Buckeye Technologies Inc. (BKI), CST Brands Inc (CST): Mario Gabelli Is Bullish About These Two Businesses

CST Brands recently generated a decent EBITDA margin at 29%, with the 2012 EBITDA of around $380 million. In the past four years, it has spent $455 million in capital expenditures, including store remodelings and other activities. The company reported that it generated around $240 million in free cash flow last year. Investors might feel safe with CST Brands due to its reasonable leverage, at only 2.1 net debt/EBITDA.

CST Brands Inc (NYSE:CST) expects to grow its business with four main pillars: (1) growing its food-service business through both proprietary food programs and branded food programs; (2) managing its supply chain more efficiently with inventory turnover increases and benefits from a Texas distribution center; (3) private-label program development to deliver value and increase consumer loyalty; and (4) leverage the company’s customer count and network volume to drive sales around core categories with lower costs of goods sold. CST is trading at $32.60 per share, with the total market cap of $2.5 billion. The market values CST quite cheaply at only 5.4 times its EBITDA.

My Foolish take

Indeed, investors should follow Gabelli into these businesses. Buckeye Technologies Inc. (NYSE:BKI) seems to be undervalued with the current buyout offer. I personally think that Buckeye could receive a better offer from other strategic investors. CST Brands Inc (NYSE:CST) is also cheap at its current trading price. With its potential business growth, CST could be a good fit for a long-term investors’ portfolios.

Anh HOANG has no position in any stocks mentioned. The Motley Fool owns shares of CST Brands. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Mario Gabelli Is Bullish About These Two Businesses originally appeared on Fool.com and is written by Anh HOANG.

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