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- 2012 - September - 10th -

Forbes rankings of NFL team values raises questions

by Mark Basch, Contributing Writer

The new Forbes magazine grabbed my attention last week, not for its cover story on Shad Khan, but for its ranking of NFL teams based on franchise value.

It’s one of those stories that tells me, yes, maybe the national media does have a bias against the Jacksonville Jaguars (even before I saw the magazine’s description of the team on the cover as “football’s biggest headache”).

Forbes valued the Jaguars franchise at $770 million, putting it in last place among the 32 NFL teams. The valuation is fair, but I question why the 31 other teams are all priced higher.

There are a number of metrics you can use to value a business, such as earnings or cash flow. In this case, Forbes used the estimated price that Khan paid Wayne Weaver to buy the team in January.

When it comes down to it, the value of anything is the price that someone is willing to pay for it. So the Jaguars are worth $770 million.

However, the Jaguars’ operating income of $29.6 million and revenue of $238 million, as estimated by Forbes, is very similar to other teams that were near the bottom of the rankings.

So why were those other teams, which don’t have recent sales prices to study, valued higher?

The Detroit Lions particularly caught my eye, ranked 27th with a value of $855 million. According to the Forbes estimates, the Lions’ revenue last year was lower than the Jaguars at $231 million and it had a net operating loss of $4.6 million. It also had more debt.

So why are the Lions valued higher? That team lost money even though it made the playoffs last year, while a lousy Jaguars team still earned a profit, according to Forbes.

I consider Forbes a very reliable news source but like any news organization, it makes mistakes. In the story on Khan, it describes Weaver as the man “who owns shoe retailer Nine West.”

Weaver doesn’t own Nine West, and he never owned Nine West. He was once CEO of Nine West, but he retired from that position in 1993 shortly before taking over as lead partner of the group that was trying to bring an NFL franchise to Jacksonville.

So I think it’s fair to question Forbes’ franchise rankings. It seems that Jacksonville has been shortchanged again.

Landstar lowers forecasts

For more than a decade, Landstar System Inc. CEO Henry Gerkens and his predecessor, Jeffrey Crowe, have been holding regular midquarter conference calls to update investors on the company’s business before the regular end-of-the-quarter calls.

The midquarter calls are unique among Jacksonville-based companies and rare for any U.S. public company, as far as I know. The calls generally last only about five minutes and don’t cause a stir. But the latest call just before the Labor Day weekend did set off some alarm bells for stockholders, as Gerkens lowered Landstar’s third-quarter forecast.

Gerkens said because of “choppy” trends, revenue in the first eight weeks of the quarter was “somewhat softer than I originally projected.”

“Although the remaining five weeks of any third quarter typically is the strongest period of any third quarter, I believe it prudent to lower our expected revenue increase for the 2012 third quarter over the 2011 third quarter to be consistent with recent trends,” he said.

The trucking company had originally forecast revenue to rise by 7 percent to 10 percent in the quarter and that earnings would be between 71 cents and 75 cents per share. The new forecast calls for revenue growth in the “mid-single-digit range” and earnings of 66 cents to 71 cents.

“I believe the current inconsistent revenue patterns will be short-lived, and I remain very confident in Landstar’s ability to execute and continue to take market share,” Gerkens said.

The lower forecast caused Landstar’s stock to drop by $2.14 to $47.69 on Aug. 30, with basically all of the drop coming in the last two hours of trading following the 2 p.m. conference call.

After the stock drop, analyst John Larkin of Stifel Nicolaus said in a research note he is maintaining a “hold” rating on Landstar because of “an insufficient upside potential, in our view, to justify a ‘buy’ rating.”

“We would be inclined to review our rating, all else being equal, should the company’s shares trade below $47,”he said.

However, analyst Jason Seidl of Dahlman Rose & Co. said in his report that Landstar’s shares are now trading at a lower price-to-earnings ratio than its competitors.

