One of our past stock of the month selections, Movie Gallery, will announce earnings around Aug 11th. The analysts estimate earnings to come in at .08 per share. I however, am estimating about $1.00 per share…This is a huge difference in opinion!
I’m basing my analysis on the superb 1Q results MOVI posted ($1.27 in earnings per share). Based on information from Rentrak, I expect sales results to be better than the 1Q (as compared to the quarter last year). This would mean same store sales would be flat or down less than they were in the 1Q. I expect MOVI ability to match costs with revenue to have similar success as the 1Q.
Over the past 3 months, the consesnus estimate has increased from a loss of .08 to a profit of .08. I believe that the analyst community is hesitant to significantly increase their estimates until MOVI can show that the 1Q results were not a “fluke”. This gives the investor a great opportunity, if you have confidence in your analysis, to buy a stock at a bargain.
On a valuation note, companies generally sell for between 6-10X the A-EBIDTA to enterprise value. At a 5.00 price, MOVIs enterprise value is about 1,265 (Debt outstanding + market cap). With a trailing EBIDTA of 265 million, this ratio is 4.77. However, over the next several quarters, MOVI A-EBIDTA will increase quite a bit. I’m projecting 400 million for 2006. In addition, I expect MOVI to pay down 150 million in debt. This would make MOVI CURRENT ratio (based on current stock price), and forward looking projections, to be 1076 / 400 = 2.69. A very low number.
In addition, I expect MOVI to earn around $4.00 per share for 2006. Note that they will not be paying any taxes for the next few years, so if you calculate the earnings as if they paid taxes, it is around 2.40 per share. Give the company a P/E ratio of 10, and the stock is trading for $24.00 per share.
