Archive for April, 2010
4/30/10 Midday Report: Biggest swinging dick on the Street may land in aptly named penal colony as criminal investigation launches on Goldman
The markets are down today due to mostly inline GDP, more shenanigans in Greece, further investigation in to Goldman Sachs, and gravity. GDP for Q1 was released and the economy expanded by 3.2% thanks to consumer spending which was up 3.6% and interestingly enough coincided with the release of KFC’s Double Down thereby spiking sales of Pepto Bismal and artificial hearts. Guesses were for 3.3% GDP expansion so the economy pretty much performed inline but following a 5.6% expansion in Q4, the economy has now had it’s best two quarters since the end of 2003 when the great mortgage fraud frenzy was peaking and anyone who currrently or previously had a heartbeat could get approved for a loan (Money McBags isn’t saying it was easy to get a mortgage, but Abe Vigoda owned 6 mansions and one apartment complex during that time and he died in the 1980s. What? he’s still alive? Nevermind). Also, the Fed’s inflation target was only up .6% which is the lowest level since records started being kept in 1959 but that target ignores food and fuel prices since why measure the things people actually need to spend their money on when measuring the value of money? It’s a bit like judging a movie based on the font of the opening credits (and Money McBags loves him some Garamond) or a wet t-shirt contest based on the flip-flops the contestants are wearing, but whatever. Business spend also keeps inproving as it was up 13% thanks to the fact that it is bouncing back from historical lows and an increase in the sale of cardboard boxes to help pack up laid off employees. While the consumer appears strong in GDP numbers, consumer sentiment dropped in April, though it still beat analyst guesses and was essentially the same as last month. Consumers are at least flat lining as the average US citizen gives a fuck about whatever is happening in Europe and as job losses have begun to stagnate, they are happily oblivious to any potential impending financial doom. Money McBags is pretty sure Europe will get their shit together so perhaps ignorance is bliss (though probably not as blissful as Elisabetta Canalis).
There is more he said/she said/finger pointing/tail wagging/pillow biting in Greece today. Moody’s downgraded 9 Greek banks which is a bit like downgrading hydrogen as a fuel for zeppelins after the Hindenburg crash or Heidi Montag‘s singing career after her second album was released. Greek prime minister George Papandreou is back crying for help saying “what is at stake is the survival of the nation.” But if he were really concerned about the survival of the nation, perhaps he wouldn’t have let the debt grow out of control or claimed the comedian Ant as one of Greece’s own. Tomorrow’s Labor Day festivities in Greece will likely be subdued as greater austerity measures threaten the ability of Greek workers to continue to produce no valuable output. Seriously, what does Greece produce besides baklava for tourists and Julia Alexandratou sex tapes? Perhaps union leaders should focus on that by figuratively solving the problem of what to do with all of the underwear they stole.
In the market, Goldman is getting sacked as US federal prosecutors may open a criminal case against them for crimes against humanity, or securities fraud, potato-puhtaato. It’s not clear what exactly the charges would be since every single investment bank does something criminal every day, but that is how the markets stay efficient. Money McBags does wonder what will happen to CEO Lloyd Blankfein if GS is found guilty and whether his cellmate will try to put his underlying assets into Blankfein’s special purpose entity.
Finally in small cap stocks, Money McBags favorite QCOR put up an ok quarter and yet are off to the races again. After last Q, Money McBags highlighted this company and mentioned one should buy on any pull back, unfortunately that pull back never occured as QCOR is now up 50%+ since then. This quarter revenue was up ~13% to $26.2MM and eps came in at $.11. Both of these numbers were short of Money McBags’ estimates (he had $27.5MM in revenue and $.15 eps) and yet the stock is absolutely ripping up like it is on a Red Bull and meth binge. There are five reasons for this as far as Money McBags can tell.
1. Operating expenses were higher than normal as they try to build out their sales and marketing efforts. Money McBags is 100% behind this as he’d like to be 100% behind Jessica Biel. Anyway, with costs up to help grow future revenue, a bit of a hit to the bottom line is unconcerning.
2. They announced that a panel of experts is going to rule on their FDA submission to get Acthar on label for IS on May 6th and QCOR will host a conference call about it on May 10th. This isn’t the final hurdle as the panel merely gives a recommendation to the FDA who then has the final ruling on June 11th, but a positive opinion will be a better sign for QCOR than marrying in to the Kennedy family was a positive sign for Arnold Schwarzenegger‘s political career. Getting IS on label would finally allow QCOR to market to doctors in their historically biggest segment.
3. Kelly Brook is hot. Ok, this might have nothing to do with QCOR being up, but Money McBags had to investigate to make sure. It is likely just spurious correlation but it was necessary for Money McBags to test his lurking variable to make sure.
4. NS is coming. Holy fucking shit could it be on. The QCOR cake just got a little more icing on it as NS could be bigger than both their IS and MS segments combined according to management. They filled 11 NS prescriptions this last Q which is still smaller than one of the late great He Ping Ping‘s turds but it is encouraging enough that management is going to launch a pilot sales program in April to try to reach nephrology doctors. Patients with NS need to use Acthar for 3 to 6 months to be cured so the recurring revenue potential is huge for QCOR.
5. MS continues to grow, ticking up 187% and overtaking IS as their biggest segment. Remember, just two years ago this segment was about the same size as NS currently is but management dedicated resources to blowing it out, so it does bode well for their ability to execute a NS strategy.
