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Friday, November 9, 2007

Stock Analysis: ACAS

This article appeared in The Carnival of Personal Finance #126.

Linked here is a detailed quantitative analysis of Linked here is a PDF copy of my analysis of American Capital Strategies, Ltd. (ACAS). Earlier this week I added to my position in this stock. Below are some highlights from the above linked analysis:

Company Description: American Capital Strategies, Ltd. is a principal investment firm specializing in management and employee buyouts, recapitalization, special situations, middle market, and growth capital investments.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. ACAS is trading at a discount to two of the four valuations above. If I exclude the high and low valuation, and average the remaining two valuations, ACAS is trading at a 7.5% discount. ACAS gets a Star for being fair valued.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. ACAS earned Stars in 3.) and 4.) above.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. ACAS earned a Stars for 1.) and 2.) above.

Other: As noted in ACAS's October 30, 2007 news release, the company increased its Q4 dividend 14% to $1.00 and forecasted a 13% dividend increase in 2008. 

Conclusion: ACAS earned one Star in the Fair Value section, two Stars in the Dividend Analytical Data section and two Stars in the Dividend Income vs. MMA section for a total of Five Stars which rates it as a 5-Star Strong Buy.

Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I own shares of ACAS. See a list of all my income holdings here.

What are your thoughts on ACAS?

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