opportunity to invest in a “classic spin-off” where an “unloved” and underinvested in entity is able to significantly improve operations and offer significant out-sized returns over the longer term.
• In terms of company specific priorities, management is focused on stabilizing sales and widening margins by approximately 500 basis points by 2026, which would bring the company’s margins in line with peer POST (which, again, trades at more than 9.0x). To accomplish its financial targets, the company will incur debt in the near term to fund capital expenditures but following the investment phase, the company’s earnings and free cash flow profile will significantly improve, which will help reduce leverage and likely lead to the initiation of a dividend.
• Our $15 per share fair value estimate is based on a 6.5x multiple on our 2024 EBITDA estimate. We view the discounted multiple versus peers as appropriate given the current state of KLG’s business. (For reference our valuation Exhibit shows an illustrative example of widened margins and the expected offsetting debt levels valued at a constant 6.5x multiple.)
• For more details, please refer to The Spin-Off Report dated August 16, 2023, and UPDATEs dated September 11, 2023, and October 2, 2023.

Radar Screen – October 2023

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Goodyear Tire & Rubber, Inc. (FLT),  Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Spin-Off Report Calendar – September 2023

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – August 2023

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – April 2023

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – October 2023

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 

Newest Publications & Updates

UPDATE: IDT Corporation (NYSE: IDT)

October 13, 2023

IDT reports 4Q F2023 and full-year results; buybacks accelerated during 4Q F2023 (and into 1Q F2024) while the net cash balance expanded to nearly $6 per share; fair value moves to $52 per share on F024E forecasts 

• Last night, after the market close, IDT reported full-year F2023 consolidated sales down 9% to ~$1.24 billion, as growth across the NRS (up 50%), net2phone (up 24%) and BOSS Money (up 38%) businesses was offset by on-going/expected declines at the Traditional Communications segment (down 16%).  Adjusted EBITDA rose 9% to $86.2 million while GAAP and Non-GAAP EPS increased to $1.58 and $1.86, respectively (versus $1.03 and $1.12 in the prior year).
• For 4Q F2023 specifically, consolidated sales declined 8% to $304 million, as declines at Traditional Communications again offset gains at IDT’s “growth businesses”.  Adj. EBITDA fell 25% to $18.1 million while GAAP and Non-GAAP EPS were $0.31 and $0.66, respectively (versus $0.36 and $0.67 in 4Q F2022).
• During F2023, the company repurchased 511,546 common shares for $13.1 million, of which 231,416 were bought back in 4Q 2023 (from $5.6 million), representing nearly 2% of the outstanding shares.  (Anecdotally, the company indicates it has repurchased an additional 124,530 shares so far in 1Q F2024, for $2.8 million or ~$22.50 per share, suggesting management was astutely aggressive on the repurchase front prior to the favorable court decision received in early-October; please see our note from 10/3/2023 for more info).
• Despite the repurchase activity, IDT ended F2023 with no debt and ~$152 million (or ~$6 per share) compared with ~$138 million (or ~$5.40 per share) at the end of F2022.
• Looking into F2024E, while IDT does not provide formal financial guidance, management sees the strong growth in its terminal & payments footprint during 4Q F2023 as a tailwind to growth at NRS (despite on-going weakness in the advertising market).  At net2phone, IDT thinks pending introduction of two premium services, net2phone AI and Call Center Essentials, as being accretive to both growth, ARPU and margins.  At Boss Money, IDT expects the synergies between its retail & DTC channels along with the continued roll out of its new mobile banking app, Elroy, as tailwinds to further growth.  Traditional Communications will continue to be managed to preserve profitability/cash flow (in fact, tight control of SG&A will be a priority across the organization in F2024).

Our base case fair value estimate for IDT moves to ~$52 per share (from $55 per share), which values IDT’s Traditional Communications segment at 1.0x F2024E EBITDA (previously 2.5x 2023E EBITDA), applies sales multiples of 2.0x (previously 2.5x) and 6.0x (previously ~7.5x) to the company’s net2phone and Fintech businesses, respectively, and accounts for projected net cash (see Exhibit #1 on page 2).