“We do not believe that this discount is justified, as Landstar consistently generates a notably high return on invested capital (around 30 percent) and high return on equity (around 40 percent). Accordingly, and due to our still favorable long-term view, we maintain our ‘buy’ rating,” Seidl said.

Analyst downgrades CSX

Landstar wasn’t the only Jacksonville-based company on Seidl’s radar over the holiday weekend. On Tuesday morning, he downgraded CSX Corp., along with competitor Norfolk Southern Corp., from “buy” to “hold” because of continued concern about coal shipment volumes.

Railroads have already been feeling the impact of lower domestic coal demand but have made up for that somewhat with higher levels of export coal. However, Seidl said in his report that coal demand is now softening in China and Europe.

“The coal challenges could persist longer than many had anticipated, and the railroads may have to come to terms with coal being a somewhat lower percentage of their business in the foreseeable future as long as natural gas remains competitive enough to win over utilities,” he said.

Seidl did say railroads are responding to lower demand by “scaling down coal network capacity” and increasing their non-coal businesses, such as intermodal. So the “long-term rail outlook remains favorable.”

Fidelity raises offer again for J. Alexander’s

To no one’s surprise, Fidelity National Financial Inc. last week increased its offer for a second time to add J. Alexander’s to its restaurant business.

After agreeing in June to buy J. Alexander’s Corp. for $12 a share and raising the bid to $13 in July, the companies last week agreed to a $14.50-a-share sales price.

J. Alexander’s stock actually closed at $14.62 Wednesday afternoon before the new agreement was announced Wednesday evening, so investors obviously were anticipating a higher offer.

Although J. Alexander’s has agreed to merge into Fidelity’s restaurant subsidiary, J. Alexander’s said in several Securities and Exchange Commission filings that other unidentified parties have made higher bids since the $13-a-share agreement was made in July. So Fidelity had to increase its offer.

Fidelity’s $13 tender offer to J. Alexander’s shareholders expired Wednesday, and the companies said only 145,691 shares had been tendered as of that date. The company has about 6 million shares outstanding.

With the new agreement at the increased price, Fidelity has now extended its tender offer until Sept. 19.

The only question now is, will one of those other unidentified parties bid higher than $14.50?

J. Alexander’s stock reached as high as $14.89 Thursday after the $14.50 price was announced, so obviously some people on Wall Street are expecting another bid.

Stay tuned.

Dick’s Wings owner expanding

In other restaurant news, American Restaurant Concepts Inc. is in an expansion mode now that it has a new investor coming in.

The Jacksonville-based franchisor of the Dick’s Wings restaurant chain announced last week that after opening a second location in St. Augustine earlier this year, it expects to open a third Dick’s Wings in St. Augustine before the end of this year.

“The heightened publicity that the company has experienced during 2012 has resulted in a substantial increase in the number of inquiries from persons interested in opening Dick’s Wings restaurants in Florida and elsewhere in the United States,” American Restaurant Concepts said in a news release.

The company’s first-quarter SEC report said there were a total of 18 franchised Dick’s restaurants in operation as of March 25. Fifteen were in Florida, one was in Georgia and the other two were in Canada.

“We are in various stages of negotiations with several people regarding the opening of new Dick’s Wings restaurants and expect to announce additional agreements for the establishment of new restaurants in the coming months,” CEO Michael Rosenberger said in last week’s news release.

Rosenberger last month announced an agreement to sell a 45.3 percent stake in the company to Louisiana investor Seenu Kasturi.

LPS’ Harris diagnosed with treatable cancer

 Jacksonville-based Lender Processing Services Inc. announced Friday that President and CEO Hugh Harris was diagnosed with a treatable form of cancer, and had surgery on Aug. 31 to remove a tumor from his neck.

Harris is expected to make a full recovery and will remain in his positions, but certain day-to-day responsibilities will be handled by other senior executives during his treatments.

mbasch@baileypub.com

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