First Look at DOW 30 Component Boeing (BA). This one is going down on budget cuts.

Today I continue my series on the DOW 30 component stocks.  I take a first look at Boeing (BA).  Boeing is an exceptional dividend grower.  The stock is almost speculatively priced.  Lastly, Boeing’s balance sheet is horrible.  I wouldn’t even consider buying this bloated defense contractor given its balance sheet and massive defense budget cuts in the near future.  To see how I arrived at these conclusions read on.

Boeing (BA)

Price: $69.95

Shares: 749.05 million

Market capitalization: $52.40 billion

What does the company do: Boeing manufactures commercial airplanes, provides defense equipment, and maintains a small captive finance division. Its headquarters in Chicago, the firm actively competes with Airbus in commercial aviation, and Lockheed Martin, Northrop Grumman, and General Dynamics in defense operations. Sales are nearly split 50/50 between the airplane and defense segments. The firm generated $69 billion in sales and employed 171,700 people in 2011.

Morningstar’s take: Boeing currently operates in a duopoly with Airbus EAD, following the acquisition of McDonnell Douglas in 1997. Though this duopoly is under threat as new competition from Bombardier BBD.B, COMAC, and others enter the single-aisle arena, Boeing's focus on innovation and its symbiotic relationship with key suppliers and customers help provide a narrow economic moat around its business and should power a high return on invested capital for years to come.

Bonds: $8.3 billion outstanding

Times interest earned: 8 times.  Boeing paid $498 million in interest expenses in 2011 and they earned $4.018 billion in that same year.  The interest expense is not a threat to the dividends at this time.

Preferred stock: none.

DIVIDEND RECORD: Boeing has an excellent dividend growth record.  They paid a $0.08 quarterly dividend in 1987 and been able to grow the dividend to $0.44 quarterly.  That is 450% straight line growth over 25 years or 18% annual straight line growth.

Dividend: $0.44 quarterly

Dividend yield: 2.52% ($1.76 annual dividend / $69.95 share price)

Dividend payout: 30% ($1.76 / $5.75 using 2011 EPS) –OR- 46% ($1.76 / $3.85 using average adjusted earning power)

EARNING POWER: $3.85 @ 749.05 million shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

	EPS	Net income	Shares	Adjusted EPS
2005	$3.20	$2,572 M	803 M	$3.43
2006	$2.85	$2,215 M	788 M	$2.96
2007	$5.28	$4,074 M	773 M	$5.44
2008	$3.67	$2,672 M	729 M	$3.57
2009	$1.84	$1,312 M	713 M	$1.75
2010	$4.45	$3,307 M	744 M	$4.41
2011	$5.34	$4,018 M	753 M	$5.36

Seven year average adjusted earnings per share is $3.85

Consider contrarian buying below $30.80 (8 times average adjusted EPS)

Consider value buying below $46.20 (12 times average adjusted EPS)

Boeing is trading at 18.2 times average adjusted EPS.  This is stock is priced for investment, but it is approaching speculative territory.

Consider speculative selling above $77.00 (20 times average adjusted EPS)

BALANCE SHEET – Boeing has a very weak balance sheet.

Book value per share: $6.71 ($5.027 B total equity / 749.05 M shares)

Price to book value ratio: 10.42 (under 1.0 is good)  Boeing investors are paying $10.42 for each $1.00 of book value.  That is a ridiculous premium to pay.

Tangible book value per share: -$3.89  (total equity - $4.950 B in goodwill - $2.993 B in intangibles / 749.05 M shares)

Price to tangible book value: N/A  Boeing’s tangible book value is a negative number.

Current ratio: 1.21 latest quarter (over 2.0 is good)  ($50.131 B in current assets / $41.305 B in current liabilities)

Quick ratio: 0.25 latest quarter (over 1.0 is good)  ($10.516 B in cash or equivalents / $41.305 B in current liabilities)

Debt to equity ratio: 1.75 (lower is better)  You can see this in the balance sheet chart with the huge liabilities (red) compared to the small amount of equity (green)

Percentage of total assets in plant, property, and equipment: 11.72% (the higher the better) Their other assets as a percentage of total assets are: 62.5% in current assets (mostly inventories), 15.87% in other long term assets, and 9.9% in intangibles.

Working capital trend:  Boeing has a nice upward trend since 2009.