So while all of that was good, numbers were still below what Money McBags thought and he is taking his full year estimate down to ~$.60 from ~$.70. The big question for Money McBags has to do with why their reimbursement rate as a % of gross sales which had been running at 30%+ was down to ~22% this quarter? The reimbursement rate takes gross sales to net sales by removing medicare/medicade/etc. expenses. So with only a 22% remibursment rate, it means gross sales were way below Money McBags estimates and the question is why and what is the rate going to be going forward? Sure they seemingly cleaned up a bunch of the tricare reimbursment issues, but is this 22% rate the rate to use going forward? If so, that would be huge for eps and if not, investors may be in for a negative surprise next Q. That said, with his current $.60 eps estimate (based on a 25% reimbursement rate, 20% sequential quarterly MS growth, no growth in IS, and no growth in NS) the stock is trading at 16x that, even after this run up so it’s still not hella expensive especially with the NS potential. Remember, they said NS could be bigger than their current business so in the ultimate best case scenario (and Money McBags is not saying this will happen, just their big upside possibility), they could more than double their earnings in 2012 (say it takes them 2 years to get NS up and running like it did for MS and they get operating leverage and continued growth in MS) which makes this a ridonkulous buy. However, Money McBags would like to get a better understanding of reimbursement, a better understanding of what they are going to do with their cash (last Q they said they were going to look to buy another drug but there was no mention of it this Q), and a better understanding of Kate Bosworth.
4/29/10 Midday Report: HP thinks it bought a rosy PALM, no word on whether they will also buy her five sisters
The rally is back on thanks to solid earnings, Greece likely getting bailed out again (for now), and the FED reaffirming their promise to keep rates low until the next bubble. Not only that, but new claims for unemployment were down by 11k which was just shy of analyst guesses and just shy of asking Kristen Bell out on a date. In financial news, Republicans voted to finally allow debate on financial reform because somehow the good of the country became more important than the search for birth certificates, reigning in wide stances, and understanding what about tea bagging is so appealing to Sarah Palin. Money McBags hopes there will be real reform like you know, requiring reserves to be held on insurance contracts more commonly known as CDS, limiting the size of financial institutions, and closing down the ratings agencies whose business models incent them to do the opposite of give unbiased ratings and who sucked at their jobs like a blind skeet shooter or a fluff girl on the set of a Sabrina Johnson record breaking film. While there is no doubt Wall Street will eventually find the loopholes in any regulation because greed is a dish best served with caviar, Dom Perignon, and peach cobbler (the first definition of course) and that shit ain’t cheap, at least the government can make it a bit harder. Money McBags is all for the Volcker rule, for hedge fund regulation, and for derivatives regulation even if the last one may cause Warren Buffett like a millisecond of a sleepless night on his mattress made of gold and the tears of baby bald eagles. The SEC’s new found ballsac is refreshing and Money McBags hopes they are serious about regulating the markets and watching porn instead of just watching porn (unless it is first time lesbian porn, and then Money McBags understands).
Internationally, Greek is getting some drachma again as the IMF promised to raise their bailout funds from 45B euros to 120B over 3 years. However, as part of the stipulation for getting funding, Greece is going to have to put in place stricter austerity plans and better track and report their finances by allowing the IMF to inspect their “cash boxes” once a year on the island of Lesbos. Greek Prime Minister George Papandreou was said to have started negotiating with labor unions to cut two of their fourteen monthly salaries, to institute higher value added taxes, and to require they work longer than three hour work weeks. The real question is whether German Chancellor Angela Merkel stops being a sour kraut and agrees to help with the bailout or if she continues to waffle in hopes of maintaining support in Germany to propel her party to victory in the upcoming North Rhine-Westphalia election. That’s right, Merkel is letting Greece, Europe, and the global markets dangle in the wind because of some do shit election in a country that isn’t going to even exist should Europe go bankrupt. Angela, be a good girl and come listen to Money McBags. I know it is fiscally irresponsible to continue with the steroidal Wimpy strategy of getting a hamburger today and paying for ten of them on Tuesday, I know you want to stay in power (though Germans fighting for power scares the gifelte fish out of Money McBags), but sometimes you have to do stupid stuff for the greater fucking good. Yeah, Greece acted less fiscally responsible than Stephen Baldwin or a homeless crack addict on pay day, but as the great Zeno Cosini once said “complete freedom consists of being able to do what you like, provided you also do something you like less.” So fucking lend Greece the damn money already and enjoy the freedom to have a European economy. Now go get me a Kreppel but go light on the powdered sugar because Money McBags hates getting that shit on his fingers.
In stock news earnings were so jizztastic that the market is now expecting octuplets. But before we even get to earnings, HP is buying PALM for $1.2B in a move that had been rumored for weeks. Money McBags gets why HP did it as PALM has a good ass operating system and HPQ has the means to try to make it work with better hardware and distribution, but going after AAPL and Blackberry and GOOG is kind of like buying Dr. Pepper and trying to take on KO and PEP or thinking you can beat Lisa Ann and Alexis Texas in a nice ass contest relying on only the Butt Blaster and not implants. The handset market is more fully penetrated than Bridget the Midget in a tryst with Lexington Steele so sure you might get a little market share with HP behind a Pre-type phone/operating system, but $1.2B seems like a lot to pay for a company that was dying. Anyway, in other stock news MOT put up a quarter that beat on the bottom line thanks to aggressive cost cutting which did away with lobster thermidor Thursdays in the executive cafe. Mobile phone shipments fell 43% despite the rise in smartphone sales but the company’s guidance of $.07 to $.09 eps next Q was well ahead of analyst guesses of $.03 eps. BIDU also put up a ridonkulous quarter as chinese people apparently searched for more than just their freedom. Their profit was up 165% and BIDU’s market share in China rose by 600bps to 64% thanks to GOOG’s exit from the chinese market and thanks to Olivia Munn’s new billboard which was posted online. Other companies that beat earnings include V, HOT, FSLR, and anyone who sold anything anywhere over the last three months.
