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Tips Update: Career Education, Universal Corp, STR Holdings

Throughout October, I flagged Career Education Corp. (CECO) due to its strong cash balance and recent deal, which saw the company sell its European University assets for more than the company’s total market capitalization.

Career Education sells its European assets

Career Education Corp. (CECO) announced that it was selling its European assets for $276.5 million after expenses, which at the time was more than the company’s market cap. However, since that announcement the company reported fiscal third quarter results that failed to impress the market. As a result the stock is now down 23% from the highs reached after the announcement of the sale of the company’s European assets.

For value investors this is a second chance to grab a piece of the action. Indeed, at current prices Career education has a market capitalization of $312 million, only slightly above the cash sum that is expected to be received form the European assets deal. In addition, at the end of the fiscal third quarter, Career Education Corp. (CECO) had $83 million in cash on its balance sheet, implying that at current levels Career Education Corp. (CECO) will be trading below the value of cash on its balance sheet after the deal for its European assets goes through.

Based on the fact the shareholder equity was $491 million at the end of the fiscal third quarter, an additional $276.5 million in cash suggests a book value per share of $11.42 on the closing of the deal.

Universal Corp (UVV) is another company that I have previously recommended due to its low valuation in relation to its tobacco sector peers, free cash flow and rising demand for tobacco around the world. Unfortunately, Universal recently reported fiscal first half results that were less than impressive. However, according to the company, these results should pick up in the second half of the year.

Surprisingly, Universal Corp (UVV) also noted within its earnings press release that the demand for tobacco around the world is rising, not falling. What’s more, management has committed $50 million to expand its production of tobacco within Mozambique and is planning other capital projects to meet the rising demand for tobacco around the world. Additionally, the company has committed to a $100 million buyback over the next year, which should reduce the number of shares in issue by 10% during the next year boosting EPS by a similar amount.

STR Holdings’s future looks uncertain

STR Holdings, Inc. (STRI) was flagged due to its discount to book value and restructuring efforts, which had seen the company enter the Chinese market. However, the company recently issued fiscal third quarter results that failed to show any progress. Unfortunately, the company revealed that its product launch into China had been delayed due to complaints from customers. Since the company’s product launch was delayed, and in order to conserve cash, the Company has idled the renovation of its leased facility in China. The company is also intends to cease production at its Johor, Malaysia facility by the end of the first quarter of 2014. With drastic culling of production facilities STR Holdings, Inc. (STRI)’s future looks uncertain. Still, there is value to be found as the company currently trades at a price-to-book value of 0.7. That said, the company burnt through nearly $10 million in cash during the third quarter and if this continues, STR Holdings, Inc. (STRI) will have run out of money within a year-and-a-half. So, time could be running out for the company.

-By Rupert H

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