BusinessWeek Logo
March 10, 2008 Issue Posted February 28, 2008, 5:00PM EST

Inside Wall Street

Why Midas Is Just Chugging Along

The Midas touch is sorely missing at Midas (MDS). A major provider of automotive services—at its more than 2,500 shops in the U.S. and 17 other countries—Midas is hurting from the economic downturn that can make drivers delay repairs on their vehicles. But Mark Boyar, president of Boyar Asset Management, which owns shares, says this is the time to buy. It's cheap, based on Midas' strong cash flow and solid balance sheet. Also, Midas has been a heavy buyer of its own stock and has slashed debt since 2003 from $130 million to $70 million. Within that period, Boyar notes that Midas boosted operating profits to $29 million from $1 million. Midas derives income from licensing fees and renting shop space to franchisees. Boyar believes Midas may become a buyout target. With its steady financials, it's the kind of company the private equity guys are attracted to, he says. Boyar figures the stock, down from 23 a year ago to 18.20, is worth 30.

Mario Gabelli, who heads Gamco Investors (GBL), which has a 16% stake, says Midas has broadened the type of services it offers and plans to expand its franchise business to enlarge its markets. "Right now, Midas is being slowed by speed bumps," says Gabelli. But at some point, he adds, its business will get rejuvenated as the economy recovers and as plans for expansion take hold. In three years, Gabelli figures, the stock could double.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

—By Gene Marcial

What Buffett Sees in CarMax

The auto business sure isn't burning rubber on Wall Street. But CarMax (KMX), the largest U.S. retailer of used cars, has caught the eye of Warren Buffett, who in February upped his stake to 9.6% from 6.4%, for a total of 21 million shares, worth about $396 million. What's so hot about CarMax? It's famous for its low-price, no-haggle sales style. It operates 88 superstores in 41 states. CarMax has only a 2% share of the market. "But we think it could become the Wal-Mart (WMT) for cars" as it expands its share, says Edwin Walczak of Vontobel Asset Management, which owns stock. Earnings have grown at 28% annually for the past six years, he notes. Bradley Thomas of Lehman Brothers (LEH) says CarMax's "long-term growth story is intact." The stock, now at 20.02, is down from 27 a year ago. Thomas' 12-month target is 25.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

—By Gene Marcial

Icagen, a New Partner for Pfizer

Icagen (ICGN) is a tiny, little-known biotech. So what's behind its alliance with pharma giant Pfizer (PFE)? Icagen is developing three compounds for the treatment of pain disorders, and now Pfizer has obtained exclusive worldwide product rights. Pfizer has already paid Icagen $38 million, including $15 million in equity investments, with a potential $359 million in total periodic payments. Pfizer is the largest holder, with 20%. Michael King Jr. of Rodman & Renshaw Capital Group (RODM) rates the stock, now at 1.69, "outperform," with a target of 4. Steven Silver of Standard & Poor's (MHP) says the Pfizer pact is "positive," and he's encouraged by the prospect of Icagen's drug for asthma, now in Phase I trials. He has a "hold" on the stock, but has a target of 3, based on Icagen's product pipeline and cash of about $1 a share.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

—By Gene Marcial

Reader Discussion

 

BW Mall - Sponsored Links