CHICAGO, Feb. 3, 2014 /PRNewswire/ --Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Whiting USA Trust II (NYSE:WHZ-Free Report), SandRidge Mississippi Trust I (NYSE:SDT-Free Report), Chesapeake Granite Wash Trust (NYSE:CHKR-Free Report), Men's Wearhouse Inc. (NYSE:MW-Free Report) and Jos. A. Bank Clothiers Inc. (Nasdaq:JOSB-Free Report).
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Here are highlights from Friday's Analyst Blog:
Royalty Trusts a Royal Flush?
With 10 Year Treasury rates trading below 2.7% investors are broadening their horizons as they search for income. We have all heard horror stories surrounding the inevitable bursting of the "Bond Bubble" and with the stock market near all-time highs dividend paying equities are increasingly overpriced. In the never ending hunt for yield eventually you come across an interesting brand of stocks known as royalty trusts.
Royalty Trusts are entities that own the production rights on oil wells, natural gas fields and iron ore mines. Part of their appeal is that these trusts typically pay out 90% of their earnings on the production to the shareholders as a dividend. As a result these trusts have incredible yields. You have to be careful when selecting which trust to buy as not all trusts are created equal. Some own the rights to wells that are decreasing in production year over year and are basically a losing proposition. Other trusts have termination dates in the near future which mean the trust will cease to exist and become worthless.
Whiting USA Trust II (NYSE:WHZ-Free Report) owns interests in oil and natural gas producing properties in the Rocky Mountains, Permian Basin, Gulf Coast and Mid-Continent regions of the United States. Right now the stock pays a dividend over 26% or $3.55 over the last year. On paper that sounds great but when you consider the 52 week high of $17.63 the dividend may not compensate for the risk. Next year's earnings estimates call for the trust to make 24 cents less per share than this year, helping contribute to a Zacks #5 rank of a strong sell.
SandRidge Mississippi Trust I (NYSE:SDT-Free Report) contains royalty interests in oil and natural gas in northern Oklahoma from the Mississippian formation. This region has seen production levels fall well below initial estimates. With a Zacks #4 rank, the over 23% dividend may not be enough to make up for the additional risk. The trust was initially offered to the public over $20 a share in April 2011 but currently trades below $10.
ChesapeakeGranite Wash Trust (NYSE:CHKR-Free Report) also with a yield over 23% has taken a similar trajectory to SDT since its IPO. In November 2011 CHKR opened for trading at $19 and in the last couple of years has sold off down to the $11 range. The high dividend means nothing if the stock unwinds more than the dividend pays out. Zacks ranks this stock a #5 or a strong sell due to continued earnings revisions to the downside. The less these trusts earn in the future the lower the dividend will be for investors.
Men's Wearhouse Still Keen on Acquisition
In the latest development on the takeover battle between the two men's clothing retailers, The Men's Wearhouse Inc. (NYSE:MW-Free Report) approached the independent directors of Jos. A. Bank Clothiers Inc. (Nasdaq:JOSB-Free Report) urging them to reconsider its all-cash offer of $57.50 per share or approximately $1.6 billion. This move by Men's Wearhouse indicates its intention to complete the acquisition as soon as possible since its offer will expire on Mar 28.
The move came after Jos. A. Bank rejected Men's Wearhouse's offer on Jan 20, stating that the bid was inadequate and significantly undervalued the company on grounds of its near and long-term prospects.
In its letter, Men's Wearhouse has insisted that Jos. A. Bank's independent directors form a committee and re-evaluate its offer. It wants them to consider the earlier rejection by Jos. A. Bank, which had taken place without entering into any negotiation. The company also stated that it is ready to increase its bidding offer if the committee finds any additional value necessary.
The market reacted positively to the recent development as the share price of Men's Wearhouse and Jos. A. Bank rose approximately 2% and 1.6%, respectively yesterday.
On Jan 6, Men's Wearhouse raised its acquisition bid to $57.50 per share or $1.6 billion in order to woo Jos. A. Bank and its shareholders. Prior to this, in Nov 2013, the company had offered to acquire all shares of Jos. A. Bank in an all-cash transaction worth $1.2 billion or $55 per share.
Additionally, Men's Wearhouse communicated its intention to nominate two independent director candidates to Jos. A. Bank's board election at its 2014 Annual Meeting. The names proposed for nomination include John D. Bowlin and Arthur E. Reiner. Further, the company took to Jos. A. Bank's shareholders, urging them to consider its offer, in order to push management into entering negotiation.
Men's Wearhouse's latest proposal values Jos. A. Bank at a 38% premium over the latter's closing price on the day prior to the announcement of Jos. A. Bank's proposal to buy Men's Wearhouse (Oct 8, 2013) and a 52% premium to Jos. A. Bank's unaffected enterprise value. It also represents a 9.4x enterprise value to the trailing 12-month adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) multiple.
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