CONCLUSION – The best time to buy Boeing (BA) in recent years was in February 2009.  It was a value investment back then.  Boeing is a steady dividend payer and grower, but the current yield is just average.  If Boeing’s stock price falls back to the 2009 lows and the company keeps the current dividend, then you’ll be able to get Boeing with a 5.5% dividend yield.  The company is almost speculatively priced at 18.2 times average adjusted earning power.  Add Boeing to you watchlist at under $46.20.  The balance sheet is weak by many measurements.  Worse of all is that over 50% of Boeing’s business comes from the US government.  There will be trillion dollar federal budget deficits from here to as far as the eye can see.  The defense budget is going to get slashed significantly and Boeing will be hurt badly by those cuts.  I’d ignore Boeing until it hits 2009 lows again.

DISCLOSURE – I don’t own Boeing (BA).

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First Look at DOW 30 Component 3M (MMM).

Today I continue my series on the DOW 30 component stocks.  I will be examining 3M (MMM).  3M is an exceptional dividend grower with an average yield.  Its priced for investment, but its balance sheet has some weakness.  To see how I came to those conclusions read on.

3M (MMM)

Price: $84.40

Shares: 693.87 million

Market capitalization: $58.56 billion

What does the company do: Based in St. Paul, Minn., 3M manufactures a diversified array of industrial products. Known especially for popular consumer products such as Scotch Tape and Post-It Notes, the company's portfolio also offers liquid crystal display films, health-care technology, heavy-duty adhesives, and more than 40 other technology platforms. 3M is an S&P 500 component and a part of the Dow Jones Industrial Average.

Morningstar’s take: Over its long history, 3M has invented some of the world's greatest products. We think the firm's innovative culture, bottom-line focus, and low-cost manufacturing have carved a wide moat around its business that will enable the company to reap outsized rewards over the long run. That said, the company tends to feel the pinch of economic slowdowns relatively early, and near-term headwinds could crimp the firm's results for several quarters.

Bonds: $5.8 billion outstanding

Times interest earned: 3M’s earned 23 times its bond interest expenses in 2011.  They earned $4.283 billion and paid $186 million in interest expenses in 2011.  Their bonds are not a threat to the dividend at the present time.  Although, it looks like they have some big bonds due in the 2013-2017 timeframe.

Preferred stock: none.

DIVIDEND RECORD: I don’t see any cuts going back to 1987 which is as far as I can see on Google Finance.  They have grown their quarterly dividend from $0.12 in 1987 to $0.59 today.  That is a straight line gain of 391% over 25 years or 15.6% straight line annual dividend growth.

Dividend: $0.59 quarterly

Dividend yield: 2.8% ($2.36 annual dividend / $84.40 share price)

Dividend payout: 39% using 2011 EPS of $6.06 –OR- 44% using average adjusted earning power of $5.39

EARNING POWER: $5.39 @ 693.87 million shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

	EPS	Net income	Shares	Adjusted EPS
2005	$4.12	$3,199 M	777 M	$4.61
2006	$5.06	$3,851 M	761 M	$5.55
2007	$5.60	$4,096 M	732 M	$5.90
2008	$4.89	$3,460 M	707 M	$4.99
2009	$4.52	$3,193 M	707 M	$4.60
2010	$5.63	$4,085 M	726 M	$5.89
2011	$5.96	$4,283 M	719 M	$6.17

Seven year average adjusted earnings per share is $5.39

Consider contrarian buying below $43.12 (8 times average adjusted EPS)

Consider value buying below $64.68 (12 times average adjusted EPS)

3M (MMM) is currently trading at 15.7 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $107.80 (20 times average adjusted EPS)

BALANCE SHEET – Horrible price to book value ratios.  Quick ratio (Cash/Current Liabilities) looks weak.

Book value per share: $23.32 ($16.182 B equity / 693.87 million shares)

Price to book value ratio: 3.61 (under 1.0 is good) 3M investors are paying $3.61 for each $1.00 in book value.  That is a huge premium to pay.

Tangible book value per share: $10.42 (equity - $7.090 B goodwill - $1.865 B intangibles / 693.87 million shares)

Price to tangible book value: 8.10 (near 1.0 is good)  Wow! Investors are paying $8.10 for each $1.00 in tangible assets.  The is a substantial premium.

Current ratio: 2.37 latest quarter (over 2.0 is good)  ($12.853 B current assets / $5.408 B current liabilities)

Quick ratio: 0.69 latest quarter (over 1.0 is good) 3M has huge amounts of receivables and inventory.

