Are You on Twitter?

This note was originally published at 8am on October 15, 2013 for Hedgeye subscribers.

“The most dangerous leadership myth is that leaders are born - that there is a genetic factor to leadership.  That’s nonsense; in fact, the opposite is true.  Leaders are made rather than born.”

-Warren Bennis


We’ve started our work for our October 31st IPO Blackbook on Twitter and digging into a company that was founded in 2006 and already has 215 million monthly users. Talking about going viral in a hurry!


Similar to Facebook, Twitter has that little problem of how to make money.   That attribute aside, the companies are very different, even if much of the conventional media puts them in the same category.   Facebook is a true social network and, as such, is largely closed and limited in terms of how large a network it can become.  On the other hand, Twitter is open, transparent, real-time and has scale.


Twitter is actually a true network in that it creates the network effect.  As an example, when President Obama announce his victory in the 2012 election on Twitter, that Tweet was re-tweeted more than 25 million times.  The most I’ve ever had a tweet re-tweeted was a couple of hundred times, but even there you get the point.  Twitter amplifies your communication.


Analyzing Twitter has also made me consider the importance of leadership in corporate America.  This weekend The New York Times Magazine had an article written by Nick Bilton that was titled, “All Is Fair in Love and Twitter.”  It is one version of the power and leadership struggles that have occurred within Twitter.


Twitter is also a little bit about the American dream.  Take this excerpt from the article for example:


“In 2005, Jack Dorsey was a 29-year-old New York University dropout who sometimes wore a T-shirt with his phone number on the front and a nose ring. After a three-month stint writing code for an Alcatraz boat-tour outfit, he was living in a tiny San Francisco apartment. He had recently been turned down for a job at Camper, the shoe store.”


Dorsey and his co-founders have been largely pushed out of Twitter, though many of them will obviously profit handsomely on the IPO.  Time will tell whether current CEO Dick Costolo is the right man to monetize the Twitter network, but his experience at Andersen Consulting, founding and running Feed Burner (among other start-ups), and working at Google have allowed him to acquire learned leadership assets, to Bennis’ point, that will be critical for Twitter’s future.


Now, from Silicon Valley back to the global macro grind . . .


Front and center this morning is once again the U.S. debt ceiling.  Thankfully, Bloomberg is no longer alluding to a Nazi Germany like default this morning and the reality is, as we’ve been predicting, that a deal gets done is becoming increasingly accepted.  If the deal that is purportedly on the table gets done, then the government will get funded through January 15th and the debt ceiling will get pushed to early February.


Setting aside an actual default, which was of course always highly unlikely, a short term deal is actually one of the worse scenarios.  As we show in the Chart of the Day today, economic confidence, according to the Gallup Daily tracking poll has fallen off a cliff in the last month due to the government shutdown and looming debt ceiling.  Delaying an outcome by three or four months is unlikely to be much of a catalyst to improve confidence in the short run.


We are certainly seeing these trends reflected in the real economy.  One example is the casual dining sector where weakness has been pervasive.  While certainly there are some sector specific trends at play, with the majority of the stocks missing estimates and comparable same-store-sales declining -1.9% in September according to Black Box, the decline in consumer confidence is having its impact.


All is not bad for the consumer, though, and one positive to highlight is the price of gasoline.  Even as oil remains stubbornly above the $100 bound for WTI and $110 for Brent, the price of gasoline in the U.S. is actually down. According to the Energy Information Administration, a government agency that is still open, the price of gas in the U.S. is $3.37 per gallon, which is down $0.48 from a year ago and down $0.06 from last week.  Maybe consumers are spending more time on Twitter and less time driving?


Speaking of Twitter, for those of you that answered no to the question in the title, one great reason to join Twitter is the intellectual exchange that comes from meeting new people in your expanded network.  One example of a person that I’ve met on Twitter is a gentleman named Doug Kass, who is a financial blogger for the and works out of his basement in Florida.


