Stock Thoughts
An Investment in Knowledge Pays the Best Interest
Benjamin Franklin
APTV’s Car Parts Valuation Contrasts its High-Tech Reality
• APTV is spinning off its lower-margin electronic distribution business, retaining high-margin technology segments.
• Spin-off structured as tax-free distribution to shareholders, with new APTV retaining investment grade rating while separated EDS business expected to be sub-investment grade.
• 1.6x book-to-bill, expecting around $31 billion in gross new bookings during 2025.
• $1.1 billion in cash on hand, and more than $1.6 billion in annual free cash generated during 2024.
• Operating margins improved 150bps to 10.7% in 2024 through workforce reductions and automation, with guidance for 12.1% operating margins in 2025 and automation targets of 30% by 2026.
• Non-automotive revenues providing buffer during automotive production decline (estimated 5-7% contraction in 2025), with defense/aerospace higher-margin business offsetting cyclical headwinds
REPX Takes Advantage of Low Valuations To Build Asset Base
• 5.67% Dividend Yield
• $120m pipeline project should increase realizations in New Mexico as well as unlock the potential of the newly acquired Silverback II assets.
• Power generation JV expansion to 56% of Texas field and the introduction of similar generation in New Mexico reduces costs by using low-value byproduct gas.
• 2025’s focus will be on expanding the undeveloped asset base rather than new drills while hydrocarbon prices are depressed.
• Strong balance sheet with breakeven in the mid $30 range and an estimated net debt to EBITDA of 1.3x post-acquisition close.
SWK Retools Production to Move Out of China
• 4.64% Dividend Yield
• Management has initiated a 24-month plan to eliminate Chinese manufacturing dependency, increase USMCA compliance for Mexican operations, and implement targeted price increases.
• Strong brand recognition with DeWalt, Craftsman, Stanley, with a renewed focus on the professional sector.
• Expects over $500 million in free cash during 2025 despite tariffs.
• Aggressive transformation, with a long-term target of 35% gross margin (currently 30.2%) and 16% EBITDA margin (currently 9.8%).
Pork Powerhouse Smithfield Pivots to High-Margin Focus
• 4.35% Dividend Yield
• SFD maintains strong financial health with a 0.7x debt-to-EBITDA ratio, $928 million cash on hand, and no major debt payments until 2027.
• The company plans $400-500 million in capex for 2025, split between maintenance and operational improvements focused on automation.
• The company has already cut 20% of its herd size since December 2024, with the goal of internally producing only 30% of needed hogs to stabilize margins across commodity cycles.
• Despite export challenges, the USDA only expects a 2% drop in overall pork trade, and low storage levels may limit pricing pressures from oversupply in the domestic market.
Papa Johns Delivers a Slice of Stability in an Uncertain Market
• 5.9% Dividend Yield.
• QSR (quick service restaurants) have historically been resilient in economic downturn, sometimes even seeing volume increases.
• Improved unit-economics for franchisees by waiving certain fees to drive down payback period from 5.5 years to 3.2 years, which we believe will incentivize expansion.
• Papa Dough loyalty program has 17.5 million active members, up 21% since 2023, thanks to the program revamp providing better value and more tailored discounts.
• Pivot to value offerings to boost short-term volumes and ensure market share expansion, making it up over the long term through commissary markup increases over the next 5 years.
Boyd is Betting on High Shareholder Returns and Long Term Growth
• 1.12% Dividend yield, committed to repurchasing at least 7.5% of outstanding shares in 2025.
• Despite some economic uncertainty, Boyd estimates 2025 will be overall flat outside of the online segment, where it still expects 8.6% bottom line growth.
• Boyd has a $317.5 million cash position and currently generates $556.7 million in annual free cash.
• $200-250 million in annual maintenance capex required, with $200 million additional slated for renovation and $100 million for breaking ground on a new Casino in Virginia.
• Fast growing online segment, with online revenue growing 43.6% on top of a 5% equity stake in FanDuel.
Whirlpool’s 8.2% Dividend Powerhouse Spinning Through the Downcycle
• 8.2% Dividend Yield
• Despite current headwinds in North American sales WHR’s high domestic manufacturing footprint (80% of US sales) provides insulation against potential tariff impacts.
• With a debt reduction target from 4.4x to 3.4x by end of 2025 and projected $550 million in free cash flow, WHR appears financially positioned to weather current housing market weakness.
• The stock has declined 27.0% over the trailing twelve months, potentially creating an attractive entry point as worst-case scenarios appear priced in.
Melco is a Discounted Way into Asia-Pacific Gambling Recovery
• Melco’s strategic shift to an asset-light model promises improved capital efficiency while maintaining its strong 15.6% Macau market share.
• Ongoing property renovations across the portfolio to organically attract high-value customers after junket market contraction.
• 2025 Projected capex increase of 70.5% to $415 million, backed by a $1.1 billion cash position.
• Targeted expansion into emerging markets like Sri Lanka and potentially Thailand creates long-term growth avenues beyond the core Macau operations.
• Despite 6.1x net debt to EBITDA ratio, management’s focus on deleveraging and potential Manila asset sale should strengthen the balance sheet.
PVH’s Undervalued Brand Renaissance at 5.6x PE
• Trading at just 5.6x PE following a 38.7% YTD decline.
• PVH’s strategic consolidation of its Tommy Hilfiger and Calvin Klein brands aims to restore pricing power and improve brand control, driving longer-term earnings power.
• Despite operational challenges, PVH maintains robust free cash flow of $715.3 million over the trailing twelve months, and a healthy balance sheet of 2.6x debt to EBITDA.
• While China represents 6% of revenue and 16% of EBT, PVH’s addition to China’s “unreliable entity list” appears to be priced in.
• PVH’s strategic initiatives including organic e-commerce growth and manufacturing consolidation position the company for potential margin improvement toward its long-term 15% operating margin target.
St. Joe has Hidden Value in Discounted Real Estate Portfolio
• 1.25% Yield
• Owns 167,000 acres of land in the Panhandle of Florida, which we believe can be monetized at a current present value of at least $100 per share.
• The major Bay-Walton Sector Plan covering 110,500 acres slated for development through 2064, including 170k residential units and 22 million sqft of commercial space.
• Special zoning status reduces regulatory hurdles for planned residential and commercial development.
• Record-setting year for hospitality segment offset the slowdown in the region’s housing market after a boom in 2021-22.
• The Bay-Walton County area has an annual population growth rate of 3.2%, providing a secular demographic tailwind.
Automotive Drives Solid Revenue Base for HIMX
• 3.0% Yield.
• HIMX’s automotive display-driver sales increase just under 20% year over year, now representing around 50% of global market share.
• Invested in partner FOCI, seeking to accelerate development of CPO (co-packaged optics) to improve efficiency in data transmission within datacenters.
• Continued partnership with “leading AR (augmented reality) partner” in creating new consumer AR wearables device.
• Computer vision partnership with NVDA (Nvidia), allowing HIMX’s technology to be plug-and-play with NVDA software.
LYB Expects 2025 Recovery to Support 6.9% Yield
• 6.9% Yield.
• Despite a high cash payout ratio of 106.3%, LYB intends to increase its dividend in 2025, backed by a $3.4 billion cash position.
• LYB reported growing industrial demand in North America, with high utilization rates and cost advantages from low natural gas prices.
• LYB is reviewing six underperforming assets in Europe, potentially leading to divestitures, closures, or efficiency investments.
• LYB is shutting down its Texas refinery, incurring $345 million in closing costs but freeing up $240 million in working capital.
• LYB’s net debt/EBITDA ratio of 2.1x is below the industry median of 2.4x.
