Twenty cheap stocks with loads of free cash flow

by Shelton on May 12th, 2014

filed under Business Loans

With that in mind, I wanted to unearth some potentially beaten up and undervalued stocks that have also generated solid and growing free cash flow.

The screen

I scanned the CPMS US database for the 20 stocks that met the following criteria:

  • Market cap greater than $1-billion (US);
  • Positive free cash flow;
  • Free-cash-flow-to-debt ratio greater than 0.5;
  • Positive revision of the current year’s consensus earnings per share estimate over the past three months;
  • Positive year-over-year change in free cash flow (latest four quarters).

The stocks were then ranked using the best combination of the following metrics:

  • Free cash flow yield (four quarters’ free cash flow divided by latest price);
  • Free cash flow margin (four quarters’ free cash flow as a percentage of sales);
  • Free cash flow return on capital (four quarters’ free cash flow divided by the average debt plus equity over that period).

More about Morningstar

Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers.

CPMS data cover more than 95 per cent of the investable North American stock market. With more than 110 equity and credit analysts, Morningstar has one of the largest independent institutional equity research teams in the world.

What we found

The screen yielded a list of stocks that have above-average free cash flow ratios. The average free cash flow yield for these stocks is 6.4 per cent versus 5.4 per cent for the Samp;P 500. The average free cash flow margin is 20.3 per cent versus 14.3 per cent for the index. The average free cash flow return on capital is 21.1 per cent, compared with 12.8 per cent for the index.

Many of these stocks have been hit hard this year, but with improving expectations and solid growth prospects, they could provide a decent margin of safety with the potential for a significant upside when the market pushes ahead.

As always, be sure to do further research before investing in any of the stocks listed here.

Strategic Hotels & Resorts Announces New $300MM Stock Secured Credit Facility

by Shelton on May 12th, 2014

filed under Secured Credit

Strategic Hotels Resorts, Inc. announced that it has closed a new $300 million stock secured credit facility with an accordion feature allowing for additional borrowing capacity up to $400.0 million.  The new facility replaces a $300 million mortgage secured revolving credit facility set to mature, assuming all extension options were exercised, in June 2015.  The facilitys interest rate is based upon a leverage-based pricing grid ranging from LIBOR plus 175 basis points to LIBOR plus 250 basis points.  Initial pricing will be LIBOR plus 200 basis points, which is a reduction from the previous facilitys pricing of LIBOR plus 275 basis points.  The facility has a four-year term with a one-year extension available to the company.

The facility is secured by an equity pledge in direct and indirect subsidiaries that own, lease or operate five of the companys assets: the Four Seasons Jackson Hole, Four Seasons Silicon Valley, Marriott Lincolnshire, Ritz-Carlton Half Moon Bay and Ritz-Carlton Laguna Niguel hotels.

Deutsche Bank Securities Inc. and JP Morgan Securities LLC served as Joint Lead Arrangers and Joint Book Running Managers for the facility.  Deutsche Bank AG New York Branch and JP Morgan Chase Bank, NA served as Administrative Agent and Syndication Agent, respectively.  Bank of America, NA; BMO Harris Bank, NA; Capital One Bank, NA; Sumitomo Mitsui Banking Corporation; and Wells Fargo Bank, National Association served as Co-Documentation agents. MidFirst Bank; PNC Bank; Raymond James Bank, NA; and The PrivateBank are additional participating banks.

Additionally, the company paid $22.7 million to terminate its remaining $400 million notional value interest rate swap portfolio with maturity dates ranging from September 2014 through February 2016, which will save approximately $11.5 million in 2014 cash interest expense.  The swap portfolio had a weighted average LIBOR strike rate of 5.09 percent.

Strategic Hotels Resorts, Inc. is a real estate investment trust (REIT) which owns and provides value enhancing asset management of high-end hotels and resorts in the United States and Europe. The company currently has ownership interests in 16 properties with an aggregate of 7,862 rooms and 835,000 square feet of multi-purpose meeting and banqueting space.