UPDATE: APi Group Corporation (APG)
October 6, 2023

APG favorably reprices its term loans, resulting in annual cash savings of ~$4 million, and extends maturities until 2029; remains committed to its 2.0x-2.5x leverage target by the end of 2023; fair value remains $31 per share

This morning, before the market open, APG disclosed it had successfully repriced its 2026 and 2029 Term Loans; resulting in a 25 basis point reduction in the applicable margin (previously SODR plus 2.5% and 2.75%, respectively) and ~$4 million of annual cash savings.

As well, following an $100 million prepayment on its 2026 Term Loan, to be paid when the transaction closes, the maturity on the remining ~$420 million will be extended to 2029 (on the same terms as its 2029 Loan).

Following the transaction, management indicates that it will have ~$1.91 billion of term loan debt (compared with ~$2.2 billion at the end of 2022) and its remains committed to achieving its 2.0x-2.5x leverage target by the end of 2023. (For our part, we forecast the company’s leverage ratio will be ~2.35x at year-end.)

Recall that following 2Q 2023 results in early-August, APG increased its full-year 2023 sales and adjusted EBITDA guidance to $7.015-$7.075 billion (versus the prior guide of $6.875-$7.025 billion and its initial range of $6.8-$6.95 billion) and $765-$785 million (up from $740-$780 million previously and $735-$775 million initially), respectively. The company maintained the expectation that free cash flow conversion would be at or above 65% (of adj. EBITDA).

For 3Q 2023 specifically, the company projects sales of $1.86-$1.89 billion and adj. EBITDA of $215 million-$225 million (see Exhibit #1 on page 2), representing growth of 7%-9% and 16%-21% growth, respectively. Anecdotally, the company also hinted that following the completion of a $35 million acquisition within the core Safety Service segment at the end of 2Q 2023 that it expected to complete at least two more bolt-on transactions, again within the core Safety Services segment, during 3Q 2023. For context, the combined annual net revenue contribution from these three acquisitions was projected to be ~$35 million (as well as immediately accretive to the company’s EBITDA margin.)

Anecdotally, the company has maintained its long-term (i.e., 2025) financial goals, which target generating ~60% of its sales from inspections, services & monitoring as well as a consolidated adjusted EBITDA margin of 13%. Free cash flow conversion is targeted to be 80% (relative to adj. EBITDA and up from ~65% in 2023).

Our base case fair value estimate for Api Group Corporation (APG) remains $31 per share, reflecting a blended multiple of ~11.5x on F2024E adjusted EBITDA of ~$885 million along with projected net debt of ~$1.30 billion (see Exhibit #2 on page 2).

View our initiation report here.

Radar Screen – October 2023

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), Bloomin’ Brands (BLMN), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Goodyear Tire & Rubber, Inc. (FLT),  Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 

Newest Publications & Updates

UPDATE: APi Group Corporation (APG)
October 6, 2023

APG favorably reprices its term loans, resulting in annual cash savings of ~$4 million, and extends maturities until 2029; remains committed to its 2.0x-2.5x leverage target by the end of 2023; fair value remains $31 per share

This morning, before the market open, APG disclosed it had successfully repriced its 2026 and 2029 Term Loans; resulting in a 25 basis point reduction in the applicable margin (previously SODR plus 2.5% and 2.75%, respectively) and ~$4 million of annual cash savings.

As well, following an $100 million prepayment on its 2026 Term Loan, to be paid when the transaction closes, the maturity on the remining ~$420 million will be extended to 2029 (on the same terms as its 2029 Loan).

Following the transaction, management indicates that it will have ~$1.91 billion of term loan debt (compared with ~$2.2 billion at the end of 2022) and its remains committed to achieving its 2.0x-2.5x leverage target by the end of 2023. (For our part, we forecast the company’s leverage ratio will be ~2.35x at year-end.)

