LUK Fundamental Research Investment Analysis, Leucadia National Corp.

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Leucadia National Corporation (LUK)

The Razor's Edge

2-Year Price History

Recent Price
(12/3/2008)
$17.30
52-Week Price
$12.19 - $56.90
Market Capitalization
$4.0 Billion
Dividend Yield
1.40%
Most Recent Dividend
$0.25

About Leucadia National Corp.

Leucadia National Corporation is considered to operate in the Industrial Goods sector. They specifically operate in the Lumber, Wood Production business segment contained within the Materials & Construction industry.

A holding company, which is engaged in the business of manufacturing, telecommunications, property management and services, gaming entertainment, real estate activities, medical product development and winery operations.

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

LUK Revenue

As a value investing shop, we are interested in seeing how LUK's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 10.09x and the low end of the range at 5.34x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for LUK of 4.27x is well below its normal historic Price to Sales levels. At a price of $19.55, LUK is 45% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

LUK Cash Earnings

As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company's value, and currently LUK is significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from LUK. For example, LUK's Cash Earnings ratio per share has fluctuated between 14.04 and 24.55 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where LUK is with respect to prior business periods.

So with LUK's current price (latest close of $19.55) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, LUK is 66% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with LUK.

LUK Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure on a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from LUK against the historic high and low levels over an available data range. Because LUK has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In LUK’s case, the estimated annual dividend is $0.25 producing a current dividend yield of 1.28%. The highest dividend yield from LUK in recent history was 2.05% while the lowest dividend yield was 0.17%. If you are looking for some “bang for your buck” then a dividend yield of 15.32% above the historically median should be enticing. LUK receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.

Peer Comparison

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Leucadia National Corp. Industry Grouping

(12/3/2008)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding LUK) 9.47 4.08 » 16.99 1.70 0.66 » 10.97 9.54% 13.76%
*10 year range does not include current year values
Stericycle, Inc. SRCL $4.6 Billion $53.19 23.48 6.13 » 36.59 4.29 0.71 » 24.09 18.36% 15.64%
Allied Waste Industries Inc AW $4.3 Billion $9.83 4.73 1.39 » 8.27 0.62 0.18 » 3.97 1.92% 5.68%
Leucadia National Corp. LUK $4.0 Billion $17.30 6.58 1.94 » 52.20 4.27 1.60 » 50.42 24.24% 13.84%
Republic Services Inc RSG $4.0 Billion $22.03 6.50 4.02 » 13.38 1.31 0.80 » 9.41 6.07% 16.36%
MDU Resources Group, Inc. MDU $3.7 Billion $20.16 4.59 3.73 » 9.70 0.72 0.61 » 6.37 15.90% 14.34%
Martin Marietta Materials, Inc. MLM $3.4 Billion $81.42 8.04 5.13 » 17.03 1.54 0.97 » 10.98 5.45% 16.78%
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Key Fundamentals

LUK - Leucadia National Corporation Fundamentals
Price (12/3/2008) $17.30
Volume (12/3/2008) 3.3 Million
10 Day Average Volume 3.6 Million
13 Week Price Range $12.19 - $48.85
52 Week Price Range $12.19 - $56.90
LTM Revenue $1.1 Billion
 
Shares Outstanding (12/2007) 232.9 Million
Market Capitalization $4.0 Billion
Shares Held By Institutions 153.1 Million
Insitutional Holders 447
% Shares Held By Institutions 65.80%
Earnings Per Share (EPS) $2.10
P/E Ratio 6.60
Book Value Per Share $25.03
 
Gross Margin 15.00%
Quarterly Dividend 0.25
Dividend Yield 1.40%
Beta 1.87
Fiscal Year Ends December