The potential superstock of the week is BlueLinx Holdings, Inc (BXC) . BXC is a distributor of building and industrial products in the US. ...

Weekly Superstock Scan 21 Jan 2018 - 25 Jan 2018: BlueLinx Holdings, Inc (BXC)

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The potential superstock of the week is BlueLinx Holdings, Inc (BXC). BXC is a distributor of building and industrial products in the US. BXC operates 39 warehouses across the central and eastern United States with approximately 1600 employees.




BXC derives its revenue from the sale of structural and speciality products that are utilised in home construction.

Technical



Since April 2017, BXC has been trading in a range between $8 and $11.10. Last week, price broke above the range to close at $12.96. The volume for the week is 984 thousand shares, 2.8 times its average weekly trading volume.

There was no news for the day of the spike. There was a repayment of mortgage announced the week ago but it is unlikely to be the catalyst. There could also be some progress on the closing of real estate transactions but that is just my guess.

Fundamentals



Including the most recent quarter, BXC recorded 5 consecutive quarters of year-on-year EPS growth. Please note that the EPS does not include the gains from transaction of real estates, which can swing the EPS upwards on quarters where there are transactions. Another interesting point to note is the current quarters is the fifth consecutive quarters that BXC experience positive EPS. Before mid 2016, BXC has been making losses for most of the quarters. 

Unlocking Value through Monetisation of Real Estate

BXC is confident that their owned real estate currently has sufficient market value to realise at least $250 million. BXC intends to quickly monetise enough real estate to pay down their existing mortgage. 

In addition, BXC is in discussions regarding sale leaseback transactions with respect to certain properties in which the potential sales prices similarly extrapolate to a total real estate value in excess of $250 million. 

As a the end of the third quarter, BXC is 7.9x levered. However, assuming BXC is able to fully monetise the remaining real estate for $250 million in pay down debt, the leverage drops to approximately 2.3x.

Asset Based Lending

BXC were able to finance the working capital needs of the company through a new 5-year ABL co-led by Wells Fargo and Bank of America. This new ABL would allow BXC to save approximately $2 million in cash interest each year, compared to their current ABL facility. 

Focus to Grow Sales

Due to the historical liquidity issues, BXC did not plan to grow their top line in the past. Now that BXC has additional capital due to monetisation and ABL facility, BXC has once again focus on growing the top line.

BXC has brought in specific sales team members and has also brought in John Tisera who will be fully responsible for the sales effort of the organisation from HD Supply.

BXC also believe that the macro-economic condition is favorable for BXC to grow, especially as single family housing growth need to hit 30% just to reach historical average.

Matrices
o Small float of 7.49 million shares with a average weekly trading volume of 0.1 million shares. The float is thus almost 75 times its average trading volume.
+ BXC is trading at 10.8 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:


  • Commodity Price - Many of the building products BXC distributes are commodities with prices and volumes determined in an auction market. At times the purchase cost may exceed the selling price, resulting in short-term losses. There is also the unresolved issue of the Canadian softwood lumber tariff which may affect BXC's profitability. 


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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.