Monday, August 06, 2007

eBay (NASDAQ:EBAY): Actionable call Alert!

- Jefferies notes that late last week, eBay (NASDAQ:EBAY) amended its revolving credit facility agreement with lenders, doubling its borrowing capacity to $2B with the option of borrowing an additional $1B. The amended also increases eBay's permitted leverage ratio to a maximum of 3x EBITDA from 2x previously, allowing it to take on higher financial leverage.

Given the company's strong balance sheet ($3.8B in cash at the end of 2Q07) and strong free cash flows, Jeffco believes that management is actively considering a recapitalization of the business, with the goal of boosting shareholder value --particularly considering the stock's lackluster performance in the last 12 months.

Possible actions include a one-time cash dividend payout ($3.00-$3.50/share), a quarterly div, a significant increase in repurchase plan, resulting in buyback of 15-20% of the outstanding shares over the next 2 years or significant M&A activity.

Firm would view a business recap positively as they believe that the company's current capital structure is far from optimal. Maintains Buy and $46 tgt.

Notablecalls: The filing was released on Friday. I'm not sure when exactly but judging from intraday price action I don't think anyone paid attention. I think these comments, coupled with expected ga-ga from other firms (there will be some!) are worth at least 1 buck of upside in EBAY stock today. I'm going to call this one actionable up to the $34 level.

eBay has been a relatively smart acquirer, so I'm not too worried about management making a foolish bet. Then again, they bought Skype...Ah...

1 comment:

Ragin' Cajun said...

Let me know if you want to play in our fantasy football league.