Motley Fool Inside Value
Cendant's goal is to be a real estate and travel company. To get there, it's had to shed a number of great assets that just didn't fit future objectives.
Gone is No. 2 tax preparer Jackson Hewitt
Gone is mortgage and fleet-management services company PHH
Gone is vehicle-fleet service provider Wright Express
The final asset for sale is Marketing Services, a value-added membership, insurance, and loyalty marketing company. Cendant announced this morning that it would sell Marketing Services to a private firm for $1.7 billion in cash, plus $125 million in newly issued preferred shares in the purchaser.
On the acquisitions side of the ledger, Cendant bought online travel company Orbitz last November for $1 billion (net of cash). The acquisition was immediately accretive to earnings, and the purchase and timing were considered opportune for Cendant, since major selling shareholders included Delta Air Lines
Also joining Cendant in 2004 were hotel brands Ramada and Days Inn, both acquired from Marriott International
Cendant reported second-quarter results last night. Compared with the year-ago quarter, revenue rose a healthy 8%. Net income fell 44% -- but that beat analyst estimates by $0.02 a share. Best of all, free cash flow, the better measure for determining a business's strength, came in at a robust $702 million -- a 27% increase over the year-ago period, despite the aforementioned decline in net income.
The company also announced that it would double its 2005 share repurchase target to $2 billion. With a current market capitalization of $22.9 billion, that amounts to 8.7% of the stock outstanding -- assuming prices remain unchanged, which they will not.
The company projects earnings between $1.35 and $1.42 in 2005, down from the $1.78 earned in 2004. Earnings for 2006 are pegged between $1.62 and $1.72 a share. Based on the high end of 2006 guidance, the stock trades for 12.5 times forward earnings. That's cheap for a company that analysts expect will grow earnings at 13% a year for the next five years -- far outdistancing the S&P 500's 10.6% compounded annual growth.
Cendant is emerging from its transformation into a highly focused real estate and travel company -- perhaps a highly cyclical company on account of it.
Check in with further Foolishness:
Fool contributor W.D. Crotty does not own shares in any of the companies mentioned.