PayPal (NAS:PYPL) — mrkt cap $75.9B; Price $68.10; trailing P/E 27
PASS. Paypal is the global leader in alternative payment methods and owns Venmo (P2P) and Xoom (cross border digital remittances). Due to online spending pulling back, growth slowed and margins compressed leading to a 75% downturn in the stock. Bears believe intense competition within digital payments has contributed to an inflection in Paypal’s growth and its high-cost structure reflects misguided “Stakeholder Capitalism.” More work needs to be done to know if Paypal will keep share against competition as ecommerce penetration rates increase. Normalized earnings multiple look reasonable but the company’s cost disciplines have lacked shareholder alignment.
Tredegar (NYSE:TG) — mrkt cap $235mm; Price $6.87; trailing P/E NA
PASS. TG appeared on our special dividend screen and combined with trading at 30 year lows, warranted a deeper dive. Tredegar operates in two segments: aluminum extrusion and polyethylene (‘PE’) films. Aluminum extrusion is based on custom aluminum design for the automobile and home flooring industries while PE films are the protective films that covers LCD screens (think flat screen TVs). These segments are inherently cyclical and combined with a pull forward in demand over the last couple of years, business is now anemic. On a normalized basis, TG generates about $30mm in FCF but given the 150mm in LT debt, the valuation is not yet a bargain. Their PE film segment has recently seen headwinds as certain customers seek alternatives as these films are scrap or waste material that is nonvalue add. However, a potential new growth market may be in semiconductors, although this will likely take time as the requisite qualifications need to be obtained.
Safilo Group (MIL:SFL) — mrkt cap €511mm; Price €1.19; trailing P/E 12
PASS. Safilo manufactures luxury eye frames, competing largely against eyewear titan Essilor Luxottica. SFL owns about half their brands and are a licensee for the other half. Share prices have fallen over the last ten years as its largest customers (LVMH and Kering) moved to producing their eyewear in-house. SFL’s current customer base should be more resilient as they lack the scale and manufacturing capabilities to do this. Along with SFL maneuvering to position their in-house brands as DTC, they are also streamlining costs and are divesting plants that are not operating at capacity. SLF is a durable business and at 12x earnings is trading at about fair value. We will look to initiate a position given a further pullback.