Debt to equity ratio: 0.28 (lower is better)

Percentage of total assets in plant, property, and equipment: 24.2% (the higher the better)  Other assets percentages of the total assets are: current assets 40.15%, intangibles 27.97%, and other long term assets 7.66%

Working capital trend: Nicely upward

CONCLUSION – The best time to buy 3M in recent years was in early March 2009 when the price dropped to $41.83.  That was below contrarian pricing of $43.12.  Their dividend growth has been phenomenal over the past 25 years.  However, the dividend yield is just average for a DOW 30 stock.  3M is currently priced for investment at 15.7 times, but that seems quite expensive when you consider where the stock price has been.  3M’s net income has been incredibly stable even at the height of the financial panic of 2008-2009.  3M’s balance sheet is very weak mostly due to extremely high price to book value ratios.  I would put 3M on your watchlist with an alert set for below $64.68 per share.

DISCLOSURE – I don’t own 3M (MMM).

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First look at DOW 30 Component Alcoa (AA)

Today’s article continues my series on the DOW 30 companies.  I take a look at aluminum producer Alcoa.  I’ll bet you didn’t know that Alcoa has a pretty dark past regarding the introduction of fluoride into your local drinking water.  Here is the link if you’re interested: http://www.lewrockwell.com/rothbard/rothbard85.html 

Alcoa’s earning have suffered greatly since the Panic of 2008, its dividend yield is smaller than the S&P 500 average, they cut the dividend big time every crisis, and their balance sheet is not strong.  The return of a worldwide recession will crush Alcoa’s share price further.  Read on to see how I came to this conclusion.

Alcoa (AA)

Price: $8.49

Shares: 1.07 billion

Market capitalization: $9.06 billion

What does the company do: Alcoa is the largest player in the global aluminum market, producing 20% of the world's alumina and 10% of its aluminum. Alcoa is involved in bauxite mining; alumina refining; aluminum smelting; and producing aluminum products such as beverage cans, aerospace components, and auto and building products. The company has operations on every continent and has been actively expanding its operations in lower-cost regions such as South America and the Middle East.

Morningstar’s take: Alcoa is one of the top players in the aluminum industry, as the largest producer of alumina; a major smelter of aluminum; and a leading manufacturer of aluminum products for beverages, cars, aircraft, and building construction. The company's size and vertical integration enable strategic advantages such as lower input costs, greater efficiency, and access to financial resources. But, like all commodity industries, aluminum is a challenging business, as profitability is linked to cyclical demand and volatile price movements.

Bonds: $8.4 billion outstanding

Times interest earned: Alcoa earned $611 million in 2011 and paid $524 million in interest expenses in the same year.  This means that Alcoa only earned 1.16 times its interest expenses in 2011.  The interest expenses are a threat to the dividend.  The dividend is threatened when net income is less than five times interest expenses.

Preferred stock: none.

DIVIDEND RECORD: Alcoa has a history of huge dividend cuts.  In 1997, they cut their dividend 50% from $0.06 to $0.03.  One year later they cut their dividend by 66% from $0.03 to $0.01.  They grew the dividend from $0.01 to $0.17 over the next decade, but then they had another huge 82% dividend cut from $0.17 to $0.03 in Q2 2009.

Dividend: $0.03

Dividend yield: 1.4% ($0.12 annual dividend / $8.49 share price)

Dividend payout: 22% ($0.12 / $0.55 2011 EPS) –OR- 16% ($0.12/$0.76 average earning power)  Alcoa does not pay a substantial portion of its earning to owners in the form of dividends.

EARNING POWER: $0.76 @ 1.07 billion shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

	EPS	Net income	Shares	Adjusted EPS
2005	$1.40	$1,233 M	879 M	$1.15
2006	$2.57	$2,248 M	874 M	$2.10
2007	$2.95	$2,562 M	869 M	$2.39
2008	($0.10)	($74 M)	813 M	($0.07)
2009	($1.23)	($1,151 M)	935 M	($1.08)
2010	$0.24	$254 M	1,025 M	$0.24
2011	$0.55	$611 M	1,161 M	$0.57

Seven year average adjusted earnings per share is $0.76

Consider contrarian buying below $6.08 (8 times average adjusted EPS)

Alcoa (AA) is currently trading at 11.2 times average adjusted EPS.  This is stock is value priced.

Consider value buying below $9.12 (12 times average adjusted EPS)

Consider speculative selling above $15.20 (20 times average adjusted EPS)

BALANCE SHEET – Stagnant.  Not horrible, but not strong either.  Their tangible book value per share is definitely a high point.

