Thursday, February 21, 2008

AbitibiBowater Inc (NYSE:ABH): Actionable Call Alert!

- Citigroup is out with an interesting call on AbitibiBowater Inc (NYSE:ABH) saying they have learned the co, with nearly 50% of North American newsprint capacity, has announced a
$60/tonne price increase to be phased in at $20/month April through June.

If successful, they believe ABH would be comfortably free cash flow positive in the 2Q (net of closure costs). Newsprint prices are $620/tonne in February, up from $560 in October. A $20/tonne increase (to $640) is slated for March. The 2Q increase would result in $700.

Citi's “optimistic” estimates for ABH assume that US newsprint prices range between $655-$665/tonne during the second quarter and end the year at $695. However, the ABH move would get newsprint prices above their year-end projections by mid-year. Could even they be low?

ABH’s CFO and Treasurer will present today afternoon at an investor conference in NY. If the bond market is “correct” (with the April 1st bonds trading today around 85), wouldn’t these gentlemen be grabbing pails to bail water back in Greenville?

Citi notes they actually have the sheer audacity to believe management and do not see the sky falling. Firm's target remains $60. Reits Buy.

Notablecalls: WOW! I said WOW! This is a $16 stock, ladies and gentlemen, meaning Citi's tgt represents almost 400% return. Must say I've never seen this kind of stuff coming out of a tier-1 firm. Maybe only in biotechs.

This call has it all:

- Beaten down stock in a out-of-favor sector.

- Analyst coming out with an unexpected catalyst (price hike)

- Huge target

- Management presenting on the same day (& analyst expecting some positive commentary).

This is just perfect!

I'm calling this one Actionable Trading Call.

Be early & aggressive. Could be a 10% mover today.

3 comments:

dcxavier said...

Good luck making the price hike stick. At $560/ton, ABH is looking at possible BK. At $700/ton they print money.

Where is the increased demand or reduced capacity is coming from to allow them to raise price? In fact, WY recently said they are reopening a pulp mill.

Fitch just downgraded ABH debt today.

GuybrushT said...

Bear pitch:

- Price hike is not "unexpected", its industry-wide, and priced into the stock.
- Long term trend moving away from print media for advertising and entertainment puts negative pressure on the stock
- Plants and mills not shutting down fast enough to keep up with drop in demand
- Lumber prices at historic lows because of ailing housing market
- Nearly 2 billion in debt maturing end of year will suck a good amount of that price-hike related liquidity
- Credit rating downgrade to CCC (Deteriorating) yesterday by Fitch

No doubt the price target is aggressive, and the conference today could move the stock (curious to see what positive light CFO could shed). Just highlighting the risk.

I didn't get that water and Greenville reference though. Please explain :)

sunfun said...

Whats going on with SNCR? is this a good buy at these levels?