Recall that following 2Q 2023 results in early-August, APG increased its full-year 2023 sales and adjusted EBITDA guidance to $7.015-$7.075 billion (versus the prior guide of $6.875-$7.025 billion and its initial range of $6.8-$6.95 billion) and $765-$785 million (up from $740-$780 million previously and $735-$775 million initially), respectively. The company maintained the expectation that free cash flow conversion would be at or above 65% (of adj. EBITDA).

For 3Q 2023 specifically, the company projects sales of $1.86-$1.89 billion and adj. EBITDA of $215 million-$225 million (see Exhibit #1 on page 2), representing growth of 7%-9% and 16%-21% growth, respectively. Anecdotally, the company also hinted that following the completion of a $35 million acquisition within the core Safety Service segment at the end of 2Q 2023 that it expected to complete at least two more bolt-on transactions, again within the core Safety Services segment, during 3Q 2023. For context, the combined annual net revenue contribution from these three acquisitions was projected to be ~$35 million (as well as immediately accretive to the company’s EBITDA margin.)

Anecdotally, the company has maintained its long-term (i.e., 2025) financial goals, which target generating ~60% of its sales from inspections, services & monitoring as well as a consolidated adjusted EBITDA margin of 13%. Free cash flow conversion is targeted to be 80% (relative to adj. EBITDA and up from ~65% in 2023).

Our base case fair value estimate for Api Group Corporation (APG) remains $31 per share, reflecting a blended multiple of ~11.5x on F2024E adjusted EBITDA of ~$885 million along with projected net debt of ~$1.30 billion (see Exhibit #2 on page 2).

View our initiation report here.

UPDATE: PAR Technology (PAR)
October 5, 2023

PAR wins exclusive POS agreement from Burger King North America, providing us increased confidence in its 20%-30% recurring revenue growth forecast (as well as it ability approach cash flow positivity/profitability in the relative near-term); on the transactional front, commentary suggests a sale of the Government business (and/or incremental M&A at Restaurants) could also emerge in the relative near-term

Today, before the market open, PAR announced that it has been selected as the exclusive point-of-sale (POS) provider, for both software and services at the traditional Burger King restaurants in North America. The deal includes both its Brink POS system/software as well as MENU Link technology, which facilities/streamlines the customer’s omni-channel ordering and
kitchen management operations.

While we will are keen on gathering some more specifics on the financial impact of this announcement, the deal certainly increases our confidence in PAR’s ability to achieve it 20%-30% ARR growth target (as well as approach
cash flow positivity/profitability in the relative near-term); more broadly, we think the win lends credibility to the management’s contention that PAR’s investments, both organic and acquisitive, in its unified commerce platform capabilities in recent years will help deepen/consolidate its relationships with existing (and increasingly new) customers.

Fundamental catalysts aside, we note that recent management commentary seemingly suggests that several transactional-related catalysts could be on the table in the relative near-term, including: 1) a sale of the Government
business; 2) accretive M&A within the Restaurant segment (that accelerates PAR’s path to profitability) as well as; 3) potential for interest in the company from either strategic and/or private equity suitors.

As disclosed in the 2Q 2023 10-Q, the company has formally indicated that it is evaluating strategic alternatives for its Government business; more recently, at a recent investor forum PAR’s CEO indicated that it is “a very
good time to divest a business in this category (see Exhibit #1 on page 2).

For now, our fair value estimate for PAR remains $45 per share, reflecting value of $50 per share for the Restaurants/Retail segment, based on a blended 2024E sales multiple of 4.5x and $4 per share for the Government business, based on a 12.5x 2024E EV/EBITDA multiple, and accounting for ~$290.5 million of projected net debt.

View our initiation report here.

