Partners on Ockham

Ockham’s Rating

CVC Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company’s stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, CVC the high and low end of the Price to Sales per share ratios are 1.80x and 0.88x respectively.

Notice that CVC’s current Price to Sales per share ratio is 0.76x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $18.69, CVC is 44% below where we would expect to see it. This will beneficially factor into our final analysis of CVC as it is not often that this stock sinks to these levels.

CVC Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of CVC, Ockham views their current Cash Earnings as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for CVC, the current level of Cash Earnings compared to its historical levels helps identify where CVC is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 7.47 and a historical low Cash Earnings per share ratio of 3.76, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for CVC? From the Ockham perspective, we are looking specifically at CVC to see if the market is recognizing the huge disparity between CVC’s past stock price to Cash Earnings ratio to today’s levels. At a difference of 38% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at CVC. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

CVC Dividends

A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don’t require dividend payments for company’s whose management has elected to forgo them entirely.

When reviewing dividend yields for CVC, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management’s confidence in the company. CVC’s estimated annual dividend is $0.40 resulting in a current dividend yield of 2.14%. The highest dividend yield from CVC over recent history was 4.28% while the lowest dividend yield was 0.00%. The current dividend yield is below the historical median, which is slightly off-putting. We are a bit adverse to CVC from this valuation metric.