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Turnaround Letter
Out-of-Favor Stocks with Real Value

May 5, 2023

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We discuss earnings from Adient (ADNT), ESAB (ESAB), Frontier Group Holdings (ULCC), Gannett (GCI), Ironwood Pharmaceuticals (IRWD), Janus Henderson Group (JHG), Kaman Corporation (KAMN), Molson Coors (TAP) and Western Union (WU).

Goodyear Tire (GT) and Warner Bros Discovery (WBD) are scheduled to report on Friday morning, and Berkshire Hathaway (BRK/B) is scheduled to report on Saturday. As noted last week, we are departing early on Friday for Omaha, Nebraska to attend the Berkshire Hathaway Annual Shareholders Meeting, so this week’s note and podcast includes earnings and other updates through about mid-day Thursday. We will cover all of the subsequent reports in our note next Friday.

Next week, Six Flags (SIX), Treehouse Foods (THS), Dril-Quip (DRQ), Viatris (VTRS), Western Digital (WDC), Elanco Animal Health (ELAN), Brookfield Re (BNRE), Toshiba (TOSYY) and Bayer AG (BAYRY) are scheduled to report earnings.

We also include the Catalyst Report and a summary of the May edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.

In this month’s edition of the Cabot Turnaround Letter, we discuss three cash-rich companies. Capital market conditions have tightened in the past year, making companies that hold excess cash more valuable and less reliant on fickle external financing. Our search for cash-rich companies that have real products and services with proven and enduring demand whose shares are out of favor turned up three promising stocks. Several currently recommended Cabot Turnaround Letter names would also make this list.

Our research process involves looking at a large number of possible turnaround ideas. As investing legend Peter Lynch once said, “The person that turns over the most rocks wins the game.” We uncovered six stocks that have both promising turnarounds ahead yet also have discounted share prices.

Our feature recommendation this month is Frontier Group Holdings (ULCC), a major ultra-low-cost airline focused on leisure travel. Its shares have fallen 50% from their IPO price due to investor concerns about demand, pricing and costs. We think these worries are overblown, leaving ULCC shares ready for take-off.

Earnings Updates

Adient (ADNT) – Adient, one of the world’s largest automobile seat makers, struggled due to weak leadership after its 2016 spin-off from Johnson Controls. We became interested in late 2018, after the shares fell sharply, due to the arrival of Doug Del Grosso as CEO. While we were a bit early on this name, Del Grosso’s highly-capable leadership has produced an impressive turnaround so far.

The company reported a good quarter, with revenues showing 12% growth as volumes improved and profits returning to positive territory after a loss a year ago. The company missed its earnings estimate but beat the EBITDA estimate which we believe is a better indicator of the company’s fundamental progress. Management maintained its full-year revenue and earnings guidance and incrementally raised its free cash flow guidance. The company is executing better and benefitting from more car production at its customers, but softness in China and higher costs in North America remain headwinds. Adient said it has completed its balance sheet upgrade so it started repurchasing shares (buying about $30 million out of its $600 million authorization).

Market share has been an issue for Adient, but the company seems to be rebuilding its positioning with some strong model wins. Management said that consumer demand in North America could potentially weaken, while long-term vehicle production in Europe probably won’t return to pre-pandemic levels (due in part to growing Chinese exports to Europe).

All-in, this well-managed company continues to make both strategic and operational progress. No change to our rating.

In the quarter, revenues rose 12% and were 3% above estimates. Adjusted net income of $0.32/share compared to a $(0.13) loss a year ago but was 25% below the consensus estimate. Adjusted EBIDTA of $215 million rose 35% and was about 7% above estimates.

ESAB Corporation (ESAB) – This company produces specialty welding, cutting and flow control equipment. In April 2022, ESAB was spun off from highly-regarded Colfax, which retains a 10% stake. Investors worry about the company’s cyclical revenues in a slowing global economy as well as its asbestos liabilities. But, the company has a strong leadership team with a credible plan that is likely to succeed, follows the impressive Colfax “business excellence” philosophy, and has steady revenue growth with strong profits and free cash flow. Its balance sheet carries a readily manageable debt balance. While the asbestos liabilities are a risk, most of the claims have been dismissed with no payment, and insurance and other mitigants appear to cap the company’s maximum burn.