Even if not always correct, Kass certainly makes us think.  One example was that last night he went old school on us and sent an email indicating that based on his analysis over the long run of twenty years, the U.S. dollar has no identifiable correlation to U.S. equities.   While an interesting point, we would certainly caution any of you to invest on 20-year historical correlations.  But if you want to, we also have a bridge in Brooklyn for sale . . .


The fact is correlations influence our intermediate term view of markets.  Correlations aren’t perpetual, and correlation strength builds and decays.  At times and price levels they matter and at others they do not.  We get that.  But over the last three years the correlation between the U.S. dollar and SP500 has been 0.60.  But as Maynard Keynes said, when the facts change, we will.


Our immediate-term Risk Ranges are now:


UST 10yr yield 2.66-2.73%

SPX 1685-1725

VIX 15.21-17.63

USD 80.11-80.67

Brent 110.01-112.05

Gold 1265-1303


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Are You on Twitter? - Gallup Confidence


Are You on Twitter? - zz. vp 10 15






The new Tourism Law has started to see impact on the tourism and hotel industries of Hong Kong and Macau.  As the number of package tours from mainland China decreased by 50% in October, hotel occupancy rate has also seen a decline.  Though a decrease in both package tours and occupancy rate, hotels do not have the intentions to cut prices as they are optimistic that the number of tourists will go up in November and December with different big events are happening in those two months.



With the new tourism law launched in October 1st, outbound tourism market has started changing.  Custom Tours has become popular where tourists can design their own itineraries and have their own choice of traveling partners. China has become the world’s largest tourist country in 2012 with 83.18 million Chinese traveling abroad.

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Indian Givers

“The new coins helped to wash away the old aristocratic order.”

-Jack Weatherford


That, of course, is not what the 16th century European aristocracy had in mind. As my man Jack Weatherford explains in an excellent chapter of Indian Givers, “Silver and Money Capitalism”, “the silver coins at first promised to strengthen the feudal order…” (pg 19). Never blindly believe what the government promises you.


Weatherford first penned Indian Givers in 1988 (then updated it in 2010) after writing about the history of porn in Japan in 1986. His writings are some of my favorites in economic history because his narratives are fully loaded with the inconvenient truths about government plans versus outcomes.


You can only lie to The People about policies that aren’t working for so long. In the end, the history of markets, money, and businesses are marked-to-market. And even though it may take a long-time for bad policy (like burning your currency) to fail, I thoroughly enjoy the thought of my son or daughter reading about how the 2013 Fed sucked in so many group-thinkers.


Back to the Global Macro Grind


There’s another Indian Giver making headlines this morning:


BREAKING: Rajan Raises Key Rate to Fight Inflation –Bloomberg


Booyah! That’s right, yo. India’s got a new central banker in the house- and he goes both ways (on rates). This is the 2nd interest rate HIKE in 2 months for Governor Raghuram Rajan. And the Indian stock market absolutely loved it, closing up +1.65%!


Huh? I thought that the other 90% of Bloomberg/CNBC headlines have been implying that if the US, Europe, or any country were to raise rates that the world as we know it would end?


Newsflash: it would.


But like during the 17th century enlightenment, it would end for the better! #EndofBackwardness


Indian Giver giveth to The People of India the following via a rate hike:


1.   #StrongerCurrency

2.   Lower currency adjusted inflation

3.   Breakout in Indian stock market




And yes, everything in the land of causal currency policy action is relative, but consider the alternative model (which Bernanke, Yellen, and most French Bureaucrats are begging for – Down Currency, Down Rates):

  1. India’s Rupee was in freefall in Q2 of 2013, having its biggest down days ever (yes, ever is still a long time)
  2. India’s Consumer Price Inflation (yes, calculated in Rupees!) hit new highs as the Rupee crashed
  3. India’s real-inflation-adjusted economic growth slowed and its stock market hit its YTD lows in AUG 2013

Then, Rajan raised rates (twice) and:

  1. India’s Rupee stabilized
  2. India’s Inflation slowed
  3. India’s growth stabilized

The Keynesian-anti-dog-eat-dog-currency-debauchery-department at Dartmouth better get on this. This Indian Giver is going off the reservation versus what they’re teaching undergrads for $63,282/yr.


