Interesting valuation of Yahoo, 12 mo PT $50 per share, or 46% upside



It is a sunday morning in Bei Jing, and having glanced at the recent drop in Yahoo’s price, I believe it merited an evaluation and recommendation as to where the company will be heading in the future.

Bloomberg values Alibaba at $160B which values Yahoo’s position in it at  $38.4B. It is my understanding that Yahoo will sell a portion (say 12%) of its shares in the IPO so lets consider the after-tax cash flow of (19.2*.65) $12.48B. That makes the position worth about $31.68B.

At today’s current market cap, Yahoo is valued at $34.58B, this is only a difference of $2.9B….BUT WAIT!! This means that Yahoos core business and its 35% position in Yahoo Japan  (worth $9.94B) is actually only worth $2.9B.

Lets run a numbers check: $31.68B from Alibaba after tax + $9.94B from Yahoo Japan= $41.62B, or per share price of $41.02. Current market price of $34.26 is a 19.7% discount to the market value of its holdings.

But wait, theres more!

Lets not forget that Yahoo has its own operations to include in the price.

Albeit that recently the trends for the company haven’t been looking good (Loss in Market share from 3.37% to 2.87% YOY)

Yahoo’s cash flow from operating activities the last 4 quarters is the following (In 000’s):

Total Cash Flow From Operating Activities 347,727   298,010   330,828   218,682 

Lets look at the company now:

Over a billion in cash flow for investment/financing decisions (has been purchasing back stock with a portion of it)

Its EBITD margin is at 25% and Net profit margin is at 10% which signifies that the company is profitable.

Spent $1B on R&D last year alone

Quarterly EARNINGS of $150M on average from operating income

Annual depreciation expense (not a cash outflow) of $650M

About $1.2B in FCF

Growth estimation of next 5 years at 7.25% (Yahoo finance)

CAPM: 3.4% + 1.05( 10%-3.4%)= 10.33%

FCF=  Operating CF – capex

FCF= 1.2B – .338B= $862M

Although our CAPM says discount rate is 10.33% I want to be conservative and say it is 16% and growth rate is 3%, not 7.25% (from yahoo finance)

$862M/ 10.33-7.25= $27.9B valuation of Yahoo’s operations, unrealistic so disregard

My conservative assumptions:

$862M/16.00%-3.00%= $6.6B valuation of Yahoo’s core business, but remember that yahoo spent $1B on R&D on research last year alone and about $900M in each year 2012 and 2011.

Again, being conservative we will not include the almost $3B spent on R&D into our valuation

$31.68B from Alibaba after tax + $9.94B from Yahoo Japan= $41.62B + $6.6B valuation of core operations= $48.22B

Or $47.74 per share, a 39.3% difference from current prices.

There are risks in this investment:

Specifically China’s growing credit bubble, uncertain growth prospects of Yahoo, Alibaba’s IPO price, and others.


The pros here:

China will begin to shift towards service oriented economy as manufacturing jobs are being outsourced to Vietnam, Thailand and other lower cost countries

Alibaba’s business model is EXTREMELY profitable and is growing extremely fast (40% or more on margin and growth) and may induce higher valuation, which would only benefit Yahoo

It has 80% of Chinas e-commerce market, but will be well equipped to enter new markets with all the digital infrastructure and business model in place


To Summarize:

Absolute Worst case scenario 12 month Price target:

Yahoo $38 per share (Alibaba valued at $120B, Yahoo’s core valued at $4B (essentially worth what it spent on R&D last 4 years) and Yahoo Japan goes down almost 50% in a year)

Average Scenario 12 month Price target:

Yahoo $46-49 per share (Alibaba valued at $145B, Yahoo’s core valued at $5.5B, Yahoo Japan stake stays at current value of $10B)

Above average scenario 12 month price target:

Yahoo $49-53 per share Alibaba valued at $160, Yahoo’s core valued at $8.5B, Yahoo Japan stake worth $11B)

BEST case scenario:

Yahoo $58-62 per share Alibaba valued at $180B, core valued at $10B, Yhoo Japan worth $12B)


The most realistic scenario in my opinion is the Above Average scenario putting Yahoo’s shares at $50, or a 46% upside from current prices. We are not including the value of Yahoo’s R&D in these Price Targets.


