Zacks Bull and Bear of the Day Highlights: Air Lease, Hawaiian Holdings, Dell, T. Rowe Price Group and Apollo Global Management
Zacks Equity Research
For Immediate Release
Chicago, IL – March 1, 2013 – Zacks Equity Research highlights Air Lease (AL) as the Bull of the Day and Hawaiian Holdings (HA) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Dell Inc. (DELL), T. Rowe Price Group, Inc. (TROW) and Apollo Global Management, LLC (APO).
Air Lease (AL) has been a high flier all year, gaining more than 22% since the start of this year. Taking a closer look at what is going on at the aviation leasing company shows that the sky is the limit for this stock. It is a Zacks #2 Rank (Buy) and reported earnings after the close on 2/28/13.
AL topped the Zacks Consensus Estimate in five of the last six quarters. The June 2012 quarter saw the company post a beat of $0.02 or 7% ahead of the Zacks Consensus Estimate. The following quarter saw a beat of $0.05 or 16% ahead of the Zacks Consensus Estimate. This is a prime example of earnings momentum and is a key reason why this stock has lifted off to recent highs.
The March 2012 quarter was the lone negative earnings surprise. The company posted a miss of one cent or 3.4%. Following the miss, the stock traded lower by more than 6% in the session after the release.
Hawaiian Holdings (HA) recently posted a large earnings miss and is a Zacks #5 Rank (Strong Sell).
Hawaiian Holdings is an airline that offers daily service on North America routes between the state of Hawaii and Los Angeles, Oakland, Sacramento, San Diego, San Francisco, and San Jose, California; Las Vegas, Nevada; Phoenix, Arizona; Portland, Oregon; Seattle, Washington; and New York City, New York, as well as daily service on its Neighbor Island routes among the four islands of the state of Hawaii.
The most recent quarter saw the company miss the Zacks Consensus Estimate by a large amount. The company reported earnings of $0.00 per share while the consensus estimate was calling for $0.16. That translates to a $0.16 miss or 100%. The stock fell 13% in the session following the release.
Larry Ellison recent bought a competing Hawaiian Airline, and while the multi billionaire has not disclosed any future plans for his latest purchase signals increased competition. It should be noted that Larry owns a large percentage of one of the Hawaiian Islands.
Private equity has started 2013 with a home run. Technology czar Michael Dell has joined with Silver Lake to take Dell Inc. (DELL) private for $24.4 billion. This is the largest leveraged buyout since the financial meltdown of 2008.
But the deal has already run into trouble -- most recently, shareholder opposition. T. Rowe Price Group, Inc. (TROW) and Southeastern Asset Management are of the view that the deal to take the 25-year old public company private is undervalued. T. Rowe Price and Southeastern are Dell’s two largest independent shareholders and own around 13% of the tech major. Michael Dell holds 14%; he is the only shareholder with a larger stake than these two.
This development is symptomatic of the trends that have come to define private equity activity in recent times. One of the major factors pushing up the cost of deals is that private equity companies are flush with funds. According to research firm Preqin, private equity buyout funds focusing on North America collectively held idle capital to the tune of $189.4 billion as of Jan 2013. This is just 12% lower than the amount in Dec 2011. So, a large volume of capital has piled up, which private equity either has to utilize optimally or return to investors.
The other factor pushing up deal values has been persistently low interest rates. Speaking at the SuperReturn conference in Berlin, Leon Black, Chief Executive of Apollo Global Management, LLC (APO) said the average price for private equity deals in the U.S. is 9 times EBITDA. One of the major assumptions resulting from such high valuations is that interest rates will continue to be soft over the next five years, he said.
However, Apollo has managed to strike deals at lower valuations, around 6 times EBITDA. This has primarily happened by acquiring corporate "hive-offs" or businesses being offered for sale by a parent company. Together with these two factors, the lack of growth opportunities across the globe has meant private equity may never generate the kind of returns it has in the past.
It would still be wrong to say that private equity has completely lost its shine. Over time, private equity has consistently outperformed other asset classes. The Cambridge Associates LLC U.S. Private Equity Index has an internal rate of return (IRR) of 13.7% for the ten years up to Sep 30, 2012. This is significantly higher than the S&P 500’s return of 8% for the same period
However, returns are now comparatively lower. Data from Cambridge Associates shows that the top performing 25% of U.S. funds managers who launched funds in 2001 have to-date returned an IRR of 36.5%. This is significantly higher than the IRR of 13.9% of the top performing 25% of funds launched in 2004. By this time, the number of funds had grown from 24 to 66, which shows that returns have fallen since the number of funds increased.
The focus now seems to be on prudent financial transactions, a far cry from the complicated financial engineering of the past. Fund managers are now seeking out companies with a high intrinsic value, before even attempting to turn them around. Such a strategy is aimed at launching a second IPO, the most lucrative outcome of a private equity deal.
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
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