It’s hockey season, so it’s a good time to take a shot at Dartmouth’s Big Green Keynesian mouthpiece-in-chief, dogmatic Danny Blanchflower. He’s the guy you may have seen recently on Twitter with his jersey yanked over his head by @HedgeyeSnakeye and @DanHannanMEP (Todd Jordan and Hedgeye fav Daniel Hannan).


Blanchflower was the guy who warned that British austerity was going to mean #EOW (end of the world) for the UK economy a few years back. He’s also of the ideology that a #StrongEuro and #StrongPound is bad for “exports”, or something like that.


In other news…


The slope of UK economic growth just clocked a 3-year high and both the British Pound and British stock market (FTSE) are breaking out to new highs as the world comes to realize that ending Mervyn King’s QE Pound Getting Pounded experiment hath ended.


Sound familiar?

  1. Currency Up (Pound has ripped from $1.49 vs USD to $1.61 in the last 3 months)
  2. Rates Up (10yr British Gilt Yield of 2.59% are up +81 basis points year-over-year)
  3. UK GDP #GrowthAccelerating to a 3yr high

No, I’m not saying that India and the UK are seeing economic growth booms. I’m simply reminding you that this is the only way out of a Down Currency, Rate Repression government policy.


No, the aristocratic order of Big Government Intervention doesn’t like paying The People instead of plundering them via currency devaluation taxes. And I for one like that very much.


Our immediate-term Risk Ranges are now as follows (we have 12 Big Macro Risk Ranges in our new Daily Trading Range product):


UST 10yr Yield 2.40-2.57%


BSE Sensex 20132-21279

VIX 12.46-14.92

USD 78.38-79.58

Pound 1.60-1.62


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Indian Givers - Chart of the Day


Indian Givers - Virtual Portfolio


TODAY’S S&P 500 SET-UP – October 29, 2013

As we look at today's setup for the S&P 500, the range is 24 points or 0.91% downside to 1746 and 0.45% upside to 1770.                       










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.20 from 2.22
  • VIX closed at 13.31 1 day percent change of 1.68%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:30am: Producer Prices Index, Sept., est. 0.2% (prior 0.3%)
  • 8:30am: Retail Sales, Sept., est. 0.0% (prior 0.2%)
  • 8:55am: Johnson/Redbook weekly sales
  • 9am: S&P/Case Shiller 20 City m/m, Aug., est. 0.65%
  • 10am: Business Inventories, Aug., est. 0.3% (prior 0.4%)
  • 10am: Consumer Conf. Index, Oct., est. 75 (prior 79.7)
  • 4:30pm: API weekly oil inventories
  • NOTE: FOMC meets on interest rates; decision announced Oct. 30


    • Obama attends memorial service for late speaker Tom Foley
    • House Energy and Technology Cmte on EPA power plant regulations, 10am
    • House Energy and Commerce Cmte hearings on requiring approval of Keystone XL 10am; EPA coal regulations 2pm
    • House Financial Services Cmte hears from Federal Housing Administration Commissioner Carol Galante on agency bailout 10am
    • CMS Administrator Marilyn Tavenner to testify at House Ways and Means Cmte on agency’s oversight of health-care exchanges 10am
    • Executives from EMC, YHOO, LLY and USPTO Director testify on patent bill H.R. 3309 before House Judiciary Cmte 10am