In small cap news CRUS continues to run while Money McBags’ largest small cap holding KITD is breaking out like Cameron Diaz’s face after a pepperoni pizza. Money McBags has blogged about this so many times that he is risking being more repetitive than a stutterer reading a tongue twister, so he will spare you the details (just use the search function on When Genius Prevails), but this stock is easily worth $20. They had a call the other day about the $50MM capital raise they just did and basically said it is a war chest to help them fend off Brightcove for acquisitions as Brightcove is going public, any deal they make will be immediately accretive and between 5% and 15% of revenue, they are still targeting 60% organic growth, and world domination is only months aways. Ok, that last one was made up but the point is the video asset management space is more fragmented than J Howard Marshall’s beneficiaries and KITD is in a strong position to help roll it up while putting on it’s nicest Sunday dress to appeal to buyers (and yes, KITD will be acquired in the next 1-3 years, that is the play). And it’s still not too late to get in. Money McBags has purchased three times and if you look at the archives, the first time was at ~$10 so hopefully you’re all doing well on this too. In other small cap news, another Money McBags holding, CTGX, put up a decent Q the other day. Money McBags broke down CTGX on 2/22/10 so read the full analysis there but the story is they are basically a shitty IT services/staffing outsourcing business with a growing health care IT focus and a specialty in installing electronic medical records. It’s a bit like Y2K IT firms in 2000 in that there is a specific event (hospitals moving to EMR) that will last a finite time (though probably 3 to 7 years starting in 2011), but there are only a few firms who can do this and CTGX is the lowest priced one with the best service. In this last quarter they finally saw revenue growth after a number of down quarters due to business spend going away in the recession like an 18 year old wanna be actress’ dignity on her first casting couch. Revenue was up 5%, operating income was up 28%, operating margin increased to 3.9%, and eps was $.11. No real surprises but a nice sold quarter and that is all we’re playing for right now. Just keep ticking along until hospitals spend their stimulus money and seek out IT professionals to give them the MANDATED EMR systems (and yes, caps were intentional because hospitals are required to have EMR systems up by 2015). The best news is that they said they closed a significant multi-year deal with a large physician practice for EMR, EMR proposal activity is accelerating, and “the first portion of the $19 billion in federal stimulus funds allocated to EMRs has been released to help states advance EMR projects.” Guidance was raised a bit for 2010 to 15% topline growth and EPS between $.47 and $.55, but if you go back and read Money McBags’ archives, you’ll know that 2010 is irrelevant. It is not until 2011 that EMR will hit for them and as those projects have greater than 10% margins and bring in $2MM to $3MM of revenue per year, it is not inconceivable that CTGX can earn an incremental ~$.25 per share in 2011 from EMR and thus if they just hold their main business steady (though it should increase if businesses start spending again), they could earn $.75 and thus are only trading at ~11.5x that despite the possibility for >50% growth. It’s still early for this stock but now is the time to get in before it takes off.
Same shit, different day. The markets continue to bounce around on news of Europe’s impending doom, though this time not by the Daleks or the smell emanating from Posh Spice‘s girl power, but rather from bankruptcy. While Angela Merkel continues to tease Europe’s proverbial cock with her low cut dresses and constant pledging of support to Greece only to quickly pull that support back like Lucy pulling back a football when Charlie Brown is about to kick it, the US vigorously debates financial reform (only whatever the exact opposite of vigorously is). Unfortunately Senators accomplished nothing in their questioning of Goldman Sachs yesterday as Lloyd Blankfein, or his doppelganger, answered every question asked to him by simply squawking “inconceivable.” When Senator Carl Levin responded “I don’t think that word means what you think,” Blankfein pointed to the clock behind the Senators and quickly downed a vial of iocane powder while they weren’t looking thus ending the day of questioning. With the drama out of the way, Democrats and Republicans can now get together and argue the merits of real financial reform and agree to sweeping legislation that will correct the wild west of Wall Street where incentives to cheat the system are more perverse than a Vincent Gallo film. Oh wait, politicians can’t even agree to start the debate as they are too busy trying to keep their egos from running in to the common sense portion of their brains. At least the interests of the American people are at the forefront of all of this, and yes that was sarcasm.
Anyway, macro data was light today with markets anticipating the Fed notes in the afternoon (and as an aside, Money McBags was privy to one of those notes before it was released and it read: “Janet, when you said you “liked me” did you mean you “like liked me” or just “liked” me. Circle one. Bennie B.”). The only economic data is that mortgage applications fell, though that was driven by a lack of refinancing as purchase applications were up 9% with 50% of that gowth coming from people trying to get the $8k government tax credit before it runs out. These are just more signs that we are skidding along the bottom (though if it were Alexis Texas’ bottom, Money McBags would happily enjoy the skidding) and the question remains how long will it take for a real recovery to occur and will Europe going bankrupt deter further growth.
As for Europe, the Greek financial crisis rages on and has now become the second longest greek saga after the Iliad. However, there was a new wrinkle to the mess in Europe today and that was Spain being downgraded from entree to tapas by Standard and Poor’s. Apparently the 16 hour work week and 24 hour siesta week has finally caught up with the Spanish. Now Money McBags isn’t calling them lazy, but their top tourist attraction is a church that has been under construction since 1882. Seriously, when it’s finished it better have one hell of a good organ and some pimped out confessionals as only Joan Rivers’ face has had construction lasting that long. Anyway, Germany is back to bailing out Greece as expeditiously as possible, or until tomorrow, which ever comes first (and Money McBags bets whichever one is watching Helena Mattsson will come first) so the markets will continue to bounce around this uncertainty.
