“Sum-of-the-Parts” Value?
Shares of Barnes & Noble, Inc. (NYSE:BKS) were recently trading higher by 7.50% to erase last week’s loss following false acquisition rumors. The gains are due to a weekend article from Barron’s where the firm argues that BKS is presenting “sum-of-the-parts” value. Barron’s provides reasons to buy the stock, which center around its belief that the company’s book business combined with Nook Media are worth much more than its current valuation.
As an investor, I often argue the same points for a variety of companies, and that argument centers around companies that have significant revenue relative to market capitalization. In the case of Barnes & Noble, Inc. (NYSE:BKS), it has a market cap of $1.27 billion and sales of almost $7 billion, making Barron’s case accurate. The question is whether Barnes & Noble, Inc. (NYSE:BKS) has something that someone else wants. While there may be value to Nook, or some of its core assets, I don’t like investing in a company on the speculation of a takeover. Hence with 9% revenue declines, I would avoid this stock after its recent rally.
A 100% Premium Worth Exploring
Shares of Tesoro Corporation (NYSE:TSO) are currently trading with gains of almost 4% after Barclays raised its price target to $120, a near 100% premium on its current price. While the price target may appear excessive, Barclays defends it by reflecting the inclusion of the BP Carson, California refinery and its assets into earnings estimates. The firm states that it’s “impressed by management’s well-executed strategy and approach given the difficult regulatory approval process in California.”
The problem with valuing Tesoro Corporation (NYSE:TSO) is that we don’t know the precise value of its new assets. However, when we look at its current valuation, it is hard not to agree with Barclays. The company has growth of almost 4% (exceeding the S&P 500) and trades at just 0.26 times sales with a P/E ratio of 11.50. Thus Tesoro Corporation (NYSE:TSO) is cheap, and if we double its market cap then it’s still cheap, below the S&P 500 average. As a result, with the new assets, I can say that Tesoro Corporation (NYSE:TSO) is in fact a “buy.”
Be Patient With this High Flyer
3D Systems Corporation (NYSE:DDD) rallied almost 5% on Monday after Needham and Maxim raised their price targets with bullish notes. Needham raised its price target to $52 from $42 and specifically cites acquisitions, a successful follow-on offering, and industry strength. The firm mentions recent acquisitions Rapidform and Geomagic as two that should provide high-margin revenue streams. Needham essentially believes that 3D Systems Corporation (NYSE:DDD) is best positioned in a growing space, with great operating leverage and upside earnings potential.