Book value per share: $13.22 ($14.142 B equity / 1.07 B shares)

Price to book value ratio: 0.64 (under 1.0 is good)

Tangible book value per share: $8.29 (equity – $5.271 B goodwill / 1.07 shares)

Price to tangible book value: 1.02 (near 1.0 is good)

Current ratio: 1.25 latest quarter (over 2.0 is good)

Quick ratio: 0.27 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.61 (lower is better)

Percentage of total assets in plant, property, and equipment: 48.18% (the higher the better)  Here are the totals for the other asset classes: Other long term assets were 19.49%, current assets were 19.37%, and intangibles were 12.95%

Working capital trend: unchanged near $1.7 billion

CONCLUSION – Alcoa’s share price bottomed on March 6^th, 2009 at $5.22 per share.  All of the problems present in the world economy back then are still present today.  In fact, the economies of the world are even worse due to all the money printing of the central banks such as the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of China, and other lesser know central banks.  You will get an opportunity to buy Alcoa below $5.22 per share in the next couple of years when Keynesian central bank inflation backfires.

Alcoa’s dividend record is horrible.  They make big dividend cuts whenever the market takes a significant dive.  Why do they do this when their dividend payout ratio is relatively low?  I think the answer is the increasing bond interest expenses that Alcoa suffers from.  The bond interest expense is a threat to the dividend.

Alcoa’s balance sheet is somewhat respectable for its stability.

I’d stay away from this stock because it is susceptible to the return of the worldwide recession that was papered over by the world’s central banks.

The price of aluminum will determine the fate of Alcoa’s share price.  Aluminum on the spot market fell almost 60% in 2008 due to the Great Recession.  The price of aluminum rose back to 2007 levels to $1.20 per pound in March 2011 following the March 2009 lows.  However, the price has retreated nearly 30% since the summer of 2011 due to fears of a Chinese recession and an worsening of the European sovereign debt crisis.  China will have a recession and Europe will get worse.  Therefore Alcoa will suffer in the next two years.

The London Metals Exchange publishes daily warehouse inventory levels.  The chart below shows the incredible buildup of aluminum inventories following the Panic of 2008.  Aluminum warehouse stock buildups indicating increasing supplies.  Increased supplies do not lead to increasing aluminum prices.  This is bad for Alcoa.

DISCLOSURE – I don’t own Alcoa (AA).

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Waiting for the Fidelity Select Gold Fund to bottom

I’m waiting for the Fidelity Select Gold fund (FSAGX) to bottom.  Then I’m going to buy some.  This is mutual fund made up of the major gold mining stocks.  The sovereign debt crisis in Europe will hurt the gold price.

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First Look at DOW 30 Component Home Depot (HD).

Today I return to the DOW 30 component stocks with Home Depot (HD).  Home Depot has a typical S&P 500 dividend yield and payout ratio.  It has be an exceptional dividend grower.  It is approaching speculative pricing and it has some weak aspects to it’s balance sheet.  To see how I came to those conclusions read on.

Home Depot (HD)

Price: $48.83

Shares: 1.52 billion

Market capitalization: $74.45 billion

What does the company do: Home Depot is the world's largest home-improvement specialty retailer, operating 2,250 warehouse-format stores throughout the United States, Canada, Mexico, and China. The company's stores offer products and services for home construction, renovation, remodeling, and maintenance. The firm is based in Atlanta and employs more than 300,000 people.

Morningstar’s take: Home Depot, the world's largest home-improvement retailer with more than $70 billion in annualized revenue, spent the last three years battling economic headwinds and updating its distribution network. After a decade of aggressive expansion and store and concept growth, the company changed course; it sold its professional supply business in 2007 and closed its ancillary retail businesses in early 2009. Home Depot is now solely focused on its orange box stores and is engaged in a strategic overhaul of its supply chain. We believe the ongoing upgrades will strengthen the firm's competitive position, particularly as macroeconomic pressures abate in the coming years. The firm earns a wide economic moat rating because of its substantial economies of scale.

Bonds: $10.3 billion outstanding

Times interest earned: Home Depot earned $3.883 billion in the year ending the first quarter of 2012.  For some reason Morningstar’s financials aren’t displaying last year’s interest expenses, so I will use the average over the previous four years ($631.5 million).  Home Depot earned 6.15 times its interest expenses; its bonds are not a threat to its dividend.  Earning more than five times the interest expenses demonstrates that the interest expenses are not a threat to the dividend.