UPDATE: IDT Corporation (IDT)
October 3, 2023

Dismissal of class-action claims related to the 2013 spin-off/2017 sale of Straight Path Communications lifts a long-running overhang for IDT

This week, the Court of Chancery in Delaware dismissed a class action lawsuit against the company related to the 2013 spin-off and subsequent sale for $3.1 billion to Verizon Communications (NYSE: VZ).

While the long-running lawsuit had been seeking ~$600 million in damages and the judge indicated that while some of the company’s tactics were “unfair” the conclusion was that ultimately all parties’ economic interests were aligned, and that the plaintiff suffered “no damages”. [Note: the source document can be accessed at https://courts.delaware.gov/Opinions/Download.aspx?id=353660.]

To be sure, while this decision really did not impact the current business, its operations or the underlying fundamentals it does remove a significant overhang, in terms of any potential payout, on the stock (e.g., the shares were up ~20% today).

Tentatively, the company expects to report July-ending F2023 results after the market close on October 12, 2023 and hold a conference call that evening at 5:30 p.m. (ET); call-in at (888)-506-0062. (We continue to expect solid results at the company’s growth businesses, particularly NRS, offset by on-going declines at its Traditional Communication segment; as well, in the absence of a significant ramp in share repurchase activity during the quarter, the company’s net cash balance, which stood at $138.5 million or ~$5.40 per share at the end of 3Q F2023, will likely have continued to show modest expansion.

Our base case fair value estimate for IDT remains ~$55 per share, which values IDT’s Traditional Communications segment at 2.5x 2023E EBITDA, applies sales multiples of 2.5x and ~7.0x to the company’s net2phone and Fintech businesses, respectively, and accounts for projected net cash.

Radar Screen – October 2023

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), Bloomin’ Brands (BLMN), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Goodyear Tire & Rubber, Inc. (FLT),  Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.

In terms of completed spin-offs, this week was the busiest we’ve seen in many years, with four U.S.-based companies completing separations – Kellanova (K)/WK Kellogg (KLG), Aramark (ARMK)/Vestis (VSTS), Danaher (DHR)/Veralto (VLTO) and Lithium Argentina (LAAC)/Lithium Americas (LAC). These companies span various industries and market capitalizations, and thus far, have mostly seen significant selling pressure. To focus clients on what we believe are the best ideas ahead of next week, we would like to highlight the following two opportunities:

Kellanova (K) / WK Kellogg (KLG)

WK Kellogg (KLG) controls the North American cereal business of the former Kellogg Co.  On Monday, immediately following the spin-off, we rated Kellanova (K) a BUY with a $69 fair value estimate and WK Kellogg NEUTRAL with a $15 fair value estimate.  This morning, we upgraded KLG to BUY while maintaining our $15 fair value. KLG shares have declined by over 25% and over half the outstanding shares have turned over in the first five trading days. While the sell off was not entirely unexpected (KLG was excluded from the S&P 500 and the company is in the early phases of a turnaround), at current levels we favorably view the risk reward scenario for purchasing shares. At the current share price, KLG is trading at less than 5x management’s 2024 EBITDA guidance while peers Post Holdings (POST) and General Mills (GIS) trade at 9.2x and 11.6x their respective 2024 consensus EBITDA estimates.  Our latest update note can be viewed here.

ARAMARK (ARMK) / Vestis (VSTS)

Vestis (VSTS) controls the uniform services business that spun out of Aramark (ARMK) on September 30 and began trading on October 2.  Following completion of the spin-off, we rated VSTS a BUY with a $27 fair value estimate. VSTS shares have since declined over 20% on volume of 25 million shares in the first week of trading (VSTS has 130.2 million shares outstanding). In our view, the sell-off has been overdone given the company fundamentals and peer trading multiples. In terms of operations, VSTS operates with an estimated 14.5% EBITDA margins and is in the process of optimizing delivery routes and focusing on cross selling services to customers, which by their estimate, would increase margins by 400-600 basis points in F2028 (September year-end), resulting in EBITDA margins of 18-20%.

