WNC, one of my holdings, announced their financial results for the 4Q 2006 and FY 2006 yesterday. This morning, I listened in on the company's conference call. The actual financial results were a little disappointing, though inline with expectations, but the conference call shed new light and I may add to my position.
WNC announced a net loss of $0.16 per share - excluding extraordinary items, they would have had a net income of $0.16 per share, which is right in line with analyst expectations. It is no secret that WNC has had a rough past year, and it has shown in the stock price. However, this is part of the reason why I like WNC - the worst seems to be in the past and already reflected in the stock price. This is good because as I have said before, the street is already expecting poor performance, so any 'meeting' expectations or downside surprise should have limited effect on the stock price. Furthermore, there is certainly a floor on this one as indicated by insider purchases by some of the officers as well as value investor and 10%+ holder, Gendell.
Some things I liked in the conference call....
1. Expenditures in the past.
In 2006, WNC spent a great deal of time and money on integrating an acquisition and a new ERP system to help counter increasing pricing pressure from suppliers and commodities. These two items were central factors in a poor 2006 for WNC and the expense is in the past and the foundation is laid for WNC to reap rewards from these developments.
2. Lots of Growth
WNC commented on lots of areas of higher-margin business sector growth. Their whole industry is not very exciting and under some pressure, but in many of WNC's new strategic avenues, they are seeing growth and new customers.
3. Share Buy Back
WNC bought back 700,000+ of their own shares during 4Q 2006 - average price less than $15 per share. This also serves as support as I imagine the buy back of WNC stock will continue. Most of this buy back took place towards the end of 4Q 2006, so we won't see this impact EPS #'s until 1Q 2007.
4. Huge Short Interest
Lots of short sellers out there and it would take 17+ days of trading at WNC average volume to cover the short positions. WNC is not going any lower, at least not significantly lower. I know, famous last words, but if WNC is to get their act together and put together a strong upside quarter, which I believe is at least 2Qs away, WNC will run and the shorts will be forced to cover, providing further buying pressure and further driving the stock up.
I also believe that lower oil prices will free up more money for trucking companies so they can purchase WNC products and we should see some good growth in trucking services over the next couple of years, likely starting in the summer of 2007.
This one is likely worth around $18-$19 today - and should reach $23-$25 within the next 12 months, and I figure that a great deal of that appreciation will take place during a very short period of time. I plan to add more to my position on weakness and collect the small dividend during the wait. It's a boring industry, but there are a great deal of dynamics here that could make WNC a big winner in late 2007. Of course, no promises, and WNC may remain in the weeds for a while, but I don't think we have a loser here - and the downside from $16 is $2-$3 per share and we have an update if $8-$10 per share....not a bad deal.
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