Third River Exclusive: Newsletter Stocks

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By Michael Valencia, CFA, Third River Capital Management - Steiner Leisure STNR Market Cap: $722MM, Price: $48.08
Steiner Leisure offers cruise line and resort spa services and operations, manufactures and distributes beauty products, and has an education division offering courses in massage therapy, skincare, and spa management. Steiner serves 152 cruise ships and 69 land based spas. The company has an impressive client list including Carnival, Celebrity Cruise Lines, Holland America, Hilton Hotels, and Royal Caribbean. Steiner is a unique small cap company that gives investors the opportunity to invest in the cruise line industry without its capital intensive nature. The Company does not own or need to build salons onboard ships which can be very expensive, but rather manages the operations and shares revenue with the cruise lines. This translates into higher profitability vs. a cruise line. The five year average return on invested capital for Steiner is 22% vs. 4% for Royal Caribbean and 8% for Carnival Cruise lines. Steiner also operates land based resort spas and manufactures beauty products that it distributes to its cruise line, resort, and retail customers. From a financial perspective, Steiner Leisure as a very strong balance sheet with $44MM in cash and no debt. In the last quarter, the Company reports sales growth of 15%, 23% gross margins, and 10% operating margins. As the economy and employment improves, you should see continued growth in both land based and cruise line revenues. In short, this stock gives small cap investors exposure to the cruise line industry without the capital expenditure.
Spartan Motors SPAR Market Cap: $153MM, Price: $4.58
Spartan Motors designs, manufactures and engineers custom heavy duty chassis products for fire trucks, motor homes and specialty military applications. Spartan also manufactures service and delivery vehicles through its Utilimaster division. The catalyst for this company is its latest product from the Utilimaster division, the REACH next generation commercial vehicle. The vehicle was designed in partnership with Isuzu Motors and with input from UPS and FedEx, who are existing customers. The new truck is made of composite materials and a smaller lighter engine that will improve fuel economy by 32% vs. its standard truck. The new truck is currently being field tested by UPS around the country and Spartan will begin producing the truck later this year. This gives Spartan considerable competitive advantages and should lead to market share gains. In addition, as the economy improves, Spartan's core businesses which include fire truck and RV chassis should begin to show improvement. The company has a very strong balance sheet with $25mm in cash and zero net debt. Operating margins are at trough levels but as the economy improves you will see the core businesses improve and the next generation vehicles begin selling, margins will improve.
Universal Technical Institute UTI Market Cap: $416MM, Price: $17.03
Universal Technical Institute provides technical training for those students seeking careers in automotive and diesel repair, collision repair, and motorcycle and marine repair. This entire industry has been under significant upheaval by Congress over student outcomes in terms of job placement, marketing practices, and student loan default rates. UTI however, does not have the issues impacting its competitors and is the best operator in the for–profit education industry. Their current job placement rate is over 80% and 2 year cohort default rates are 8.6%, this compares with Lincoln Educational Services, a close competitor with a 76% job placement rate and a 15% 2 year cohort default rate. UTI also has relationships with leading car manufacturers including BMW, Toyota, Ford, Harley Davidson and Cummins Engine. This allows UTI to provide specialized training on specific brands that allows for greater employment opportunities post graduation. The company also has a very strong balance sheet with $87MM in cash and no long term debt.
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