Hello Wayne,
I am new to SI and have taken advantage of the free trial offer and must say it is great. I have lurked for many months and have enjoyed all the great DD that everyone has done on CVIA. It has been a great help to many investors I'm sure. I have been a share holder since August '97.
This is not to be considered as hype in any way.
This is an article that was on Thestreet.com $10.00 and under newsletter that I hope will be of interest to the present and future investors in CVIA as to the possibilities for this little stock.
TBC (TBCC:Nasdaq) is a Memphis, Tenn.-based distributor of private- label tires to wholesalers and retailers across North America. It also has its own retailer, Big O Tires, which has 415 stores, mainly in the Midwest and the West.
We're not talking Pirelli or Michelin here. TBC's brands are
tires you've most likely never heard of, like Sigma and Multi-Mile,
for folks who think rubber is rubber and want to save a few bucks. And like its tires, TBC comes cheap. The company trades at just 11 times trailing earnings of 84 cents per share, and less than 10 times expected 1998 earnings of 96 cents, according to First Call. TBC closed Friday at 9 3/16, up 1/16.
TBC looks even cheaper when comparing its total enterprise value with its cash flow. In 1997 the company had roughly $46 million in cash flow, or earnings before interest, taxes, depreciation and amortization. Its stock is valued at roughly $210 million, and it has an additional $67 million in long-term debt, for a total value of $277 million -- approximately six times cash flow.
Those numbers have gotten a lot of value investors interested in
TBC. Institutions, from Royce & Associates to Broad Street Asset Management, hold more than 70% of the company's stock, and the percentage is rising.
The company is "undervalued and ignored," says Abbott Keller of Kestrel Asset Management, a $240 million institutional money manager that owned 380,000 shares of TBC at the end of December, according to Technimetrics. Keller says TBC's experienced management and expansion plans should keep the company's earnings rising.
After four decades of distributing batteries and other automotive
parts in addition to tires, TBC decided in 1996 to focus only on
tire sales. The company sold its other lines of business, which
represented only about one-eighth of its revenues, and boughtBig O Tires for $55 million in cash.
Now TBC is rapidly expanding Big O in a bid to build a stronger
brand name nationally and take business from the mom-and-pop stores that dominate the business of selling second-tier tires. The company expects to expand the Big O chain to more than 600 stores within four years from 415 now. But while Wall Street has taken to many other consolidators, even those with no earnings and management teams much less experienced than TBC's, the company hasn't been able to get a premium -- or even a market -- multiple for its shares.
The reason: Tires get no respect. Prices have been stagnant or
dropping for years, and profit margins are slim. "The tire
business is a commodity business," says John Rast, an analyst with Huntleigh Securities, a regional brokerage based in St. Louis.
Even so, Rast rates TBC a buy. (Huntleigh has not had an
investment-banking relationship with TBC.) "They're doing the right things in a very difficult operating environment," he says.
"The stock would have a much higher valuation, but the pricing
umbrella in the industry has been very difficult." Rast adds that
TBC's expansion should help the company negotiate lower prices from suppliers Goodyear Tire & Rubber (GT:NYSE) and Cooper Tire & Rubber (CTB:NYSE).
At least one TBC shareholder is not as optimistic, however.
This portfolio manager, who owns a substantial chunk of TBC shares, says the company faces a tough 1998 because Japanese and Korean tire makers will dump their excess capacity in the U.S. market as their economies worsen. The company faces "a deflationary environment," says the manager, who asked not to be identified because his firm is selling TBC stock. "In that kind of environment TBC is going to
struggle, because they don't manufacture tires, they distribute
tires, and when wholesale prices go down, their margins go down," he says.As a result, the manager says, "I don't think they're going to
make progress in their earnings growth over the next couple of years."
But Larry Baumgartner, manager of the $250 million Armada Small Cap Value fund, which owned about 200,000 shares of the company at the end of December, according to Technimetrics, says a strong U.S. economy and cheap gas prices will stimulate driving and tire demand, helping to offset new supply. And he notes the tire glut is hardly new. TBC "probably should trade at a higher multiple of earnings than it does," Baumgartner says.
"Management is doing a very, very good job in a tough industry right now," adds Frank Latuda, director of research at $2 billion Kennedy Capital in St. Louis, which held 670,000 shares of TBC stock at the end of December. "It's obviously not the glamorous technology sector or anything like that.... All they can do is continue to post good results and interest will follow."
As sure as the miles flow by on an interstate when a Travis Tritt song is playing.
Happy Trading
John C.
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