Post Holdings, Inc. (POST) is manufacturer, marketer and distributor of branded ready-to-eat cereals in the United States, Canada and Europe, marketing products under the brand names, Honey Bunches of Oats®, Pebbles™, Post Selects®, Great Grains®, Spoon Size® Shredded Wheat, Post® Raisin Bran, Grape-Nuts®, Good Mornings® and Honeycomb®. Industry peers include General Mills, Inc, Kellogg Company, and Pepsico, Inc.

Short-Term Value

My short-term (3-6 week hold) target price for the stock is $83.61, with an initial trailing stop at $80.77. Upward price movement will find no resistance. Downward price movement will find support at $80.88 and $79.69, with final support at $77.63.

Days to Cover

The most recent days to cover number is 5. The days to cover number is a measurement of the company’s outstanding shares that are currently shorted, expressed as the number of days required to close out all the short positions. The number is determined by dividing the number of outstanding shares currently shorted by the average daily volume.

The Tax Act

The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Post Holdings, Inc., the company had yet to work through any issues related to the Tax Act since their fiscal year does not end until September 2018. However, no provision has been made for income taxes on undistributed earnings of consolidated foreign subsidiaries of $56.4 at September 30, 2017 since it is the company’s intention to indefinitely reinvest undistributed earnings of our foreign subsidiaries. It is not practicable to estimate the additional income taxes and applicable foreign withholding taxes that would be payable on the remittance of such undistributed earnings.

Insider Transactions

In the past 12 months, the company reported 38 insider trades involving 277,071 shares of stock. Of those 38 insider trades, 15 were Buys involving 135,707 shares of stock, and 23 were Sells involving 141,364 shares of stock, creating an insider buy to sell ratio of 1 to 1.

Acquisitions

Since 2013 the company has spent $7.166 billion on acquisitions, of which $1.915 billion was spent in fiscal 2017. These acquisitions have increased goodwill to $4.032 billion, and created a tangible book value for the company of (-$70) per share.

Year-Over-Year

There are several year over year metrics of interest; revenue growth, free cash flow growth, earnings growth, debt growth, price growth, and finally year to date price growth. For Post Holdings, Inc., revenue increased by 4%, free cash flow declined by 12%, earnings declined by 12%, total debt increased by 57%, and the stock price increased by 13%. Year to date the stock price is down 7%.

Future Value

My future (5-year hold) target price for the stock is $169, which is an average annual return of 21%. A prior five-year hold of the stock (FY2013- FY2017) would have returned an average of 39% per year. Past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Any investment has the potential for loss, and past performance is no guarantee of future results.

Baseline and Fair Value

As an on-going concern, my baseline valuation for the company is $40. Baseline valuations are based on free cash flow value, net current asset value, book value, and tangible book value. My current fair value for the stock is $57. The fair value number is my current valuation for a stock based on earnings, earnings growth, and the current 5-year yield of a AAA-rated corporate bond. Value investing buy, sell, and close targets are derivatives of fair value.

Value Considerations

There are several metrics I like to review when considering a stock for portfolio inclusion, namely the PE Ratio, the PEG Ratio, Book Value, and Tangible Book Value. For Post Holdings, Inc. the current twelve month trailing PE Ratio is 15, the PEG Ratio is 3.1, Book Value is $42, and Tangible Book Value is (-$70).

Fair Warning

A fair warning means that the time for bidding has ended and an exchange is about to be concluded. Post Holdings, Inc. (NYSE: POST) – FYE 12/2017 – SELL HALF The stock is currently trading at levels above my most recent $57 fair value estimate, but below my most recent $91 close target. Please See Linked PDF Worksheet