In stock news, Comcast’s profit rose 12% as they grew their subscribers and apparently started charging for calls of complaints. Advertising revenue was up 24% mainly due to whatever company is behind Xfinity blasting the airwaves to get their new brand image out. The stock is up almost 2% today and analysts think they might be starting a meaningful growth trend but Money McBags thinks the cable/high speed internet model will be going the way of black and white TVs and civility longterm, so he couldn’t care less. In other stocks news, DOW saw pricing grow 17% and volume grow 16% as they put up a quarter that was so good it seemed to be made out of bone china and not plastic. They earned $.43 per share easily besting analyst guesses of $.30 and saw strength pretty much across all business lines.
In small cap news, CRUS continues to run so hopefully you are all enjoying an extra visit to the champagne room on Money McBags, while BWLD and SMCI are going down faster than a hefty 18 year old girl in Tommy Lee’s trailer. BWLD same store sales fell by ~3% across the board as Americans have decided that shitty chicken wings, crappy beer, and awful decor are no longer in vogue. BWLD now thinks they will be challenged to meet their full year targets and Money McBags would avoid this company like he avoids their crapy restaurants. SMCI is a different story. Money McBags has written about SMCI on When Genius Prevailed several times and after their last quarter remarked that they were likely reaching the high end of their valuation. Of course SMCI ran up about 30% since then so good for you if you owned it but after today’s ugly guidance, they are almost back down to where they were. The company actually just put up a decent fiscal Q3, beating top line street guesses with 87% y/y revenue growth and coming in line at $.21 eps. There is a lot to like about that like, maybe not as much to like as Kate Hudson’s thong, but it was good nonetheless. The problem is that their guidance for next Q was a bit short on the bottom line with guidance for $.20 to $.23 eps and analyst guesses at $.24. So guidance is for sequential topline growth, but a potential flat to down bottom line as margins appear to be coming back down which is usually a sign of increased price competition. Money McBags has not had a chance to listen to their call, but since the CEO’s english is about as good as Ben Roethlisberger’s dating advice, Money McBags is going to wait for the transcript. That said, the company has a decent balance sheet with $73MM in cash and no debt even though they had negative operating cash flow as their inventories and A/R have spiked (with their topline rapidly growing, that is mostly explainable). The comany is trading at ~9x this year’s EV/EBITDA and depending on your forecast, ~7x to 9x next year’s EBITDA. That said, it’s not clear what growth is going to be for next year as this year featured both a bounce back from the dwindling economy and positive momentum with INTC’s launch of the nehalem chip. Analyst estimates for fiscal 2011 are ~$1.20 so if you believe those a $14 price isn’t unreasonable for a cyclical company at the peak or moving towards the peak of its cycle. That said, we may already be at peak earnings for SMCI as they rely to some degree on new chip launches and with nehalem already out, Money McBags is unaware of the next chip release. The point is, this is a well run company with a real competitive advantage in that they are able to nimbly meet customer demand and get in early in the cycle, but that early cycle may be over for now. Their CEO still runs it like a small firm which is good in that they have a singular focus, but bad in that he probably needs to step back a bit for it to continue to grow. Either way, Money McBags doesn’t have a great feel for what next year will look like for SMCI and thinks the price is probably pretty fair. They’ve been earning ~.20 per quarter so in a no growth scenario, annualize that to $.80, throw a 12x to 15x multiple on it and you get a $10 to $12 stock which is probably the low end of where SMCI should trade. If they can continue to grow, this is a good entry point so the real question you all should try to figure out is what the fuck is going to drive sales for SMCI next year because if you think they can continue to grow, the stock is reaching another good entry point, though not quite as good of an entry point as Megan Fox‘s mouth. Money McBags would never short this company, but without more details it is too early for him to go long.
The market is down today as Standard and Poor’s downgraded Portugal to a principality and Greek to junk and not the the kind in a trunk that most investors love, but good old fashioned junk. It was the first time since the advent of the Euro that a European country has lost its investment grade status and Money McBags would be concerned if the rating cut hadn’t coming from an agency who missed something called the subprime mortgage meltdown which only caused the biggest financial collapse in 80 years. The real fear is that the EU can not handle this situation and it spreads throughout Europe like the bubonic plague in the 1600s or black jeans in the last half of the 20th century. Consider the market spooked as it was looking for a reason to consolidate down anyway and now we have it.
In the US, consumer confidence rose to its highest level since Lehman Brothers collapsed and the highest level since the pet rock fad (because seriously, if people were willing to throw money away on fucking rocks, they must have been hella confident that things were going ok). The consumer confidence index came in at 57.9 beating even the highest of forecasts after getting those forecasts in a camel clutch and having them submit. People are generally starting to feel better and the fact that most Americans don’t read the news and have no idea that Europe is teetering on the brink of bankruptcy while their own government printed more money than humanly possible to count (again, the “too big to count” strategy) can only help the blissful ignorance. In other macro news, the Case-Shiller index showed that home prices were up from a year ago but declined on adjusted basis by .1% sequentially. This still beat analyst guesses though prices are basically stagnant which is better than them dropping but is still a long way from a recovery. And grabbing most headlines today were Goldman Sachs executives and Fabulous Fab Tourre who never saw shitty CDOs they couldn’t pawn off on investors, testifying in front of congress about their alleged fraudulent behavior. After hours of questions and answers, all we learned is that Senators don’t have a fucking clue about the financial system and Senator Claire McCaskill, to quote another great Fabulous Fab, “Girl you know it’s true, ooo, ooo, ooo.” Today’s hearings accomplished nothing other than letting some rich assturds (the Senators) grandstand and belittle the richer assturds (GS executives). Excuse me while Money McBags yawns through this part of the saga. The fact is GS did some shady shit as did the whole fucking financial system so unless GS gets more than a slap on the wrist, nothing is going to change. Money McBags is close buying long dated out of the money puts on MCO because when the smoke clears from this cock off, the rating agencies are going to be the musician to the regulators’ very rusty trombone.
