What are you buying today?

[Castanza]

$SWK Stanley Black & Decker watcher position

 

Anyone else look at this lately? 

- Inventory was over built but they are rapidly reducing and expect to be back to normal levels mid 23. 

- Reduced production and headcount 

- Company focus is reducing debt and and reach a 2x debt/EBITDA level. Paid down 3.3b in Q3 more expected Q4

- Sept cashflow positive with expected positive fcf for 4th quarter. 

- Should see better margins. Current low 20's expecting high 20's by Q2 23 (excludes supply chain improvements)

- Targeting 35% margins by 2025

- Directors buying back shares mid 80s-90s

- Trading around 10 year lows

- Dividend Stalwart yielding 4+%

- EPS has been revised a few times. Recently revised down from 5-6 to 4-4.5 for Q4. 

- Softer demand is expected near term

- Production curtailment is a decision of cash generation vs softer market outlook. 

 

Due to management revising multiple times I think there is more room for pain in the next few quarters. But it seems like management is focused on the right things and have/are making necessary changes to supply chain which will pay off long-term. Definitely some headwinds. 

[Spekulatius]

1 minute ago, Castanza said:

$SWK Stanley Black & Decker watcher position

 

Anyone else look at this lately? 

- Inventory was over built but they are rapidly reducing and expect to be back to normal levels mid 23. 

- Reduced production and headcount 

- Company focus is reducing debt and and reach a 2x debt/EBITDA level. Paid down 3.3b in Q3 more expected Q4

- Sept cashflow positive with expected positive fcf for 4th quarter. 

- Should see better margins. Current low 20's expecting high 20's by Q2 23 (excludes supply chain improvements)

- Targeting 35% margins by 2025

- Directors buying back shares mid 80s-90s

- Trading around 10 year lows

- Dividend Stalwart yielding 4+%

- EPS has been revised a few times. Recently revised down from 5-6 to 4-4.5 for Q4. 

- Softer demand is expected near term

- Production curtailment is a decision of cash generation vs softer market outlook. 

 

Due to management revising multiple times I think there is more room for pain in the next few quarters. But it seems like management is focused on the right things and have/are making necessary changes to supply chain which will pay off long-term. Definitely some headwinds. 

I was in this at higher prices (small position) and sold out for a loss. I do agree with the thesis, but I think they are seeing significant reduction in demand while prior troubles were more self inflicted with supply chain troubles anf also cost inflation out of control.

 

Compare how TTC managed through the cycle so far as a comparison.

 

That said, I am watching SWK closely but I am leery of continued misses that just seem to keep on coming.

[Castanza]

1 hour ago, Spekulatius said:

I was in this at higher prices (small position) and sold out for a loss. I do agree with the thesis, but I think they are seeing significant reduction in demand while prior troubles were more self inflicted with supply chain troubles anf also cost inflation out of control.

 

Compare how TTC managed through the cycle so far as a comparison.

 

That said, I am watching SWK closely but I am leery of continued misses that just seem to keep on coming.

 

Agreed, I think management needs to prove themselves over the next few quarters. I listened to the latest call and every analyst only focused on the margins getting back into the 30's. They didn't really care about the supply chain improvements or the debt repayments. Maybe that's the story with the company and the market only cares about that margin rate. 

 

Q4, Q1 will be important and give some more insight to whether or not the market is truly softening. Will also find out if management is right in the margin improvements. See a decline the next two quarters and this could really dump. Something I'll be watching for sure as this is a good coffee can idea if you can get it at a great (not good) price. 

[competitive-advantage]

Maersk

[Ross812]

Bought more META today. Also bought a starter in DFIN. 

[nwoodman]

 

META

[Spekulatius]

7 hours ago, Castanza said:

 

Agreed, I think management needs to prove themselves over the next few quarters. I listened to the latest call and every analyst only focused on the margins getting back into the 30's. They didn't really care about the supply chain improvements or the debt repayments. Maybe that's the story with the company and the market only cares about that margin rate. 

 

Q4, Q1 will be important and give some more insight to whether or not the market is truly softening. Will also find out if management is right in the margin improvements. See a decline the next two quarters and this could really dump. Something I'll be watching for sure as this is a good coffee can idea if you can get it at a great (not good) price. 

The last earnings reports had a lot of focus on FCF and it’s easy to see why- their FCF went almost to zero in 2021 with a huge inventory buildup.

As a rule of thumb, when you turn around a business, the first focus is almost always on FCF first and earning a second. This is because it’s game over when a company is running out of cash (and the ability to borrow more) rather than when it shows large losses.

 

Also, reducing inventory will generate cash, but probably make earnings worse due to “under absorption” and probably some discounted liquidations etc. 