  • AMR, US Airways, U.S. agree to mediation in antitrust case
  • Apple forecasts margins that miss ests. as costs gain
  • Food stamp benefits to contract 5% as stimulus ends
  • Tech, media cos. lobbying for bill to allow data disclosures
  • Michael Kors to replace NYSE Euronext on S&P 500 Index
  • CVSL said to offer $268m for direct seller Blyth
  • Chrysler amends IPO filing to update language
  • News Corp. employees to stand trial in U.K. for phone hacking
  • Obama to meet with CEOs today on cybersecurity
  • Glass Lewis advocates nay vote on Microsoft director Thompson
  • Ford to stop production at Romanian factory, ZF says
  • Boeing may give non-union plant more jet work, WSJ says


    • 3D Systems (DDD) 8am, $0.26
    • Actavis (ACT) 6:30am, $2.09 - Preview
    • Aetna (AET) 6am, $1.53 - Preview
    • AGCO (AGCO) 8am, $1.28
    • Air Products & Chemicals (APD) 6am, $1.47
    • Allergan (AGN) 9am, $1.21 - Preview
    • Ametek (AME) 7am, $0.52
    • Arch Coal (ACI) 7:30am, ($0.31) - Preview
    • Archer-Daniels-Midland (ADM) 7am, $0.48
    • Cobalt International Energy (CIE) 7am, ($0.17)
    • Cummins (CMI) 7:30am, $2.11 - Preview
    • Cumulus Media (CMLS) 9am, $0.09
    • Dana Holding (DAN) 7am, $0.55
    • DENTSPLY International (XRAY) 7am, $0.55
    • Ecolab (ECL) 8:25am, $1.03
    • Entergy (ETR) 7am, $2.33
    • Exact Sciences (EXAS) 7:30am, ($0.18)
    • Fidelity National Information Services (FIS) 7am, $0.71
    • Goodyear Tire & Rubber (GT) 7am, $0.67
    • Harris (HRS) 6:30am, $1.13
    • HCP (HCP) 8am, $0.77
    • Huntsman (HUN) 6am, $0.54
    • JetBlue Airways (JBLU) 7:30am, $0.22
    • Johnson Controls (JCI) 7am, $0.95
    • L-3 Communications Holdings (LLL) 7am, $1.95
    • LyondellBasell Industries (LYB) 7am, $1.59
    • MDC Holdings (MDC) 6am, $0.66
    • MeadWestvaco (MWV) 7:25am, $0.50
    • New Gold (NGD CN) 7:30am, $0.04
    • Occidental Petroleum (OXY) 7:30am, $1.90 - Preview
    • Paccar (PCAR) 8am, $0.85 - Preview
    • Penske Automotive Group (PAG) 7:30am, $0.70
    • Pfizer (PFE) 7am, $0.56 - Preview
    • Pitney Bowes (PBI) 7am, $0.41
    • Senior Housing Properties Trust (SNH) 7am, $0.43
    • Sensata Technologies Holding (ST) 6am, $0.55
    • TD Ameritrade Holding (AMTD) 7:30am, $0.37
    • Thomson Reuters (TRI CN) 7am, $0.44
    • TRW Automotive Holdings (TRW) 7am, $1.48
    • UDR (UDR) 8am, $0.35
    • United States Steel (X) 7:45am, ($0.43)
    • United Therapeutics (UTHR) 6am, $1.59
    • Valero Energy (VLO) 7:43am, $0.43 - Preview
    • Vertex Pharmaceuticals (VRTX) Bef-mkt, ($0.35)
    • Vishay Intertechnology (VSH) 7:30am, $0.23
    • Waddell & Reed Financial (WDR) 6:59am, $0.72
    • Waste Management (WM) 7:30am, $0.62
    • Xylem (XYL) 7am, $0.35 - Preview