In stock news, Ford reported their 4th consecutive profitable quarter and earned $.46 per share which easily blew by analyst guesses of $.31. In the Q, Ford outsold GM for the first time in 50 years and gained 2.7% market share thanks to the Toyota recall and vibrating seat warmers. The stock is getting clobbered though as it had a huge run up and they still sell Fords.
In small cap news CRUS put up a huge quarter and Money McBags is an owner of CRUS and has talked about it many times on When Genius Prevailed. He first alerted all of you to the company on 1/12/10, told you all he was buying on 1/28/10, and it is now up 75%+ which is enough to take Hayley Atwell out for a nice dinner of tea and my crumpets. CRUS’s Q was way better than Money McBags was expecting though and their guidance pissed all over Money McBags’ estimates as if it suffered from bladder incontinence and had just downed a two liter of Mountain Dew and a box of Franzia. For the Q, CRUS earned $.16 non-GAAP and Money McBags was expecting $.11 with their revenue coming in ~15% stronger than they had indicated. They said all segments were pretty much up, but energy rebouned to $22MM up from $14MM last year and back to where it was before the economy bent over and starting catching pitches from pitchers with low hanging FICOs. Guidance is for $78MM-$84MM in revenue for next Q (Fiscal Q1) with 55% margins and ~$26MM non-gaap operating expenses. With ~65MM shares and enough NOLs to make Wesley Snipes salivate and thus not pay taxes for real, that gets to an eps estimate of ~$.29 if Money McBags is doing the math correctly (and it has been suggested that the correct way to do math is with a reverse cowboy). CRUS didn’t give detailed full year guidance as visibility in to Qs 3 and 4 is low (though hopefully not lower than Stevie Wonder’s visibility in trying to see a shooting star without a telescope) but they gave full year revenue growth guidance of 30%. Of course, guidance for fiscal Q1 already puts them at that 30% revenue growth and it is unlikely that the next 3 quarters will be flat with last year given the audio growth and return of the energy business. Plus, they said none of their new products figured in to their backlog and thus there could be some upside if some of the new applications start taking off. So how the fuck should we value this company? As said previously, Heather Vandeven is hot, but as also said previously, Money McBags had an ~$.85 eps for CRUS for this upcoming fiscal year with ~$.19 coming next Q. So we could assume they will be inline with Money McBags estimates for the rest of the year and gross up his previous $.85 with the $.10 beat in Q1 their gudiance implies and thus get a $.95 fiscal year eps estimate. Alternatively, we can take Q1 estimates as a baseline, say they get an uptick in September’s Q like usual, and the other Qs will all come in the same as Q1 guidance. So 3 Qs at $.29 and one slightly higher gets us to $1.20. Either way, just call earnings somewhere between $1.00 and $1.20 per share and given that, the company is still fairly cheap trading at 10x to 12x fiscal 2011 with $2 of cash on the balance sheet (of course some of that cash is going out the door because on the call they said they were buying a building to relocate their headquarters and it’s not clear what real estate in Austin is going for these days). The point is, this company just grew revenue 87% and the trends are still in their favor as their 35% customer which is AAPL is still selling the fuck out of some iPhones. So hopefully you all bought with Money McBags, and if you didn’t, the stock should consolidate down a bit over the next few days and it is still relatively cheap, so you’ll get another chance. Throw a 15x multiple on $1.00 of earnings and you get a $15 stock and that seems to be a fair low end price.
The markets were relatively flat today despite the financial sector reaching down for its cankles as the Senate prepares to probe the sectors’ cavernous derivatives loophole. Financial reform is coming, the only question is if it will be weak or really weak but until then financials should be a bit volatile with a downward bias. While it is likely any Senate bill will be more toothless than Amy Winehouse after downing a box of pixie sticks, smoking a case Stallion cigarettes, and getting punched in the fucking mouth, the markets hate uncertainty like Ron Paul hates the Fed, Hemingway hates adjectives, and females hate giving blumpkins. That said, the US Treasury is apparently going to start dumping their shares of C before C once again becomes too big and fails. At current prices the government stands to make $11B which should be enough to finally get new drapes in the Lincoln Bedroom, something other than Natty Light in the White House fridge, and enough tech support to clean all of the SEC computers of porn. C is trading down 4% on the news but is still above book value and still above zero so it’s too early for Money McBags to buy.
Internationally, Greek bonds are still plunging lower than necklines at the AVN awards or on German Chancellor Angela Merkel at the Lolas. Merkel is out shouting “nein” to the Greek bailout until Greece shows a “sustainable and credible” plan for fiscal responsibility as opposed to their current plan which involves stealing underwear and then somehow profiting. Germany keeps hedging on their support for Greece and nothing German has been this indecisive since Aschenbach eyed little Tadzio for days on a beach in Venice. But it’s no longer just Greece that has the EU’s panties all in a bunch as CDS in Portugal have hit record highs. Portuguese Foreign Minister Luis Amado said “We are not in such a critical situation as Greece. We didn’t cheat with our statistics” he then went on to say “that’s right, we fucked up the old fashioned way, we earned it.” It looks like JFK’s old Domino Theory in foreign policy may finally be coming to fruition but instead of the spread of communism, bankruptcy is spreading from one country to the next.
