Company Background - CLICK ON IMAGES TO ENLARGE
American Capital Strategies, Ltd. (American Capital), incorporated in 1986, invests in and sponsors management and employee buyouts, invests in private equity-sponsored buyouts, provides capital directly to early stage and mature private and small public companies, invest in commercial mortgage-backed securities (CMBS) and collateralized debt obligation (CDO) securities, and invest in investment funds managed by the Company. American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions and recapitalizations. The Company, through its asset management business, is also a manager of debt and equity investments in private companies. American Capital provides capital directly to private and small public companies for growth, acquisitions or recapitalizations.
The above 10 year history shows this stock is trading well below its 5 and 10 year high and low PE Ratio.
10-year PE Ratio - Average High = 22
10-year PE Ratio - Average Low = 13.5
5-year PE Ratio - Average High = 21.6
5-year PE Ratio - Average Low = 12
As of the close of trading on March 16, 2007 the company was trading at 6.70 (PE Ratio) times 2006 earnings, which were $6.55. Average earnings estimates for 2007 are $3.48, which means the stock is trading around 12 times earnings, which is the average low for the past 5 years. All of the company's major competitors are trading at higher PE ratios. Click on the image below.
The Standard & Poors 12-month price target is $57, which gives this stock an approximate PE Ratio of 16. Given this stock's 10 and 5-year PE history it becomes aparent why S&P has rated this stock as a *****5-Star*****.
As a hypothetical...if you buy into this stock at $44 and it climbs to $57 as projected that would be a 30% annual return plus your 8% dividend yield would come to a 38% 12-month return on your investment. If the stock stagnates and remains around $44 for the next 12 months you would still yield an 8% dividend return, which is higher than all of the online high yield savings accounts, which are currently around 5%.
Disclosures
* Bought Shares on March 19, 2007
* No other relationships with company
Current Sentiment
* Buy
Related Links
Yahoo Stock Quote - ACAS
American Capital Corporate Website
As a final note this site is designed to be a forum for discussion on potential equity investments. Commenting on this post is encouraged.
3 comments:
This company also allows you to reinvest all dividends back into company stock at a 5% discount.
As Blackstone Group captures the attention of Wall Street and beyond with news that the buyout firm plans to take its management arm public, Deal Journal thought it would be a good time to lob a few questions to Malon Wilkus, CEO of American Capital Strategies, a buyout firm that has blazed its own trail to the public markets.
Wilkus founded the Bethesda, Md., firm 21 years ago in the living room of a two-bedroom condo, and took it public 11 years later. Now he says it’s the biggest publicly traded buyout firm in the U.S., with a $7 billion market value.
The public markets must suit Wilkus pretty well, considering that just last night, the company raised $450 million in its 27th share sale, which it will use to make more buyouts, each with a value of less than $800 million. Shareholders have done pretty well, too: American Capital’s stock has risen an average of 24% a year.
Deal Journal: Why did you decide to go public?
Wilkus: It was a way of accessing the capital markets that was extremely efficient and rapid. It’s a source of capital you can rely on.
DJ: How are your share sales different from the reported plan of Blackstone?
Wilkus: They’re taking the management company public and the management company itself isn’t investing in buyouts. Taking a management company public provides a source of liquidity for partners.
DJ: Do you think that’s why they’re doing it?
Wilkus: As partners of management companies get older, they start to think about liquidity. It’s hard for them to sell to an institution because the assets walk out the door every day. The public markets also give them stock to attract, keep and motivate top-level employees.
DJ: Why might they not want to do it like you have?
Wilkus: There are a lot of additional reporting requirements.
DJ: To what extent will an IPO pull the curtain back at the very private Blackstone, and tell the public how much its executives make?
Wilkus: They’ll have a reporting responsibility for the top 3-8 people. The management company doesn’t have to provide much transparency about the individual investments at all. They probably don’t have to give details on the returns of the funds.
DJ: Do you think others, like Carlyle Group, will follow in the footsteps of Blackstone in going public?
Wilkus: I think many of them will. It’s a natural and inevitable idea. They’ve paid a lot of attention to American Capital, how we’ve performed, and how it’s provided liquidity to the principals and managing directors. It makes a lot of sense.
If this were a basketball score, it would be a blowout indeed.
Yet, for the ACAS shareprice ... it is also a blowout of stock price underperformance relative to earnings growth.
ACAS net earnings ROSE 44 fold from $20 MILLION AT THE CLOSE OF 2002 TO $896 MILLION AT THE CLOSE OF 2006.
Yet, during the same period from the close of 2002, the stock ended Dec. 31, 2002 at $21.59 and closed yesterday at $46.73 ... FOR AN INCREASE OF ONLY 2.16 fold.
In 35 years of investing, I have NEVER seen a company grow its earnings 44 fold ... and the stock simply double. In EVERY CASE that I have followed, the company stock became a 10 bagger, at minimum, with that type of earnings growth.
It is obvious that investors doubt the sustainability of this type earnings growth ... but every year since 2002, the doubters have been proven wrong. And the rewards for long term investors have been ever increasing dividends.
As a former Fortune 500 finance manager, I cannot find the wrinkle ... What am I missing here?? The debt levels are not excessive ... and the diversification is a protection blanket against disaster. The ACAS investment teams are intelligently staffed with a mix of beancounters :-) and lawyers with sufficient autonomy to nix a deal.
As the annual report indicates, much of their success deals in investments that were rejected such as the sub prime arena. (Smart move!)
Quite frankly ... I would rate ACAS as ONE OF THE MOST UNDERVALUED STOCKS I have found in 35 years of investing. I have continued to add to my holdings.
P.S. As a former beancounter myself ... no offense meant ... it is in the details that good deals are discovered. Every bean counts.
GiveThanks
Sentiment : Strong Buy
Post a Comment