    • Access Midstream Partners (ACMP) 4:15pm, $0.33
    • Aflac (AFL) 4:09pm, $1.48
    • Ameriprise Financial (AMP) 4:05pm, $1.73
    • Arthur J Gallagher (AJG) 4:10pm, $0.61
    • Baidu (BIDU) 4:01pm, $8.88
    • Boston Properties (BXP) 5:59pm, $1.28
    • Buffalo Wild Wings (BWLD) 4:01pm, $0.8
    • Caesars Entertainment Corp (CZR) 4pm, ($1.28)
    • CBRE Group (CBG) 4:05pm, $0.33
    • Chicago Bridge & Iron (CBI) 4:22pm, $1.10
    • Cirrus (CRUS) 4pm, $0.60 - Preview
    • Dolby Laboratories (DLB) 4:05pm, $0.46
    • DreamWorks Animation SKG (DWA) 4:02pm, $0.00 - Preview
    • Edison International (EIX) 4pm, $1.25
    • Electronic Arts (EA) 4:01pm, $0.12
    • Enbridge Energy Partners (EEP) 4:01pm, $0.25
    • EXCO Resources (XCO) 4:22pm, $0.09
    • Fiserv (FISV) 4:01pm, $1.49
    • Flextronics International (FLEX) 4:01pm, $0.21
    • Genworth Financial (GNW) 4:45pm, $0.26
    • Gilead (GILD) 4:01pm, $0.48
    • IAC/InterActiveCorp (IACI) 4:10pm, $0.94
    • Kimco Realty (KIM) 4:01pm, $0.33
    • LifeLock (LOCK) 4:05pm, $0.10
    • LinkedIn (LNKD) 4:05pm, $0.32 - Preview
    • Mueller Water Products (MWA) 4:20pm, $0.07
    • Plantronics Inc (PLT) 4pm, $0.65
    • Questcor Pharmaceuticals (QCOR) 4:01pm, $1.28
    • Range Resources (RRC) 5:02pm, $0.30
    • Ryland Group (RYL) 4:15pm, $0.90
    • Shutterfly (SFLY) 4:02pm, ($0.24)
    • SM Energy (SM) 7:07pm, $1.11
    • SolarWinds (SWI) 4:01pm, $0.36
    • Sonus Networks (SONS) 4:01pm, $0.01
    • Take-Two Interactive Software (TTWO) 4:05pm, $1.68
    • Tanger Factory Outlet Centers (SKT) 4:05pm, $0.46
    • Trulia (TRLA) 4:05pm, $0.08
    • Universal Health Services (UHS) 5:01pm, $1.02
    • WebMD (WBMD) 4pm, $0.09
    • Western Union (WU) 4pm, $0.36
    • Willis Group Holdings (WSH) 4:30pm, $0.20
    • Yamana Gold (YRI CN) Aft-mkt, $0.08 - Preview
    • Yelp (YELP) 4:03pm, ($0.01)


  • Corn Reaches Three-Year Low as Harvesting in U.S. Accelerates
  • Sugar Falling as Brazil Blaze Seen No Bar to Glut: Commodities
  • WTI Drops From One-Week High; Goldman Cuts OPEC Outlook on Libya
  • Gold Falls From 5-Week High as Dollar Gains Before Fed Meeting
  • Copper Rises as Withdrawal Orders Jump the Most in Four Months
  • Rubber Advances in Tokyo Amid Optimism for Chinese Demand
  • MORE: Copper Mine Capacity to Grow to 27.7m Tons in 2016: ICSG
  • Libyan Oil Production Sinks 50% as Nomads Halt Sharara Field
  • U.S. Pump Prices Drop to 2013 Low on Record Gasoline Production
  • Impala Workers Vote to Strike at World’s Biggest Platinum Mine
  • Phantom Ships Expose Weakness in Vessel-Tracking System: Freight
  • Paris Wheat May Drop 4.1% in Retracement: Technical Analysis
  • U.S. Shale May Be Dwarfed by Rosneft, Exxon Russian Shale Play
  • Rebar Advances in Shanghai as China Central Bank Adds Liquidity


