In stock news Catepillar put up a nice quarter which would likely have sent noted lepidopterist Vladmir Nabokov into a tizzy. Revenue fell but the company earned a profit and raised 2010 guidance as they were able to metamorphosize their operations to a leaner cost structure. Guidance for 2010 was raised from $2.50 per share to $2.50 to $3.25 per share as the company cited rebounding mining and construction especially in China and Heidi Montag’s pants. Whirlpool also put up a ginormous quarter and is up 10%+ as the emerging middle classes in China and Latin America drove appliance sales. The company earned $2.51 per share demolishing analyst guesses of $1.33 per share and they raised their full year guidance to 4% to 6% growth and eps to $8.00 to $8.50 from $6.50 to $7.00. Interestingly, what helped drive sales in the US was people ordering refrigerators in order to use the boxes as shelters once their homes were foreclosed upon. Finally GOOG is down today after some research showed their market share dropped in China and after they dropped Verizon as the provider of wireless access for their Nexus One phone. GOOG is now dropping to Money McBags “add fucking more price” as the company is getting very cheap for an entity that is dominating the world like Rasputin dominated young Russian lasses in the early 1900s. Money McBags is going to wait for the stock to settle but will likely be adding more in the next few days.
In small cap stocks, TMRK raised $50MM through 12% senior secured notes which is actually pretty big for the company. Money McBags has talked about this stock quite a bit but has continued to hold out as he was pretty sure they were going to have to raise capital in the next year and wasn’t sure what their plan was to do so. Well now we know and the stock is up 4% on the news. They are in a terrific growth area as cloud computing is as certain as death, taxes, and Heather Vandeven being hot. TMRK is trading at ~9x 2011 EV/EBITDA and ~15x Money McBags’ 2011 eps estimate so it’s not wicked cheap but it is more reasonably priced than dignity in reality TV or a date with Jessica Pare.
The market is up today as sales of new homes were up 27% blowing past analyst guesses and rising by the most in five decades which is so long ago that baby boomers were still in grade school, man had yet to reach the moon, and full muff was still in style (like the very very NSFW 1561). Sales were spurred by the government tax credit which runs out next week, milder weather, and improved construction techniques. Additionally, orders for US manufactured durable goods were strong excluding the drop in commercial aircraft (no pun intended). Taking out transportation (and if you are going to take out transportation, be sure to grease it up with plenty of oil at dinner if you want to make sure you get a proper ride later on), orders rose by the most since December 2007 when the sale of wrecking balls spiked during the “Make Detroit Beautiful” phase of the recession. Driving up orders for durable goods was business spend on computers and electronics as companies are either gearing up for the recovery or trying to get enough computing memory to store all of the videos they have been downloading from spankwire. And the SEC is back in the news today as Goldman is choosing to press their luck (no whammies, no whammies, and stop) rather than settle with them over fraud allegations and a report is out showing SEC regulators spent more time downloading porn than they did trying to actually, you know, regulate the fucking markets (though if they were doing it as a way to research whether Heather Vandeven was causing investors to drop their shorts and get longer, Money McBags totally understands).
Internationally, Greece is activating their bailout plan while Prime Minister George Papandreou called the economy a “sinking ship” and with the bailout he hopes to avoid the fate of the Dokos. The bailout will give Greece 30B euros from Eurozone countries, another 15B from the IMF, and free two for one coupons at their local Red Lobster. The Greek requested bailout is the biggest test for the Euro since it had to guess French Economic Minister Christine LaGarde‘s gender. With the premium on Greek 2 year bonds approaching the premiums on both Pakistani bonds and Lindsay Lohan‘s life insurance, Greece needed to finally cry “theios” and get the aid promised them. Of course getting the aid may be a lot harder than asking for it as German politicians are wavering on their desire to bailout Greece citing Greece’s manipulation of economic statistics, the language in the EU treaty which forbids bailouts, and the potential for any funds to help energize Nia Vardalos’s movie career (though we hear she is working on a new movie titled: My Big Fat Greek Debt Spreading).
In stock news AMZN beat forecasts but like other tech companies, guidance was a bit lacking. Revenue guidance for next Q was $6.1B to $6.7B and analysts guesses were more in the middle than lucky Pierre at $6.4B so the Street is worried they could miss. That said, AMZN earned $.66 per share which beat analyst guesses by $.05 thanks to a 46% increase in revenue as people still hate going outside to buy shit. It will be interesting to see how long it takes for the iPad to make the Kindle obsolete and thus put further strain on AMZN stock. Also, MSFT put up a nice Q as sales rose 6% and net income was up 35% thanks to Windows 7 and businesses starting to spend again. That said, the Street was hoping for better growth, especially after INTC’s numbers, and as a result MSFT is trading down off of a pretty stellar quarter for them. Money McBags hates everything about Microsoft from their clunky operating system which allows in more Trojan Horses than Troy and more viruses than Paris Hilton‘s vagina to that stupid fucking paper clip that pops up in word everytime one mis-hits one of those F keys, but the cycle should be good for them and they are relatively cheap at around 12x 2011 estimates. So Money McBags bought a little in this dip and is going to try to get a quick 10% before puking it out like a KFC Double Down.
In small cap news, RICK had a big day yesterday on no news. Two weeks ago they announced that March sales were up 11% with 3.5% same club sales growth and revenue for the Q up 21%. Of course it’s not RICK’s top line that we’re worried about as they have proven to be literally and figuratively extremely top heavy, it is their bottom line that needs work.
