3SOF

1. Profile

DURA Automotive Systems, Inc (DRRA)., is a leading independent designer and manufacturer of driver control systems, seating control systems, glass systems, engineered assemblies, structural door modules and exterior trim systems for the global automotive industry. The company is also a leading supplier of similar products to the recreation vehicle (RV) and specialty vehicle industries. DURA sells its automotive products to every North American, Japanese and European original equipment manufacturer (OEM) and many leading Tier 1 automotive suppliers. DURA is headquartered in Rochester Hills, Mich. Information about DURA and its products is available on the Internet at www.duraauto.com.

2. Technical Analysis

2.1. Long Term Chart



The stock is trading near its all time lows, so it can only be a turnaround play.

2.2. Medium Term Chart



DRRA came down from a high of $16 in 2004 to a low of $2.

2.3. Short Term Chart



After a big decline, the stock made a base and it looks like it is starting to turnaround. There was a moving average bullish crossover, volume on the breakout was above average, a short term resistance level ($2.64) was broken on the upside.

3. Fundamental Analysis

3.1. Number of Shares Outstanding



Since 2000 the share count has remained stable, which is a plus.

3.2. Current Ratio



The current ratio is low, but the balance sheet has remained stable. Liabilities and assets are more or less the same now as they were 5 years ago, when the stock was trading at $15-$20.

3.3. Revenues



Revenues were growing fast until 1999 and then stalled. For the past 6 years revenues have remained stable between $2B and $2.5B. Now consider DRRA is a $50M market cap, so the revenue multiple is an outrageously low 0.02 (industry's average price to sales ratio is 0.65).

3.4. EPS



Obviously EPS has been coming down, but the company is still profitable (EPS was $0.10, and expectations were for a $0.30 EPS loss in 2005  ). But it's trading at levels like it was almost facing bankruptcy.

4. General Overview

DRRA is a strong turnaround candidate, as all the automotive industry, which is highly cyclical. If you think General Motors or Ford will recover from doom in the future, then DRRA is a highly leveraged play to that outcome.

The company released full year earnings yesterday and presented an ambitious restructuring plan. Since sales have remained stable over the last 6 years, and since the company didn't sell shares in a meaningful way we can make the conclusion that EPS declined due to rising costs.

The restructuring plan aims at reducing costs on a global basis:

«Restructuring Plan

Denton continued, "We have made progress toward achieving our organic growth and worldwide cost leadership goals over the past three years, however, we are not moving fast enough. We must accelerate our growth and profitability enhancement plans to meet our strategic goals by 2008. Over the next two years, DURA will complete a significant restructuring of our worldwide operations designed to enhance performance optimization, worldwide efficiency and financial results."

The restructuring plan will impact over 50 percent of DURA's worldwide operations either through product movement or facility closures. DURA will complete this action by year end 2007. In addition, DURA's purchasing organization will aggressively cut costs throughout its supply chain resulting in a significant reduction of annual purchasing costs.

Cash costs for the restructuring plan are expected to be approximately $100 million. These costs will relate primarily to employee severance, capital investment, facility closure and product move costs. The majority of these expenditures will occur by year end 2007. DURA expects a three year payback on the investment. The savings are expected primarily through a lower average global wage rate, lower cost of purchased materials and operating efficiencies gained as a result of the facility consolidations and reorganizations.

"We will finance the restructuring plan with cash on hand and availability under our existing revolving credit facility," said Keith Marchiando, chief financial officer of DURA Automotive. "The liquidity package that we put in place in May 2005 gives us ample liquidity to fund this necessary restructuring plan along with our on going operating cash requirements."»

Also, the company cut debt this last quarter: «During the fourth quarter of 2005, DURA took the opportunity to reduce its Subordinated Notes by $49 million. This decision is consistent with its long-term debt reduction strategy. DURA spent $31 million of cash, resulting in a gain on retirement of debt of $18 million in the quarter.»