Preferred stock: none

DIVIDEND RECORD: Home Depot has been growing its dividend since at least 1987.  Back in 1994 the quarterly dividend was $0.01 per share.  Today the dividend is $0.29 quarterly.  That is 2,800% straight-line growth over 18 years or 155% per year.  The missing dividend payment in 4Q 2009 on the picture below is just a Google Finance display problem.  Home Depot made that dividend payment.

Dividend: $0.29 quarterly

Dividend yield: 2.4% ($1.16 annual dividend / $48.83 share price)

Dividend payout: 44% using most recent EPS of $2.65 –OR- 45% using average adjusted earning power of $2.57

EARNING POWER: $2.57 @ 1.52 billion shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

	EPS	Net income	Shares	Adjusted EPS
1/2006	$2.26	$5,001 M	2,216 M	$3.29
1/2007	$2.72	$5,838 M	2,147 M	$3.84
1/2008	$2.37	$4,395 M	1,856 M	$2.89
1/2009	$1.34	$2,260 M	1,686 M	$1.49
1/2010	$1.57	$2,661 M	1,692 M	$1.75
1/2011	$2.01	$3,338 M	1,658 M	$2.20
1/2012	$2.47	$3,883 M	1,570 M	$2.55

Seven year average adjusted earnings per share is $2.57

Consider contrarian buying below $20.56 (8 times average adjusted EPS)

Consider value buying below $30.84 (12 times average adjusted EPS)

Home Depot (HD) is currently trading at 19 times average adjusted EPS.  This is stock is priced for investment, but at 20 times it will be speculatively priced.

Consider speculative selling above $51.40 (20 times average adjusted EPS)

BALANCE SHEET – Declining assets and stagnant shareholder equity.  The price to book value ratios by any measure are extremely high.  I don’t like HD’s quick ratio because they have so little cash to weather another financial crisis.

Book value per share: $11.77 ($17.878 B shareholder equity / 1.52 B shares)

Price to book value ratio: 4.15 (under 1.0 is good)  HD investors are paying $4.15 for each $1.00 of book value for each share.

Tangible book value per share: $11.04  (shareholder equity less intangibles of $1.12 B / 1.52 B shares)

Price to tangible book value: 4.42 (near 1.0 is good)  HD investors are paying $4.42 for each $1.00 of tangible book value.  That is a huge premium.

Current ratio: 1.55 latest quarter (over 2.0 is good)  Why don’t corporations improve the strength of their balance sheets instead of buying back shares?

Quick ratio: 0.21 latest quarter (over 1.0 is good)  HD has very little cash compared to its current liabilities.  Another financial crisis will produce a crisis at Home Depot.

Debt to equity ratio: 0.60 (lower is better)

Percentage of total assets in plant, property, and equipment: 60.34% (the higher the better)  All those big box stores add up.  Other asset percentages of the total assets were: current assets 35.84%, intangibles 2.76%, and other long term assets were 1.06%

Working capital trend: up slightly

CONCLUSION – Home Depot could be bought in March 2009 for $18.00 per share.  The stock was much closer to a value investment at that price.  It is trading for 19 times its average adjusted earnings which is very close to speculative pricing.  I would sell it now if I owned it because the US economy is visibly reentering recession and the European sovereign debt crisis is putting pressure on world stock markets.  I wouldn’t even consider buying Home Depot until it drop below $30.00 per share.  Home Depots 2.4% dividend yield is near the S&P 500 average dividend yield of 2.2%.  They shine with their dividend growth.  They could strengthen their balance sheet by using some of the share buyback money to put into current assets.

DISCLOSURE – I don’t own Home Depot (HD).

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First Look at Speedway Motorsports Inc. (TRK). This Stock Won't Make the Sprint Cup Chase Anytime Soon.

Today I take a break from my series of articles on the DOW 30 stocks to cover the business of racing.  I love racing.  So imagine my joy when I learned that track operator Speedway Motorsports (TRK) pays a decent dividend yield of 3.7%.  While the action on the track has been thrilling the last few years, the action in the stands has been disappointing.  High unemployment, high gasoline prices, and a Keynesian induced economic bust has hurt TRK badly.  I’ve been watching most NASCAR races on TV since 1997 and I’ve never seen the stands more empty than since the financial crisis of 2008.  This New York Times blog summed it up in late 2008.  Nothing has changed in the stands since then.

http://wheels.blogs.nytimes.com/2008/10/17/perfect-storm-brewing-for-nascar/

Speedway Motorsports Inc. (TRK)

Price: $16.23

Shares: 41.46 million

Market capitalization: $672.89 million

What does the company do: Speedway Motor Sports owns and operates Atlanta Motor Speedway, Bristol Motor Speedway, Infineon Raceway, Las Vegas Motor Speedway, Lowe’s Motor Speedway, and Texas Motor Speedway. The company derives a majority of its revenue from activities related to NASCAR sponsored events such as ticket sales, broadcast licensing, and sales commissions.