4/22/10 Midday Report: Market struggles to find green on Earth Day thanks in part to the new planet threatening phenomenon of Goldman Warning
It’s Earth Day which means Al Gore is likely so giddy that he is rolling around the back seat of his electric car while warming his globes to thoughts of Susan Solomon’s ozone hole and Carmella Bing’s flourescent bulbs. And sadly, while all of this is happening, somewhere a polar bear dies. Anyway, the market is trying to shake off a sluggish start thanks to poor earnings, the Greek economy’s impending trip down the river Styx, and the release of a new Jennifer Lopez movie suggestively titled The Back-Up Plan (and yes, Money McBags would plan to back that up).
But all is not bad today as US macro news was largely positive. Existing home sales in March rose for the first time in four months climbing 6.8% thanks to government incentives, the weather, and buy one get one free Sundays. Also, new claims for unemployment were down 24k to 456k which was surprisingly pretty much inline with analyst guesses thus giving credence to the old adage that even a broken clock is right twice a day (as opposed to the new adage that even a broken cock can love Hanna Hilton twice a day). As always, 10MM people are still receving unemployment benefits, extended benefits, and for the really lucky ones, friends with benefits. Finally, Producer prices rose but only modestly above analyst guesses. The PPI was up .7% largely because of food costs which were up by the most in 26 years since the great Dorito shortage of 1984. The price of vegetables was up a remarkable 49%, which did wonders for Stephen Hawking’s market value, but at some point those cost increases wil start being handed down to consumers. Excluding food and fuel though, PPI was flat, so once again, as long as you don’t need to eat or go anywhere, your money should last a long time. The point is, no matter how long economists want to delude themselves by using core PPI, inflation is coming because the goverment fired up the money making machines to try to push our economic problems off on the next generation (so next generation, here’s a big fuck you, but on the positive side, we did give you the NSFW Spankwire.com). Money McBags would call it the largest ponzi scheme in history, but it already has a name: Keynesian Economics.
In international news, apparently the Greek budget deficit was worse than originally thought and may top 14% of GDP which is a fuckload of dolma. The bigger problem is that there are many “uncertainites” about the quality of Greece’s data including the currency swap noted fraudsters Goldman Sachs hid for them and the fact that they hired David Friehling to audit their books. As a result of all of this nonsense, premiums on Greek bonds continue to reach new heights like Enceladus going through puberty. Greek Prime Minister George Papandreou is caught between a rock and his nether regions upon viewing Greek sensation Julia Alexandratou’s sex tape (which can be viewed in its entirety by searching for it on the aforementioned spankwire) as further austerity measures may crumble the spirit of the already striking Greek workers while doing nothing may hinder Greece’s ability to get aid from the IMF and Eurozone. As always, Money McBags is going to assume this is much ado about nothing because the Euro countries are not going to let Greece fail and if the country survived the Trojan Wars and Criss Angel’s career, a little debt is not going to hurt it.
In earnings news SBUX put up a quarter stronger than a venti Sumatra with no cream or sugar. Not only was traffic up 3% up, but spending was up 5% which helped drive eps of $.29 beating analyst guesses by $.04. SBUX rasied their outlook from $1.09 per share for 2010 to $1.19 to $1.22 and the stock is now trading at ~22x the top of that range which isn’t ridiculously expensive, except when you factor in that overall revenue growth was only 9%. Money McBags doesn’t own SBUX but he would be long biased. Driving the Street down though were earnings from EBAY and QCOM. EBAY actually beat estimates, but revenue growth in their core US business was inline and guidance of $.37 eps to $.39 eps for next q was below analyst guesses of $.40. Money McBags is not a bidder for EBAY since their business model ex. Paypal is so 1998 that he just doesn’t get it as the only people who still buy shit on EBAY auctions get kicked off half the time because their dial up AOL accounts fail. As for QCOM, they also gave disappointing guidance which has caused a sell off as fear that handset sales may be weak despite AAPL’s rindonkulous quarter yesterday.
In othe market news Moody’s downgraded Toyota due to their recent vehicle recall, while Money McBags once again downgraded Moody’s. So well done Moody’s, though downgrading Toyota now is a bit like downgrading White Star Lines a month after the Titanic sunk, but hey, at least you were earlier on this downgrade than the one for Lehman. You know what though Moody’s, go fuck yourself. You are worse at your job than an achluophobic night watchman or Heidi Montag’s voice coach.
Finally, the NYTimes turned a profit, but then again, Money McBags learned that from reading the New York times for free online so it could all be made up. And last and most definitely least, in a deal no one gives a shit about, Century Tel is buying Qwest for $10.6B in stock and one outdated business model.
In small cap news today Money McBags favorite KITD is out with another share offering and this one is even more dilutive than the last. Money McBags has broken down KITD’s business may times (just type KITD into the search box here), but is a bit concerned about the size of this offering which is for ~4.3MM shares at $13 in order to get ~$55MM in cash. The good news is the $13 price is above where it closed yesterday, KITD’s CEO has maintained that any acquisition will be accretive, and Heather Graham has another NSFW nude scene in her new movie. The bad news is that the share offering is about 25% dilutive and without knowing how it is going to be used, it reduces Money McBags $2.00-$2.25 high end eps estimate for next year to closer to $1.75 at best. Money McBags is glad that KITD is finding opportunities and the CEO owns a fuckload of equity so he is diltuing himself as well, but there comes a point in time where they are going to have to run this business and put up results with what they have. So while they say only 40% of growth is from acquisitions, they are going to need to show some strong numbers to support that. Money McBags has no intention of selling on this news, he still trusts management is doing things right, but the size of the deal and the fact that it is coming so soon after the last one gives Money McBags just a small pang in his gut that he hopes is merely last night’s dinner and not some early subliminal warning sign that this company may be biting off more than it can chew.
