GEO Investing

Magnetek Inc.’s (MAG) decrease in pension expenses as well as improving business conditions continue to fuel a significant increase in the company’s EPS, an observation that was made by GeoInvesting in August of 2014.  Since GeoInvesting’s realization that this could be a trend for the foreseeable future, MAG subsequently put together two consecutive strong quarters with its Q3 2014 results in November and today’s preliminary Q4 2014 results.

  • For Q4 2014, the Company currently expects revenue of $29 million, compared with the prior estimated range of $27.0 million to $27.5 million.
  • For Q4 2014 non-GAAP EPS, the company expects to report EPS of $1.00 to $1.02 compared with a prior estimated range of $0.65 to $0.75.  Analyst estimates for Q4 2014 EPS are $0.65.

The company continues to pay down its pension liability and expects to record a:

“non-recurring, non-cash settlement charge of $37.1 million as a component of its pension expense in the fourth quarter of fiscal 2014. The settlement charge had no impact on the Company’s cash flow or financial position and is expected to reduce future pension expenses.”

Near Term Price Target of MAG – $49.95

Applying a P/E multiple of 15 on 2015 analyst EPS estimates of $3.33 would translate into a near term price target of $49.95. In our 8/5/2014 e-mail to Premium members, we stated that we would look to re-establish a position in MAG, when the stock was trading at $25.00 at the time.  Sadly, we did not re-establish a position in MAG before the stock’s ensuing ascent.  We intend to perform more due diligence on the company’s growth prospects for 2015 and 2016 to determine if a more aggressive valuation scenario is warranted.

To stay ahead of the market with GeoInvesting arbitrage and learn about investment ideas not yet digested by the market, Sign up now for More Research and Insight