JTX Follow-up

I previously posted on Jackson Hewitt (JTX) here: http://mevsemt.blogspot.com/search/label/zCurrent%20Holding%3A%20JTX%20Options.

Basically, my thesis was this tax season would either make or break JTX, and this would largely be driven by whether JTX could find a partner to fund their RAL (Refund Anticipation Loan) product.  Further, I knew JTX would need to have their RAL funding lined up before the end of the year, so IMO this made Jan 2011 $2 call options the way to go.  Basically, I likened this to betting on a coin flip where the payout is better than 1:1 (maybe much better).

So here's where we stand: JTX has lined up 90% of its RAL funding and things are looking up.  As a result JTX stock has gone from < $1 at the beginning of December to $1.71 today.  Now the stock needs to go above $2 for me to make any money, but I'm cautiously optimistic this could happen... wish me luck!

PS - this was a very small (and speculative) investment on my part, so it'll really need to pay off big to have a significant impact on my portfolio.  Nonetheless, it's fun to watch!

* As a bit of house keeping I've decided to turn off the "Comments" feature on my blog.  The reason for this is I'd like to try corresponding with my readers more directly - so, if you have any questions/comments/insights/disagreements (especially disagreements as I always like to hear why I might be wrong) about this or another investment please email me directly at mevsemt@gmail.com.

More Sears LEAPS... In Eddie we trust...

On Friday I purchased an additional 10 contracts of SHLD Jan 2013 $95 call options for $4.45 for a total outlay of $4,462.  I really hope Bruce Berkowitz* is right and (1) Sears is indeed cheap and/or (2) Eddie has something up his sleeve. 

* Bruce Berkowitz manages the Fairholme Fund, he was awarded Morningstar's domestic manager of the decade, and most importantly the Fairholme Fund is the largest single investment in my IRA(s).

** As a bit of house keeping I've decided to turn off the "Comments" feature on my blog.  The reason for this is I'd like to try corresponding with my readers more directly - so, if you have any questions/comments/insights/disagreements (especially disagreements as I always like to hear why I might be wrong) about this or another investment please email me directly at mevsemt@gmail.com.

SVU Analysis

Earlier this week I purchased SVU 2013 LEAPS with a strike price of $15, so I thought I'd follow up with a quick discussion on why I think this could be an attractive opportunity.

1. SVU is very highly leveraged.  As someone who comes from private equity, I'd say I have a healthy appreciation for how leverage can help OR hurt an investment.  For more on the "LBO" nature of SVU, check out this link: http://www.barelkarsan.com/2010/12/supervalu-leveraged-buy-out-for-retail.html
2. SVU is cheap on both an absolute and relative basis.  Granted, it's trading at low multiples because it's highly leveraged (creating increased risk of permanent capital loss) and operationally it's inferior to its peer group.  Read this link for an interesting comparison of SVU and Whole Foods (WFMI), http://seekingalpha.com/article/241435-supervalu-may-soon-have-its-day
3. A new CEO (Craig Herkert) was brought on to turn the company around.  Additionally, he's made it a priority to deleverage the company, nearly tripling the rate of debt repayment from a combination of increasing free cash flow and selling assets.  Here's another link with a general discussion of SVU as well as some more detail on Mr. Herkert, http://seekingalpha.com/article/242200-supervalu-should-reward-patient-investors-with-substantial-upside?source=yahoo

For illustrative purposes I put together a quick and dirty scenario analysis (click to enlarge) with all numbers taken from yahoo finance.  Since the options I purchased expire in 2 years I wanted my analysis to focus what SVU might look like then.

As you can see the key drivers here are debt repayment, EBITDA growth (or in this case shrinkage), and the EV/EBITDA trading multiple.  The next step was to figure out what strike price I wanted on my options, so to figure that out I've put together a simple tool that shows what a $1,000 investment will look like if the stock  is trading at various prices at expiration (click to enlarge).

* Lastly, as a bit of house keeping I've decided to turn off the "Comments" feature on my blog.  The reason for this is I'd like to try corresponding with my readers (I think I'm up to 5) more directly - so, if you have any questions/comments/insights/disagreements (especially disagreements as I always like to hear why I might be wrong) about this or another investment please email me directly at mevsemt@gmail.com.

SVU Part 2

I rounded out my SVU Jan 2013 $15 call options by purchasing an additional 42 contracts at $0.50 this morning, which now gives me a total of 75 contracts.  I hope to post my SVU analysis this weekend, stay tuned...

Super Valu?

Yesterday I placed a limit order (at $0.50) for 100 contracts of Jan 2013 $15 call options of SVU.  Unfortunately, with a limit of 50 cents my order was only partially executed - I now own 32 contracts which cost me $1,625 (including commissions). 

Over the coming days/weeks I'm going to try to buy the additional 68 contracts, but I'm not willing to pay too much more than $0.50, so who knows if I'll be able to do so.  Once/if this becomes a full position I'll do a more detailed write up on why I like this opportunity, but in the mean time wish me luck.