ESAB reported a good quarter, with key metrics including sales and profit margins moving in the right direction, helped by better pricing and improved operating efficiency. The management incrementally raised full year revenue and profit guidance. Integration of its acquisitions is on track or ahead of schedule. Free cash flow increased to $40 million, up 79%.

In the quarter, revenues rose 6% (+7% organically) and were about 10% above estimates. Adjusted net income of $1.04/share fell 4% but was about 12% above estimates. Adjusted EBITDA increased 12% from a year ago, with the margin expanding to 17.4% from 16.6% a year ago. Adjusted EBITDA was about 8% above estimates. Cash flow increased from a year ago, helped by better working capital management. The balance sheet is essentially unchanged from year-end.

Frontier Group Holdings (ULCC) – Frontier is an ultra-low-cost airline focused on leisure travel. Investor worries about potentially slowing demand, a possible price war and rising fuel and labor costs have pulled Frontier’s shares down 50% from the IPO price to just above the March 2022 low. However, while we appreciate the risks, demand has recovered to 2019 levels and continues to increase, supported by a strong economy and robust employment and wages. Constrained and possibly tightening industry seating capacity limits the chance of a price war. The airline’s profits are recovering, it is generating free cash flow, and its balance sheet carries more cash than debt. Management is capable and entrepreneurial. At the modest valuation of 4.7x EBITDA (or, 4.5x using EBITDAR) on depressed earnings, the shares look ready for take-off.

Frontier reported a much-improved quarter, but revenue fell incrementally below estimates and the company guided adjusted pre-tax margins for 2023 to be incrementally lower than many estimates, driving the shares sharply lower. The margin trim was due to adjustments in the company’s flight network which should improve profits later this year but weaken near-term profits The company sees enduring demand strength and continues to execute its strategy. No change to our rating.

In the quarter, revenues rose 40% to a first quarter record but were slightly below estimates. The adjusted net loss of $(0.06)/share, sharply better than the $(0.50) loss a year ago and the $(0.08) consensus estimate. The adjusted EBITDAR (EBITDA before aircraft rent) of $118 million was up from $(1) million a year ago and in-line with estimates. The wonky CASMxF, or cost per available seat mile before fuel costs (measure of operating costs on a per-seat basis, excluding fuel costs) of 6.61 cents, was 8% below a year ago, as many fixed costs were spread over more seats.

Gannett (GCI) – Gannett, publisher of the USA Today and many local newspapers, is racing to replace its declining print circulation and ad revenues with digital revenues. It also is aggressively cutting costs to maintain its profits and help cut its expensive and elevated debt. The biggest challenge for Gannett is to overcome investors’ perception that the company is not viable.

Gannett reported a good quarter that showed some tapering of the sharp same-store sales declines of prior quarters (down 9% compared to down 10% last quarter). The company turned profitable on an adjusted net income basis and produced stability in its Adjusted EBITDA.

Management incrementally raised its full-year same store-sales guidance and its profit guidance – important not so much that it indicates the company is rebounding but rather because it conveys management’s confidence that the company’s profits are stabilizing. If Gannett’s free cash flow guidance for full-year 2023 of $95 million were to continue into perpetuity, the company would theoretically be able to totally repay its loans in less than five years. This concept is far from reality at this point, but Gannett’s fundamentals appear to be no longer headed in the wrong direction. No change to our rating.

In the quarter, revenues fell 11% and were 2% below estimates. Adjusted net income of $0.04/share compared to a $(0.01) loss a year ago and analysts estimates for a $(0.06) loss. Adjusted EBITDA of $63 million fell 2% but was 6% above estimates.

Ironwood Pharmaceuticals (IRWD) – After years of weak leadership, Ironwood has one remaining product, Linzess, so investors view the company as a failed business. However, Linzess is a steady revenue producer with growing volumes that offset its slow per-unit price decline. As cash accumulates on the balance sheet and now exceeds its debt, Ironwood is repurchasing its shares. Respected activist investor Alex Denner, who now holds a board seat, is exerting his influence, including ousting the CEO and slashing spending. Ironwood’s shares trade at a highly discounted valuation.

