Netflix (NFLX)

Short Thesis. Despite a business that is used happily by millions of people, Netflix has been a hot topic among many fundamental investors.

Whitney Tilson, the famous fund manager of T2 Partners, released their short position thesis on the stock.

In sum, the business is moving away from the DVD mailing business and into streaming content. Tilson argues that this new model will have a substantial impact on the company’s margins going forward.

Meritage Hospitality Group (MHGU.PK)

Long Thesis. A three part series, this is an very thorough analysis of a small microcap stock trading on the PinkSheets.

MHGU is a real estate and restaurant company with locations under the Wendy’s (79 stores), O’Charley’s (3 stores), and Twisted Rooster (1 store) brands, along with holding a substantial amount of land in the Bahamas.

The author argues for several catalysts: a resumption in activity in the Michigan and Florida markets (where most of the company’s restaurants are located), as well as improvements in the Wendy’s franchising model.

In parts two and three, the author evaluates the company’s potential on both a sum-of-parts asset basis as well as on the earnings potential.

Discovery Communications (DISCK/DISCA)

Paired trade. In this special situations play, a paired trade is suggested for the two classes of Discovery Communications stock. At the date of the article, the K shares trade at $37.205 vs. $42.76 for the A shares.

The main difference between the two is that the K shares have lower liquidity and no voting rights. However, since company is effectively controlled by the super-class B shares, these voting rights are probably of little value.

By buying the K shares and shorting the A shares, an investor can pick up the spread if the price of the shares converge.

Dual-class stock arbitrage is a new one for me and I plan on doing additional research into these types of workouts.

Supervalu Inc (SVU)

Long Thesis. A fixture on the 52-week low list, this large grocery store chain has been hit by a string of non-cash writedowns due mainly to the recent acquisition of another large chain, Albertsons.

If the goodwill impairments are an extraordinary event and the rest of the operating metrics (margins, cash flow, debt repayment, etc) remain intact, these situations often warrant an extra look (see my posts on NOOF as another example).

After some modifications for the latest impairments, SVU appears to be trading at a TTM P/E level of 5.5 compared to a P/E of 12 for Kroger and 17 for Safeway.

As a possible catalyst, new management has concentrated on paying down debt and streamlining the operations and product offerings.

RealD Inc. (RLD)

Short Thesis. RealD licenses 3D technologies to movie theaters internationally. This investment thesis revolves around the total market opportunity compared to the growth assumptions priced into the stock price.

The stock trades at a forward 18.5x EV/EBITDA ratio, with the author arguing that an 8x multiple is more appropriate, translating into an EBITDA figure of $185m.

In the next few quarters, 3D revenues are expected to flatten. Historically, if every possible movie was made in 3D from 2006-2010, total box office receipts from 3D movies would be approx. 40% of the total gross receipts.

Assuming RLD achieves an 80%/50% market penetration (domestic vs. international), this translates into $135m EBITDA, well short of the $185m figure.

Suggestions?

If you have links or suggestions to detailed analysis from other value investors, please drop me a line using the Contact Form.

I’m always open to ideas from other investors, especially for a thoughtful and well-researched investment articles.

Disclosure

No positions.

Many experienced investors will attest to the fact that a company’s earnings call is an important part of the due diligence process.

In this post, I’m going to walk through the different methods for accessing this resource towards my ultimate goal: downloading these calls as an .mp3 for future playback.

Earnings Call Introduction

Press releases are usually a sanitized account of the financial numbers, often cherry-picked out of a recent 10-Q.

On the other hand, earnings calls allow investors to hear management’s views straight from the source.

Generally, each call starts with prepared opening remarks, transitions into a detailed walk through of the financial numbers, and then opens up to investors for a question and answer session.

During the call, the speaker’s tone of voice, word choice, and confidence can all shine through.

The Q&A section is often the most important, as it can provide important information and explanations to help ferret out inconsistencies, determine future growth prospects, or provide more detail on the financial results.

It is a great resource for investors, but I’ve found that accessing this resource is not always as straightforward as it seems.

Time of Day

Most earnings calls last anywhere from 30-60min, with the time and date announced in conjunction with the company’s press release on quarterly results. Usually, the call happens during normal business hours.

While this might be convenient for full-time investors and traders, I’d imagine that most of you have a day job. For many, this makes it difficult to attend the live call.

Earnings Call Transcripts

One alternative is call transcripts, a word-by-word description of the entire call.

