Bluelinx Holdings Inc. (NYSE:BXC) is a leading distributor of building and industrial products in the US. We started tracking the company in late 2016 as an asset sale put them ahead of schedule in their restructuring efforts. We disclosed our long position on August 4th, 2016 as we internally calculated an EPS number that was much higher than the company reported in its Q2 financial report:
You can learn more about how we exploit differences between company reported EPS (GAAP) and a more operational EPS (non-GAAP) that dictates the true earnings power of a company here.
We later put out a series of updates on BXC for our Premium Members while the stock continued a largely sideways to slightly upward trend, even adding it to a few of our contrarian model portfolios designed to take advantage of pullbacks and/or muted reactions to news that we feel at times is misunderstood. These portfolios are fittingly named “Pullback Portfolios”.
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Major Legacy Shareholder Sells Stake Through Underwriter at Big Discount: Made for Attractive Entry Point
During our due diligence process, we learned that Private Equity firm Cerberus Capital was a long-time investor in the company. Cerberus’ overhang in the stock suppressed the stock price but speculated they would look for an exit soon. In September 2017, we observed weakness in the stock, and anticipated that Cerberus would soon try to sell its stake because Cerberus’ fund, which invested in BXC, was winding down. The shares were sold in a non-dilutive secondary offering through an underwriter, BTIG LLC, at $7.00 per share. No new shares were issued. Cerberus just opted to sell its stake through an underwriter.
Not only was there an opportunity to get a great return on a sizable number of shares in a trade, but we also believe opportunities like this can enable investors to build sizable positions in quality companies to hold longer term. BXC stock never reached the offering level price of $7.00 in open market trading.
Below represents the chronology of events and research leading up to the company’s March 12, 2018 announcement that it “entered into a strategic merger agreement to acquire Cedar Creek.”
Monday, June 27, 2016
BXC ($7.20) – We are considering constructing Reasons for Tracking on Bluelinx Holdings. BXC distributes building products in North America. The company distributes products in two principal categories, structural products and specialty products. This $7.20 company is taking steps to improve margins and reduce its mountain of debt. If successful, there could be massive incremental gains in EPS and EBITDA. We encourage our members to review the company’s conference call transcripts for more information while we continue our research.
Thursday, August 4, 2016
BXC ($7.34) – On June 27, 2016 we stated we are watching BXC closely due to the company taking steps to improve margins and reduce its mountain of debt. If successful, there could be massive incremental gains in EPS and EBITDA.
This morning, BXC reported Q2 2016 results and more importantly reported progress on debt reduction plans:
- Sales of $509.0 million vs $515.6 million in the prior year
- Non GAAP EPS of $0.43 vs $0.08 in the prior year
Quotes from management:
“As previously announced on April 21st, our primary focus is on deleveraging the balance sheet. We have decreased our debt principal by $63.6 million and our net working capital by $64.5 million when compared to the same period a year ago primarily through our inventory and facility rationalization. In addition, we are currently under contract to sell several of our closed facilities and are actively marketing certain operating facilities for sale leaseback opportunities.”