We think the risk/reward, even after LIZ’s 13% move on the last day of the quarter to $13+, remains favorable. The move certainly begs the question of what to do with the stock here, but we think this is just the latest step function reflecting the realization in value of what continues to be an undervalued portfolio of brands.
The reality is that LIZ is not like most companies whereby discussions with private equity firms or bankers made public will now open the dialog to unlocking significant unrealized value in the stock. Sure, Friday’s news sent the stock up over 10%, but let’s keep in mind that the Board has been talking with bankers and PE firms for the better part of the past 4-years – these discussions aren’t new news.
In the process of selling nearly $500mm in assets over the last 6-months do you think the value of the LIZ portfolio in total didn’t come up? Not a chance. But that doesn’t suggest that the Board is ready to sell at this stage in the process either. If it is to seriously consider offers, we think the $20/sh price tag mentioned sounds about right, if not low (see our sum-of-the-parts table below). As such, despite $1-$3 of near-term volatility that we could see as the company reports results over the next few quarters, we think it’s worth it for the $7+ in upside from current levels. With over 50% upside, LIZ is still one of our top long ideas.
Casey Flavin
Director