Some larger companies offer transcripts after the fact, either on the IR section of the website or from a third party source such as SeekingAlpha. Other services such as Earnings.com or Alacrastore.com offer paid transcripts ranging from $50-$75.

If there isn’t time to sit through a call, transcripts can provide a great alternative to the live event with less hassle and more flexibility.

However, transcripts often do not provide the subtle clues around tone and general feel of the call (is management upbeat and joking around? or stiff and pessimistic?)

Webcasts

If a transcript isn’t available, most companies will provide a webcast of the conference call on the IR section of their website for a period of time following the live session. An investor can register to access a streaming recording of the call through their web browser.

While useful, this method requires sitting at the computer for the length of the call.

After much testing, I finally found a better way to download the files as an .mp3, allowing me to listen to them in the car during the commute to work.

Saving Earnings Calls

Most calls are setup to stream over Windows Media Player or RealPlayer within an internet browser, not conducive for later playback.

Here are the steps I discovered for saving these calls as mp3s:

1. Download & install VLC Media Player – an open source product, it is a powerful player capable of handling all sorts of audio and video formats
2. Login and register for a company’s earnings call (I’m using J&J’s Q3 2010 earnings call as an example), and begin playback in Windows Media Player
3. Right click on the Windows Media Player bottom bar, near the player controls. When the menu opens, scroll down and click on Properties.
4. Highlight and copy the website string under “Location:” This is the streaming source that will be entered into the VLC Media Player:
5. Open VLC, go to to the top menu under Media, and select Convert/Save.
6. In the Open Media window, click on Network and paste the website streaming address in the Network URL field:
7. Click on Convert / Save. On the next screen, input a destination file location with an .mp3 extension. Change the profile to “Audio – MP3” and click Start.
8. After a brief period, the conference call should start streaming in the VLC player. Once complete, it will automatically save the call in .mp3 format that can be played back later.
9. Transfer this call to your iPod or other music player, and perform due diligence in the car on your way to work!

Conclusion

While there seems to be a lot of steps, it is a relatively straighforward process.

Access to an iPhone or other web-enabled phone will most of this guide a moot point, as you can often register and stream the calls directly from your phone’s browser.

Some large stocks (such as J&J) even have an iPhone-enabled IR section on their website, making it extremely easy to access the files on a smartphone.

Even so, I still prefer the above method as I don’t have to actively use my dataplan while streaming the call on my phone.

If there are other methods, I’d love to hear about them. If you have any problems or suggestions, please comment below or drop me a line via email.

Disclosure

Long JNJ. Please keep in mind that some earnings calls and investors presentations are restricted and should not be reproduced. Please check the respective IR website for disclosure statements and legal information.

As usual, here are the best investing ideas from the past few weeks:

Kirkland’s Inc (KIRK)

Baskerville Capital is quickly becoming one of my favorite blogs. Kirkland’s (KIRK) has been a stock that has been discussed by numerous value investors and featured on ValueInvestorsClub.

On the most conservative estimates, the stock appears to be worth around $12/share, with an upside closer to $20 if it is assigned a similar EV/EBITDA multiple as its competitors.

More importantly, these intrinsic values are calculated with no growth priced in – if the company opens approx. 30 new stores per year, each should add EBITDA of approx. $230k.

A few weeks ago, the stock dropped almost 20% (below $11) on lowered guidance headed into the busy fourth quarter shopping season. Since that time, it has appreciated significantly and now trades near $14.

General Motors Corp (GM)

While I spend most of my time searching and investing in obscure microcaps, I am always on the lookout for well-written research and analysis. From SumZero, this article tackles a company that is anything but obscure – GM.

After a very public bailout and corporate restructuring, the stock has emerged with a much stronger balance sheet and cost structure.

Compared to Ford (F), GM trades at a significant discount to EV/EBITDAP (3x for GM vs 4.4 for Ford), and should benefit from a gradual rise on vehicle purchases after the lows of 2008/2009.

How to Perform a Reverse Stock Valuation

In addition to having the best spreadsheets out there, Jae Jun at Old School Value has been running a series of articles on helpful ‘How-tos.” This is a detailed post on how to perform a reverse EPV valuation by one of the readers at OSV.

This is especially helpful in determining if the current market multiple is reasonable, or if the growth projections are widely overstated. It is another great way to determine if stocks are being mispriced.

Suggestions?

If you have links or suggestions to detailed analysis from other value investors, please drop me a line using the Contact Form.

I’m always open to ideas from other investors, especially for a thoughtful and well-researched investment articles.

Disclosure

No positions