There were no earnings reports this week. Macy’s (M) is now scheduled to report earnings next Tuesday, August 22. Kohl’s (KSS) will report the following day, August 23. Duluth Holdings (DLTH) will report on August 31.
Today we are moving shares of four companies, Toshiba (TOSYY), Holcim AG (HCMLY), First Horizon (FHN) and ESAB Corporation (ESAB) from BUY to SELL.
With its go-private tender offer now underway, we see essentially zero chance of any overbid by another party for Toshiba (TOSYY). The company’s shabby governance, in which the board repeatedly looked out for its own personal interest rather than the shareholders to which it presumably has a fiduciary duty, is a dark blotch on the entire country’s public markets. Fortunately, this episode is helping catalyze a sharp improvement, led ironically by the government, in governance across Japan’s corporate realm. We exit our Toshiba position with an approximate 24% total return.
Holcim AG (HCMLY) reported strong first-half results, with organic revenues increasing 7% and organic profits increasing 13%. The company is firing on all cylinders except for its Solutions & Products segment where temporary problems are now reversing. Holcim’s turnaround is complete, and the CEO and CFO that led the turnaround are transitioning out. The company is producing strong revenue growth and wide profit margins, generating impressive free cash flow and has a solid balance sheet. The top-down strategy is sound and well-executed. All of this seems to be fully recognized by the stock market. While the shares haven’t quite reached our 16 price target, they are close enough, and we won’t quibble about being about a ½ turn too aggressive on our 7.0x EBITDA multiple target. We exit the Holcim position with a total return of approximately 49%.
Following the collapse of its deal to sell to TD Bank, First Horizon (FHN) would have remained a Buy. But, it is now being caught in the secular problems of rising deposit costs and the declining value of its loan book – both driven by higher interest rates. First Horizon’s capital base is reasonably strong but if rates continue to rise and new government regulations become law, the bank’s underlying profitability and value will likely be squeezed. We are disappointed with the roughly 23% loss on the position, but it is time to exit.
ESAB Corporation (ESAB) has moved above our 68 price target. We see only limited potential for the stock to move significantly higher as the fundamentals are increasingly being priced into the shares. The position generated a 55% profit.
Earnings Updates
None this week.
Friday, August 18, 2023, Subscribers-Only Podcast:
Covering recent news and analysis for our portfolio companies and other topics relevant to value/contrarian investors.
Today’s podcast is about 9½ minutes and covers:
Ratings changes
- Toshiba (TOSYY) – moving rating from Buy to Sell.
- Holcim AG (HCMLY) – moving rating from Buy to Sell.
- First Horizon (FHN) – moving rating from Buy to Sell.
- ESAB Corporation (ESAB) – moving rating from Buy to Sell.
Comments on recommended companies
- Tyson Foods (TSN) – Putting its China poultry operations on the block.
- Walgreens Boots Alliance (WBA) – More bad news with the opening of a new litigation front and a new competition front.
Elsewhere in the market
- Incremental federal government spending as the recession/no recession toggle.
- Why many are feeling a slowdown in the economy.
Final note
- Chicago Cubs – relative winners.
