Another day, another multi-percent change in the major indices. In the past 14 trading sessions, there have only been two in which the S&P 500 has not risen or fallen at least 1%. During that stretch, the index is down 0.5%, right back where it started. Yet October, overall, was still an amazing month for the markets, the best we've seen in years. Make sure your seat belt is secure; the roller-coaster ride continues.
But while Greece, the euro zone in general and several other situations play themselves out and continue to exert pressure, we are smack dab in the middle of earnings season here at home, and it has been interesting, to say the least. I am beginning to see some of the smaller companies I follow waking up and putting up some decent numbers.
Late last week, auto repair chain Midas (MDS) announced better-than-expected third-quarter results. While revenue fell 5% to $46.3 million, this is mainly because Midas had fewer company-operated stores than in the same period last year, due to re-franchising. Same-store revenue rose a healthy 4.6%, while franchise revenue rose 3.6%. Net income rose 75% for the quarter, to $1.4 million, and "adjusted profit" per share of $0.15 exceeded the $0.13 consensus estimate. The company also adjusted guidance for the second half of 2011, suggesting earnings in the range of $0.20 to $0.24, up from previous guidance of $0.18 to $0.22.
While Midas is a fairly well recognized brand and has a large presence, with nearly 2,300 Midas and SpeeDee stores in all 50 states and 15 countries, the company's market cap ($131 million) and enterprise value ($237 million) are tiny.
While lackluster performance over the past couple of years might justify such valuations, Midas has a real estate component that may not be accurately reflected. At the beginning of 2011, the company owned 204 of its locations. As part of a "strategic review" being done by JPMorgan Securities, the company recently hired a real estate appraiser to value these properties. According to Midas, the results show an average valuation of $505,000 per company-owned store, implying a total value of more than $100 million for company-owned real estate alone.
Unfortunately, Midas has fallen off the radar of many investors, and its operating performance has paled in comparison with other names in the space, such as Monro Muffler and Brake (MNRO), whose earnings have risen for five consecutive years. Monro's shares are up more than 350% since early 2008.
While Midas' shares have risen 75% since this past August, a longer-term chart reveals a much uglier picture. (In fact, Monro and Midas would have made a great pair trade.) But Midas is a company with options, in the form of real estate. The company's strategic review is expected to be completed by year-end, and it will be interesting to see where it leads, if anywhere.