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Mark R. Hake

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PIC stock is likely worth 240% more than its present price based on Hyliion’s value, whose SPAC merger just closed

The agreement last month by SPAC stock Pivotal Investment Corporation II (NYSE:PIC) to merge with privately held electrical vehicle company, XL Fleet will be a big deal for PIC stock investors and the target company’s owners.

Shares of the special purpose acquisition company should move substantially higher both before and after the deal’s expected fourth-quarter closing. The merged company will then be called XL Fleet, trading under a new ticker, XL. There are several reasons why PIC stock should move up in value.

Why PIC Stock and XL Fleet Are Undervalued

XL Fleet is a substantial player in the commercial EV market with a lot of momentum vs. its peers. This company, which makes hybrid and electric vehicle powertrains for commercial and municipal fleets, is head-and-shoulders ahead of its peers, including Hyliion Holdings (NYSE:HYLN) and Workhorse (NASDAQ:WKHS).

To begin with, XL Fleet is already producing revenue. The management team’s presentation (p. 25 and shown below) — including summary financials for 2019 and the next five years are shown — shows revenue last year was $7.2 million, with$21 million forecast for 2020. After that, the growth is non-linear and exponential.

In 2021 revenue is forecast at $75.3 million, and $281 million in 2022. By 2023 it expects to make $647.7 million in revenue and $1.377 billion in 2024. The latter two forecasts are important for its valuation, as we will see later.

By contrast, Hyliion expects to have $1 million in revenue in 2020 and $8 million in 2021, according to its June 2020 presentation. However, by 2023 it projects more than $1 billion in revenue, topping $2 billion by 2024. These are much more aggressive estimates than XL Fleet’s, which is already producing significant revenue.

Moreover, XL Fleet’s presentation (p. 11) indicates that by 2020 year-end the cumulative number of units sold will be 4,284 electric and hybrid vehicles. By 2021 it will have sold 9,234 units.

Hyliion will only have 20 units sold in 2020 and 320 by 2021. Even Workhorse will have just 10% of XL Fleet’s cumulative units sold by 2020 year-end, at 400. By 2021 it will have 2,400 units sold or 26% of XL Fleet’s cumulative number.

The bottom line is that XL Fleet is a more accomplished and substantive company.

Estimated Value for PIC Stock / XL Fleet

As usual with most SPAC merger presentations, the documents present management’s estimate of the company’s valuation. I find this useful, as most IPO prospectus documents don’t do a good job of forecasting value for investors.

For example, on pages 27 (right) and 28 (below) of the slide presentation, XL Fleet presents its present value and its comparative value vs. its peers.

Source: EDGAR: XL Fleet SEC filing

At a recent price of $10.33 per share, PIC stock has a pro forma market value of $1.485 billion. XL Fleet will have $350 million in cash on the balance sheet (post-merger) with no debt. Therefore the pro forma enterprise value (EV) will be $1.135 billion.

By contrast, Hyliion, which recently completed its merger on Oct. 16 and closed at $21.27 on Oct. 27. It now has a market capitalization of $3.273 billion on 161.16 million shares. Even though it has much less unit production than XL Fleet, its market value is 2.4 times PIC stock / XL Fleet’s $1.485 billion market value

Moreover, XL Fleet expects to make $1.377 billion in revenue by 2024. That puts it on an EV-to-revenue market ratio of 0.82x management’s 2024 forecast revenue. Divide its $1.135 billion pro forma enterprise value by the 2024 forecast revenue of $1.377 billion.

By contrast, Hyliion’s revenue forecast revenue of $2.09 billion is probably too high. Its 2024 EV-to-revenue ratio is still higher than XL Fleet’s, at 1.45x. (Take its $3.56 billion market value, subtract $520 million in cash, and divide that number by $2.09 billion in revenue).

Bottom Line on PIC Stock

The rest of page 28 (right) of the presentation compares other companies with XL Fleet, but the conclusions are similar. The bottom line is that XL Fleet is worth at least 240% more than its present price, which obviously bodes well for PIC stock investors.

Source: EDGAR: XL Fleet SEC filing

This is especially true in a comparison with Hyliion, which has lower expected production than XL Fleet, but its market value is over 240% higher than the pro forma market value for PIC stock /XL Fleet.

Hedge funds and other professional investors will likely take advantage of this discrepancy. It is likely a very good arbitrage opportunity. Astute investors will look to make money from PIC stock’s undervalued situation.

