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Strategies & Market Trends : Value Investing

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bruwin

To: smaycs4 who wrote (54439)	10/24/2014 6:28:43 PM
From: E_K_S	1 Recommendation of 78717

Pep Boys - Manny, Moe & Jack (PBY) PBY is a hard one for me to value. No recent Net income and $359mln of debt. BV is stated at $10.35/share so it may be the result of their real estate assets. They appear to be generating a lot of revenue but not very much is making it to the bottom line. I see there are several quarters of losses from discontinued operations so that may/could be the reason for their low net income. Gross margins appear OK but other than their real estate, I can not see what Gabelli sees. The CEO has quit so maybe a restructure, sell some marginal locations and try to re-brand the stores. I have been in two of their locations and they tend to do a lot of repair/maintenance work as their garage spaces are always booked. The stores (the one I have been in) have a very nice selection of automotive products at fair prices but I never see very many people in them. Also, the stores I have been in are quite big (ie floor space sqft) when compared to a O'Reilly Automotive Inc. ORLY generates almost 3x the sales, is more profitable than PBY and their annual net income to long term debt ratios is well within value range (2.5x annual Net Income equals their long term debt). This is not the case w/ PBY but possible could be based on the revenues they generate when compared to ORLY's revenues and net income. For comparison you can look at this link for ORLY. So maybe Gabelli thinks a new management can do what ORLY is doing (they recently acquired Kragen Auto Supply) AND have an auto repair operation too. Sears has been rumored that they plan to spin off their auto repair operation so there is some value in that part of the business. ORLY does not have an on-site auto repair service but they do provide off site services. FWIW, I bought a new battery at ORLY rather than Sears as it was close and convenient and about the same price as the Sears branded DieHard. Like many of these turnaround companies, it's too late to invest if/when net income gets back in line w/ the fundamentals. This could be one of the better retail plays as a "value" speculative buy. Keep the thread posted on PBY. The one aspect I like is their automotive repair business. It's been a stable profitable business for Sears, but is not as much of a "pure" play like PBY. EKS

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