In the first quarter of 2013, Dan Loeb seemed to be B/E Aerospace Inc (NASDAQ:BEAV) bullish on the aerospace & defense industry as well as the jewelry retail industry. He bought 2 million shares of B/E Aerospace Inc (NASDAQ:BEAV) and 2.7 million shares of Tiffany & Co. (NYSE:TIF). Tiffany & Co. (NYSE:TIF) B/E Aerospace Inc (NASDAQ:BEAV) positions accounted for 3.5% and 2.3%, respectively, of his total portfolio as of March 2013. Let’s take a closer look at these two companies to determine their attractiveness.
B/E Aerospace – a cash cow and a global leader in the aerospace industry
B/E Aerospace Inc (NASDAQ:BEAV) is considered the global leader in cabin interior products for commercial aircraft. It also distributes aerospace fasteners and provides logistic services to aerospace industries. The company operates in three main business segments: Commercial Aircraft, Consumables Management, and Business Jet.
Most of its revenue, $1.55 billion, or 50.2% of the total revenue, was generated from the Commercial Aircraft segment, while the Consumables Management segment ranked second with $1.17 billion in sales. The Commercial Aircraft segment was also the biggest earnings contributor, with $271.3 million in profits in 2012 while the operating earnings of the Consumables Management and the Business Jet segments were $216.7 million and $52 million, respectively. B/E Aerospace Inc (NASDAQ:BEAV)’s biggest customer was The Boeing Company (NYSE:BA), accounting for 11.1% of its total net sales.
In the past five years, B/E Aerospace Inc (NASDAQ:BEAV) has generated consistently positive cash flow. While the operating cash flow increased from $116 million in 2008 to $355 million in 2012, the free cash flow nearly tripled from $84 million to $230 million. The market values the company quite expensively at 12.30 times EV/EBITDA.
Tiffany – a global leader in jewelry retailing
Tiffany & Co. (NYSE:TIF) is a famous jewelry and specialty retailer in the U.S., operating around 275 retail locations in the Americas, Asia-Pacific, Japan, and Europe. Most of its revenue, or 30% of the total 2012 revenue, was generated via sales of silver, gold & RUBEDO metal jewelry. Engagement jewelry & wedding bands sales ranked second, accounting for 29% of the total revenue in 2012. Tiffany & Co. (NYSE:TIF) turned in a great operating performance with high comparable store sales growth of 16% in 2011. However, it seems to be sluggish this year, with comparable store sales staying flat due to the decline in Americas and Europe, offsetting by the increase in Asia-Pacific and Japan.
Tiffany & Co. (NYSE:TIF) is known for consistently increasing its dividend. It has raised its dividends from $0.19 per share in 2003 to $1.25 per share in 2012. Interestingly, the dividend policy seems to be quite reasonable as the company only pays more than a third of its earnings in dividends. What I like about the company is its conservative capital structure. As of January 2013, it had nearly $2.6 billion in equity, $505 million in cash, and more than $1 billion in debt. The market values Tiffany & Co. (NYSE:TIF) at a double-digit EV multiple of 11.82.
Tiffany & Co. (NYSE:TIF) is still valued cheaper than one of its peers, The Swatch Group Ltd. (VTX:UHR). Recently, The Swatch Group Ltd. (VTX:UHR) made an aggressive expansion with the acquisition of Harry Winston Inc., one of the most prestigious diamond dealers in the world. The total deal was worth around $1 billion, comprising $750 million in cash and $250 million in debt. After the deal, The Swatch Group Ltd. (VTX:UHR) would own 25 jewelry boutiques and 190 points of distributions for its premium watches. The deal valued Harry Winston at quite a high EBITDA multiple of 23. However, according to Financial Times, an analyst commented that if Harry Winston Inc.’s margin could increase from 10% to 25%, it would be quite an attractive deal for The Swatch Group Ltd. (VTX:UHR).
The EV multiple did not sound rich compared to the LVMH (BIT:LVMH)’s acquisition of BULGARI SPA – A SHS (OTCMKTS:BULIF) for around €3.7 billion at an EV multiple of 21. The Swatch Group Ltd. (VTX:UHR) is trading around $30.80 per share with a total market cap of $33.25 billion. The market values Swatch Group Ltd. (VTX:UHR) at around 12.3 times EV/EBITDA.
My Foolish take
I personally think that Dan Loeb is interested in B/E Aerospace and Tiffany due to their market leading positions although both of them are valued at double-digit EV multiples. These two stocks could be considered decent investments for the long run.
The article Dan Loeb’s Leading Picks for the Long Run originally appeared on Fool.com is written by Anh HOANG.
Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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