Author: Mark R. Hake

Source: Investor Place: XL Fleet Looks Undervalued In Its Merger with SPAC Pivotal Investment

SPAQ stock is set to close its merger with Fisker and the stock could shoot up 160% as a result

Spartan Energy Acquisition (NYSE:SPAQ) will close its merger deal with Fisker, an electric vehicle (EV) maker, on Oct. 28. SPAQ stock has risen 46% since its IPO and trades at $14.13 per share.

The Fisker logo hangs on display at the November 2011 International Auto Show.
Source: Eric Broder Van Dyke / Shutterstock.com

It is likely to go much higher over the next year as it trades on the New York Stock Exchange under the new ticker FSR.

The deal with SPAQ stock was announced on July 13 and will provide $1 billion to the company to allow it to begin its EV production. It will use the money to produce its electric SUV, the Ocean.

As I wrote in my last article on Sept. 1, SPAQ stock is worth a good deal more than its present stock price. I argued that it was worth at least $38.88 per share. This was based on the company’s forecasts and its comparable values.

7 Value Stocks to Buy That Are Outperforming Growth Plays

It represents a potential upside for the stock of at least 160% above today’s price. That is a very good potential return for most investors.

SPAC EV Stocks Are Popular

Moreover, investors have been very keen on SPAC (special purpose acquisition corporation) stocks that merge with EV companies like Fisker. There are several other SPAC/EV deals that are coming public soon.

For example, DiamondPeak Holdings (NASDAQ:DPHC), another SPAC stock is closing on its merger with Lordstown Motors on Oct. 22. Lordstown is planning on making a full-sized EV pickup truck, the Endurance, at its Lordstown, Ohio plant once the merger closes.

In addition, another EV company, XL Fleet, recently announced its plan to merge with another SPAC stock, Pivotal Investment Corp II (NYSE:PIC). PIC stock is now at $10.75, implying that the SPAC stock is already up almost 9% since it announced its merger with XL Fleet.

In August Hennessey Capital Acquisition Corp (NYSE:HCAC) announced it was merging with Canoo, another EV manufacturer. HCAC stock has since risen to $10.60 per share, up 6% from the company’s IPO.

Moreover, Tortoise Acquisition Corp II (NYSE:SHLL) announced in June a merger with Hyliion Holdings, an EV truck parts company. The deal closed last week and the new symbol for Hyliion Holdings (NYSE:HYLN) is now trading at nearly $29 per share. This implies that the SPAC stock, now an EV stock, is up nearly 300% from the SPAC’s original IPO at $10.

There are more EV and EV related deals on the way. For example, Romeo Power Technology, a lithium-ion maker, recently agreed to merge with a SPAC called RMG Acquisition Corp (NYSE:RMG). Faraday Future, an EV SUV maker, told reporters recently it plans on merging with a SPAC, yet unnamed.

What’s Next With SPAQ Stock

There seems to be a release effect on these EV stocks once their mergers close and a new trading symbol for the same stock is established. This release seems to allow new shareholders to come in on the stock, almost as if it was an IPO. In other words, there is a strong upward bias on these EV stocks after they merge with their SPAC sponsors.

This could easily happen with Fisher and SPAQ stock once the new symbol FSR starts trading at the end of this month. There is also another reason why these SPAC mergers may be beneficial for EV companies.

The SPAC merger process seems to facilitate EV companies like Fisker in moving their manufacturing programs forward. This is what Henry Fisker, the Fisker CEO, recently told Barron’s in a podcast about the future of automobiles.

Seeking Alpha recently summed up the podcast interview with Fisker. Interestingly, he said that “the SPAC process raises funds right away, making it easier to ink a deal with a manufacturing partner.” In other words, it allows the company to immediately move forward with its plans.

For investors in SPAQ stock, they know that after Oct. 28, upon completion of the merger, Fisker will be able to deliver on its plans. That will be the catalyst the stock needs to move up 166% to its expected value.

Author: Mark R. Hake

Source: Investor Place: The SPAQ Stock Merger With Fisker Closes Soon, Pushing It Higher

NCLH stock is worth at least 42% more than today based on earnings forecasts in two years

Norwegian Cruise Line Holdings (NYSE:NCLH) stock could get a nice boost sometime this fall if a Covid-19 vaccine finally gets approved by the FDA. However, keep in mind that this stock price jump might be from a lower price than today.

This is because it seems highly likely that the Centers for Disease Control and Prevention (CDC) could extend its present “No Sail” order beyond Sept. 30. That order was issued on July 16. Later on July 21, the CDC said it would not modify the order until it reads all public comments submitted up until Sept. 21.

This will affect any ship cruises out of the U.S. Although that may already be discounted in today’s price, I suspect that it will have another effect.

