Monday, August 13, 2007

CSK Auto (NYSE:CAO): Added to Buy List at GSCO

- Goldman Sachs is out with a positive call on CSK Auto (NYSE:CAO) adding the stock to their Americas Buy List, with a $17 12-month price target, implying 34% upside, and down from $18 previously. As new CEO Larry Mondry assumes control, they expect the first dispassionate, analytical look at the firm's assets and cost structure in years. Also, the firm retains enormous value as a strategic take-out candidate given its West Coast store base; CSK retains this value despite dislocation in the capital markets and the likely lack of a private equity bid. Credit market volatility and poor near-term visibility suggest a choppy road ahead, but the firm views this as an appealing entry point for the long run.

GSCO believes any restructuring moves, focused on assets and costs, would be received favorably. Also, simply filing financials will add clarity to the firm's financial position. They continue to view a strategic deal as the likely ultimate outcome, but this could take more than a year to transpire.

Notablecalls: I think CAO represents a painful situtation for many large players. Karsch Capital that owns close to 10% of shares outstanding has been calling the co to put itself up for sale, saying there was genuine interest from private equity firms in acquiring the co and from investment banks in financing a transaction. Yet, with the ongoing credit turmoil, hopes for a private equity deal have vanished, putting the stock back in the penalty box. Now the talk has shifted to management's ability to turn the co around plus the possibility of a strat. buyer stepping in.

CAO does not look overly cheap vs. other players in the industry but given the potential for margin recovery, it's certainly interesting here. The new CEO's compensation includes a healthy amount of options, meaning his incentives are aligned with shareholders.

I'm not going to call this one actionable but it's certainly one to watch. My gut tells me the stock could do $13.50-$14.00 following the call. Not the usual ultra s-t time frame but rather couple of days as GSCO may send some shorts covering.

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