Disclaimer: I have positions in $YHOO, this post is my thoughts and opinions, not an investment recommendation. Do your own due diligence when considering investing. I am not liable to any losses/gains from actions taken by readers.



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Reiterating guidance on certain companies that will THRIVE this decade

I just got back from hearing Myron Scholes speak at Tsing Hua University and he completely reaffirmed my outlook on some macro economic trends.


I simply want to reiterate BUY recommendations on

Gatx Corporation


Chesapeak Energy


Northern Tier Energy


Main Street Capital


And  finally, a new one, Bitauto Holdings.


Won’t go into specifics as I have many things to do tonight but if you are interested you can message me for additional information as to why I see such a bright future for these specific companies.

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Singapore, real estate, and profits

I met a friend here in Tsing Hua, he is a singaporean student studying abroad here and will be working in real estate, ideally development in Singapore. I mention this because it is from speaking with him that I began learning about Singaporean land prices.


The quick facts are this:

Land has increased in price dramatically over the last few years

This has led to shrinking real estate development firm’s profits

This has depressed the price for real estate development firms that do business in Singapore

I was looking at investing in either capitaland or Singapore Land Lmtd. I chose the latter of the two because it was more exposure to singapore as a company than the bigger and more diversified Capitaland.


I saw this company to have great value given the pessimistic outlook on future cash flows and was going to buy it and hold on to it until land prices went back to fair value and the company regained a respectable multiple  (Capitaland’s is about 15x, At the time, Singapore Land lmtd was about 10x).


I wasn’t the only one putting one and one together. No less than 3 days after I began learning about the growth prospects and the business of Singapore Land Lmtd, it was announced that United Industrial Corp. (UIC), which already owned about 80% of the company, planned to buy the remaining shares from the market and take the company private, and thus, UIC will reap the rewards of this under valued company.

Long story short, the company shot up 11% and will be taken private for $9.40 per share. I had put a 12 month target of  $11.20 on it (a little over 30%, but now we will never find out if this is accurate or not.


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Outlook for 2014

It has been many months since my last post. A recap of where I am now and what I foresee for the future, also an update on how my current holdings are doing and where I see value in this market.

I am studying abroad in Bei Jing at Tsing Hua University’s School of Economics and Management. It is a great experience so far and I am also able to see the world through a different pair of eyes. This is advantageous as I develop as a person, but also in the world of investing to see where the next BIG thing is. My professors here are very interesting too, learning about business through their perspective only adds to my growingly diverse view on life.

Currently I am reading a book recommended by my mentor: The 4 hour work week. I really have enjoyed reading it so far as it provides a refreshing take on a person’s savings towards retirement and how that might not be the right attitude on your life.

For the 2014 year so far, my portfolio is up 3.61%, while the S&P 500 is up 0.6% (at the time of this post). Leading the gains have been $MAIN and $GMT. You will remember that I wrote a paper in June on GMT and I have been really pleased with how it all played out. The company is up over 40% since I published this paper and the increase in value has been due to the points that I highlighted.

A brief report on some of my holdings and where I see them going:

$YHOO: I plan to sell this once Alibaba IPO’s. I value YHOO at between $42-$46, unfortunately for YHOO, Alibaba makes up the majority of the company’s value. From my investment proceeds, I plan to buy shares in GOOG as I believe that this company has the strongest economic moat that has ever been seen.

