Stock Sonar #30 - 10/25/2023

CommScope (NAS:COMM) — mrkt cap 521mm; Price $2.46; EV/EBITDA 8.5

SPECULATIVE POSITION INITIATED. COMM provides network infrastructure solutions from broadband to enterprise networks. It has roughly 9B in debt making it a highly levered play on the broadband industry. The 9B in debt was reached through a series of botched acquisitions and operational mishaps, with current CEO Treadway brought in to right the ship. COMM is currently FCF neutral however it has debt maturing in 2025. COMM’s debt load would likely be an insurmountable task however the BEAD program (complements of the Infrastructure Act) is bringing in roughly $43B in subsidies to run broadband to rural areas. COMM will benefit greatly from this and coupled with the large cost savings the CEO has implemented, COMM might be able to pay down debt levels and have another lease on life.

Hooker Furnishings (NAS:HOFT) — mrkt cap 183mm; Price $17.21; EV/EBITDA 7.0

PASS. We are passing on Hooker Furniture but we will likely revisit in the near term. Hooker Furniture is a well-known furniture company that manufactures several brands and sells furniture primarily to residential and hospitality segments. The hundred-year-old company owns the well-known Hooker brand and has a reputation for quality. Few businesses have been hit as hard with the slowdown in housing. The company is currently cash flow positive given it is selling through built up inventory, however we would like to see the company cut its dividend soon to improve its liquidity position. This has a promising setup that we look for: a good company with cyclical earnings being aggressively sold off for short term reasons.

Farmer Bros (NAS:FARM) — mrkt cap 56mm; Price $2.76; EV/EBITDA NA

MORE RESEARCH NEEDED. Farmers Brothers provides a portfolio of coffee supplies for ~40,000 businesses (convenient stores and restaurants mainly). They were close to breaking debt covenants but managed to sell off their direct ship facility for ~100mm allowing them deleverage and improve liquidity. The sale also allows them to offload their low margin segment and re-focus on their core which is to be known by customers as the partner of choice for any coffee needs. If Farmers Bros is currently positioned for profitability the upside could be large but we hope to know more after discussions with management –specifically how the divesture affects, if at all, current operations along with an understanding of contract economics.