Don't Park Your Money Here

 | Jun 28, 2013 | 5:00 PM EDT  | Comments
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Over the past few days, a Standard Parking (STAN) exec -- board member Robert Roath -- bought 20,000 shares of the stock, thus substantially boosting his holding to a little over 90,000 shares. Most recently, Roath had picked up shares at slightly higher prices, in late December 2012. As a general rule, insider purchases can be a useful tell for a company, and that's why we track them: In theory, insiders should normally be reluctant to buy the company's stock, as this would further increase their company-specific risk. That aside, studies have shown small outperformance for stocks that have enjoyed insider buying.

Turning back to Standard Parking, the $470 million company operates parking facilities in urban areas and at airports under leases or management contracts -- but it does not own any of these facilities itself. First-quarter revenue doubled year over year, but this was almost entirely due to the company's takeout of KCPC Holdings, the owner of Central Parking.

Standard Parking did manage an 8% bump in its same-location revenue from leased properties, though costs were up by a similar amount as well. Operating income climbed 15% but, due to a higher debt burden, that was almost entirely wiped out by interest expense. Its diluted share count rose 40%, as well -- so if we may be so bold as to think of "operating income per share," this figure has sunk from year-ago levels.

Also, this was the third sequential quarter that the company's profit has both declined sequentially and missed earnings expectations. It's possible seasonal factors have been involved, but management did not discuss seasonality in its 10-Q SEC form. Furthermore, cash flow from operations was negative for the quarter.

Looking back, Standard Parking's trailing results have been poor vs. the stock's current valuation. Wall Street analysts predict that adjusted earnings will come out to $0.77 per share this year, making for a fairly high price-to-earnings multiple of 28x. Again, the company's growth is coming primarily through acquisitions, and -- thanks to the higher interest expenses -- even that isn't helping bolster its earnings. As a result, we would hesitate to predict high future growth here.

For 2014, consensus earnings forecasts average at $1.12 per share. While this is considerably better than the current-year targets, it still results in a forward-earnings multiple of 19x. Markets seem to expect the company to improve its bargaining position with its customers, and therefore its revenue and margins. (After all, the acquisition has not immediately improved financial performance, so an increase in locations will probably not help either.) But that would also leave Standard Parking more leveraged to the industry if conditions improve.

We don't think investors should count on this, even despite the confidence vote of the recent insider purchase. Once again, Standard Parking has only managed to keep its leased-location pricing in line with its own costs -- and the rise in segment income from management contracts was entirely due to acquisitions, so we'd describe that segment as a struggling one as well. Yet the stock is quite expensive, even in terms of analyst estimates which assume increases in EPS -- and even despite the slight year-to-date downdraft amid gains in the broader market. So, in sum, we do not think Standard Parking is a buy at this time.

-- Written by Matt Doiron

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