TFII’s initial 2019 adj. EPS guidance of $3.80-$3.90 implies ~7.5%-10% year-over-year growth (and compares with current consensus of $3.65); management sees incremental upside toward ~$4.00 per share from potential M&A activity; fair value revised to $49 per shares (from $51)

• For full-year 2018, TFII posted consolidated revenue growth (ex-fuel) of ~3% to $4.5 billion with adjusted EBITDA growth of 33% to $686 million (versus company guidance of $635-$645 million).  Adj. EPS increased 74% to $3.54 (versus guidance of $3.21-$3.29).
• In 2018, TFII generated ~$229.5 million of free cash flow ($2.53 per share), even before $110 million ($1.21 per share) of asset sales.  The company ended 2018 with a leverage ratio of ~2.3x (compared with 2.9x at the end of 2017 and management’s 2.0x-2.5x target)
• For 2019, TFII provided full-year adj. EPS guidance of $3.80-$3.90 per share, which implies 7.5%-10% year over year growth (and compares with current consensus of $3.65).
• Notably, full-year guidance excludes any potential M&A activity, which management indicated could, given the current pipeline, approach $200 million in 2019 and ultimately push full-year EPS results toward the ~$4.00-level.
• 2019 capital spending is expected to be $225-$250 million, including ~$50 million in purchases of some previously leased equipment.  (The purchases are, in part, driven by new IFRS 16 accounting standards, which are also the reason TFII has not provided full-year EBITDA or FCF guidance, at this time.)
• Our base case fair value estimate of $49 per share (previously $51 per share), reflects a blended multiple of ~7.5x (previously 8.0x) on 2019E EBITDA of $740 million (up from $715 million).
• While we expect solid underlying fundamentals for TFII in 2019-2020, the modest reduction to fair value reflects a cognizance that the valuation multiples in the transport sector may potentially be challenged to post incremental expansion in the latter stages of an economic cycle (see Exhibit #1 on page 2).

TIVO’s strategic review remains on-going; options seemingly narrowing around a separation of the Products & IP Licensing businesses

•  On a consolidated basis, TIVO reported that full-year 2018 sales fell almost 16% to $696 million (versus our estimate of $705 million and consensus of $701 million) while s0-called “core” sales declined ~4.5% to $652 million.  Full-year adjusted EBITDA of $200 million compared with our $201 million forecast and consensus of $212.5 million.
• TIVO indicated that its strategic review remains on-going (with several interested “parties”) and that it has begun to proactively prepare for a possible separation of its two business, in part to facilitate potential strategic transactions. Given the on-going review, TIVO declined to provide any 2019 financial guidance.
• The company declared an $0.18 per share quarterly dividend (implying a ~6.5% yield) to be paid March 26^th.  TIVO ended 2018 with net debt to $598 million (versus $631 million at the end of 2017) and a leverage ratio of 3.0x.
• Acknowledging TIVO’s stock is likely to see a kneejerk retracement this morning, we view the ~$10 level as an attractive longer-term buying opportunity as it remains our contention that the strategic review’s ultimate completion will result in either a positive catalyst (i.e. a split/sale) or, if the status quo persists, management’s re-introduction of more granular insight into the businesses’ future prospects, which has been absent over the last twelve-months and contributed to investor uncertainty.  To that end, we think a stock price as low as $10 would be justified if/when it became clearer that TIVO’s core business, ex-CMCSA, likely generates, in our estimation, at least $600-$650 million of annual sales (with a low-single digit growth profile), normalized EBITDA margins of ~35%-40% and ~$200 million (or $1.60 per share) of annual free cash flow.
• Fair value remains $16 per share, reflecting full-year 2019E adj. EBITDA of $200 million and multiples of 9x and 13x for Products and Licensing, respectively.

GE Completes Transportation Spin-Off; Post-Spin Fair Value Estimates Revised to $95 and $10 per Share for WAB and GE, Respectively