$EXAS: EXAS presents to the FDA on march 27th and if successful the company’s stock price should jump. There was little correlation between EXAS last year and biotech firms in general, so it is my belief that within the next 2 months, EXAS may be hitting the $17-$18 range. Very speculative as I have read numerous investment thesis about how this company is going to run out of cash in 2 years or less and no longer be around. We shall see who is right. Additionally, with so much short interest, a short squeeze may be in the horizon.

$CHK: Recently acquired on latest sell off ($24.90), I have been wanting to get in for the past 4 months and finally I had a good opportunity. This company I will be holding for the next 5-7 years at least as the world of energy continues to unfold.

I was taking a look at buying $MANU (Manchester United, the soccer, or football team, depending on where you are from). After a quick 15 min read of their financials, I decided against it. The price is slightly depressed due to their lack luster season so far but honestly, the upside of the company is negligible.

In my next post I will touch on the real estate market in Singapore and how I came up with an idea based off of a friend I met here in Bei Jing.

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Here comes earnings! Feeling Bullish!

So the market has been in the red the past few days, but there is not quite enough reason to cry “wolf!” yet. The fed has hinted at reducing their bond purchasing program in the future, but have repeated multiple times that they will be cautious going forward, and that unemployment needs to meet 6.5% before any substantial changes take place (i.e interest rates).


I am feeling very bullish on a few of the companies I own as we come into their earnings report this month:


$MAIN (Main Street Capital) announces on August 8th after the market closes. I am a strong believer of this company and they have always delivered strong earnings, not to mention an increase in dividend pay out many times over. For the past 20 days the company has been range bound from $30.50 to $31.00. This represents a fair valuation of the company and I see a predictable near future, this is so critical in a time when uncertainty is lurking around the corner thanks to over reactions towards comments from the fed.

$MAIN is a hold


$NTI (Northern Tier Energy) announces earnings after the closing bell on August 12th.  With a P/E ratio of less than 5 at the time of this writing, I see it as a screaming buy. Past performance is not an indicator of future performance, but the fact that this company is making money rather than losing it as so many other refinery companies are, I am very bullish on NTI and its 20%+ dividend.

$NTI is a buy

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Bullish Stocks Overview (8/2/2013)

This is my first post on this blog, and the Bullish Borgert will be dedicated to posting stock recommendations and my ideas. I moved my GATX Corporation analysis to this blog and will continue to post my research on companies to this blog.

(Disclaimer: This is only my opinion and such be taken as only that. At the time of this posting, I hold positions in FAST, GMT and MAIN)


SNV (Synvous Financial)

This is a smaller regional bank in south eastern United States. These banks do not have as much regulation as the big banks have for issuing loans and therefore have a competitive advantage. The financials sector has been moving up lately and if I had to chose a company to put my money behind, it would be SNV. My 2nd choice would be BAC (Bank of America). 3rd choice would be GS (Goldman Sacs). These three companies have great growth prospects for the coming years.

FAST (Fastenal)

This nuts and bolt company and consistently provided double digit growth in its revenue and is a safer investment with lower volatility. I recommend this stock when there is a pull back on the price.


This investment firm provides a 6% annual divided, distributed every month (.5% a month). They make loans to small and mid sized businesses and have a healthy portfolio. As of now, it is trading around $30.75, I see that as FMV (fair market value). I added to my position on the most recent pull back at $29.15 and look to hold on for the future divided payments (history of increasing them), and capital appreciation from the company.


This is a high risk, high reward idea: JCP (JC Pennys)

Based off of the rumor of their inability to receive credit for their products, the company’s stock price was slammed from  $16.40 to $14.20 (current price). JCP has gone out publicly saying that this rumor was not true, and even the company which was rumored to have cut its credit lines has said it is not true. If this is the case, here is an opportunity to get in to JCP at a discount. However, this discount would be the only reason I would be in JCP so I can’t say I recommend it, only that this is an interesting situation. There are heavy hitters backing JCP (I.E George Soros, Ackman) so if you do your due diligence on this company and see value in this company: Now is a good time to get in.


