Shares in Midas, Inc. (NYSE:MDS) barely budged after the company reported 2011 fourth quarter and full year results. During the quarter, Midas reported a net loss of 3 cents versus a loss of $1.14 a share in the year ago quarter. Total sales during the quarter were $43.5 million, down from $46.6 million in the 2010 quarter. Analysts were looking for earnings per share (EPS) of 7 cents along with revenues of $43 million. Full year earnings were $4 million in 2011 versus a loss of $13.4 million in 2010.
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Normally a bad earnings "miss" like this for a company is good for a nice initial drop in the stock price. However, Midas is currently reviewing the company's strategic alternatives. Midas is one of the largest providers of automotive repair shops in the world. The company has over 2,200 franchised and owned locations in 14 countries. It currently has a market cap of $126 million and about $103 million in debt and other obligations. It also owns the SpeeDee Oil Change business, a group of 161 auto service centers in the United States and Mexico. Business at company owned repair shops continues to weaken. During the fourth quarter, retail sales dropped to $14.4 million from $17.6 million. The current growth that the company is experiencing seems to be coming from the franchised operations. For related reading, see Auto Stocks Driving Higher.
The market is betting that the company's strategic alternatives prove successful. Recently, rival Pep Boys (NYSE:PBY) agreed to be taken private for $15 a share or around $800 million, effectively valuing the business at 6 times EBITDA/EV. At the moment, Midas currently trades for 8 times EBITDA/EV but earnings are quite depressed at the moment. With vehicles getting older, the automotive parts and repair industry continues to do very well. Midas lost its touch along the way but the company is a very active and attractive industry.
In the past month, AutoZone (NYSE:AZO) and Advance Auto Parts (NYSE:AAP) reported very strong earnings and sales growth. And Monro Muffler Brake (Nasdaq:MNRO), a $1.4 billion provider of automotive repair centers has been on a tear over the last year thanks to strong operating performance. Pep Boys is being bought by a private equity group and the same could happen for Midas; if not, a potential competitor could see the company as a very quick way to gain a bigger footprint in a very fragmented industry, not to mention the international exposure.
The Bottom Line
As a standalone company, Midas seems to have lost its touch at the moment. But the automotive service sector is a very promising industry, and a strategic alliance could be exactly what this company needs to move forward.
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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.