Quick update, I've been quiet for a bit, maybe due to some writer's block, maybe because I continue to underperform the market by an embarrassing amount. Clearly, I've missed the recent big market trends, but even in my niche I've underperformed, just feels like playing a game of Battleship where you're just missing the targets. Anyway, here are a few new tracker positions I've taken where I admittedly have few original thoughts to add to the greater market zeitgeist.
Three new tracker positions:
Fiserv (FI) ($35.4B market cap, $65.7B enterprise value) is a large legacy merchant acceptance business (the old First Data) paired with a decent but no-growth core account software provider to small and medium sized community banks. These types of legacy fintech businesses usually have poor reputations with their clients, the view is they've levered up and no longer invest in their product or innovate, rather they rest on their laurels knowing their products are sticky and generally not worth the risk of transitioning away to a new provider. Fiserv apparently pushed that narrative to the extreme and clients are fighting back on extra fees attached to their Clover product (point of sale device, plus a software platform for small businesses) bringing their previously issued guidance into question. New CEO, Mike Lyons (joined from PNC, former CEO Fran Bisignano left to join the Trump Administration running SSA and the IRS) pressed the reset button on the company's strategy, management team (hiring new co-presidents for each business segment and a new CFO) and guidance. Shares dropped roughly in half last week, quite shocking for an real business and S&P 500 component.
Investor trust has been broken for now, but the reset seems to be the right strategy for the long term (?), this is still a non-discretionary product that should trade for more than ~7.5x adjusted earnings (much of the adjustment is non-cash amortization expense from the First Data merger). Fiserv has historically been a levered equity buyback story, hopefully they continue to buyback shares down here (they bought back $6.7B in the last twelves months at significantly higher prices) and avoid the trap of management teams hoarding cash just when the stock becomes cheap.
Forward Air (FWRD) ($730MM market cap, $2.4B enterprise value) is primarily an asset-lite (relies on independent contract drivers) less-than-truckload transportation services provider that historically had a nice niche in airport-to-airport routes. They diversified through acquisitions over the years to include truckload, intermodal drayage (between ports/railyards and other points in the supply chain) services and most recently with their ill-fated acquisition of Omni Logistics, a 3PL service provider. The Omni Logistics acquisition, announced in 2023 but closed in early 2024, was done at peak post-covid earnings and a peak multiple of 18x EBITDA (which was higher than FWRD's multiple at the time). The market hated the acquisition from the start, crashing the stock, Forward Air management tried to backout of the transaction but eventually closed it with a small price cut.
In January, Forward Air announced it was conducting a strategic review, there have been reports of multiple (5-6 financial buyers) bidders being interested including Clearlake Capital Group which owns a 12.6% stake in the business. The strategic process is long in the tooth at this point, Axios recently reported the process is at an impasse due to a wide bid-ask spread. Shares have traded down as the market seems skeptical of a deal happening, but a turnaround effort is probably best conducted in private hands and activist shareholders will continue to pressure management to sell. I'm hoping a deal can still be reached as the company has yet to call off the sale process, despite the Axios report being a couple weeks old now.
There's quite a bit of debt on FWRD, it's on the riskier side, but at $18.25/share, its trading at 7.7x consensus NTM EBITDA of $315MM. Tariffs and supply chain disruptions, plus a general shipping recession is a concern, but on more normalized earnings, this business is even cheaper and could be a home run for a PE buyer.
Jefferies Financial Group (JEF) ($10.8B market cap) is the largest non-bank holdco investment bank in the U.S. which was recently ensnarled in the First Brands bankruptcy. For those outside of the leveraged finance space, First Brands is a privately held (and non-PE sponsor) rollup of auto parts products that recently went bankrupt after a refinancing of their term loan was paused due to a non-receipt of a quality of earnings report and subsequently the company stopped making payments on their factoring debt. There's some whiffs of fraud here, First Brands potentially pledged the same receivables multiple times and used a lot of off balance sheet financing that was only weakly disclosed to their term loan lenders (although if credit analysts looked at the cashflow statement, could see that something was off). Jefferies was First Brands' banker on the failed term loan refinancing and a fund managed by Jefferies was overly exposed to the factoring debt, causing into question the level of due diligence they performed prior to the engagement.
In the wake of the news, people started comparing Jefferies to B. Riley (RILY) and other runs on financial institutions, but this situation seems pretty contained, Jefferies has limited actual exposure to First Brands and the market will likely forget about it in a quarter or two. Unlike the other two above, Jefferies isn't as absolutely cheap at 13.5x forward consensus earnings for a cyclical business, but with the continued tailwinds of increased M&A and open credit markets, hard to see this situation (unless you disagree that its a one-off) having a lasting impact.
Disclosure: I own shares of FI, FWRD, JEF
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