Additionally the company is using FCF ($150 – $200 million per year) to reduce leverage and plans on instituting a regular dividend this November (Currently the company is levered at approximately 3.5x net debt to EBITDA with a stated goal of 1.5x-2.5x by F2026). Following the selloff, shares are trading at approximately 8.0x our F24 EBITDA estimate, which compares to peer UniFirst (UNF) which trades at 9.5x the consensus EBITDA estimate. We argue that given the growth and margin profile of VSTS versus UNF (which operates with an estimated 13% EBITDA margin), shares of VSTS deserve, at minimum, an inline multiple to UNF if not a premium. We value shares of VSTS at 12x our EBITDA estimate.  Our latest update note can be viewed here.

Other Publications & Updates

UPDATE:  Lithium Americas Corp.
October 4, 2023

LAC Completes Lithium Argentina Completes Spin-Off; Rate Lithium Argentina at NEUTRAL with $4 FVE, Rate New Lithium Americas at NEUTRAL with a $19 FVE

On October 3, 2023, after the market close, Lithium America’s Corp. (TSX: LAC, NYSE: LAC) completed its previously announced separation into two standalone publicly traded companies.

Under the separation agreement, LAC shareholders received one share of Lithium Argentina Corp. and one share of Lithium Americas Corp. (“New Lithium Americas”) for each LAC share owned.

Lithium Argentina now trades on the TSX and NYSE under the ticker “LAAC”. New Lithium Americas continues to trade under the symbol “LAC” on both the TSX and NYSE.

Lithium Americas Corp. is a pre-production lithium miner that develops (and will eventually operate) lithium projects in two main geographic regions, namely Argentina and the U.S.

We base our fair value estimates on management’s disclosed DCF and NAV values. Given the large reserve values, projected supply demand imbalance, and current pricing of lithium, it is difficult to argue that future cash flows will not exceed the pre-spin market capitalization/enterprise value. However, given the long-time frame in which the mines will produce lithium, currently modeled at 40 years, and the differences in initial production of battery grade lithium from the two disparate sites, investors must consider the time-value of money in considering an investment.

In that context, LAC’s spin transaction is likely not a significant value-creating event, in contrast to most spin-offs that fall into our coverage universe. Instead, the separation highlights the near-term production ramp up in the Argentinian assets versus the long road ahead for the American asset. In that respect, investors looking to capitalize on the increasing demand for lithium and the structural supply and demand imbalance, would likely favor investment in Lithium Argentina, while investors with a longer investment time horizon may take a closer look at post-spin Lithium Americas.

In the short-term, we would expect the share price of LAC be highly speculative, with shares reacting to news and litigation flow prior to the eventual production of battery-grade lithium. For Lithium Argentina, we would expect much less speculation in shares given the near-term production ramp up, and therefore expect shares to trade more dependently on production and pricing of lithium.

Given the above noted differing characteristics of the two post-spin companies, most starkly illustrated by the significantly longer time frame until production ramps up at the U.S.-based asset, we view it as appropriate to value shares using a higher discount rate versus the Argentinian assets. Thus, we value shares of Lithium Americas (NewCo) at 12% and Lithium Argentina at 10%. Based on management’s post-spin capitalizations, we assign a post-spin fair value estimate of $19 per share to New Lithium Americas Corp, and $4 per share to Lithium Argentina.

We rate both post-spin shares at NEUTRAL, based on the above noted factors related to the time horizon to capture the upside potential in shares and our opinion that the spin transaction is not necessarily the catalyst to immediately realizing that value. In that context, investors with a longer investment time horizon may wish to consider ownings shares.

For more details, please refer to our comprehensive report dated August 8, 2023.

UPDATE:  Danaher Corp. (DHR)
October 2, 2023

On September 30, 2023, Danaher Corp. (NYSE: DHR) completed the separation of its Environmental & Applied Solutions segment into a standalone, publicly traded company via a tax-free spin-off.  The spin-company adopted the corporate moniker Veralto Corp. and now trades on the NYSE under the ticker “VLTO”. DHR shareholders of record as of September 13, 2023, received one share of VLTO for every three shares of Danaher held.