An extension will likely lead most investors to conclude that the CDC won’t lift the order until an FDA-approved and an efficacious vaccine is widely available. I wrote about this in a previous article on Carnival (NYSE:CCL).

At the time I wrote that I did not think that the company would be able to begin its U.S. operations before mid-January or February 2021. I think the same applies here, but with a difference for Norwegian Cruise Line stock: the company won’t need to raise any more capital.

Liquidity May Be Enough

As of June 30, Norwegian Cruise Line Holdings had $2.259 billion in cash based on its latest 10-Q filing. Since then the company said it raised $1.488 billion, consisting of $288 million in equity and $1.2 billion in debt offerings.

However, the company had to pay off some existing debt and refund customer deposits. As a result the cruise line now has $2.8 billion in liquidity as of July 21.

Norwegian said on Aug. 6 that its cash burn rate target is $160 million per month. Therefore, it will have $2.48 billion or thereabouts by the end of September. This number does not include inflows of new customer deposits and outflow of repayments of deposits.

Nevertheless, you can easily see that it will be plenty to get the company through at least one full year of no cash flow that would cost $1.92 billion. This is well less than the $2.48 in liquidity and leaves room for debt repayments which are just $337 million (current portion of long-term debt).

In other words, if all goes according to plan, and the CDC lifts the order for U.S. vessels in the first quarter, Norwegian has plenty of cash to survive through then. Even assuming it continues to burn cash for another six months after the No-Sail order restriction is lifted, the company will continue to survive with no liquidity issues.

That bodes very well for Norwegian Cruise Line stock. In effect, it should start to rebound once the vaccine is approved, and maybe even well before that happens.

Where This Leaves Norwegian Cruise Line Stock

I still refer potential investors in this stock and other cruise line stocks to the well-written article by MarketWatch’s deputy investing editor, Tomi Kilgore, who wrote that, “Cruise operators took a deep bruising from Covid-19, but history says they will recover.”

People have short memories. In 2019 a number of cruise industry mishaps occurred. But cruising remained popular overall and the cruise industry rebounded. Moreover, Kilgore cited more evidence cruise line clients remain loyal and understanding.

Right now analysts are still projecting negative earnings for Norwegian Cruise Line stock even for 2021, albeit at significantly lower levels. I suspect that positive earnings will not occur before 2022.

However, that does not mean the shares won’t move up beforehand. Investors will likely be willing to take a longer view once a Covid-19 vaccine is available.

Let’s do a simple estimate. From 2015 to 2019 the company made between $1.86 and $4.30 diluted EPS. The average of these is $3.08. Let’s take 75% of that number to be conservative, or $2.31, and apply a normal multiple.

Morningstar has a page that shows its five-year historical price-to-earnings ratio has been 17.58. Again, to be conservative, let’s apply a 25% discount, leaving it at 13.2x.

That leaves our projected target price for Norwegian Cruise Line stock at $30.49 per share. This is 72% above today’s price of $17.50. Even discounting it by 10% to the present for two years, or 82.64% of the price, leaves it at $25.20, or 42% above today’s price. That is a great potential ROI for most investors.

Author: Mark R. Hake

Source: Investor Place: Norwegian Cruise Line Stock Could Get A Boost When a Vaccine is Approved

High-yield stocks with low price-to-earnings ratios tend to do well over time. It’s also a good deal for investors when the earnings of the company are significantly higher than the dividends paid out. This allows the company to grow its dividends even further.

Beating these averages on a single basis is not that hard. But using all three criteria, it is difficult. The average dividend yield of the S&P 500 is 1.9%. The average dividend payout ratio (dividends per share divided by earnings per share) is 35%. The median P/E ratio of the S&P 500 is 14.8 times.

So finding high-yield stocks that have all three traits is actually not that easy. Part of the reason is that most high-yield stocks also tend to have high payout ratios. Their high yields may signal the fact that the market thinks that earnings do not cover the dividends. The fear is that the company will have to cut the dividend in the future.

But I have chosen five stocks selling with dividend yields of 6%+ and with low payout ratios. The dividends of these stocks represent just 50% or so of earnings per share on a forward-looking basis. This is slightly higher than the average payout ratio of the S&P 500. But this is much better than typical high-yield stocks that have very high payout ratios. In addition, the dividend yields are three times higher than the average.

In addition, these high-yield stocks have low P/E ratios, significantly below the average.

These high-yield stocks are cheap and worth investing in over the long term. You can rely on them to continue to pay their dividends. Also, you get paid with these high-yield stocks to wait until the stock price rises.

