COMMENTARY | COLUMNISTS | BRENT WILSEY

Looking for bright spots in American business

Many people are still walking around in depressed moods, talking about how bad things are.

We can blame the media in part, because many stories are on the negative side. But that is because that is what people watch and talk about, and the media has to capture viewers in order to get them to watch the news.

So who’s to blame? I don’t know — I will let you decide.

I’ve been reading some positives in investment journals and so forth about the bright future for the United States. I’m not talking about the government — that has always been a problem. I’m talking about American business.

I have talked about this in the past, how companies are moving manufacturing back to the United States.

Companies like Ford (NYSE: F) and Apple (Nasdaq: AAPL) are moving manufacturing to the United States. Also taking advantage of low cost energy, weak dollar and stable wages would be foreign companies like Korea-based Samsung, building a $4 billion plant in Texas, along with Airbus in Alabama and Toyota (NYSE: TM) exporting mini vans to Asia from Indiana.

Natural gas costs $3.55 per million BTU here, versus $12 in Europe and $16 in Japan. Companies also like taking advantage of the strong intellectual property rights in the United States — there's no fear of someone taking your idea or product and competing against you.

Shipping and transportation are the best in the world here, and getting products to the coast or any destination for delivery is easy, thanks to a strong infrastructure.

Land is not as inexpensive as one may think it is in China. Industrial land averages $10.22 per square foot across China, but can run as high as $21 per square foot in Shenzhen. Compare that to Tennessee or North Carolina, which run from $1.30 to $4.65 per square foot.

The Chinese yuan has appreciated 33 percent against the dollar since 2005, increasing the price on many of their products despite Beijing’s efforts to keep the yuan low.

Finally, I must point out how well the U.S. energy companies are doing.

Since 2006, U.S. oil production has jumped 34 percent from 15 million barrels a day to 20.1 million barrels per day — a 20-year high. Imported oil has dropped 43 percent, from 14 million barrels a day to just 8 million per day, which is a 25 year low. The International Energy Agency is predicting in just seven years the United States will become the largest oil producer. ExxonMobil (NYSE: XOM) takes it one step further and predicts in 12 years the United States will be a net energy exporter.

So don’t be so gloomy about the future for the United States — it is a little brighter than what you’re seeing on the evening news.

Since I wrote so much on the future of our country, I only have space for one company this week and I picked ViaSat (Nasdaq: VSAT). Jane asked me to take a look at it — she doesn’t say if she owns it or works there, but I haven’t looked at this company in a long time and thought it was about time that I did.

ViaSat is based in Carlsbad and has a market cap of $1.7 billion. The company provides fixed and mobile broadcast services along with satellite and wireless networks. It also provides secure networking systems, products and services for government and commercial customers worldwide. The company is struggling earnings wise, showing losses over the last 12 months and no PE. With a fiscal year ending March 2013, the mean estimate of nine analysts is for the company to lose 54 cents per share. None of the nine analysts are looking for positive EPS numbers for 2013 fiscal year-end.

The company did see its sales rise by 17 percent year over year, better than three times the industry average. However, earnings per share fall way short of the industry average number of 11 percent, coming in at a negative 172 percent.

Unfortunately, a review of the income statement revealed nothing out the ordinary other than a large increase in interest expense due to the nearly doubling of long-term debt. As a shareholder this would worry me, seeing the increase in debt and interest payments causing losses.

Speaking of debt, the company has a debt to equity of 61.2, over twice the size of the industry debt to equity of 29.2.

Looking out to fiscal year ending March 2014 the mean of nine analysts are looking for EPS of 96 cents per share. With a current stock price of around $38 per share that would yield a forward PE of 40 — way too rich for my blood. Now, maybe when the company reports its fiscal-year financial results in April, we will get a good look at March 2015 EPS. However, earnings per share would have to jump to $2.53/share just to justify the stock price of $38 with a 15 multiple. I should also point out that 90 days ago, the mean estimate for March 2014 was $1.42, 48 percent higher than the current estimate.

So, Jane, even with the stock pulling back from its 52-week high of $49.80, I would still pass on the stock at this time until valuations make a lot more sense.

Have a question or a company you'd like me to take a look at? Email me at brent@wilseyassetmanagement.com.
Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. Information is provided by Reuters.

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