• On February 25, 2019, General Electric (NYSE: GE) completed the spin-off of its transportation business, which combined with Wabtec (NYSE: WAB) in a Reverse Morris Trust (RMT) transaction. Wabtec shareholders own approximately 50.8% of Wabtec on a fully diluted basis and GE shareholders own approximately 24.3% of Wabtec on a fully diluted basis. GE owns common stock and non-voting convertible preferred stock, which together represent approximately a 24.9% economic interest in Wabtec on a fully diluted basis. GE also received approximately $2.9 billion in cash at closing.
• Wabtec announced Q4 results which exceeded expectations. The company also provided 2019 guidance of $8.4 billion in sales, $900 million in income from operations, adjusted EBITDA of $1.6 billion and adjusted EPS of $4.00-$4.20.
• Separately, GE announced the sale of its Biotechnology business to Danaher Corp. (NYSE: DHR) for $21 billion.
• Factoring in for an incremental $21 billion in cash associated with Biotechnology sale announcement, coupled with modestly improved comparable industry valuations, our post-spin sum-of-the parts fair value estimate for GE has been revised to $10 (from $8 previously). That said, we continue to see risks to the story and remain on the sidelines.
• The post-spin fair value estimate for WAB has been revised to $95 (from $86), reflecting updated 2019 financial guidance. Note that WAB shares have declined over 30% in the past 6 months, versus a 4% decline for the S&P 500 over the same period. With the fair value estimate representing 22% upside to WAB’s current share price, we continue to recommend WAB shares for purchase.

HSIC Reports 4Q, Full-Year 2018 Results; Introduces Initial 2019 Guidance Below Expectations; Lower Fair Value Estimate to $62 per share (previously $70 per share), Maintain HOLD

• On February 20, 2019, before the market open, Henry Schein Inc. (NASDAQ: HSIC) reported 4Q and full-year 2018 results including year-over-year revenue increase of 1.7% in 4Q and 5.9% for 2018. Non-GAAP EPS increased to $1.12 per share in 4Q (from $0.97 per share in 4Q 2017) and full year EPS of $4.13 per share (non-GAAP) increased 14.7% versus the year prior.
• Management introduced initial 2019 non-GAAP EPS from continuing operations guidance of $3.38-$3.46 per share. On an apples-to-apples basis, the 2019 guidance represents a 7%-9% increase over 2018 results. The consensus estimate prior to HSIC’s release expected EPS of $3.76 per share.
• In the earnings release, management commented on experiencing soft end market demand for dental consumables in North America, particularly in November and December.
• We think the soft end markets, and lower than expected 2019 guidance highlights our concerns over increasing competition from the likes of Amazon and pricing pressure from Dental Service Organizations (DSO) that may prevent HSIC from achieving its margin expansion goals set out in its restructuring plan.
• We lower our fair value estimate for HSIC to $62 per share (previously $70 per share), which is now based on a 18x multiple of our revised 2019 EPS estimate of $3.42 (previously we valued shares at 16x our prior 2019 EPS estimate of $4.39). The increased multiple reflects the current trading levels the company’s closest peers, Patterson Companies Inc. (NASDAQ: PDCO) and Dentsply Sirona Inc. (NASDAQ: XRAY).
• The company will hold a conference call at 10:00 am EST today to discuss these results.
• We maintain our HOLD rating on HSIC. For further information please see the Henry Schein Inc. Spin-Off Report dated January 15, 2019, and UPDATE‘s dated January 16, 2019 and February 7, 2019.

Fair value increased to $62 per share (from $61) on VVI’s initial 2019E outlook; we think a clear framework exists for an eventual separation of GES and Pursuit

• For full-year 2018, VVI reported a consolidated sales decline of ~1% to $1.296 billion, primarily driven by negative show rotation at GES, with adjusted segment EBITDA to $146.3 million (compared with $154 million in 2017).
• The company ended the year with net debt of $187.5 million, a debt to cap ratio of 34% and a net leverage ratio of ~1.4x, by our calculation.
• Management issued initial 2019 guidance calling for mid-single digit sales growth, year-over-year, with adjusted segment EBITDA of $152.5-$158.5 million, which, at the midpoint, implies better than 6% growth and compares favorably with our prior forecast of $149 million (see Exhibit #1).
• By segment, at GES, VVI expects low-single digit sales growth with adj. segment EBITDA of $76-80 million (versus $77.7 million in 2017). At Pursuit, the company projects top-line growth of 15%-17% with adj. segment EBITDA of $76-$79 million (compared to $68.6 million in 2017).
• Our revised fair value estimate of $62 per share (see Exhibit #2) reflects an average multiple of ~8.0x on 2019E/2020E blended EBITDA of $170 million (previously $163 million) as well as projected net debt of ~$96 million (previously $56.5 million).
• It remains our view that VVI could unlock value via a separation of its GES and Pursuit businesses, which offer negligible synergies and have clearly divergent margin, growth, and capital-intensity profiles. Moreover, we think a framework for an eventual separation has emerged. To that end, we discern the achievement of a $250 million sales base at Pursuit as the starkest benchmark, while at GES it seems less about size than a more stable business mix, including more high-margin A/V and event technology business as well as an increased contribution from non-exhibition/corporate events, which would support a margin profile of ~8% through a cycle.

