Central Parking (NYSE:CPC) is the world's largest parking services provider. It has more than 3,400 facilities with more than 1.5 million parking spaces. The company also provides on-street parking enforcement (boo, hiss!) and parking-meter service in a diversity of places, such as London, Berlin, Vancouver, and Daytona Beach, Fla.
For those thinking this is a no-brainer business, you need to take a moment and read fellow Fool contributor Rich Smith's assessment of the company's latest earnings. He calls it the financial equivalent of a 12-car pileup because the company is free cash flow negative and, even after selling assets, still reported a 36% drop in profits from continuing operations.
Today, the company retainedMorgan Stanley (NYSE:MWD) as its financial advisor to assist in evaluating various strategic alternatives that will help to maximize shareholder value. The company's board thinks the intrinsic value -- sounds like a Berkshire Hathaway annual report, doesn't it? -- and the value of its owned real estate are substantially higher than the stock price reflects.
It doesn't take Dick Tracy, after looking at a snapshot of the company's performance, to see why Wall Street is ignoring this stock. Why chase these anemic results (3.1% revenue growth, a return on equity of 3%, and 2% profit margins)? Oh, and the net debt (total debt minus cash) stands at a not-so-small $261 million (22% of revenue).
More telling, at least to me, is that the number of facilities the company operates at the end of every fiscal year has declined in every category (managed, leased, or owned), in every year, for the past three years. In a fragmented business, shouldn't the biggest company be growing the number of facilities in its empire?
Maybe this is another Kmart (NASDAQ:KMRT), where real estate wealth sent the stock skyrocketing up 288% over the past 52 weeks.
As of Sept. 30, the company owned 192 parking facilities either independently or through joint ownership. Seventeen percent of the properties were structures; the rest were surface lots. All but three are inside the United States. But in the company's annual filing with the Securities and Exchange Commission, there is no mention of vast hidden real estate wealth.
Last fiscal year, the company sold 14 properties for $50.1 million (an average of $3.6 million per facility) for an above-book-value gain of $14.2 million. That gain, which equates to 40% over book value, indicates that the company had some hidden real estate value. But what else is in that neighborhood -- 33.3% -- above book value? That's right: the stock price. True, a year's worth of property sales aren't necessarily indicative of the company's entire holdings, but there's a good chance the real estate market values are at least largely built into the stock price.
Still, investors liked today's news and sent the stock up 15% -- although it remains closer to its 52-week low than its high. The company would better serve investors by trying to get back to the operating levels of 2000, where profit margins and return on equity were twice today's results.
For investors looking to make a parking-industry investment, Standard Parking (NASDAQ:STAN), selling for 12 times forward earnings, trades for half the multiple of Central Parking. It might be worth a look.
Fool contributor W.D. Crotty owns shares of Berkshire Hathaway. Click here to see the Motley Fool's disclosure policy.
