PSS World Medical Inc. will be holding an Investor Day in New York next week to meet with analysts and major shareholders. That’s good, because the company’s end-of-the-fiscal year report last week left them with a lot of questions.
Along with reporting disappointing earnings for the fourth quarter ended March 30, the Jacksonville-based distributor of medical supplies also announced a major restructuring of its business.
PSS intends to focus on distributing supplies for four markets: physician, laboratory, in-office dispensing and home care and hospice. It will seek to divest its skilled nursing and specialty dental businesses.
In a conference call with analysts, CEO Gary Corless said the realignment is a response to a changing U.S. health care system.
“It’s important that PSS be part of the solution, which we’re referring to as Healthcare 2.0,” he said.
Corless said the restructuring is a work in progress that was just approved by the board of directors last week.
“Over the next year, you will start to see things on how we will report and manage the business going forward,” he said.
Also on Thursday, PSS reported fourth-quarter earnings of 38 cents a share, unchanged from last year and 5 cents lower than the average forecast of analysts surveyed by Thomson Financial.
The immediate reaction from investors was a $2.70 drop in PSS’s stock to $20.66 on Thursday.
“We believe investors will be pleased with the refocused strategy, but will be looking for clarity on the timing of an improvement in operating metrics,” William Blair analyst John Kreger said in a research note.
Kreger maintained a “market perform” rating on the stock. But Goldman Sachs analyst Robert Jones maintained a “sell” rating.
“While management’s planned avenues of future growth look encouraging, it is too early in the company’s transformation to properly assess whether these moves will be enough to overcome what we see as secular headwinds facing the company,” Jones said in his research note.
“Despite the 12 percent sell-off today (Thursday), we do not see a compelling reason to become more constructive,” he said.
Robert W. Baird analyst Eric Coldwell downgraded his rating on PSS from “outperform” to “neutral” on Friday. But his report did include one encouraging item for anyone who may have been worried about PSS’s future in Jacksonville.
“Many analysts — as recently as this week in one case — have speculated for many years that PSS could be acquired. Historically, such a move would have been highly accretive and welcomed by shareholders of both the seller and the buyer, in our opinion,” Coldwell said.
“However, our conversations with the most likely strategic buyers have left us increasingly of the opinion that interest was low and waning. Given the stated strategy and substantial moving pieces here, it seems highly unlikely that the company is interested in seeking alternatives or that strategic buyers would be interested,” he said.
EverBank’s price in line with its peers
So how do you price a stock?
When financial analysts set their target prices on a stock, they generally base it on their estimates of future earnings for a company. The average stock in the S&P 500 has been trading at a price between about 14 and 15 times its estimated earnings per share over the next 12 months, so that’s a good guideline if you’re trying to assess a stock’s value.
But banks are valued differently, according to Ben Bishop, banking analyst at Allen C. Ewing & Co. in Jacksonville. Bank stocks are being priced in relation to their book value, which is basically the amount of its tangible capital.
So if you look at the pricing of EverBank’s initial public offering in comparison to the prices of other publicly traded banks, you shouldn’t have been surprised.
As you know, EverBank estimated in a Securities and Exchange Commission filing two weeks ago that its IPO would be priced between $12 and $14 a share. But when the deal was actually priced on May 2, the price was reduced to $10 a share, which seemed to be a disappointing result.
But that $10 price is basically equal to its tangible book value, which based on its 2011 year-end results would have been $9.86 after the IPO, EverBank said in SEC filings.
That’s pretty much in line with its peers. Bishop has data which show that a group of 15 Southeastern banks with assets of more than $1 billion (EverBank has more than $13 billion in assets) has been trading at about 96 percent of book value. EverBank fits right in.
Even though the price was below what it hoped, Bishop thinks EverBank deserves credit for completing the IPO.
“It’s not a great market for bank stocks at the moment. It’s a very, very volatile market,” he said.
“It speaks well of EverBank that they got it done,” he said.
EverBank ended up selling 22.1 million shares of stock (after its underwriters exercised options to buy additional shares), receiving net proceeds of $198.7 million after underwriting expenses.
As part of the IPO, some executives and directors of EverBank had planned to sell a total of 5.9 million of their own shares in the company. But they decided to pull the shares back when the IPO price was dropped to $10.
Bishop said that by opting to hold onto the shares instead of selling them at the lower price, the bank’s insiders demonstrated confidence that the shares will eventually rise.
“They believe in the company, and that’s what helped get it (the IPO) done,” he said.