The Hedgeye Macro Team

















We have been looking to “buy” niche construction equipment companies at reasonable prices, in part to pair with “short” CAT.  We “added” TEX in June, but we would turn to MTW here.  We see the potential for MTW to transition from a Crane segment orders story to a break-up/activist story.  A rough MTW sum-of-the-parts suggests a break-up value of around $27 - $44/share, indicating between 30% and 115% upside from the current price.  While we are not the first to observe that a crane OEM and a foodservice equipment business make strange bedfellows at a mid-cap industrial, we think several factors have changed that could force a reckoning in coming quarters:

  • Investors are having increasing difficulty finding undervalued investments with the market near all-time highs.
  • Activism has more frequently entered the picture with just a whiff of value to unlock; close MTW peer OSK has proven a notable success. 
  • The M&A market is picking up, potentially facilitating transactions.  The IMI PLC foodservice equipment unit sold this month to BRK competes with MTW.
  • A rebound in non-residential construction activity into 2014 is likely to draw greater interest in and scrutiny of MTW. 
  • Europe is less of a mess, U.S. state/local finances have improved and developed market infrastructures spending may have some light at the end of the tunnel (e.g. ARTBA data).


There are buyers for both MTW divisions, likely at much higher prices than reflected in MTW’s current market value.  While there had been an activist shareholder at Manitowoc until the middle of this year (they apparently switched to TEX), there was little motion and greater agitation seems likely unless the share price moves to better reflect a potential break-up.  MTW is not risk free here, but the downside appears fairly limited relative to both the potential return and investment alternatives, by our estimates.






Key Points


Response to Weak 3Q:  MTW’s third quarter results last week were not exactly robust.  We held off MTW into the release, figuring that the shares would decline following disappointing Crane segment order results.  Implied orders in the Crane division fell 22.6% YoY, the worst showing since the financial crisis.  Worse, management did not lower guidance, backend loading 4Q and setting up a probable 4Q shortfall.  Inventories looked problematic.  While there were some rumblings of increased quote activity and new products, the report was weak.  However, MTW shares rallied.  Maybe the market reaction was wrong, but we don’t think so.  To us, this suggests that the focus is shifting to the broader MTW opportunity and has moved past the small ball of calling volatile quarterly crane orders.


Good Businesses, Good Price:  Finding undervalued industrials with solid market positions in good industries has become increasingly difficult with the market near all-time highs.  Manitowoc has two well positioned divisions in structurally favorable industries.  The crane industry is consolidated and profitable through the cycle, even if highly cyclical.  MTW is widely recognized as producing the Cadillac of cranes – no small benefit when operators have been criminally prosecuted for accidents.  The crane recovery is likely to be fairly muted given the long life cycle for the equipment (say 15-50 years), but it is likely to be a recovery nonetheless.  Foodservice equipment has many favorable characteristics that drive relatively high margins.  Foodservice equipment customers are sophisticated buyers that pay for equipment with superior performance.  That customer focus on product innovation and performance favors better resourced, larger competitors like MTW.


We invest in cranes from leading manufacturers that have a wide market acceptance, such as Liebherr, Manitowoc/Grove, Terex, Kato and Tadano….[and] avoid investment in less recognised brands, one-off, specialised, prototype or unusual model cranes.” – Boom Logistics LTD, 2013 Financial Report




Scenarios to Consider


A benefit of a MTW break-up is the apparent flexibility in how it is executed.  For starters, who really wants to watch MTW stumble through ERP implementation into 2016?  Why are these two unrelated businesses supporting a chunky $70 million/year corporate line?  Acquirers would have the infrastructure and platforms to operate these businesses without so much effort and overhead.  On the other hand, if MTW were to sell one division and keep the other, it could build a better focused franchise.  Capital from the sale of one division could be redeployed to build the scale and product portfolio to serve the remaining division’s markets.