Ironwood reported an encouraging quarter which showed continued revenue and profit growth (even if modest) despite pessimism among investors that the Linzess franchise has peaked. Demand for the treatment rose 10%. Incrementally weighing on profit growth were higher expenses. We would prefer to see the company run very lean and return cash to shareholders. Management is taking a low-risk and low-spending (but not zero spending) approach to developing new treatments which may theoretically produce a strong source of new growth (but is highly speculative, hence, our skepticism and our preference for hard cash to be returned to shareholders). Nevertheless, we are fine for now with this approach as long as spending remains restrained and the Linzess franchise continues to grow even if slowly.

In a nod to efficiency and perhaps effectiveness, the company is eliminating the COO position.

In the quarter, revenues rose 6% and were about 4% above estimates. Adjusted net income of $0.25/share rose 19% and was 4% above estimates. Adjusted EBITDA of $60 million rose 4% and was 2% above estimates.

Cash continues to accumulate – increasing by $84 million from year-end and is now at $740 million, providing Ironwood with $343 million of cash in excess of its convertible note balance.

Janus Henderson Group (JHG) – Janus Henderson Group is a global investment management company focusing on publicly-traded equities and bonds. The 2017 merger of Denver-based Janus Capital Group and London-based Henderson Group was to produce faster growth and a more valuable firm, it has proven unsuccessful on most counts. However, the company’s low valuation and chronic problems led activist Trian Partners becoming the firm’s largest shareholder with a 19% stake. Trian is actively driving change by replacing the CEO, taking two board seats and pressing for an overhaul. Janus is highly profitable, has a fortress balance sheet and pays a generous dividend.

The company reported a reasonable quarter, even though revenues and profits fell compared to a year ago. The fall-off was mostly due to weaker stock and bond markets and partly due to lower performance-related fees. In terms of what the company can control, Janus Henderson appears to be making progress. For the first time in at least nine quarters, the company had positive net sales (inflows of client assets exceeded outflows). Expenses were lower, showing some discipline. Also, 70% of its assets under management are outperforming their relevant benchmarks, up from 67% in the fourth quarter and 62% a year ago – not a huge improvement but headed in the right direction. Janus is upgrading its talent base and making other changes. The re-started turnaround under the new CEO is showing incremental progress for Janus.

In the quarter, revenues fell 20% but were roughly in-line with estimates. Adjusted earnings of $0.55/share fell 27% from a year ago but were about 17% above estimates. The net cash position of $1.3 billion was unchanged from a year ago although it declined about $225 million compared to the fourth quarter due to annual bonus payments.

Kaman Corporation (KAMN) – Based in Connecticut, Kaman is a high-quality defense and aerospace company. A reconfigured board along with a new CEO and several other new senior executives are prioritizing Kaman’s high-value precision engineering operations, and are emphasizing higher margins and shareholder returns while exiting/de-emphasizing the company’s lower value businesses. The company is profitable and its sturdy balance sheet provides a solid foundation.

Kaman reported a strong quarter, with revenues and profits well above estimates. Some of the growth was from an acquisition, but in the key Engineered Products segment (about 63% of total sales), growth excluding the acquisition was an impressive 29%. The company is executing better and adjusting (reducing) its costs and involvement in less productive products. Backlog remains robust with new orders rising 45% in the Engineered Products group. Guidance for 2023 was reaffirmed. Management continues to keep its focus on free cash flow, which will help it trim its somewhat elevated debt (due to its recent acquisition). All-in, the new CEO is improving Kaman.

One long-shot but not impossible scenario: With the re-arming of the world, and the growing realization that the U.S. military is behind the curve in procuring everyday gear, Kaman could be a beneficiary of a possible ramp-up in military spending. We see this as a slow-moving kind of catalyst, and perhaps one that never materializes. But, the chances are not zero and any move in this direction would be a positive shift in Kaman’s fortunes.

In the quarter, revenues rose 23% and were about 9% above estimates. Adjusted net income of $0.08/share fell 47% from a year ago but was sharply higher than the $0.02 estimate. Adjusted EBITDA of $25 million doubled from a year ago and was 14% above estimates. The margin increased to 12.7% from 7.7%.

