There are lot of moving parts, issues
- European sale is yet to close and it is not clear the FCF assumption on this transaction will be realized
- Sales is not growing
- Free Cash Flow is shrinking ($500 M ) for 2023 (reduced from $800 M)
- Dividend required $390 M
- Capex requires $600 M
- significant debt ($7 B)
- Lot of debt coming due, meaning the debt cannot be retired using cash flow, and refinancing means refinancing 3.x% debt with 5.x%
- Interest expense is set to go up, further reducing cash flow
- Possible recession means sales will further slow down, putting pressure on margins, cash flow
Okay, that’s a laundry list of negative things, then why are we looking at this name?
The stock price has significantly declined. The dividend yield is 6.4%, a strong brand.
For now, I am just watching this company, may sell a put to keep an eye. If the stocks gets to somewhere around $75, I will re-evaluate.
