The “mini-Berkshire” missed the mark on its third-quarter earnings report, but the stock is cheap.
Shares of mini-conglomerate Boston Omaha (BOC -5.09%) fell 5.4% on Wednesday as of 1:30 p.m. ET.
The small cap, which is nevertheless diversified across several business units, reported earnings yesterday evening, with its bottom line coming in a tad below analyst expectations.
However, the stock may be cheap enough to buy after a difficult couple of years.
Missing the mark, and its co-CEO
Boston Omaha is a diversified mini-conglomerate involved in billboard advertising, fiber broadband, insurance, and other financial businesses, and used to be co-run by Warren Buffett’s great-nephew Alex Rozek. Rozek stepped down from his executive role earlier this year to pursue other entrepreneurial opportunities, but the company is still run by co-founder and co-CEO Adam Peterson.
In the third quarter, Boston Omaha reported revenue of $27.7 million, up 12.8% year over year, and handily beating revenue expectations of $27.1 million. However, the company’s net loss per share of $0.05 missed estimates of a $0.01-per-share loss.
Boston Omaha is reporting net losses, but that’s a bit misleading. Both its billboard and broadband businesses have a huge amount of noncash depreciation charges, whose costs mask the company’s underlying cash generation.
Additionally, Boston Omaha owns a stake in private airline hangar company Sky Harbour. Boston Omaha owns so much that it accounts for a portion of Sky Harbour’s operating losses on its income statement, with $9.4 million in losses. However, the rise in Sky Harbour’s stock last quarter also booked Boston Omaha $7.8 million in unrealized gains. Still, the cumulative net loss of $1.6 million on the income statement would have limited the losses to a much lower number.
Why Boston Omaha may be a buy on the dip
Boston Omaha’s financials are a tad confusing because of all the noncash charges and other investments booked at investment value on its balance sheet. However, peeling back the onion yields a pretty cheap stock. Shares are almost 70% below their all-time highs and go for less than book value.
But Boston Omaha doesn’t have much leverage, and that book value itself may be understated. BOC’s stake in Sky Harbour is currently booked at the value of its initial investment, with the market value of Sky Harbour actually being $64.5 million higher than the generally accepted accounting principles (GAAP) value. That would add almost another 15% or so to Boston Omaha’s book value.
With a diverse portfolio of fairly steady businesses, Boston Omaha looks like a buy on the dip.
Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boston Omaha. The Motley Fool recommends Sky Harbour Group. The Motley Fool has a disclosure policy.
