As of yesterday’s close, shares of Monster Worldwide (NYSE:MWW) are up 32% from their intraday low of $5.72 they reached on August 2nd after the company announced disappointing second quarter earnings. The company hired advisers in March to explore strategic alternatives and ever since then there has been press reports and speculation that a deal is imminent.
Yesterday’s heavy volume and volatile price swings were noteworthy as there was no announcement or anything new to explain the action. MWW closed up 6.3% at $7.55 after reaching a high of $7.96 during the trading session. Reporters were scrambling to explain the move. However, to borrow from a previous President of the US, I chalk up yesterday’s move to simple arithmetic.
Stocks often move on takeover speculation but it is important to figure out a baseline valuation or a reasonable range in order to assess whether any stock appreciation is justified or sustainable. In the case of Monster World Wide, I will provide a simplified valuation in order to put the current stock price and the recent appreciation in perspective.
Being in the global staffing business, it is not surprising that Monster’s business has been deteriorating as the global economic crisis took its toll on the US and more recently on Europe. Add new web 2.0 competition from the likes of LinkedIn and its understandable why the shares have been lagging.
The last earnings release is a good starting point for doing any valuation analysis given that it encompasses and takes into account the challenges the company is facing and some of the restructuring steps it took in reaction. From that release we can note the following key data points:
Operating income before depreciation, amortization, and non-cash restructuring: $34.25 Million for second quarter or $137 million of annualized EBITDA
Cash and Debt are about equal around: $155 million each
Diluted Shares Outstanding: 114 Million
I will spare you the complexities of a detailed financial valuation model but doing a back of the envelope valuation exercise that assigns a valuation of 6 to 8 times of annualized EBITDA net of debt you will have a company valuation of between $822 and $1096 Million giving a per share price of $7.21 to $9.61.
Now this is a very simplified exercise that does not take into account other unique aspects of the company. It’s simply meant to give a baseline scenario for a financial buyer who will come in, further reduce operating costs, increase efficiencies, optimize the capital structure, and benefit from an upcoming upturn in the economy and the next hiring cycle. Naturally, a strategic buyer might gain even more benefits from operating synergies putting the above very simplified valuation range 20% to 40% higher.
Disclosure: As of this writing, the author and/or his firm maintained a long position in shares of Monster World Wide.