Fair value increased to $132 per share (from $130) on initial 2019E forecast; see additional optionality for the CBF segment

• For full-year 2018, CSL posted ~19.5% top-line growth to $4.5 billion, including ~7% organic growth, with a ~10% increase in EBIT to ~$509 million and 2% growth in EBITDA to $694.5 million, by our calculation.
• The company ended 2018 with net debt of $784 million and a net leverage ratio of 1.1x.
• For 2019E, CSL guided to consolidated sales growth in the high-single digit range with corporate expense of $75-$80 million, depreciation & amortization expense of ~$200 million, cap ex of $110-$125 million, interest expense of $55-$60 million and a tax rate of ~25% (see Exhibit #1). Free cash flow conversion is expected to be 100% (of net income).
• By segment, CSL expects high-single digit to low-double digit top-line growth at CCM, mid-single digit growth at CIT and CFT, as well as low-single digit sales growth at CBF (see Exhibit #1).
• Additionally, the company backed its previously articulated Vision 2025 plan, which calls for a doubling of revenues to $8 billion, consolidated margins of ~20%, ROIC of ~15% and EPS of $15 per share in 2025 (compared with $5.88 per share in 2018).
• In that pursuit, we expect CSL will continue to narrow its focus on the core CCM, CIT and CFT segments, which have comparably higher growth and margin profiles. As such, we see additional optionality in the CBF segment, which could be monetized to provide incremental growth capital to core businesses and/or be returned to shareholders. (Recall, CSL, sold its CFS business for $750 million or ~12x 2018E EBITDA in 1Q 2018.)
• Our revised sum-of-the-parts fair value estimate of $132 per share (previously $130 per share) reflects a blended multiple of ~11x on 2019E EBITDA of ~$781 million less net debt of ~$753 million (see Exhibit #2).

Initial When-Issued Trading in Covetrus Appears Overvalued; CVET Fair Value Estimate Increased to $19 per Share (From $14 per Share)

• On February 5, 2019, shares of Henry Schein Inc. (NASDAQ: HSIC) spin-off, Covetrus Inc., (CVET) began trading in the when-issued market under the symbol CVETV; CVETV shares closed last night at $45.34 per share.
• We increase our fair value estimate for Covetrus to $19 per share (previously $14 per share) based on an increased peer multiple of 11.0x (previously 9.5x).
• The current trading levels of CVET appear to be overvalued. The implied multiple of shares approximates 21.0x estimated 2020 EBITDA, and appears high based on current earnings prospects, and relative valuation.
• We acknowledge that Covetrus, which will have significant market share, bordering on a monopoly, has the ability to generate double digit earnings growth; however the current multiple would suggest that the company is either a takeout target or valued similarly to drug manufacturers, as opposed to distributors, which we believe is more appropriate.
• Given the elevated trading levels of CVET, the implied post-spin share price of HSIC appears undervalued at 7.8x estimated 2020 EBITDA. We would expect that post-spin shares of HSIC would trade closer to peers in the range of 10.0x – 12.0x EBITDA.
• Following the spin-off, investors may approach both post-spin entities with caution. Risks at HSIC are associated with its ability to improve margins via the current restructuring plan, especially in light of pricing pressure risk from Dental Service Organizations. For Covetrus, we would expect that high-single-digit revenue growth and the potential for significant synergies from the combination of HSAH and Vets First may result in demand for shares of CVET in initial trading, limiting attractive entry points. For further information please see the Henry Schein Inc. Spin-Off Report dated January 15, 2019, and UPDATE dated January 16, 2019.

GE announces key spin-off dates; pre-spin fair value estimate of $9 per share

On February 4, 2019, General Electric Company (NYSE: GE) announced that the Finance and Capital Allocation Committee of the GE Board of Directors has set a record date of February 14, 2019 for the spin-off of Transportation Systems Holdings Inc. (“SpinCo”), which will hold a portion of GE Transportation, a business unit of GE. GE will conduct a pro rata distribution. Immediately following the spin-off, SpinCo will merge with a subsidiary of Wabtec Corporation (WAB). It is currently expected that 8.7 billion shares of SpinCo common stock will be distributed to GE shareholders as of the record date. Based on the number of shares of GE and WAB common stock outstanding on December 31, 2018, GE shareholders would receive approximately 0.005403 of a share of Wabtec common stock for each share of GE common stock held as of the record date. GE shareholders are expected to own 24.3% of the outstanding WAB shares of, with WAB shareholders collectively owning approximately 50.8%. GE will own WAB common stock and WAB non-voting convertible preferred stock, which together represent approximately a 24.9% economic interest in WAB.