We maintain our post-spin fair value estimates of $242 per share for DHR and $79 per share for VLTO. We rate both post-spin Danaher and Veralto at NEUTRAL.

It is worthy to note that VLTO has spurred interest from ESG focused investors, which is the likely reason for its current trading level and heavy volume through when-issued. VLTO traded 2.8 million shares over its three day when-issued trading period.

At current levels, shares of VLTO trade at 19.1x our 2024 EBITDA estimate of $1.2 billion, whereas peers generally trade in the mid-teens based on 2024 consensus estimates. At over 19x, we struggle to rationalize awarding a larger premium than we already do to shares despite acknowledging the company’s margin and exposure to favorable end markets. We value shares of VLTO at 18x our 2024 EBITDA estimate of $1.2 billion.

For more details, please refer to our comprehensive report dated September 6, 2023.

Radar Screen – October 2023

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Goodyear Tire & Rubber, Inc. (FLT),  Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Spin-Off Report Calendar – September 2023

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – August 2023

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – April 2023

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – September 2023

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.

Approaching Spin-Off Completion Dates (2023):

Aramark (ARMK) / Vestis Corp (VSTS): 9/30/2023
Danaher Corp (DHR) / Veralto Corp. (VLTO): 9/30/2023
Kellogg Co (K)  WK Kellogg Co. (KLG): 10/2/2023
Lithium Americas Corp (LAC) / Lithium International: 4Q 2023
NCR Corp (NCR) / NCR Atleos LLC (NATL):  4Q 2023
Vista Outdoor Inc (VSTO) / Outdoor Products Business: 4Q 2023
Lions Gate Entertainment Corp (LGF/B) / Studio Business:  4Q 2023

Newest Publications & Updates

UPDATE:  NCR Corp. (NCR)
September 25, 2023

NCR To Complete Atleos Spin-Off on October 16, 2023; Maintain BUY Rating, and $32 FVE

NCR Corp. (NYSE: NCR) has announced that the company intends on completing its previously announced spin-off of its ATM-focused businesses on October 16, 2023, after the market close. The spin company will adopt the corporate moniker NCR Atleos LLC and is expected to begin trading on the NYSE on October 17, 2023, under the ticker symbol “NATL”.

Following the separation, the parent company will change its corporate name to NCR Voyix Corp. and will begin trading under the ticker “VYX”.  NCR shareholders of record as of October 2, 2023, will receive one share of NATL for every two share of NCR held.

“When-issued” trading for NCR Atleos is expected to begin on or about October 11, 2023, under the ticker “NATL WI”. Shares of the parent company are expected to begin trading “ex-distribution” on October 11, 2023, under the ticker “VYX-WI”.

We adjust our pre- and post-spin fair value estimates to account for the latest capital structures and the one-for-two share distribution ratio. We now value NCR Atleos at $16 per share and
NCR Voyix at $27 per share. On a pre-spin basis, NCR Corp. is now fairly valued at $35 per share.

We maintain our pre-spin NCR BUY rating.  For more details, please refer to The Spin-Off Report dated July 20, 2023, and UPDATE dated August 3, 2023.

Radar Screen – September 2023

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Goodyear Tire & Rubber, Inc. (FLT),  Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Spin-Off Report Calendar – September 2023

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – August 2023

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – April 2023

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – September 2023

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 

Newest Publications & Updates

COMPREHENSIVE REPORT: Masimo Corporation (NASDAQ: MASI)
August 31, 2023

Masimo Corporation (NASDAQ: MASI) operates two business segments: (1) Healthcare (~62% of consolidated 2023E sales), which develops, manufactures & sells non-invasive patient monitoring devices/technologies, most notably its pulse oximeter, for professional (e.g., hospitals) and, to a lesser degree, consumer customers; and (2) Non-Healthcare (38% of 2023E sales), which develops, manufacturers & sells high-end, home audio equipment/platforms to consumers. 

