Sally Beauty Holdings Featured in Barron’s Roundtable

Sally Beauty Holdings (SBH) was up 4.65% today, January 29, 2007. Part of the reason for Sally Beauty’s stock price rise today may be due in part to this past weekend’s Barron’s 2007 Roundtable article($). Sally Beauty Holdings was one of Oscar Schafer’s picks for this year’s roundtable.

Oscar Schafer is Managing Partner of O.S.S Capital Management. Looking back at his 2006 roundtable picks, I noticed his picks performed exceptionally well over the past year.  His past picks included two spin-off stocks, CBS (CBS) and Tyco International (TYC). Tyco was actually his worst performing pick for 2006, gaining only 1.4%.  This might be in part because Tyco did not successfully complete its spin-offs last year.  In 2006, he also picked FNX Mining (FNX CN), Flamel Technologies (FLML), and Schwarz Pharma (SRZ GR) gaining 23.5, 51.9, and 80.5 percent respectively.

Schafer mentioned that he finds opportunities in spinoffs. As my readers know here, I’m also a big fan of spinoffs. In addition to picking Sally Beauty this year, Schafer also picked Avis Budget Group (CAR), which spun off from Cendant.  I had owned another Cendant spinoff, Realogy (H) that performed very nicely for me.

Getting back to Sally Beauty, Mr. Schafer actually labeled this pick controversial. I’m not so sure what is controversial about it, but I guess this is another reason to like the stock.  Schafer points out that Ebitda margins are in the range of 11% to 12%, and growing.  He also finds it very positive that Clayton Dubilier & Rice bought around 48% of Sally Beauty Holdings for about $6.75, and it is known that private-equity firms plan to make two to three times their money in three to four years. I hope CD&R is right.

One thing I learned from this article was that CEO Gary Winterhalter has been discussing opening two to three hundred stores in Mexico and a major expansion in Canada.  Schafer sees the company earning 40 to 42 cents a share in 2007 and then climbing to 55 to 60 cents a share in 2008.  With accelerating international expansion, Schafer see the stock climbing to $12 next year.  I hadn’t really factored in the international expansion when I analyzed this stock, but it makes good sense to me that this would be an excellent direction for this company.  This further enhances my confidence in my initial estimate of $10 for Sally Beauty Holdings intrinsic value.

Full Disclosure: I own shares of Sally Beauty Holdings.

5 thoughts on “Sally Beauty Holdings Featured in Barron’s Roundtable

  • January 30, 2007 at 11:19 am

    Do you think that thier targets for international expansion are feasible? With rising building costs, what are the ramifications to the cost estimates if labor shortage continues in Western Canada and construction costs continue to rise?

  • January 30, 2007 at 1:56 pm

    According to the Jan. 26, 2006 investment report by A.G. Edwards “Seeing ‘Sum Of The Parts’ Analysis Valuing ACV Close to $45. The pending deal for Sally distribution values that business at $24 per share…”

    Is there any rationality behind the analyst’s fair market value of $24 for SBH and $40 for ACV after the split?

  • February 3, 2007 at 7:05 pm

    Is that $12 next year (2008) or this year (2007)?

    Thanks for any clarification!

  • February 3, 2007 at 9:37 pm

    My guess is that he meant $12 in early 2008. We’d probably have to ask Oscar Schafer for more clarification on his target to know the real answer.

  • February 5, 2007 at 11:21 am

    Dear Fellows,

    Is it possible to get access to this report from AG ?
    Could you give us any informations on the assumptions modeled to value
    SBH at 24$ ?

    Thank you

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