Molson Coors Beverage Company (TAP) – Molson Coors is struggling with weak growth, yet is working under a new CEO to more aggressively develop specialty/higher-end beverages and reduce its reliance on mainstream and value offerings. Also, the company is increasingly focusing on its cost structure. Molson Coors continues to trade at a discount to its peers and its fundamental prospects.

The company reported a strong quarter, with sales up 8% (ex-currency) and underlying profits nearly doubling. Strong pricing, sales of higher-margin products, relatively stable volumes and flattish marketing spending drove the sharp increase in profits, even as raw materials costs rose 7%. Molson Coors reaffirmed its guidance for low single-digit revenue and profit growth and for underlying free cash flow to be $1 billion (+/- 10%). All-in, the quarter shows that this company is a reasonably reliable profit and free cash flow generator that investors have overlooked. The shares are approaching our 69 price target.

Free cash flow improved from a year ago. Net debt was unchanged from the prior quarter but fell 10% from a year ago. Net debt relative to EBITDA was 3.0x and appears on track to reach the company’s 2.5x longer-term target. Reducing debt reduces the company’s risk and accretes value to shareholders.

In the quarter, revenues rose 6% (8% ex-currency) and were about 5% above estimates. Underlying earnings of $0.54/share rose 86% and were more than double the $0.26 consensus estimate.

The Western Union Company (WU) – This widely recognized money transfer company is facing secular headwinds from the transition to digital money. Prior efforts to diversify away from the core retail business using the company’s sizeable cash flows were unsuccessful, but a new CEO with impressive fintech experience brings the real possibility of a meaningful improvement in both execution and strategy as it makes its transition to the digital world. Investors have aggressively sold WU shares, ignoring the company’s relatively stable revenues, sizeable free cash flow and valuable intangible assets as well as its generous dividend yield.

The company reported a reasonable quarter which was above consensus estimates and showed a partial recovery from previously deteriorating trends. Revenues have stabilized, at least for now, while total transactions fell only 6% compared to double-digit declines in the past three quarters. Western Union’s adjusted margin declined but this appears to have been due to the company’s spending on new growth initiatives, suggesting that core margins have also stabilized. Net debt declined about $100 million, or by about 7%, in the quarter. Management reaffirmed its full year revenue, margin and EPS guidance. While the company has immense work ahead with its Evolve 2025 strategy, the quarter was encouraging enough to lift the depressed shares by about 7% on the news. No change to our Buy rating.

In the quarter, revenues (adjusted for currency changes and the Business Solutions divestiture) fell 1%. Removing the effects of the exit from Russia and Belarus, and inflation in Argentina, revenues were flat on an organic basis. Revenues on a reported basis were about 4% above estimates, although it is not clear what the consensus included. Adjusted earnings of $0.43/share fell 16% but were 26% above the consensus. The decline in profits was due to the loss of Russia and Belarus operations – an understandable loss but nevertheless a real event.

Friday, May 5, 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 13 minutes and covers:

  • Overview of the May issue of the Cabot Turnaround Letter
  • Comments on earnings from recommended companies
  • Comments on other recommended stocks
    • First Horizon (FHN) – TD Bank terminates merger agreement.
  • Final note
    • Off to Omaha, Nebraska for Berkshire Hathaway Annual Shareholders Meeting.

Please know that I personally own shares of all Cabot Turnaround Letter recommended stocks, including the stocks mentioned in this note.

Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at or to our friendly customer support team at 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.

The Catalyst Report

April was a light month for catalysts, perhaps as the interest rate and economic uncertainty weighed on decision making and as proxy season kept most activists occupied with their existing campaigns or on the sidelines.

The Catalyst Report is a proprietary monthly report that is unique on Wall Street. It is an extensive listing of companies that have experienced a recent strategic event, such as new leadership, a spin-off transaction, interest from an activist investor, emergence from bankruptcy, and others. An effective catalyst can jump-start a struggling company toward a more prosperous future.

This list is intended to be comprehensive. While not all catalysts are meaningful, some can bring much-needed positive changes to out-of-favor companies.

One highly effective way to use this tool is to pair the names with weak stocks. Combining these two traits can generate a short list of high-potential turnaround investment candidates. The spreadsheet indicates these companies with an asterisk (*), some of which are highlighted below. Market caps reflect current market prices.

You can access our Catalyst Report here.