| Market Cap | Recommendation | Symbol | Rec. Issue | Price at Rec. | 8/17/23 | Current Yield | Rating and Price Target |
| Small cap | Gannett Company | GCI | Aug 2017 | 9.22 | 3.08 | - | Buy (9) |
| Small cap | Duluth Holdings | DLTH | Feb 2020 | 8.68 | 7.49 | - | Buy (20) |
| Small cap | Dril-Quip | DRQ | May 2021 | 28.28 | 27.91 | - | Buy (44) |
| Small cap | L.B. Foster | FSTR | Jul 2023 | 13.60 | 18.75 | - | Buy (44) |
| Small cap | Kopin Corp | KOPN | Aug 2023 | 2.03 | 1.46 | - | Buy (5) |
| Mid cap | Mattel | MAT | May 2015 | 28.43 | 21.15 | - | Buy (38) |
| Mid cap | Adient plc | ADNT | Oct 2018 | 39.77 | 37.72 | - | Buy (55) |
| Mid cap | Xerox Holdings | XRX | Dec 2020 | 21.91 | 14.79 | 6.8% | Buy (33) |
| Mid cap | Viatris | VTRS | Feb 2021 | 17.43 | 11.20 | 4.3% | Buy (26) |
| Mid cap | TreeHouse Foods | THS | Oct 2021 | 39.43 | 46.47 | - | Buy (60) |
| Mid cap | Kaman Corporation | KAMN | Nov 2021 | 37.41 | 21.73 | 3.7% | Buy (57) |
| Mid cap | The Western Union Co. | WU | Dec 2021 | 16.40 | 11.67 | 8.1% | Buy (25) |
| Mid cap | Brookfield Re | BNRE | Jan 2022 | 61.32 | 33.47 | 1.7% | Buy (93) |
| Mid cap | Polaris | PII | Feb 2022 | 105.78 | 114.35 | - | Buy (160) |
| Mid cap | Goodyear Tire & Rubber | GT | Mar 2022 | 16.01 | 12.66 | - | Buy (24.50) |
| Mid cap | Janus Henderson Group | JHG | Jun 2022 | 27.17 | 25.94 | 6.0% | Buy (67) |
| Mid cap | ESAB Corp | ESAB | Jul 2022 | 45.64 | 68.40 | 1.4% | SELL |
| Mid cap | Six Flags Entertainment | SIX | Dec 2022 | 22.60 | 21.09 | - | Buy (35) |
| Mid cap | Kohl’s Corporation | KSS | Mar 2023 | 32.43 | 27.17 | 7.4% | Buy (50) |
| Mid cap | First Horizon Corp | FHN | Apr 2023 | 16.76 | 12.74 | 4.7% | SELL |
| Mid cap | Frontier Group Holdings | ULCC | Apr 2023 | 9.49 | 7.04 | - | Buy (15) |
| Large cap | General Electric | GE | Jul 2007 | 304.96 | 110.96 | 0.3% | Buy (160) |
| Large cap | Nokia Corporation | NOK | Mar 2015 | 8.02 | 3.77 | 2.4% | Buy (12) |
| Large cap | Macy’s | M | Jul 2016 | 33.61 | 15.04 | 4.4% | Buy (25) |
| Large cap | Toshiba Corporation | TOSYY | Nov 2017 | 14.49 | 15.75 | 6.6% | SELL |
| Large cap | Holcim Ltd. | HCMLY | Apr 2018 | 10.92 | 13.53 | 3.3% | SELL |
| Large cap | Newell Brands | NWL | Jun 2018 | 24.78 | 10.29 | 2.7% | Buy (39) |
| Large cap | Vodafone Group plc | VOD | Dec 2018 | 21.24 | 9.08 | 11.2% | Buy (32) |
| Large cap | Berkshire Hathaway | BRK.B | Apr 2020 | 183.18 | 353.19 | - | HOLD |
| Large cap | Wells Fargo & Company | WFC | Jun 2020 | 27.22 | 42.47 | 3.3% | Buy (64) |
| Large cap | Western Digital Corporation | WDC | Oct 2020 | 38.47 | 40.42 | - | Buy (78) |
| Large cap | Elanco Animal Health | ELAN | Apr 2021 | 27.85 | 11.46 | - | Buy (44) |
| Large cap | Walgreens Boots Alliance | WBA | Aug 2021 | 46.53 | 28.19 | 6.8% | Buy (70) |
| Large cap | Volkswagen AG | VWAGY | Aug 2022 | 19.76 | 14.53 | 6.3% | Buy (70) |
| Large cap | Warner Bros Discovery | WBD | Sep 2022 | 13.13 | 13.19 | - | Buy (20) |
| Large cap | Capital One Financial | COF | Nov 2022 | 96.25 | 105.07 | 2.3% | Buy (150) |
| Large cap | Bayer AG | BAYRY | Feb 2023 | 15.41 | 13.85 | 3.9% | Buy (24) |
| Large cap | Tyson Foods | TSN | Jun 2023 | 52.01 | 54.10 | 3.5% | Buy (78) |
Disclosure: The chief analyst of the Cabot Turnaround Letter personally holds shares of every Rated recommendation. The chief analyst may purchase securities discussed in the “Purchase Recommendation” section or sell securities discussed in the “Sell Recommendation” section but not before the fourth day after the recommendation has been emailed to subscribers. However, the chief analyst may purchase or sell securities mentioned in other parts of the Cabot Turnaround Letter at any time. Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at bruce@cabotwealth.com or to our friendly customer support team at support@cabotwealth.com. Due to the time and space limits we may not be able to cover every topic, but we will work to cover as much as possible or respond by email.
