Mark-
I am extremely bullish on CUC's prospects. They say that the merger will enhance their growth. Even without HFS, Forbes said he expected 20% rev. growth and 30% EPS growth for the next few years.
CUC has been increasing the membership base by about 12% annually, with about an 8% increase in fees, leading to 20% growth in revenue. The rapidly growing CUC Software division increasingly has a positive effect on the growth rate. I figured that over the next 3 or 4 years, CUC could increase sales by about 22% annually and EPS by 30%. And that doesn't even figure the positive effect that the Internet will have on the business.
And now with HFS, a company projected to grow at the same rate as CUC (25-30%), the combination should be able to attain 30% EPS growth for the next several years. That includes synergies between the two companies, and it includes the positive effect of the Internet.
I've heard a concern that a such a large company could not sustain growth at 30%. That's complete nonsense. The analyst who mentioned that provides further evidence that many analysts don't have a clue. If HFS and CUC were each expected to grow at that pace, they should be even more likely to do it as one company. Together, the new company practically owns the US, but the international market is largely unexploited by them. CUC "International" receives less than 10% of sales from international sales. Their growth in Europe and Asia should sustain revenue and EPS growth.
Also, CUC Software will increasingly support the company, albeit to a smaller extent than before. I think that in the next few years, CUC will spin-off the software company. CUC Software will have a new name and the operations among the constituent companies (DAVD, SIER, KA, etc.) will be more integrated than they are now (CUC Software is now little more than a conglomerate/holding company). Hopefully, CUC will retain a large portion of the software company's equity, so it can benefit from the stock's appreciation.
That said, I agree that the stock is kind of a disappointment. However, I now realize that the stock was overpriced in 1/96 when I first bought it. So I think that we're witnessing multiple compression, an annoying phenomenon that will eventually remedy itself.
Also, CUC has performed many acquisitions over the past 1.5 years, offered half a billion $$ in debt, increased the shares outstanding, announced a seemingly new business direction (Internet & software).
All of these things, combined with a weird stock market, has left the stock zig-zagging. I think that its consolidation period will end in the fall, and CUC will resume its upward move when the HFS deal closes. At that point, most of the big deals should be out of the way, and NetMarket will have been successfully launched.
I'm looking to buy more if the market is stupid and drives it down to $20.
Todd |