Here is an article from JCP:

“jcpenney Says News Report About CIT’s Action is Untrue

PLANO, Texas (Aug. 1, 2013) — J. C. Penney Company, Inc. (NYSE: JCP) said that a news report which appeared yesterday is untrue and that it has been told so directly by CIT, the subject of that report. Contrary to the news report, CIT continues to factor and support deliveries from jcpenney suppliers.  In fact, jcpenney continues to have the support of all of its key vendors, who have maintained their shipments to the Company.  The Company noted that CIT factored merchandise currently represents less than 4% of its overall inventory for the year.  The Company further stated it continues to have ample liquidity to manage its business with expectations to close the quarter with approximately $1.5B in cash on its balance sheet.”



Other good, low volatility investments for the long term:

AIG, and GMT

Read my report on GMT to learn why it is undervalued based on its future growth.

There are more companies I am bullish on, but I will leave it at this for now.

Feel free to bounce ideas off with me

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Bullish: GATX Corporation ($GMT)

Call: Buy GMT (NYSE: GMT)
Contributor: Diego Borgert.
Timeframe: 18 Months to 2 Years.
Recent Price: $45.34.                                                   Entry Price: $42.00-$44.00
Target Price: $58.50.

Strategy: Value, Growth


GATX Corporation (GATX) leases, operates, manages and remarkets long-lived, widely-used assets, primarily in the rail and marine markets. The Company operates through four primary business segments: Rail North America, Rail International, American Steamship Company (ASC) and Portfolio Management. GATX and its rail affiliates lease tank cars, freight cars and locomotives in North America, Europe and India. As of December 31, 2012, GATX’s wholly-owned fleet consisted of approximately 131,000 railcars and 561 locomotives. GATX also has an ownership interest in approximately 30,000 railcars through investments in affiliated companies. Affiliate fleets consist primarily of freight and intermodal railcars. In addition, GATX manages fleets for an affiliate and other third-party owners of approximately 5,200 railcars. (Google Finance)

Things to know about the Railcar market and how it affects GATX from Aimen Consulting (Link at bottom of article):

Rail freight cars tend to be commodity-specific; demand for railcars is correlated with demand for the commodities they carry. In GATX’s case, it is oil from North Dakota, which has seen tank-car demand rise exponentially.

“GATX has effectively 100% utilization in the tank-car industry right now…manufacturing backlog for tank cars (71,704 in Q1) is still at 18 months or more, so it’s hard to see a rapid decline at this point” Analysts expect the backlog to last until 2015. (WSJ)

CEO of GATX Brian Kenney with regard to ‘oil-rail boom’ on July 18th 2013

Average new car prices are the strongest predictor of railcar lease rates. Technological innovations such as that which raises the capacity and, thus, operating efficiency of new railcars, can significantly depress the value of older cars.

Because of the surging demand of tank-cars and short supply “leasing company officials say standard tank-car contracts have been pushed out to 7 to 10 years, and rates have more than doubled since 2008 to around $1,250/month. They are much higher for shorter-term leases” (WSJ)

Full service lessors – lessors with responsibility for the maintenance and repair of the railcars, among other things — account for about 70-75 percent of the tank car market and 40 percent of the total fleet of other freight cars in the United States. Major private tank car lessors include GATX ,Union Tank Car, Procor (a Canadian affiliate of Union Tank Car), GE Rail Services, and PLM (recently acquired by CIT Rail).

Rail carriers in the U.S and Oil companies do not want to own tank cars because of the higher maintenance needed in comparison to other railcars, furthermore, oil companies do not want 40 year assets in the logistics side of their business sitting on their balance sheet. This creates a niche for railcar leasing companies.

