YB new stock pitches (Tue, Mar 31)

Flexsteel Industries (FLXS), a debt-free 130-year-old furniture manufacturer, has achieved nine consecutive quarters of revenue growth despite industry-wide double-digit declines, executing a multi-year restructuring from 2019-2024 that included exiting the Commercial business, selling $40 million in real estate above book value, reducing SG&A from 18-19% to 15% of revenue, cutting CapEx from $15-30 million to $3-4 million, and shifting sourcing from 60% China in 2020 to de minimis today with current exposure primarily in Vietnam and Mexico. The new CEO Derek Schmidt, who owns over 6% of the company and purchased $2.5 million in open market shares, oversees a business where insiders control approximately 40%, and during his tenure as CFO/COO the company retired 30% of outstanding shares through $65 million in buybacks in FY 2021-2022. Growth has been driven by expanding wallet share with existing customers (5-10% annual placement growth), penetrating big box retailers like Costco, launching new products including the Zecliner sleep-oriented recliner and Charisma secondary brand (with growth initiatives revenue up 92% YoY), and a new direct-to-consumer website, resulting in gross profit growing 50% since 2022 to LTM adjusted operating income of $36.5 million. The company has $37 million cash and a $55 million untapped Wells Fargo revolver, with management targeting 70% of FCF for reinvestment and the balance for shareholder returns, though a $30 million buyback program authorized in December 2024 has seen minimal deployment due to tariff uncertainty. Following a 25% stock price increase on Friday, the base case projects $88 per share by FYE 2028 (53% upside, 21% IRR) at 8x EV/EBIT assuming 6% annual revenue growth, 23.5% gross margins, 15% SG&A, modest buybacks and constant dividend, which would equate to 11.3x trailing P/E ex-cash. Key risks include the recent 40% stock price run-up eliminating margin of safety, management's cessation of guidance citing a seriously challenged operating environment with the revenue growth streak likely ending, stroke-of-the-pen tariff risk on Vietnam and Mexico sourcing, cyclical demand for deferrable purchases, and the potential for the stock to round-trip back to sub-$40 levels. Catalysts include capital allocation decisions and continued operating performance.

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Universal Logistics Holdings (ULH), a flatbed trucking company, trades at 0.97x P/B versus a historical 2.0-2.5x P/B and 0.34x P/S versus a 0.70x peak, despite flatbed trucking experiencing its tightest market since Covid with rejection rates spiking and cost per mile at all-time highs. The company wrote down $124 million in non-cash charges over the last twelve months, resulting in a $99 million GAAP net income loss that obscures actual cash profitability, as the company continues paying dividends and buying back shares. ULH is positioned to benefit from an industrial renaissance driven by reshoring, 100% accelerated equipment depreciation, relative tariff certainty, lower interest rates, and a crackdown on illegal CDLs that artificially inflated truck supply by enabling shift-driving. While the flatbed segment (estimated at 35% of revenues but unverified) is leading the recovery with the strongest seasonal period from March through October just beginning, other segments including Dry Van, Reefers, and Automotive are expected to follow, with Dry Van and Automotive anticipated to join in 2027. Chairman Matthew T. Moroun owns 75% of the company after purchasing 14 million shares at around $25 in 2023, creating a controlled company structure with strong alignment but risks including potential privatization and selling overhang. The base case price target is $37 by mid-2028 and bull case is $53 by mid-2028, based on revenues exceeding $2 billion and a P/S ratio of 0.50-0.70x, though peak revenues could be higher if the flatbed squeeze persists longer than expected.

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LNSR: Alcon offered $14/sh ($454M total) after months of DD; FTC blocked deal Mar 2026, stock crashed to $5.50 on arb liquidation in illiquid micro-cap. Business stronger now: TTM rev $59M (+11%), 79% recurring, 425 systems installed (+77% ALLY YoY), $27M cash ($24M net), $10M Alcon deposit retained, 2.5yr runway. EV/Sales 2.1x vs Alcon's 6.2x. Q2/Q3 slowdown entirely M&A-driven (system sales chilled), recurring rev grew +13-22%. Path to positive FCF FY26, $25M by FY30. Risks: illiquidity, standalone scaling, 15.2M warrants. Fair value $10 (82% upside), bull case $15-18. - link

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