The following catalyst-driven stocks look interesting:


Bristol-Myers Squibb (BMY) $140 billion market cap – Shares of this pharmaceutical giant have slid 16% from their highs and now trade at a modest 8.2x earnings. The surprise retirement of 8-year CEO Giovanni Caforio, to be replaced by the current chief commercial officer, could jump-start the growth prospects of this laggard. The balance sheet is sturdy, providing some firepower for acquisitions.



Jefferies Financial Group (JEF) $7.1 billion market cap – This investment bank, with a complicated structure that is becoming much simpler, is 5% owned by Japanese bank Sumitomo Mitsui. The tie-up is now getting closer, with Sumitomo raising its stake to 15%. This could draw more investor attention to the somewhat overlooked Jefferies shares.

Market CapRecommendationSymbolRec.
Price at
Rating and Price Target
Small capGannett CompanyGCIAug 20179.22 1.98 - Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.68 5.56 - Buy (20)
Small capDril-QuipDRQMay 202128.28 25.81 - Buy (44)
Mid capMattelMATMay 201528.43 17.95 - Buy (38)
Mid capAdient plcADNTOct 201839.77 34.32 - Buy (55)
Mid capXerox HoldingsXRXDec 202021.91 14.766.8%Buy (33)
Mid capIronwood PharmaceuticalsIRWDJan 202112.02 10.51 - Buy (19)
Mid capViatrisVTRSFeb 202117.43 9.145.3%Buy (26)
Mid capTreeHouse FoodsTHSOct 202139.43 53.91 - Buy (60)
Mid capKaman CorporationKAMNNov 202137.41 23.503.4%Buy (57)
Mid capThe Western Union Co.WUDec 202116.40 11.658.1%Buy (25)
Mid capBrookfield ReBNREJan 202261.32 31.131.8%Buy (93)
Mid capPolarisPIIFeb 2022105.78 106.79 - Buy (160)
Mid capGoodyear Tire & RubberGTMar 202216.01 10.92 - Buy (24.50)
Mid capM/I HomesMHOMay 202244.28 67.06 - Buy (71)
Mid capJanus Henderson GroupJHGJun 202227.17 26.345.9%Buy (67)
Mid capESAB CorpESABJul 202245.64 59.93 - Buy (68)
Mid capSix Flags EntertainmentSIXDec 202222.60 22.70 - Buy (35)
Mid capKohl’s CorporationKSSMar 202332.43 20.199.9%Buy (50)
Mid capFirst Horizon CorpFHNApr 202316.76 15.054.0%Buy (24)
Mid capFrontier Group HoldingsULCCApr 20239.49 9.54 - Buy (15)
Large capGeneral ElectricGEJul 2007304.96 101.770.3%Buy (160)
Large capNokia CorporationNOKMar 20158.02 4.062.2%Buy (12)
Large capMacy’sMJul 201633.61 15.294.3%Buy (25)
Large capToshiba CorporationTOSYYNov 201714.49 16.076.5%Buy (28)
Large capHolcim Ltd.HCMLYApr 201810.92 13.213.3%Buy (16)
Large capNewell BrandsNWLJun 201824.78 9.819.4%Buy (39)
Large capVodafone Group plcVODDec 201821.24 11.968.5%Buy (32)
Large capMolson CoorsTAPJul 201954.96 64.962.3%Buy (69)
Large capBerkshire HathawayBRK.BApr 2020183.18 323.22 - HOLD
Large capWells Fargo & CompanyWFCJun 202027.22 38.653.1%Buy (64)
Large capWestern Digital CorporationWDCOct 202038.47 33.04 - Buy (78)
Large capElanco Animal HealthELANApr 202127.85 9.14 - Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.53 31.556.1%Buy (70)
Large capVolkswagen AGVWAGYAug 202219.76 16.595.5%Buy (70)
Large capWarner Bros DiscoveryWBDSep 202213.13 12.83 - Buy (20)
Large capCapital One FinancialCOFNov 202296.25 88.032.7%Buy (150)
Large capBayer AGBAYRYFeb 202315.41 16.023.4%Buy (24)

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 or to our friendly customer support team at 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.

Bruce Kaser has more than 25 years of value investing experience in managing institutional portfolios, mutual funds and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company.