I purchased stock in USA Mobility (USMO/NASDAQ) yesterday. The shares closed at $26.34.
USA Mobility is a paging company formed in the merger of Arch Wireless and Metrocall in 2004. The stock hit a high of $39.75 last March, but sank as low as 24.02 in May. It has a market cap of $726 million and there are less than 30 million shares outstanding. It trades at 1.24 times book and at 1.16 times sales.
The company is not popular on Wall Street because the use of pagers has plunged due to the increasing use of cell phones. Still, there is a market for pagers because they are superior to cell phones in an important way -- they penetrate deep into buildings. They're also cheaper. The main users of pagers today are medical professionals, fire departments, the military and U.S. government agencies.
In Barron's midyear roundtable, Meryl Witmer of Eagle Capital pointed out a growth potential for the underused paging network. For example, a pager-type device could be installed on electric meters and send monthly messages to a utility company, eliminating the need for highly-paid union workers going from house to house in neighborhoods to read meters. She notes the use of such devices is just beginning.
USA Mobility's management is committed to returning cash to shareholders. The company paid off the remaining portion of its $140 million bank debt on Monday -- only 9 months after being created by the merger. In early August, the company announced it will pay a special one-time dividend near the end of the year. That's all it has said officially, but I am betting the company will pay out all (or nearly all) of its free cash for the next several years.
What could go wrong with this pick? Basically, that pager use declines faster than anticipated and revenue declines are so massive the balance sheet gets trashed. I don't think that will happen. When the company announced results for the second quarter of 2005, it reported significant improvement in subscriber losses and revenue declines. It had an impressive $5.15 in free cash flow per share as of 6/30/05.
But that's just one quarter. I could still always be wrong over the course of time. So, as always, do your own due diligence before buying.
PLEASE NOTE: Remember that USA Mobility has less than 30 million shares outstanding. So be sure to use a price limit if you place an order.
You're in good company. Other famed value investors, such as Seth Klarman of Baupost Group and Bruce Berkowitz of Fairholme Fund, have initiated large positions in USMO this past quarter. What makes you
think they'll be paying out their free cash flow to shareholders over the next few years? As far as I can tell, USMO does not pay out a consistent dividend.
Posted by: Larry | August 24, 2005 at 11:04 AM
Larry,
You're right about USMO being a holding of more and more value players. According to WSJ.com, the company's single largest shareholder is Abrams Capital. Abrams used to work for Klarman at Baupost before putting out his own shingle, if memory serves.
Why do I think they'll be paying out cash to shareholders? Because management has said so, in so many words. They can't guarantee that, for obvious reasons. But with no debt, a balance sheet that's improving, and healthy free cash flow per share, I'm willing to bet they will.
You're right that there's no quarterly dividend. They might just pay annual dividends at the end of each year, like they're doing this year.
Thanks for visiting.
Posted by: John Bethel | August 24, 2005 at 05:35 PM
Well i think the market will not grow up. Pagers are history and wall street guys know it.
Posted by: Forex learning guy | February 23, 2006 at 05:53 PM
What is your opinion of USMO since the accounting irregularities have surfaced and the stock price has nose-dived???
Posted by: Daniel Chillemi | May 06, 2006 at 12:12 PM
Daniel,
My thoughts are the same. USMO could turn out to be a value trap, as mentioned in this post from 4/20:
http://www.controlledgreed.com/2006/04/usa_mobility_ba.html
For now, it remains in the "Current Holdings" menu and if I sell it, you'll read it on this blog. Thanks for stopping by.
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Posted by: vme | August 09, 2007 at 10:06 AM
It seems like at 65 cents a share dividend - the current price offers 20% return a year....does this seem right? If so why is it this low?
Posted by: shane | February 20, 2008 at 06:04 PM
shane: Short answer, I don't know. My hunch is because the business is deemed dying/no growth, and also it's not a big company.
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