Quick Thesis:

GATX Corporation has strong growth opportunities in India as well as favorable conditions for its Rail North America and ASC segment through the increased demand for oil shipping in North Dakota and  and shipment of the high margin commodity iron ore. GATX will further realize significant revenue increases through the expiration and renewal of rail cart contracts due to expire in 2013. GATX continues to perform well through synchronization of its business segments. Furthermore, GATX has had investment volume of $470 million year-to-date, and continued success with the “Rolls-Royce” Partnership.

There have now been 3 articles written about the rail-oil boom in the Wall Street Journal in July. The articles are about the increased demand for oil tank cars, and the possible new safety regulations of the older tank cars due to the disaster in Quebec where 72 tank cars exploded due to a brake malfunction. The article on 7/24/2013 suggests that there will need to be 2 operators instead of 1 operator on trains with hazardous cargo. This negative spotlight on rail car companies may push GMT prices down to $42-$44 a share. $42 is the next level of support if the $45 support level does not hold.

The articles can be found here:

I estimate revenue for Rail North America to increase over the next 2 years to $1.13B due to inflation, increased demand for rail carts, and the expiration of the 2009 and 2010 leasing contracts. For GATX as a whole, I estimate revenue to be $1.5B for the 2015 year and set a price target of $58.50 representing a 29% gain from current price ($45.34) for the end of 2015, or a +39% gain from $42/share. The negatives for GATX Corporation at the moment are increased maintenance due in 2014-2016, and possible new regulation for tank car safety.


GATX has been in business for over 110 years. This means: Experience. They have a thorough knowledge of the rail car leasing business and have had the time to diversify the company through its “Portfolio Management”, “Rail Europe” and “Rail India”, their newest venture, as well as owning and operating a multitude of different rail cars. On top of that, the senior management of GATX Corporation have worked through the ranks of the company: some of the senior management have worked at GATX for over 30 years. This is a strong competitive advantage that GATX has in their management. Not only has the company withstood the test of time (Incorporated in 1898), but the leaders of the company have worked their way up through the business and have a vast knowledge of how this railcar leasing company works and how to improve it through acquisition of new investments as well as strategic contract negotiations on leases.

The four segments of GATX’s business are Portfolio Management, Rail North America, Rail International (Europe and India), and American Steamship Company (ASC). Every single branch of GATX has years of experience in their respective markets, a strong presence and the ability to leverage their expertise to provide high quality services to the customer (I.e. leaser).

Portfolio management

–          This branch of GATX utilizes economies of scope through GATX’S infrastructure and experience in marine equipment, container-related assets, and power generation equipment. They create value through asset bundling and sales to strategic buyers (of which GATX has a broad network of), pro-active end-of-lease negotiations (critical to GATX’s opportunity to increase profits). This segment applies experienced workers skills in equipment valuation, negotiation, among other things to optimize the outcome of lease-end negotiations. The synchronization of their expertise in these areas combined with their existing infrastructure gives GATX a competitive advantage in this industry for generating value to shareholders.

Rail India

–          “”Rail India” provides rail wagon lease financing and related services. It is the first leasing company to be registered under Indian Railways’ Wagon Leasing Scheme, and intends to be the leader in leasing of rail wagons in India. This is achievable by leveraging over a century of operating experience and expertise in North America and Europe.” (GATX website) Rail India provides GATX the opportunity to extend their business into a heavily populated and growing country as well as the opportunity to benefit from the growth of neighboring countries (i.e China,  Philippines) . It is an ideal operation to diversify and expand GATX globally and could prove to be extremely valuable in the future.

Rail Europe

–          GATX has over 20,000 railcars in Europe. The three segments of Rail Europe are based in Austria, Poland and Germany.  GATX Rail Austria and GATX Rail Germany (formerly KVG Kesselwagen Vermietgesellschaft) were acquired by GATX in 2002.

–          GATX Rail Poland (the former DEC Sp. z o.o.) has been operating on the rail tank car rental market since 1950. Pursuant to the Polish governmental program of petroleum industry restructuring and privatization, in March 2001 DEC Sp. z o.o. (DEC) became a part of GATX Corporation.

