Hi gcrispan - What's your experience with how BV is determined after a spin off like MWA from WLT? Yahoo calculates the BV for MWA at about $10.50/share. Do they value the assets based on the date the new shares traded? Does that mean that land, facilities, inventory were all priced to market?
Many times I find hidden value buried in companies and when the assets are repackaged and allowed to trade as a separate company, the market can better value these assets.
If the true BV is around $10/share for MWA, then the downside risk IMO is low. However, if their assets are inflated and forward operating expenses turn out to be higher than when operating as part of WLT, I think the value proposition shrinks. However, once the company obtains one year operating results, then the market will have already adjusted the price to reflect any hidden value obtained as a result of the transfer.
MWA stock does not trade much volume and I suspect after the distribution of shares by WLT to their shareholders, there will be an over supply of shares available and the stock may sell off closer to it's BV. I am going to watch the trading on Dec 6-13 and see if I can pick up a small starter position.
If the new management can bring in earnings based on the analyst's Sept. 2008 estimate, and the stock trades at the industry PE of 15, it's possible to come up w/ a price target of $24-$26/share. This assumes that BV is around $10/share, management can run the new company more efficiently than as an operating subsidiary, and revenues continue to grow (and does not stall because new construction revenue falls off a cliff).
The big potential gain is an expanding PE 18-24 months out.
EKS |
