3 Companies Betting Big on Acquisitions
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the aim of generating greater value for their shareholders, the three companies mentioned below are focusing vigorously on deals & acquisitions to boost their sales figures. These companies have performed fairly well this year & all three companies have reported good 3Q12 results. Looking at their future plans and growth potential, I expect them to continue the upside trend.
Let’s have a look at these stocks in detail:
C.H. Robinson Worldwide (NASDAQ: CHRW)
I see various advantages with the world's largest third party logistics provider C.H. Robinson- such as economies of scale, pricing power, and customer loyalty. The stock is currently trading at $62.22 up ~19% since July and is expected to move higher.
The acquisitions synergy and international expansion are the two important factors which would enhance its earnings and also strengthen its competitive position in the sector.
I see the recent closing of the Phoenix International acquisition for a $635M purchase price (90% by DownloadNSave">cash /10% stock blend), as a good deal for the company. The deal provides the company with increased opportunities in International Ocean and airfreight forwarding businesses. The shareholders will benefit from this deal with an increase of $0.10 - $0.15 in the annual EPS of the stock.
The company has also launched the new 'ChemSolutions Division' to increase its footprint in the field of ‘chemical logistics’ globally. ChemSolutions is dedicated towards stringent Responsible Care and ISO 14001 standards ensuring the company's timely & accurate compliance of industry norms. Looking at the company's successful past in specialty logistics of sensitive products, I see this initiative turning into a profitable one for C.H. Robinson.
Another deal to look forward to is the acquisition of Apero Logistics S.A. The deal aims to expand C.H. Robinson's presence in Europe to enhance its global customer base. Apero has shown good performance in its revenue of more than $100M, which would further boost C. H. Robinson’s earnings.
Along with the above mentioned acquisitions, the company also completed the sale of its non-core subsidiary (payment service business) T-Chek Systems for ~$303M in cash. Even after this sale agreement, the company will continue to have ~12M of net revenues from T-Chek related services. The cash generated via this sale will be used for share buybacks, acquisitions, and debt repayment.
Despite the unstable macro environment, the company has a robust financial position with ~$200M+ annual FCF & strong capital returns of 33% (seven-year average ROC), making it an investor friendly stock. I expect an increase in EPS for the coming quarter given its two recent acquisitions, a divestiture, and increased market share.
2. Liberty Interactive (NASDAQ: LINTA)
Liberty Interactive posted decent 3Q12 results with the QVC segment being the market leader in the TV home shopping business with ~69% share, far ahead of its nearest rivals, HSN and ValueVision Media. This segment has been aided from lower customer service costs & lower credit card interchange fees. A settlement regarding interchange fees will aid 4Q12 by $20M in reduced operating expenses.
I see QVC as a strong opportunity for the company’s future as it is focusing on international markets such as Japan, Germany, Italy, France, Spain and the UK along with emerging markets like India & Brazil. The company aims to increase its market share of international revenue to 50% from currently 34.5% by the next 5 years with new launches planned in 2013.
Under this initiative, in order to increase its exposure in China, QVC entered into a joint venture with China National Radio, after receiving government approval in July. The joint venture will be known as “CNR Home Shopping” (Headquartered in Beijing) with 51% & 49% share of QVC & China National Radio, respectively. The deal would provide QVC with an exposure to an additional ~35m Chinese households who are already very active customers of the home shopping TV channel, CNR Mall TV. Under this deal, both the companies will operate a multimedia retailing business in China through CNR Mall TV & its e-commerce website.
The company’s internet operations are its major money maker. This segment contributes to its total revenue by ~87% & also to its profits by ~96%. Liberty Interactive can leverage this segment for a stable growth in future.
Liberty’s stock has seen an impressive~23% growth in its price since June and looking at the planned geographic divergence, I expect this trend to continue. Also, the tremendous growth in its free cash flow in 1H12 at $707M, up from $324M y/y is a beneficial for shareholders. Hence, I would recommend it as a buy.
3. WellPoint (NYSE: WLP)
With a lot of upward movement in the last six months, WellPoint’s stock is currently trading at $57.85. Despite rising medical costs, the company was able to post decent 3Q12 results with adjusted EPS of $2.09, up by ~13% from the consensus estimate of $1.85. With the highest EPS of $7.30 among its industry peers, this is important point for investors.
The highlight factor to look for in this company is the AGP deal for $4.46B which is expected to close towards the end of this year or early 2013, subject to regulatory approval. The deal would make WellPoint a market leader in Medicaid Insurance & will also result in dual-eligible growth. I expect an increment of ~$300M in WellPoint’s earnings aided by AGP’s operating earnings contribution in 2013. WellPoint will also begin serving dual eligible in three of its four California counties from next June.
WellPoint is planning to sell directly to customers through state & private exchanges, which would help it in increasing its customer base apart from those via brokers & employers. This gives an opportunity to the company to venture into retail market which is an entirely new segment to its current business. Also with the emphasis on branding activities, WellPoint is spending $50M in branding Blue Cross Blue Shield & will continue to do the same in the coming years. I expect the Company to generate some additional revenue as a result of its improved brand recognition.
With Medicare & Medicaid contributing 25% & 10% respectively to WellPoint’s health care revenue, the company is focusing to raise its revenue via cost cutting, cuts in reimbursement, and taxes to enhance its business, looking at current fiscal pressures.
The dominance of WellPoint in most of the markets it serves provides a cost advantage to the company making its stock an impressive buying opportunity.
These three companies attract me because of the strong growth potential to be generated via various acquisition strategies. To sum it up, the above mentioned three companies have shown tremendous growth and have generated decent returns for shareholders that I expect to continue.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of WellPoint. Motley Fool newsletter services recommend WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.