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Calamos Asset Management – An Undervalued Asset

November 01, 2009 | About:
[NDQ:CLMS] Nov. 1, 2009 - $10.60

Dividend = $0.55 quarterly = 2.075% current yield

Calamos provides investment management advice and services to institutional and individual investors. The firm offers more than a dozen mutual funds and five closed-end funds, as well as separately managed accounts. Calamos has expanded its fund lineup to include equity, fixed-income, and alternative investments. Calamos Growth and Calamos Growth and Income--account for more than 40% of assets under management.


Both those flagship funds are performing very well this year with the Growth Fund up 39.2% and the Growth & Income Fund up 30.3% YTD through October [versus the DJIA’s + 10.7% and the S&P 500’s +14.7%]. Other Calamos open-end funds have gained above 28% this year and their closed-end funds have shown 52-week shareholder returns of 41.3% {CHY}, 42.2% {CHI}, 33.9% {CHW} and 57.8% {CGO}.


The shares of this fine money management firm were quite popular and highly valued prior to 2008’s market meltdown with typical P/Es in the 21 – 22x neighborhood. Earnings took a big hit last year but are recovering nicely as assets under management are rebounding.


Here are their per share numbers from continuing operations as reported by Value Line:




Year


Sales


C/F


EPS


Div.


B/V


Av. P/E


52-wk Range


2004


13.57


4.67


1.09


0.07


6.89


22.6x


19.40-28.35


2005


18.16


1.48


1.26


0.30


8.09


21.1x


20.55-32.81


2006


20.95


1.78


1.45


0.38


9.26


21.6x


24.23-44.10


2007


22.68


1.76


1.22


0.44


10.24


21.5x


20.08-34.61


2008


20.08


0.62


d.1.24


0.33


7.73


NMF


2.55-29.67


In the nine months ended September 30th EPS were $0.39 versus a deficit in 2008. Full year consensus 2009 – 2010 expectations now run $0.60 and $0.82 /share respectively.


That makes the forward P/E< 13x – well under the historical range since the 2004 IPO.


If the fine fund performances remain strong, I wouldn’t be surprised to see AUM increase dramatically and for estimates to get ratcheted up further. Note the high prices from each of the years 2004 – 2008 for the upside potential over the longer term.


At last week’s close of $10.60 these shares are trading at just over 1.3x the September 30th book value. CLMS has traded at 3 – 4x book value during each of the previous five years. Even twice book value would bring CLMS shares back to over $16 for a 50% move from the current quote.


The dividend yield of 2.075% is better than you can get on your money market or most bank CDs right now.


Morningstar takes a conservative view with a ‘fair value’ estimate of $12 /share. I’m much more bullish than they are but even their target would bring a 13.2% gain on top of the dividend for a > 15% one-year total return. Calamos shares actually closed at $14.83 on July 23rd and at $14.14 as recently as October 15th.


I was a big buyer of these shares last fall when they were ridiculously cheap. I lightened up when the shares hit $15 and now I’m buying again expecting at least $15 - $16 over the next 12 months.

****************************************************************************************************************


Calamos has options but they are quite thinly traded with wide bid-ask spreads.


Here is a nice trade that should be available with limit orders…






Cash Outlay


Cash Inflow


Buy 1000 CLMS @ $10.60 /share


$10,600




Sell 10 May $12.50 calls @ $1.20 /sh.




$1,200


Sell 10 May $12.50 puts @ $3.00 /sh.




$3,000


Net Cash Out-of-Pocket


$6,400






If Calamos shares bounce back to at least $12.50 (+ 18%) by May 21, 2010:


· The $12.50 calls will be exercised.

· You will sell your shares for $12,500.

· The $12.50 puts will expire worthless.

· You will likely have collected $165 in dividends.

· You will have no further option obligations.

· You will end up with no shares and $12,665 in cash.


That best-case scenario would show a total profit of $6,265/$6,400 = 97.8%

achieved in just over 6.5 months on shares that only needed to rise by 18% or more.





What’s the downside?


If Calamos shares are< $12.50 on May 21, 2010:


· The $12.50 calls will expire worthless.

· The $12.50 puts will be exercised.

· You will be forced to buy another 1000 CLMS shares.

· You will need to lay out an additional $12,500 in cash.

· You will likely have received $165 in dividends.

· You will have no further option obligations.

· You will end up with 2000 shares and $165 in cash.


What’s the break-even point on the whole trade?


On the first 1000 shares it’s their $10.60 purchase price less

the $1.20 /share call premium = $9.40 /share.


On the ‘put’ shares it’s the $12.50 strike price less the

$3.00 /share put premium = $9.50 /share.


Your overall break-even would be $9.45 /share (ignoring yield)

or $9.37 /share (including the expected dividends).


CLMS could fall by up to $1.23 /share (-11.6%) without causing

a loss on this trade.





Disclosure: Author is long CLMS shares and short CLMS options.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 3.5/5 (8 votes)

Comments

Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


Calamos Asset Q4 profit beats estimates, ups dividend

Calamos Asset Management, Inc.

* Q4 EPS $0.23 vs est $0.20

* Revenue rose 21.5 pct

* Avg assets under management rose 25 pct

* Ups dividend by 36 pct

Jan 26 (Reuters) - U.S. money manager Calamos Asset Management Inc (CLMS.O) posted quarterly profit above market expectations, helped by a 25 percent rise in assets under management, and raised its quarterly dividend by 36 percent.

Fourth-quarter net income was $4.7 million, or 23 cents a share, compared with net loss of $26.1 million, or $1.34 a share, in the year-ago period.

Analysts on average had expected the company to post earnings of 20 cents a share, according to Thomson Reuters I/B/E/S.

Revenue for the quarter was up 21 percent at $81.3 million.

The year-over-year variance in revenue was driven mostly by a 25 percent increase in average assets under management, Calamos said in a statement.

Average assets under management as on Dec. 30, a key driver of revenue and profit in fund management companies, were $31.6 billion, compared with $25.3 billion, last year.

The company said it raised its quarterly dividend by 2 cents to 7.5 cents per share, payable Feb. 24 to shareholders of record Feb. 9.

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