High-Yield Stocks: Invesco (IVZ)

Dividend Yield: 8%

Payout Ratio: 51%

P/E Ratio: 6.4

Invesco (NYS:IVZ) is an investment manager based in Atlanta, Georgia. As of Sept. 30 its assets under management were $1,184 billion — over $1.1 trillion.

IVZ stock trades at a low price-to-earnings ratio of 6.4 — based on my calculations — and is a very high-yield stock. IVZ pays out about half its earnings in dividends.

The market has priced IVZ stock cheaply based on the flow of funds fears. Investors have been worried about the long-term outflow of funds from active investment managers like IVZ. Nevertheless, Invesco has had consistently higher AUM over each of the past 10 years.

IVZ’s dividends have been growing consistently over the past three years (+34%) and five years (+7%). Moreover, its payout ratio has been consistently between 50%-55% of its earnings.

Look for IVZ stock to follow this consistent trend. IVZ has raised its dividend for 11 years. IVZ’s dividends have plenty of room to grow given its low payout ratio history.

Meredith Corporation (MDP)

Dividend Yield: 7%

Payout Ratio: 43.6%

P/E Ratio: 6.2

Meredith Corporation (NYSE:MDP) publishes People, In-Style, Better Homes and Gardens and Martha Stewart Living. In 2018 MDP also bought Time Magazine. It also owns 17 TV stations. Meredith Corporation is recognized as the number-one magazine operator in the U.S.

MDP stock is very cheap at just 6.2 times forward earnings.

Moreover, its $2.30 dividend rate is only 43.6% of projected earnings. That is a very low payout ratio. It allows room for MDP to continue to raise its dividend.

The chart above shows that its payout ratio has been consistently low. This has allowed MDP to raise its dividend over the past 26 years.

Concerns about the company’s weak earnings outlook and missed expectations have kept MDP stock cheap. Despite underperforming growth expectations, MDP stock continues to offer a high dividend yield, low P/E and low payout ratio. This is the kind of formula to which value investors are very attracted.

The Chemours Company (CC)

Dividend Yield: 7.5%

Payout Ratio:
39.4%

P/E Ratio: 5.3

Chemours (NYSE:CC) is a specialized chemical company that makes products like refrigerants, fire suppression chemicals and titanium dioxide.

CC stock was spun off from Dow (NYSE:DOW) in 2015. Right now CC stock has a 7.5% dividend yield. But earnings are over twice its dividend rate. The payout ratio is only 39%.

Given the market’s concern about Chemour’s cyclical nature and its potential legal liabilities, the CC stock trades for just 5.3 times forward earnings expectations. Analysts note that most of the environmental liability issues have been settled. But CC stock still has a residual cheapness related to these concerns.

Again, value investors are attracted to these kinds of unloved stocks. The low payout ratio allows room for the dividend to be increased over time. In the past two years, dividends have risen by over 47%. Investors get paid a high yield while they wait for CC stock to rise.

Triton International (TRTN)

Dividend Yield: 6.3%

Payout Ratio: 45%

P/E Ratio: 7.2

Triton International (NYSE:TRTN) is the largest transportation leasing and equipment rental company in the U.S. — it mostly leases intermodal shipping containers.

TRTN stock has a high dividend of 6.3%, but its dividends only account for 45% of earnings. The stock is also cheap since its forward P/E ratio is just 7.2 times. The stock is a general play on international economic growth.

TRTN stock is cheap now because of concerns about the effect of the U.S.-China trade war on its future growth. However, a minor amount of containers are dedicated to U.S-China trade.

Given that analysts expect earnings to be $4.62 this year, its P/E ratio is just 7.2 times forward earnings. Moreover, the $2.08 dividend, up 11.7% from the $1.80 rate last year, represents just 45% of its earnings. There is plenty of room for the TRTN stock dividend to rise. Meanwhile, investors receive high-yield dividends until the stock rises to its real value.

Aegon (AEG)

Dividend Yield: 8.3%

Payout Ratio: 50%

P/E Ratio: 14.1

Aegon (NYSE:AEG) is a Dutch insurance company, pension manager and asset management firm. AEG stock pays a very healthy dividend of 8.3%. But its dividend is just 50% of its earnings.

There is really no good reason for AEG stock to be so cheap. Its return on equity is about 10%. Yet AEG stock, at $4.20, trades for just 32% of its $13.54 book value per share.

Investors can wait for the stock to recognize this incredible value. In the meantime they receive a high 8.9% dividend yield. Annualized growth over the last three years is 6.8%.

Author: Mark R. Hake

Source: Investor Place: 5 Excellent High-Yield Dividend Stocks to Buy

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