I think both these issues, the restructuring plan and debt reduction will fuel speculation that this company will indeed turnaround and will come back to earnings of $1 - $1.5 per share. This possibility can make the stock go to $6 plus.

5. Trading Plan

I know I'm looking for a bottom here, and bottoms are very, very, volatile. Often I was right on a turnaround play but I was shaken out by the market before the real rise occurred. So I need to be patient and use a large stop to grab the movement. Be patient on the base, because when the rise really unfolds it will be easy, just let the trend run its course.

I'll buy DRRA around the open today, but just 5% of the Stocks on Fire Portfolio. I may add another 5% later, we'll see.

Dave do you think yesterdays news after the close will negativly effect the stock price today?

S&P cuts Dura Automotive on weak earnings prospects
Thu Feb 9, 2006 4:51 PM ET

NEW YORK, Feb 9 (Reuters) - Standard & Poor's on Thursday lowered its ratings on Dura Automotive Systems Inc. (DRRA.O: Quote, Profile, Research), citing poor near-term earnings and cash flow prospects.

The ratings agency lowered Dura's corporate credit rating one notch to "B-minus," six levels below investment grade, from "B." The outlook is negative.

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:reuters.com:20060209:MTFH65706_2006-02-09_21-51-49_N09349291&symbol=DRRA.O

Quote from: boatguy on February 10, 2006, 08:58:57 AM
Dave do you think yesterdays news after the close will negativly effect the stock price today?

S&P cuts Dura Automotive on weak earnings prospects
Thu Feb 9, 2006 4:51 PM ET

NEW YORK, Feb 9 (Reuters) - Standard & Poor's on Thursday lowered its ratings on Dura Automotive Systems Inc. (DRRA.O: Quote, Profile, Research), citing poor near-term earnings and cash flow prospects.

The ratings agency lowered Dura's corporate credit rating one notch to "B-minus," six levels below investment grade, from "B." The outlook is negative.

http://yahoo.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?storyID=urn:newsml:reuters.com:20060209:MTFH65706_2006-02-09_21-51-49_N09349291&symbol=DRRA.O

I hope so, so I can buy lower 

DRRA: Evaluates Strategic Alternatives for Select German Operations
Thursday , February 09, 2006 08:09 ET

DURA Automotive Systems, Inc. (DRRA) announced it is evaluating strategic alternatives involving manufacturing operations located in Lage, Lippstadt and Rotenburg, Germany. Larry Denton, chairman and chief executive officer stated, "DURA continues to receive expressions of interest relating to the possible acquisition of certain Germany-based operations. As a result of these continuing inquiries, we believe the best interests of our shareholders, customers, and employees are served through a full review of strategic alternatives with respect to these operations, including evaluation of further growth alternatives and divestiture options."

I know that to make a bottom a stock needs to shake out many weak hands. I know I can't buy exactly or even near the bottom. I also know DRRA is undervalued at this point and, this is a prediction, I think the automotive industry is bottoming on a global basis.

GM, Ford, Fiat and most German automakers will probably outperform the market going forward, solely based on the fact that this is a cyclical industry and stocks are technically turning the corner.

I'll continue holding DRRA.

DRRA is still in the bottom making process. The stock made a doji yesterday after touching the 50 day moving average, which now acts as support.

I will patiently continue holding DRRA and will add another 5% if the stock makes a close above 2.64 with volume above average. In fact, this can be an instruction for today and going forward, add 5% of capital to DDRA if close is above $2.64 and volume is higher than 200,000 shares traded.

DRRA is still building the ground for a change in trend. If you take a look at GM and Ford charts they already turned the corner.

DRRA is just a $47M market cap. It will easily go to $100M or $150M and the downside is limited. Technically the stock found a base and I'm just expecting for a close above $2.64 with volume higher than 200,000 shares traded to add another 5% of capital to the current position of 5%.

What would make me wrong? I don't want to think much about it now, because I want to be focused on the positives so I won't be shaken out of the position before the expected rise occurs. I know how bottoms are volatile ...