The spin-off and the merger are expected to occur on February 25, 2019, subject to certain closing conditions. For more details, please refer to The Spin Off Report dated November 29, 2018, and UPDATE dated January 25, 2019.

Our pre-spin sum-of-the parts fair value estimate for GE is unchanged at $9. With the fair value approximating GE’s current share price, pre-spin shares are not recommended for purchase. Post-spin, GE can be fairly valued at $8. The post-spin fair value estimate for WAB remains $86, reflecting balance sheet information as of September 30, 2018. Note that WAB shares have declined 36% in the past 6 months, versus a 4% decline for the S&P 500 over the same period. With the fair value estimate representing 20% upside to WAB’s current share price, WAB shares are recommended for purchase.

Ecolab Inc. to Spin-Off Upstream Energy Business:

On February 4, 2019, Ecolab Inc. (NASDAQ: ECL) announced that the company plans to spin-off its upstream energy business. The transaction is expected to be effected via a tax-free distribution of shares to ECL shareholders and is anticipated to be completed by mid-year 2020. The upstream energy business currently operates within ECL’s Energy segment and consists of the Oil Field Chemicals production and the WellChem drilling and completion chemistry businesses. Remaining with the parent company will be the Downstream business serving refineries and petrochemical plants. In addition to the planned spin-off, the company also pre-reported earnings expectations of $1.48 in EPS for the fourth quarter of 2018, with adjusted diluted EPS increasing 12% year-over-year to $1.54. Commenting on 2019 expectations indicated that adjusted diluted EPS is forecast to increase 10% -14% to result in EPS of $5.80 to $6.00 per share.

In terms of rationale, the Energy business for ECL has it s roots in the acquisition of Nalco in 2011 and Champion Technologies in 2013, where the company expanded its reach beyond its core markets of making cleaning chemicals for hospitality and industrial industries. Given the commodity environment downturn, energy producers increasingly relied upon purchasing chemicals versus the services that ECL provided. A separation of the upstream energy business should limit exposure to fluctuations in the price of oil resulting a more stable revenue and earnings base moving forward due to ECL’s core service offerings. Additionally the lower EBIT margins associated with the Energy segment will make the parent company look more profitable. Based on estimated earnings, peer multiples, accounting for net debt of near $7.0 billion, and 288.9 million shares outstanding, a preliminary fair value estimate of $159 per share is derived, in line with the current share price.

Fair value lowered to $109 per share reflecting on-going weakness in the Refrigeration market as well as tariff-related headwinds at Engraving & Electronics; Cooking Solutions divestiture will be completed by the end of F2019

• In 1H F2019, SXI reported consolidated sales up almost 4% to $389 million with adjusted EBITDA up ~8% to $59 million.
• On a segment basis, SXI posted double-digit organic growth in the Engraving and Hydraulics businesses while Food Service declined ~6.5%.  The Engineering segment grew organically by ~5.5% while Engraving increased roughly 1% (but 12% including acquisitions).
• The company maintained its projections for F2019 capital spending of $35-$36 million, as well as for depreciation & amortization expense of $30-$32 million.
• The company ended 2Q F2019 with net debt of $196.5 million and a leverage ratio of ~2.1x (compared with its 3.5x covenant).
• Notably, SXI repurchased $17 million worth of stock (at ~$80 per share) during the quarter, which, in our recollection, is the most active the company has been in at least the last five years.  (The company is currently authorized to repurchase an additional ~$67 million worth of stock, which at current prices, represents about 7% of the outstanding share count.)
• On the conference call, management indicated that the planned divestiture of its Cooking Solutions Group would be completed by the end of F2019 (June-ending) and that it would continue to focus its portfolio on the highest-growth/highest-margin businesses (e.g. Engraving and Electronics).
• All told, our sum-of-the-parts fair value estimate is lowered to $109 (from $133 per share), reflecting a blended multiple of ~10x (previously 11x) on F2020E EBITDA of ~$154 million (previously $161 million).
• For context, following an about ~25% decline since our initial publication in August 2018 (versus declines of 5.5% and 11.5% in the S&P and Russell, respectively) shares of SXI currently trade at ~8x 2020E EV/EBITDA and ~13x 2020E EPS.