Bonds: $1.3 billion outstanding

Times interest earned:  Speedway Motorsports net income did not cover its interest expenses in 2011.  Their bonds are a threat to the dividend.  TRK lost $6.444 million dollars in 2011 and they had interest expenses of $42.414 million dollars.  I like it when company earn at least five times their interest expenses.  TRK is deficient in this regard and this will not change until the US economy improves.  That isn’t going to happen anytime soon, so this is a real threat to the dividend.

Preferred stock: none.

DIVIDEND RECORD:  TRK started paying dividends in 2002.  They paid around a $0.31 dividend once a year from 2002 until 2008.  Those dividends yielded about 1%-2%.  Then in late 2008 they began paying a quarterly dividend of $0.34.  That dividend only lasted one quarter because the Panic of 2008 occurred at that time.  In 1Q 2009 they cut their dividend significantly to $0.09 per share quarterly.  Since then they have grown the dividend to $0.15 per quarter, but their payout ratio keeps rising.  The grandstands are just as empty as they were following the financial crisis.  They haven’t shown themselves to be dedicated dividend growers.

Dividend: $0.15 quarterly

Dividend yield: 3.7% ($0.60 annual dividend / $16.23 share price)

Dividend payout: n/a using the 2011 EPS of ($0.16) per share –OR- 48% using the average adjusted earning power of $1.26 per share.

EARNING POWER: $1.26 with 41.46 million shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

	EPS	Net income	Shares	Adjusted EPS
2005	$2.45	$108 M	44 M	$2.60
2006	$2.53	$111 M	44 M	$2.68
2007	$0.87	$38.4 M	43.9 M	$0.93
2008	$1.84	$80 M	43.4 M	$1.93
2009	($0.24)	($10.3) M	42.7 M	($0.25)
2010	$1.06	$44.5 M	41.9 M	$1.07
2011	($0.16)	($6.4) M	41.5 M	($0.16)

Seven year average adjusted earnings per share is $1.26

Consider contrarian buying below $10.08 (8 times average adjusted EPS)

Consider value buying below $15.12 (12 times average adjusted EPS)

Speedway Motorsports Inc. (TRK) is currently trading at 12.9 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $25.20 (20 times average adjusted EPS)

BALANCE SHEET – Speedway Motorsports has a average balance sheet.  The steady decline in assets is not comforting.  Their price to book value ratio looks good until you compare it to the price to tangible book value ratio.  Their current ratios and quick ratios are sort of weak.  I do like their large percentage of net property and equipment.  Most of their assets are bound up in their big racetracks.  The working capital trend is down.  That is expected given the sparse attendance at the races.

Book value per share: $20.29  ($841.180 M total shareholder equity / 41.46 M shares)

Price to book value ratio: 0.80 (under 1.0 is good)

Tangible book value per share: $7.42 (total shareholder equity less goodwill of $138.717 M and intangibles of $394.96 M / 41.46 M shares)

Price to tangible book value: 2.19 (near 1.0 is good)

Current ratio: 1.17 latest quarter (over 2.0 is good)

Quick ratio: 0.98 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.66 (lower is better)

Percentage of total assets in plant, property, and equipment: 60.46% (the higher the better)  Intangibles made up 27.51% of total assets, current assets were 8.29%, and other long term assets comprised 1.82%.

Working capital trend: down slightly as expected.

CONCLUSION – I think it is great that Speedway Motorsports is paying a dividend yielding 3.7%, but the dividend is not safe given the US economic conditions and the company’s present debt load.  This company will rebound when the US economy rebounds.  However, a recovery is going to take many years due to the depression that Keynesian central bankers have put us in.  The middle class fans are the ones that attend races and they’ve been hit hard by unemployment and rising prices of consumer products cause by Fed money printing going back to 2002-2003.  The bust arrived in 2008 and racetrack operators have suffered because of it.  I think that this stock will go lower due to the continuing depression/recession.  Look to pick it up at or below 2009 lows of around $10.00 per share.  The stock will be yielding a high dividend of 6% at that price and will only be trading at a slight premium to tangible book value.  Do that any you’ll get the Lucky Dog pass to get out from being a lap down in the race for total return.

DISCLOSURE – I don’t own Speedway Motorsports Inc. (TRK).

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