For now I'll hold DRRA and I plan to buy an additional 5% on a close above $2.64 with volume above average.

fyi:
from fallondpicks.com (10th of Feb.):
DRRA, is a base breakout play, triggered as the company announced earnings and a restructuring plan. This was supported by a long standing bullish divergence in the MACD, and a breakout in on-balance-volume. The stock has had little to show for itself over the last few years, but the heavy volume move over the 50-day MA, should see a test of the 200-day MA at $3.69, with the potential to follow through to $6 resistance. Slow stochastics have made a rare trip to the bullish side of the mid-line. The point-n-figure chart holds to a triple bottom breakdown from July 29th 2005. Unfortunately, it will take more than a few days rally to reverse this trend.

chart:

Thanks for posting that technical analysis la-onda, I fully agree with it.

There were some changes in DRRA's management today: DURA Automotive Names Timothy Stephens as President of Atwood Mobile Products Division

We also had this report on the auto parts sector: US car component makers to shut plants

«Dura Automotive, which makes driving and seat controls, plans to close between five and 10 factories, relocating half of its production. The Dura plants employ about 2,000 people.

Visteon and Dura are among many North American parts makers that have been hit by falling production at the continent's two biggest carmakers, General Motors and Ford Motor. The industry has also been squeezed between demands for price reductions from customers and rising material costs.

Dura expects to recoup the $100m cost of its restructuring within three years.»

This is all part of the company's plan to reduce costs, since revenues have remained stable at around $2.4B for the past 5 years.

DRRA has a book value per share of $289M/18.78M shares = $15.39. The market value of each share is $2.42, so the Price to Book Ratio is 0.16. This company is priced for extinction but I don't think it will file for bankrupcty, and even if it does, shareholders would probably receive more than the current share price from the proceeds of the liquidation of the company.

This is the most contrarian play you can make, and contrarian plays take time to develop. But in the end, usually one gets paid handsomely.

Although I don't have a lot of time to wait, since I'm in the business of beating the market's performance, I'll continue holding DRRA for the foreseeable future.

DRRA isn't exactly the kind of stock that belongs in the Stocks on Fire Portfolio, but since it is trading near support levels I'll continue giving it a chance.

I wouldn't like to see it making a new closing low below $2.25. If that happens I'll take a loss on my 5% of capital and move on.

Technicals may indicate that a bottom is being reached, but I think the street is factoring in the company is headed toward bankruptcy.

The market cap is an extremely low $46MM, but enterprise value is $1.09B.  Price to book is .14 (way low).

                               2-Oct-05     3-Jul-05        3-Apr-05     31-Dec-04
Net Tangible Assets ($519,035)    ($516,718)   ($509,067)  ($496,093)

Net Tangible Assets keeps diminishing in a strong economy.  How will this fair in a weak economy?

Some sort of restructuring will need to take place.

Definitely a high-risk/high-reward situation.

Quote from: poorman1 on February 23, 2006, 08:25:42 AM
Technicals may indicate that a bottom is being reached, but I think the street is factoring in the company is headed toward bankruptcy.

The market cap is an extremely low $46MM, but enterprise value is $1.09B.  Price to book is .14 (way low).

                               2-Oct-05     3-Jul-05        3-Apr-05     31-Dec-04
Net Tangible Assets ($519,035)    ($516,718)   ($509,067)  ($496,093)

Net Tangible Assets keeps diminishing in a strong economy.  How will this fair in a weak economy?

Some sort of restructuring will need to take place.

Definitely a high-risk/high-reward situation.

I agree poorman1. You say «some sort of restructuring will need to take place». And that's exactly what the company is doing:

DURA Automotive Reports Fourth Quarter and Full-Year 2005 Results and Announces Restructuring Plan

Yesterday DRRA had it's highest volume in 6 days, so maybe that touch on the 50 day moving average was the bottom.

I'll continue with my plan of holding the stock, unless it is set to close below $2.25.

Hi David,

I have used some time to look at DURA. I really like this pick!

