Using unchanged multiples of 8.0x, 10.0x, and 9.0x our projected 2008 EBITDA estimates for the E&P (raised), Pipelines (lowered), and Midstream (raised) segments, respectively, takes us to an enterprise value of approximately $33.8 billion. Netting out net debt of $6.2 billion and using a diluted share count of 608 million, we get a $45.20 per share value. The variability of profits in its E&P and midstream businesses due to commodity price changes could provide significant up or downside risk to our valuation.
High Valuation on TAXI Shares
Medallion Financial Corp. (TAXI) reported its first-quarter earnings results on May 8, 2008. GAAP earnings of $0.22 per share were two cents ahead our estimate and a penny ahead of consensus, primarily due to strong net investment income of $0.19 per share, which was substantially above our expectations.
While, credit quality remained strong, loan growth was weaker than expected, in most categories. The current relative valuation appears quite stretched, and thus, we would not expect any significant expansion in the multiples in the near future. As a result, we are reiterating our Hold rating on the shares.
TAXI currently trades at 11.2 times the consensus forward estimate, a 31% premium to the peer group median. On a price-to-book basis, TAXI now trades at 1.00x, a 13% premium to the peer group. Our $10.50 price target equates to 1.1 times the expected net asset value six months out, and also equates to 12.5 times our 2008 earnings estimate of $0.84 per share. We continue to view the $0.76 annual dividend as secure, implying at least a 10.0% expected total return over the next six months.
Werner Enterprises Downgraded
We are reducing our recommendation on Werner Enterprises, Inc. (WERN) to Sell from Hold, and lowering our target price to $17. At the same time, we are cutting our 2008 diluted EPS estimate to $0.80 from $0.87, reflecting higher estimated fuel costs now that oil is trading around $140 per barrel.
Our 2009 EPS estimate remains $1.07. We expect WERN's trucking operations to continue to be hurt by the weak U.S. economy, demonstrated by falling volumes and weak pricing due to increased truck supply and a softer freight market, as well as higher fuel costs and lower gains on truck sales. WERN reported first quarter EPS of $0.12, down 43% year over year.
However, to provide customers with additional capacity and provide additional diversification, Werner is growing its non-asset based Value Added Services (VAS) division, the gross margin of which was up 20% to $9.5 million. While the increase in VAS gross margin is encouraging, VAS generates a significantly lower operating margin than the company's trucking business. But VAS provides additional freight opportunities, which dampens seasonal fluctuations in company wide revenues.