EverBank’s stock traded mainly between $10.50 and $11 last week.
Ex-Atlantic Coast chairman pulls his IPO
A Pennsylvania-based bank that has an interesting connection to Jacksonville was planning to go public last week, but decided to postpone the IPO because of the volatile financial markets.
Customers Bancorp Inc. was planning to sell 7.1 million shares at $13 to $15 each, but it called off the IPO on Tuesday.
“We will continue to assess the financial markets for future opportunities to raise capital in the public market at a price that we believe to be reflective of the inherent value of the company,” Chairman and CEO Jay Sidhu said in a news release.
Does that name sound familiar? While Sidhu was running Customers Bancorp, he had also been chairman of the board of Jacksonville-based Atlantic Coast Financial Corp.
Atlantic Coast said in an SEC filing on May 3 that Sidhu had resigned as chairman, citing differences with the rest of the board of directors on strategy.
Sidhu, who will remain on Atlantic Coast’s board until his term as a director expires in 2014, did not say anything about Customers Bancorp in his resignation letter. But the timing of his resignation does raise questions about its possible connection to the planned IPO.
Neither Sidhu nor Atlantic Coast CEO G. Thomas Frankland responded to voice mail messages last week.
Body Central now looks undervalued
Returning to pricing of stocks, you might be wondering what Body Central Corp. is worth after the stock’s big tumble 10 days ago.
The Jacksonville-based fashion retailer lost nearly half of its value in one day, dropping from $28.92 to $14.88 after a disappointing sales forecast.
Before that report, the average forecast of the six analysts following Body Central was for earnings of $1.77 a share this year, according to Thomson. If you price the stock at 15 times earnings, that would give you a price of $26.55.
The average earnings forecast dropped to $1.63 after the new sales forecast. At 15 times earnings, the price of the stock would still be $24.45. So yes, you could say the market overreacted.
But some analysts have become more cautious about the stock. All six rated it as a “buy” before the new forecast, but three of the six now rate it as a “hold,” according to Thomson.
CSX raises dividend
CSX Corp. continues to do well for its shareholders. The Jacksonville-based railroad company last week announced it is increasing its quarterly dividend from 12 cents a share to 14 cents.
“CSX has a strong balance sheet and cash flows and remains committed to a balanced approach to capital deployment,” CEO Michael Ward said in a news release.
“This approach has helped CSX create value in good and bad economic times and remains a cornerstone of our management philosophy,” he said.
Network Solutions owners selling some Web.com shares
When Web.com Group Inc. bought Network Solutions last year, it paid off the owners of Network Solutions in part by issuing shares equal to about one-third of Web.com’s total shares outstanding.
Now with Jacksonville-based Web.com trading near record highs, those investors are selling off a chunk of their shares.
Web.com indicated in SEC filings that the former Network Solutions investors are selling 8 million Web.com shares. That will still leave them with about 19 percent of the stock.
Most of those shares are controlled by an investment firm called General Atlantic, which was the majority owner of Network Solutions.
Jacksonville Bancorp increases earnings
Jacksonville Bancorp Inc. last week reported first-quarter earnings of $1.3 million, or 22 cents a share, up from $439,000, or 7 cents a share, the previous year.
The parent company of The Jacksonville Bank said it meets the regulatory standards of being “well capitalized,” but it also said its level of non-performing assets rose from 6.51 percent of total assets a year ago to 9.68 percent now.
“The high level of nonperforming assets, stemming in large part from a 50 percent decline in real estate values in recent years, remains very challenging,” CEO Price Schwenck said in a news release.
But Schwenck also said “the economy appears to be improving in Jacksonville, and we believe there is tremendous opportunity to grow our franchise. The momentum during the first quarter is encouraging.”
Convergys names new CEO
Convergys Corp., which has sold off two of its three operating divisions in the past two years, announced last week that the head of its one remaining division will become CEO of the corporation.
Andrea Ayers, currently president of Convergys’ customer management division, will become president and CEO of the parent company this fall. Current CEO Jeff Fox will become executive chairman of the board of directors.
“We think very highly of Jeff and believe he has done an excellent job of turning the company around by shedding non-core assets and refocusing the company on the improved customer management segment,” Robert W. Baird analyst David Koning said in a research note.
Koning noted that Fox will remain involved with the company as executive chairman and also indicated confidence in Ayers.
“We are very impressed with Andrea’s rise through the ranks at Convergys and the improvement she has led in customer management,” he said.
Cincinnati-based Convergys employs about 1,500 people in Jacksonville in its customer management business.
356-2466