I like the restructuring of their business. They have more than enough liquidity to get through the rough times. I am sure they will come out of this process as a much stronger company.

But I am still not buying. I guess my problem is that it seems it will take a long time before we can see the result of all the hardship. End of 2007? Well I have time to wait (I am not soooo old!)  but will the market have patience? In an ideal world yes but i think that a lot of investors will sit on the sideline a wait for another buying opportunity.

That is at least what I will do. The sector is really not to much help (and I think DURA is being punished for DANA's problems today). For DURA to take off they need to convince the market and that might take some time.

Mike

Quote from: Michael on February 24, 2006, 02:56:37 PM
Hi David,

I have used some time to look at DURA. I really like this pick!

I like the restructuring of their business. They have more than enough liquidity to get through the rough times. I am sure they will come out of this process as a much stronger company.

But I am still not buying. I guess my problem is that it seems it will take a long time before we can see the result of all the hardship. End of 2007? Well I have time to wait (I am not soooo old!)  but will the market have patience? In an ideal world yes but i think that a lot of investors will sit on the sideline a wait for another buying opportunity.

That is at least what I will do. The sector is really not to much help (and I think DURA is being punished for DANA's problems today). For DURA to take off they need to convince the market and that might take some time.

Mike

I'm glad you like DRRA Michael, and I share your concerns. I find interesting that you bring up Dana's problems. Yes, DCN has problems, but it's still a $268M market cap, where as DRRA's is just $44M.

It's impressive how these automotive related stocks suffered lately. I don't see any big structural change for this to happen. Is it because of China production?

I have to know more about the issue, in the meantime I'll continue holding DRRA, as the stock trades near the 50 day moving average support level.

There's an interesting article about DRRA on the Yahoo Board (also interesting is that everybody says «sell» and «strong sell» DRRA):

«Huge Restructuring ToConsume $100 M

Dura announced plans for a massive restructuring program, which
will ultimately see about 50% of the company's products relocated to
lower cost regions. The actions will result in the closure of 5 to 10
facilities and the relocation of roughly 2,000 jobs. The program is
expected to cost $100 million between now and the end of 2007, the
majority of which will be cash for severance payments, with another
portion (perhaps 25% - 30%) for increased capital expenditures. DRRA
expects a 3-year payback on this effort.
The magnitude and design of this restructuring program suggests
to us that Dura sees changes to the external environment (or the
anticipation of such changes) that would render its status-quo
operations terminal. For example, Dura may be facing significant and
wide-ranging price-down pressure (which it denied on Thursday's
conference call). In other words, Dura may be getting pressed by its
customers to either become a low-cost-country supplier or watch its
business be re-sourced to low-cost-country suppliers; in either case, the
OEMs are going to pay the low-cost-country price.
Another threat that may have prompted such a dramatic
restructuring plan is the apparent trend toward in-sourcing by Dura's
Tier I customers. Last quarter we learned that Lear took in-house the
seat tracks for the GMT800/900 program, and this quarter Dura said that
it lost the first row seat adjusters to seat manufacturer Johnson Controls.
If Dura can reposition itself to make those products more cheaply it may
be able to retain the business. Alternatively, Dura may be planning to
exit altogether the type of products that it sees at risk of being taken in
house by its Tier I customers.
In any case, our expectation is that 2006 may be considerably
weaker than we had been forecasting. We are lowering our 2006
estimate to a loss of $0.34 from positive $0.11, and cutting 2007 to a loss
of $0.16 from positive $0.60. Dura is targeting improved financial
performance for 2008/2009. Our price target drops to $3 from $5. We
retain our Neutral rating.
09 February 2006»

They say the company needs a restructuring plan, and then complain about the restructuring plan. Never forget DRRA is a $43M market cap, with annual sales of $2.5B and assets of $2.1B.

Anyway, this stock isn't performing well, so perhaps I should just drop it and look for better short term opportunities. But I'll hold it a little longer, since I still have plenty of capital to invest at this moment.