This news may not be news to people who follow Forest City Enterprises more closely than I do, but I hadn’t seen anything about any of this until this morning in this post at Atlantic Yards Report, a blog that does follow FCE very closely.
Last month, we highlighted five stocks, each with a fair value that we estimated at a nice, round “zero.” Since then, zero-dollar fair value estimates have experienced a virtual renaissance, with the total number of such calls more than doubling to 32 ( Click here to see a full list). I thought this phenomenon merited a second look, so this month, we present five more stocks that look completely worthless to Morningstar’s team of analysts.
From the Analyst Report: “At nearly 83%, Forest City’s debt/total gross PP&E is much higher than peers’. With EBITDA/interest expense expected to dip below 1 times during the next three years, Forest City could face severe financial distress, since it may need to refinance debt at ever-increasing interest rates while operating cash flow declines.”
The Washington Post writes about it on 12/21/08 in an article called, “Not Worth the Paper They’re Printed On”:
Morningstar tried to put it delicately and hedged enough to say things could change, improving the companies’ fortunes, but in the end there was no polite way out: “If we think a stock is worthless, there’s no point in saying otherwise,” the investment research company said in a recent report.
(Hattip to No Land Grab.)
Now, the Plain Dealer, on 12/25/08, in “Forest City Fights Back”:
Forest City Enterprises Inc. on Wednesday strongly disagreed with a recent Morningstar Inc. article, saying the author’s opinion that Forest City’s stock is worthless was based on flawed assumptions and inaccurate interpretations of the company’s debt obligations and its construction costs.
“We disagree in the strongest possible terms with Morningstar’s opinion,” spokesman Jeff Linton wrote in a statement. “Further, we are astonished and appalled that Morningstar would issue such an opinion without having made contact with Forest City.”
Linton said no Morningstar representative has contacted or spoken to any senior-level executive at Forest City in two years. In a recent article, Morningstar analyst Matthew Coffina named Forest City among five stocks that he considered to have a fair value of zero. Five analysts who regularly cover Forest City have taken a neutral stance on the stock or expect it to perform slightly better than the market.
The Atlantic Yards Report feels that FCE’s concerns are reasonable, and I have no idea how these things work My only question is, why did it take more than two weeks for Forest City to issue this rebuttal? And, again, it looks like this battle over the rating has been kept very very down-low. Given the economic times, that’s not surprising, but is it proper news provision on the Plain Dealer’s part?
The day before the Morningstar analysis was published, on 12/8/08, the PD published this item about FCE withholding dividends, but the Plain Dealer didn’t publish anything about Morningstar’s 12/9/08 review of FCE until two days ago, on 12/24/08, more than two weeks after Morningstar published its review. Do not even try to convince me that the PD didn’t know about the Morningstar pan before then. Then, the FCE objection was published…yesterday, two and a half weeks after the hit.
So – only if it comes home, we hear about it? Otherwise, it’s too business wonky?
Two things going on in this post:
1. Editorial filters should feel free to weigh in: what was the hold up on reporting on Morningstar’s analysis of 12/9/08? Why did FCE take so long to rebut the analysis in the Cleveland press?
2. I have no idea about the health of FCE or the value/veracity/accuracy of the Morningstar report. But this he said/she said of the PD – does anyone else think that maybe the PD should do its own analysis, given the importance of Forest City to the NEOhio economy?
If I’ve missed that PD coverage, major apologies. But in my searching, I could not find anything else on these topics in the PD archives online.