Longtime lurker here who finally made the leap to full membership. I have just started working on a new idea that I wanted to run by you guys. To give you some brief background, I really latched on to a point in Einhorn's latest letter where he highlighted that he was short CAT:
"Every time someone says “infrastructure investment,” investors reflexively buy certain stocks including CAT. Yes, CAT sells machines that are used in infrastructure, but this represents only a small part of its business. CAT’s biggest segments are mining and energy. We just completed a once-in-a-generation boom in iron ore mine development, and horizontal drilling means we can produce more oil with fewer rigs."
I have been exploring this theme in the small cap space, and one name I found interesting was Titan Machinery. For context, Titan is a heavy machinery distributor that sells new and used agricultural and industrial equipment and parts, as well as offering repair and maintenance services. Their new equipment and parts are primarily supplied by CNH. The agricultural segment provided about 2/3 of 2015 revenue.
While I just began the work here, it seems that this company has been quite a dumpster fire over the last four or so years. Massive inventory management problems have led to used equipment impairments and heavy financing burdens as the company struggles to move product. As a result, the company has incurred heavy losses and traded down from $36/share in early 2012 to around 8$ at a couple points in 2016. However, the stock doubled after the election, and currently trades at ~$14/share. Last week the company announced a restructuring plan to close 14 under performing agriculture equipment dealerships, in hopes of saving ~$25 million annually. The restructuring is supposed to be completed by the first half of the fiscal year, and cost targets are illustrated in the recent 8-K (attached).
I think this might be a short at this price. The near-term USDA farm revenue predictions are relatively flat from 16 to 17, and if you buy Einhorn's view re: CAT then the industrial segment is also not likely to grow drastically. While my view is still preliminary, the management team inspires zero confidence, having missed revenue and earnings projections with remarkable consistency and botching WC management for a number of years now. As a result, I don't have a ton of faith in this restructuring plan. While I don't think this is a zero, I can't really get my head around the post-election jump.
Anyone done work on this name?