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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (50761)	2/2/2013 10:46:28 PM
From: Spekulatius	2 Recommendations Read Replies (2) \| Respond to of 78462

>>You raise some very good points w/ those pension liabilities but the market really does not seem care about this liability (at least not yet).<< It is amazing to me that many analyst don't make much mention of the pension liabilities, even though the net liability in LMT case for example is roughly half the market cap, and it has a cost of 8 or 8.5% (the assumed rate of return in LMT pension plan). Or look at it another way, the gross liability is 40B$ at an 8.5% cap rate translates into 3.2B$ in estimated annual cash flow. Right now the backing is 27B$ in pension assets which very likely will not support 3.2B$ in cash flow. That is why LMT had to kick in 1.9B$ in 2012 to keep the deficit from deteriorating further. 1.9B$ annually is a big number relative to earnings, dividends or cash flows and it's real hard cash that the shareholders won't have any benefit from. The only thing is that it's hidden from regular earnings numbers that it stated and that you will see in yahoo, but if you look at the comprehensive income or the movement in the book value YoY, it will show up. The numbers are very clearly detailed in the 10K. I think it is a major market inefficiency that a lot of investors or analyst don't look at these numbers. I can understand why management does not like to talk much about it (they can't do much about it anyways and their incentives are based on operating numbers) but we investors need to care about cash streaming to us, and the pensions clearly have an impact on that. I also think that Mr. Market does care, if a critical mass is reached but that does not yet seem to be the case. A few credit downgrades or dividend cuts would definitely get attention. I also think that in the case of XLS, the pension issue has been a major deterrent for the stocks performance.