ITW is a conglomerate. They do a lot of other things. Foodservice is not their core competency. Manitowoc, even though they -- foodservice is a big part of their business, they still do cranes …and other stuff.” – Middleby on Manitowoc 3/12/12


Selling the Cranes Segment:  Mining & construction equipment companies are desperately trying to refocus on construction as mining equipment sales evaporate.  That is one reason pricing in many construction equipment categories has been weak (e.g. CAT’s Cconstruction Industries).  Bucyrus long ago manufactured cranes; it doesn’t take a rocket scientist to see that there are likely to be synergies between the Bucyrus shovel business and MTW’s crane division - certainly more than between cranes and ice machines.  We think CAT is a potential buyer, but Komatsu, Hitachi or other global construction equipment makers could also be interested.  Chinese crane manufacturers are likely to increase competitive pressure over the next decade.  A CAT or Komatsu might better manage those changing dynamics, and both would probably love a little more revenue right now.  We would expect a sale to competitors like TEX or Liebherr to hit antitrust hurdles.  


Selling the Foodservice Equipment Segment:  While Middleby is not perfect, the roll-up strategy certainly seems to be working for investors.  Middleby is focused on consolidating a relatively fragmented industry, while we are not quite sure what Manitowoc’s strategy is.  Potential buyers for parts of this business include Middleby itself, ITW (competed for Enodis in mid-2008, but 'lost' to MTW), Marmon or Electrolux.  This is not to say that Manitowoc is running the business badly, but rather that the assets would likely fetch a higher valuation if sold than what is currently reflected in MTW’s share price.


Keeping Foodservice:  A Crane segment sale while retaining the Foodservice Equipment segment is not such a bad option.  The proceeds of a Crane segment sale could be used to chase Middleby’s strategy.  As the table below shows, if the market applied Middleby’s valuation to Manitowoc’s Foodservice Equipment revenue, just that segment’s valuation would substantially exceed MTW’s current enterprise value.  We know there are differences in product categories, like refrigeration, and a MIDD valuation might be a stretch, but the potential is likely there.


Keeping Cranes:  If MTW divested the Foodservice Equipment division, it could allow entry into adjacent niche construction equipment markets.  While this may seem less attractive, MTW would still be investing or acquiring into a cyclically depressed market.


Worked for OSK:  While it was a bumpy ride for investors, the value opportunity at Oshkosh was eventually forced on the market by activist involvement and broader recognition of the value opportunity.  MTW could well be the next OSK.


Sum of Parts: While a sum of the parts based on related company or comparable transaction values can help frame the opportunity, we are not always big fans of the approach, only begrudgingly presenting one for FDX for instance.  There are differences between MTW and the businesses shown, the valuation is subject to market volatility, and it is subject to the biases inherent in the selection of comparable companies – there are a number of potential complaints.  However, when the gap between the estimated value and the current market value is large, as it is here, we think a sum of the parts can be very useful.  In this case, the sum of the parts valuation range is not far off of our updated base-to-bull DCF fair value range of $19 to $32.  It appears to us that this value will be unlocked one way or another.




Background & Risk:  We have presented additional industry background in our Mining & Construction Equipment black book and expect to provide more detail on MTW.  Feel free to ping us for more background as well.  The most obvious risk is that we are buying into a likely 4Q Crane segment disappointment – and longer term, the crane cycle is likely to be fairly muted.  However, weak results may prove oddly beneficial as an activist incentive.   Our valuation highlights a favorable risk-reward tradeoff, but it is largely dependent on others accepting the re-framing of Manitowoc from an operating company traded on quarterly result to a prospective break-up, valued on a sum of its parts.


Implementation Challenges:  We do not see provisions that would necessarily preclude activist involvement, but they could be implemented in an attempt to thwart such efforts.  Manitowoc Crane segment distribution and service might be difficult to migrate to a CAT or Komatsu type dealer/distribution network.  We do not view these as insurmountable challenges, but we could certainly be proven incorrect in that assumption.







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