Bob Howard Likes Brake-pads & Shopping At Home

Bob Howard who heads up KKR's KKR Equity Strategies Group spoke at the Ira Sohn Conference yesterday, and gave two stark investment ideas. Howard, formerly of Goldman Sachs, recommended Wabco WBC and HSN, Inc. HSNI. Regarding Wabco, Howard said he believes the U.S. and European trucking markets are in a strong recovery, and that tightening safety and emissions regulations in both of these regulations should benefit Wabco. He also likes the company's exposure to emerging markets fleet. He believes there is 30-50% upside in the stock today, as it is an underappreciated growth story. Wabco has only been public for four years, after it was spun off from American Standard, and in those four years, it encountered the worst financial crisis in 70 years, which is not a great way to start off being a public company. It had to suspend its dividend and share buyback program. Wabco was also feeling the wrath of a price fixing scam at American Standard, but now that the company has settled, which it did so last year, Wabco has this overhang removed. Howard said the shift in global fleet benefits Wabco, as it positions itself in China compared to its competitors. There is significant opportunity for revenue expansion in China and India, as these places only get charged one-third of the costs in the U.S., and only 10% of what Europeans are charged. Assuming the adoption of anti-lock brake pads in China, this could add 70 cents in earnings per share to Wabco. Howard said he believes the company is worth around $100 per share, up from the current $60's it trades at today. His last idea was HSN Inc., which owns the Home Shopping Network. It's 32% owned by Liberty Interactive, which is the parent of QVC. Howard said the opportunity in this name comes from valuation, re-leveraging, and the acquisition of QVC. The company's key demographic is 30-55 year old women with $64,000 in annual income. The real benefit here is that HSN's online site is the hook, as it has a richer experience than Amazon AMZN. Home shopping is growing at a 6% compound annual growth rate, and there will be additional growth from mobile platforms, and additional partnerships. The company was able to post positive revenue growth during the financial crisis, and has captured market share from department stores. Howard believes HSN should trade at 7 times EBITDA, which offers 20% upside from here. If HSN is able to leverage its balance sheet, this could allow the company to return more than 50% of its market cap to shareholders. In conclusion, Howard said he saw 40% upside in HSN shares without M&A action, and potentially 65 to 95% upside with M&A, depending on synergies.