One of the fundamental elements of the Wall St. Cheat Sheet investing framework places the utmost importance on a company’s low debt position. In the case of J. Crew (JCG), the hip retailer paid down its remaining $49.2 million debt balance at the end of the third quarter. With a cleaner balance sheet, J. Crew became even more attractive to potential suitors. Earlier this week, J. Crew received a buyout offer from TPG Capital Group and Leonard Green & Partners LP for $43.50 per share in cash, or about $3 billion.
At a time when bears on Wall Street have been stuck in the mud since the crash of 2009, analysts put out a mixed reaction on the buyout. Considering JCG shares were once fetching over $50 per share earlier this year, the private equity buyers smelled opportunity. If you look at the past 4 quarterly announcements for J. Crew, you will see the company surprised analyst expectations by an average of 13%-32%. On the heels of a strong year, a swift adaptation to seasonal retail trends and the fashionable support of America’s presidential family, the momentum allowed J. Crew to unlock value. With a fresh product pipeline and strong consumer demand, it does not shock me to see this week’s buyout offer.
On November 5th, we selected J. Crew Group as a WSCS Premium Watchlist Pick because our proprietary research provided a strong bull case for undervalued shares. On the date of our publication, shares were trading at $33.99 per share. Following this week’s announcement, the value opportunity of 28.5% was realized rather quickly. These opportunities and more are another reason for you to consider a 14-day risk-free trial to our premium monthly newsletter this holiday season.
Disclosure: Wall St. Cheat Sheet Premium Watchlist Pick on Nov. 5th, prior to buyout.