–          These segments of Rail Europe have been in business for many years. This provides GATX more perspective and insight to the European market as well as an already established position in the railcar rental market. Germany is an industrial hub of Europe. Located in these countries, GATX benefits from a large amount of exposure to potential customers throughout Europe.

American Steamship Company (ASC)

–          ASC was founded in 1907 in Buffalo, New York and services the Great Lakes area for transporting dry-bulk commodities including iron ore pellets, coal and limestone aggregates. ASC provides safe, efficient and environmentally responsible waterborne transportation. The Great Lakes fleet consists of 18 self-unloading vessels (13 used today) that range in length from 635-feet to 1,000-feet. The single-trip vessel-carrying capacity ranges from 24,000 to 81,000 gross tons. During the navigation season, the vessels operate 24/7 and require no onshore assistance to unload cargo. Unloading speeds range from 7,000 to 10,000 net tons per hour and can be seen here:

Pertinent Article about GATX:

GATX’s profits growing thanks to sharp rate hikes

GATX is primarily a leaser of railcars in the U.S. and Europe that had previously been restrained by weak asset utilization that was limiting rates. Conditions have improved significantly, allowing for pricing increases on a year over year basis of more than 30% in the last two quarters. Renewals are now being contracted at more lengthy terms and utilization remains strong. All of this should result in share-earnings growth upwards of 10% this year.

Earnings are likely to demonstrate enhanced stability behind the higher rates and extended terms. The possibility that overcapacity, stemming from excess expansion in the oil market, will again be a hindrance is muted by this strategy. GATX is up against pipeline operators in the market for crude oil transportation and will probably lose share, due to the greater efficiency of that mode of storage.

The selloff of GATX shares due to a first-quarter share profit that fell well below forecasts shouldn’t deter investors. One-time non-operating items were partly to blame for the shortfall. GATX is booked through much of 2014 and into 2015 at record rates. Note that maintenance expense increases of about 10% this year will limit profit growth but the impact should subside over time. GMT stock is worth considering for the long haul.


The important item highlighted in this article is the LPI increase of 36% for leasing rail carts on new contracts. The LPI shows that the increased demand for tank-cars translates to the ability to negotiate contract renewals with 36% higher lease rates, and will continue to do so as more contracts expire and need to be renewed. (This means that upon renewal of a contract, if it was set at $1000 per month, it is now $1,300. Lease terms are also showing increases to an average of 65 months for now). Within the next 4 years, GATX’s Rail North America revenue will increase by at least 30% if the lease rate stays at what it is now.

gatx wsh

An interesting thing about the LPI information provided by GATX Corporation’s website is that the years with the highest decrease in lease price was 2009 and 2010, with the average lease lasting 41 and 35 months respectively. These leases are expiring this year and, upon renewal, will generate higher revenue (I estimate 30%-40% to be the LPI for the rest of 2013) Coming up in 2014-2016 GATX will undergo a many maintenance expenses on the company’s rail cars; however, the increased revenue in the rail cart rental business should be able to offset these expenses and lead to higher profits. I estimate maintenance expense to rise to $300 M (from $269.7 M from 2012) when these additional upkeep expenses take place.     (

Now is the opportune time to buy, GATX’s price level is near its long-term support at about $45/share. Stochastic, RSI, and the trend of the stock are all indicating a buying opportunity. I advise investors to wait until September to see where the dust has settled on the new safety regulation, should there be any. Short term GATX could reach the $42-$44 price and it would be at that price that I recommend buying shares.(See graph below)

gatx graph

Combining the attractive share price, favorable macro-economic circumstances, and Rail North America’s expiration of the less profitable 2009/2010 contracts,  GATX Corporation is a durable investment that has a track record of withstanding the test of time, as well as continuous dividends since 1919 (current yield is 2.73%). Therefore I iterate a Buy with a 24-month target of $58.50 per share, representing a +30% gain.Image

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