 

While the plan makes sense in a high level, the current CEO (since June 2022) was coming from a CFO role at SWK and shares some of the blame, imo. The current CFO is interim, which I don’t think is ideal either. Quite a mess and it’s not because the business is in a steep downturn really.

 

The former management screwed up operations and lost control of their supply chain so to speak. other companies in similar business have done much much better than SWK. I think there is some real risk here that shareholders get permanently impaired (dilutive capital raise etc).

[Castanza]

11 hours ago, Spekulatius said:

The last earnings reports had a lot of focus on FCF and it’s easy to see why- their FCF went almost to zero in 2021 with a huge inventory buildup.

As a rule of thumb, when you turn around a business, the first focus is almost always on FCF first and earning a second. This is because it’s game over when a company is running out of cash (and the ability to borrow more) rather than when it shows large losses.

 

Also, reducing inventory will generate cash, but probably make earnings worse due to “under absorption” and probably some discounted liquidations etc. 

 

While the plan makes sense in a high level, the current CEO (since June 2022) was coming from a CFO role at SWK and shares some of the blame, imo. The current CFO is interim, which I don’t think is ideal either. Quite a mess and it’s not because the business is in a steep downturn really.

 

The former management screwed up operations and lost control of their supply chain so to speak. other companies in similar business have done much much better than SWK. I think there is some real risk here that shareholders get permanently impaired (dilutive capital raise etc).

All good points Spek I think it will be a tight race to see if they can meet their goals or if they will have to raise capital. Thanks for the thoughts

[aatrox919]

16 hours ago, nwoodman said:

 

META

I couldn't find a META thread. Is this a long position for you? Are you thinking that the layoffs will have a positive affect in the near-term? Do you think the market prefers a smaller or larger layoff if META does go through with it? I think I read somewhere that it would be in the thousands.

[Castanza]

7 minutes ago, aatrox919 said:

I couldn't find a META thread. Is this a long position for you? Are you thinking that the layoffs will have a positive affect in the near-term? Do you think the market prefers a smaller or larger layoff if META does go through with it? I think I read somewhere that it would be in the thousands.

 

It's under the Investment Ideas section

 

https://thecobf.com/forum/topic/7110-fb-facebookmeta/page/95/#comment-494700

 

[lnofeisone]

AIV and JOE. 

[rkbabang]

Added to a bunch of positions yesterday and this morning.

JOE, AIV, AIV $5 2024 calls, AIV $10 2024 calls, BRKB, and SRUUF.

 

[fareastwarriors]

Picked up some more $CLPR in the $6.50s...

[rkbabang]

And more BTC

 

[Ross812]

3-mo. t-bills (4.32% on the ask), DFIN, and CLPR

[longlake95]

call me crazy...bought a little more WBD.

[SharperDingaan]

OBE 

 

SD

[lnofeisone]

5 hours ago, SharperDingaan said:

OBE 

 

SD

What did you think of the ER? Lots of questions for this one and I'm watching form the sidelines until they provide new guidance. 

[Dave86ch]

Added to $BABA

[scorpioncapital]

buying lentils 

[nwoodman]

21 hours ago, aatrox919 said:

I couldn't find a META thread. Is this a long position for you? Are you thinking that the layoffs will have a positive affect in the near-term? Do you think the market prefers a smaller or larger layoff if META does go through with it? I think I read somewhere that it would be in the thousands.

Nothing but a rare trade for me.  Deeply dislike the business model and I dislike the CEO even more.  Anything this maniac does that remotely resembles stewardship of capital will result in a relief rally IMHO.  Looking forward to selling ASAP

 

Edit:  and restoring the respect of my wife who dislikes this company more than I do

Edited November 9, 2022 by nwoodman

[SharperDingaan]

10 hours ago, lnofeisone said:

What did you think of the ER? Lots of questions for this one and I'm watching form the sidelines until they provide new guidance. 

 

Posted our view in the OBE investment thread. They did all the right things in Q3, but disappointment was inevitable. New wells came on line late, and investors hadn't adjusted their expectations re lower crude prices and higher differentials.

 

Most quarters we swing trade around the ER to limit disappointments. At times like this, we look like heros.

 

SD

[CorpRaider]

"Well, I guess I might as well buy some $DIS." - Eeyore

[nafregnum]

2 hours ago, CorpRaider said:

"Well, I guess I might as well buy some $DIS." - Eeyore

 

That's what I was pondering.  I'm curious what the big disappointment was, but the last time I bought was at $93 and I don't mind adding under that level.

[Gregmal]

12 minutes ago, nafregnum said:

 

That's what I was pondering.  I'm curious what the big disappointment was, but the last time I bought was at $93 and I don't mind adding under that level.

It’s just the market. One negative datapoint and a lot of things sell off. A few Qs ago this woulda been +15% on the sub numbers and parks strength.