Author Topic: OMX - OfficeMax  (Read 3496 times)

Junto

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OMX - OfficeMax
« on: December 22, 2011, 06:31:59 AM »
Barel Karsan seems to be looking closely at OMX...appears may be a value trap with internet competition driving margins lower and lower? Haven't looked too closely yet myself, but it caught my eye.

Quote
OfficeMax: Worth 75% Less Than It Was 1 Year Ago? http://www.barelkarsan.com/2011/12/officemax-worth-75-less-than-it-was-1.html
By Saj Karsan, Wednesday, December 21, 2011, 6:56 AM | OfficeMax | 1 comments
One year ago, OfficeMax (OMX) reported quarterly operating income of $41 million, resulting in a market cap of around $1.5 billion. This year's third quarter was remarkably similar, with the office supplies distributor once again bringing in operating earnings of around $41 million. But today, the market cap sits at just $380 million, despite an improved balance sheet from last year!

At first glance, it would appear as if this company's debt burden justifies the low price. But the fully-consolidated debt line item doesn't apply. As discussed in a previous post, most of the debt is non-recourse, as it is held in a bankruptcy-remote subsidiary. Considering only the debt the company is actually responsible for, OfficeMax actually has a net cash position. At $200 million, it's a net cash position that represents more than 50% of this profitable company's current market cap!

Make no mistake, however, this is a low margin business. But Mr. Market's asking price fully takes this into account: the price to sales ratio is 0.05! (Note that Staples trades at a P/S of 0.35.)

New management came in about a year ago with the goal of increasing margins incrementally over the next three to four years. The new CEO is stressing more pilot programs and more measurements of the success of those programs (rather than large, risky investments that may not pay off). He appears to be expressing some confidence in the most recent results (or the low stock price), as he has been buying shares in the open market.

Last time OfficeMax traded at this price, it was April of 2009. Once again, it appears likely that macroeconomic issues have pushed this high-beta stock down to a level that doesn't make a lot of sense on a micro level.


tooskinneejs

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Re: OMX - OfficeMax
« Reply #1 on: December 22, 2011, 07:37:10 AM »
No opinion on the stock, but I love the banner ads.  This thread is showing me an Office Depot ad and the sears thread has a sears ad. 
« Last Edit: December 22, 2011, 08:45:08 AM by tooskinneejs »

eclecticvalue

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Re: OMX - OfficeMax
« Reply #2 on: December 22, 2011, 02:00:35 PM »
If the non recourse debt is removed from the balance sheet
             
         Total  Liabilities
  Before                    After                Change
$2.69 Billion         $1.22 Billon         $-1.47 Billion

It makes the debt more manageable. The D/E will be in good standing. There will be a lot of liabilities that needs to be paid off and also there is an underfunded pension(which is not taken to account in the calculation above) The question is will OMX be able to generate enough cash to pay down debt and the rest of the liabilities. It seems the new CEO is intent that it can turn things around. Recently, he made a purchase at very low stock price.

One thing that I haven't seen mentioned anywhere. The company could potentially be a buyout candidate, if they can turn around the company. Overall there are too many competitors in the space it operates in.

Junto

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Re: OMX - OfficeMax
« Reply #3 on: January 08, 2012, 06:54:54 PM »
Forbes on office max, 400% gain potential, technical analysis...interesting if anything else. http://www.forbes.com/sites/greatspeculations/2012/01/08/why-officemax-stock-should-gain-400/?partner=yahootix
« Last Edit: January 08, 2012, 06:56:57 PM by Junto »

racemize

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Re: OMX - OfficeMax
« Reply #4 on: January 08, 2012, 07:10:52 PM »
If the non recourse debt is removed from the balance sheet
             
         Total  Liabilities
  Before                    After                Change
$2.69 Billion         $1.22 Billon         $-1.47 Billion

It makes the debt more manageable. The D/E will be in good standing. There will be a lot of liabilities that needs to be paid off and also there is an underfunded pension(which is not taken to account in the calculation above) The question is will OMX be able to generate enough cash to pay down debt and the rest of the liabilities. It seems the new CEO is intent that it can turn things around. Recently, he made a purchase at very low stock price.

One thing that I haven't seen mentioned anywhere. The company could potentially be a buyout candidate, if they can turn around the company. Overall there are too many competitors in the space it operates in.

I am a little confused about backing out non-recourse debt--they would still lose some amount of assets, and if they were unable to pay back that debt, wouldn't they already be in bad shape? If everything goes well, they'll still pay the money right?

ragnarisapirate

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Re: OMX - OfficeMax
« Reply #5 on: January 08, 2012, 07:20:38 PM »
Does anyone have thoughts on the Cuban assets?

I doubt that anything will ever come from them, but, if it would happen... there is a potential for big bucks. Admittedly, anything projections with it is sheer speculation.

eclecticvalue

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Re: OMX - OfficeMax
« Reply #6 on: January 08, 2012, 09:19:35 PM »
First off the debt is not OMX's, its lehman's but for some reason GAAP accounting standards makes OMX list it on the balance sheet. Also it is a receivable note so OMX is expecting a payment from Lehman. From what I understand OMX wrote down the timber notes receivable on the asset side in 2008 because OMX thought it wont collect most of it back. It will be interesting to see how it all balances out, once OMX receives the payment from the Lehman bankruptcy. Here is a link about this case in a pdf doc.  http://bit.ly/A6xBjK

I hope I am understanding this correctly.

Packer16

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Re: OMX - OfficeMax
« Reply #7 on: January 09, 2012, 04:38:19 AM »
Why not buy Staples it is also cheap (9.0x TTM FCF) and has a viable business?  OMX is a turnaround and a retail turnaround is a difficult task to do.

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