Since the announcement of the ~$1.06 billion acquisition of Sound United in February 2022, MASI’s share price has shed 50% of its value, representing a more than $6.5 billion erosion in the company’s market capitalization.  In that context, we estimate that MASI’s core Healthcare business is trading at a significant discount to peers and its own 3-, 5- and 10-year trading averages while assigning a fraction of the value paid for the Non-Healthcare/consumer audio business.

The broad investor criticism and share price decline in the wake of the Sound United transaction set the stage for activist investor, Politan Capital, to build a ~9% stake by August 2022 and gain 2 (of 5) Board seats (with ~70% of the non-insider vote) in June 2023.  Following its resounding (albeit hard fought) victory, the activist continues to push for improvements in MASI’s corporate governance and will hold management accountable on its commitment to a three-year time horizon before considering a divestiture of the Non-Healthcare business (assuming the strategic rationale for the deal fails to materialize). Additional catalysts could stem from new product launches, as well as a favorable outcome in MASI’s patent infringement litigation in front of the ITC against the Apple Watch, which is set for trial in October 2023.  

MASI’s Healthcare and Non-Healthcare businesses could be valued at ~$140 per share, and ~$12 per share, respectively. Accounting for projected net debt of ~$6.50 per share yields a base case sum-of-the-parts fair value of $146 per share.  Potential catalysts include the separation/monetization of assets, corporate governance improvements, favorable litigation awards, leverage reductions and/or better than expected growth & margins from new product launches.

Radar Screen – September 2023

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Goodyear Tire & Rubber, Inc. (FLT),  Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 

Newest Publications & Updates

COMPREHENSIVE REPORT: Masimo Corporation (NASDAQ: MASI)
August 31, 2023

Masimo Corporation (NASDAQ: MASI) operates two business segments: (1) Healthcare (~62% of consolidated 2023E sales), which develops, manufactures & sells non-invasive patient monitoring devices/technologies, most notably its pulse oximeter, for professional (e.g., hospitals) and, to a lesser degree, consumer customers; and (2) Non-Healthcare (38% of 2023E sales), which develops, manufacturers & sells high-end, home audio equipment/platforms to consumers. 

Since the announcement of the ~$1.06 billion acquisition of Sound United in February 2022, MASI’s share price has shed 50% of its value, representing a more than $6.5 billion erosion in the company’s market capitalization.  In that context, we estimate that MASI’s core Healthcare business is trading at a significant discount to peers and its own 3-, 5- and 10-year trading averages while assigning a fraction of the value paid for the Non-Healthcare/consumer audio business.

The broad investor criticism and share price decline in the wake of the Sound United transaction set the stage for activist investor, Politan Capital, to build a ~9% stake by August 2022 and gain 2 (of 5) Board seats (with ~70% of the non-insider vote) in June 2023.  Following its resounding (albeit hard fought) victory, the activist continues to push for improvements in MASI’s corporate governance and will hold management accountable on its commitment to a three-year time horizon before considering a divestiture of the Non-Healthcare business (assuming the strategic rationale for the deal fails to materialize). Additional catalysts could stem from new product launches, as well as a favorable outcome in MASI’s patent infringement litigation in front of the ITC against the Apple Watch, which is set for trial in October 2023.  

MASI’s Healthcare and Non-Healthcare businesses could be valued at ~$140 per share, and ~$12 per share, respectively. Accounting for projected net debt of ~$6.50 per share yields a base case sum-of-the-parts fair value of $146 per share.  Potential catalysts include the separation/monetization of assets, corporate governance improvements, favorable litigation awards, leverage reductions and/or better than expected growth & margins from new product launches.

Radar Screen – September 2023

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Goodyear Tire & Rubber, Inc. (FLT),  Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566