The news today is earnings, earnings, earnings, and Sophie Turner. The markets are inching up after a strong slate of mostly positive earnings reports (not so fast AT&T and GILD). However, before we get to earnings which featured Apple taking other handset makers out to eat, getting them drunk, and then giving them a cleveland steamer as a reminder of their dominance, Greece is back in the news. Investors are worried that Greece may take 45B euros in aid before actually agreeing on the terms which is very TARP-esque of them (one wonders if they are going to use Hank Paulson’s preferred contractual device of a napkin to agree to country changing policies). With terms of the aid more open than Joslyn James‘ anus right before Tiger Woods “sinks a putt,” the risk premium on Greek bonds has soared to 512bps which is higher than anything in Greece has gone since Icarus let his ego get the best of him. Concerns remain that Greece may not be able to pay the 8B euro coming due in a month and in a show of support, Greek workers are about to embark on their 3rd 24 hour strike since the crisis began which would be crippling if that weren’t somehow still more hours than they typically work in a day. Luckily for them, France is gearing up to loan Greece 6B to 8B euros as part of the aid package. French economy minister Christine Lagard, who in 2009 was named Best Finance Minister in Eurozone by the Financial Times after a stunning rendition of “Mo Money Mo Problems” in the talent portion of the show, tried to calm the fears of a Euro meltdown by opining: “I won’t say Portugal is next in line…” before adding “but I just saw Prime Minister Jose Socrates listing the Iberian Peninsula on Craigslist for “roses.” Boooyah!!! Can I get a Quelle Quelle?”
As for earnings, AAPL crushed their quarter with iPhone sales up 130% leading to a 90% increase in profit and a 49% increase in sales. Apple earned $3.33 per share, well above analyst guesses of $2.45 and said they were “shocked” by how well the iPad was selling. Holy fucking shit is it on. Apparently Apple’s app for taking over the world is a little too good as their products are selling faster than Adam Smith’s invisible hand can fondle unwitting young ladies during New York’s Fashion Week. In other earnings news, Morgan Stanley traded the fuck out of some shit (and Money McBags apologizes for getting overly technical there) earning $1.03 per share after one-timers largely because of their sales and trading unit. Book value is up to ~$28 per share and ROEs are creeping back up hitting 13%. Like every other investment bank, revenues and profits were driven by fixed income traders who bought and sold shit we’ll never know about, who we can’t actually track to see what the fuck they are doing, and who are likely ignoring all but one SEC regulation (and that one of course is to not get high off their own supply). The paper economy lives on, long live made up shit. Also, MCD beat guesses by earning $1.03 per share after one-timers and Money McBags is an owner of this stock because there is huge brand equity for continued international expansion. Operating margins were up 2.2% and same store sales were up 4.2% for the quarter and 5.2% in March driven by 4.2% growth in the US, 5.9% growth in Europe, and 7.9% growth on Mars. MCD is not going to be a high flyer but it offers a nice yield for a franchise that should do well in a world becoming more globalized, even in a down economy.
In other earnings, BA beat numbers, YHOO had a nice bottom line (though not nearly as nice as Jessica Biel’s bottom line) yet missed on revenues since they compete with something called GOOG, and AT&T had a good Q but is selling off as new subscribers were the lowest since 2004 during the bizarre and short lived rotary phone trend. Also, VMWare put up a huge quarter and Money McBags did something he rarely does by buying the quarter of a ridiculously high priced stock. Honestly, Money McBags hates buying things this overvalued more than he hates long walks on the beach, sentences that end with prepositions, and Jane Austen, but he believes in virtualization. This not a fucking fad like Wacky Wall Walkers, YoYos, or the way way too short lived rainbow parties. Revenue was up 35% to $634MM, Non-Gaap earnings were up 45% to $.32 per share, free cash flow was up 68% to $326MM, and overall cash on the balance sheet was a healthy $2.8B. Guidance was for 30% 2010 revenue growth of $2.6B to $2.7B which means the company is currently trading at around 9x 2010 revenues but closer to 6.5x 2011 revenues ex. cash. Yeah, it is a total bullshit metric and Money McBags crapped all over metrics like this yesterday when he advised that SFSF was too fucking expensive, but companies like VMWare often get purchased at multiples of revenue between 6x and 10x so we’re still at the low end of 2011 potential revenue multiples. It certainly isn’t cheap and on a P/E basis it is trading somewhere between astronomical and Warren Buffet heart attack high, but they are a market leader in a space that is absolutely here to stay. IT departments are cutting costs quick and deep, like Lexington Steele losing his virginity, and VMWare’s virtualization software is at the forefront of this (or, to continue with the Lexington Steele analogy, the foreskin of this). Money McBags believes in this sector and cloud computing almost as much as Burton Malkiel believes in efficient markets or as much as aspiring Hollywood actors believe in Scientology and it is why Money McBags will soon be buying TMRK (who by the way received a big investment from VMWare last year). So yes, the stock is pricier than an Ashley Dupre blumpkin, but sometimes you have to pay up for quality.
In small cap news, a Money McBags favorite and his largest small cap holding KITD is bouncing back after a big block trade on them yesterday afternoon which sent them stumbling. The stock is probably range bound to down until they announce a new acquisition or until their next quarterly call in a couple of months so there is no reason to panic and if you are are not an owner, buying any dip is certainly worthwhile. Also, CRUS which Money McBags owns and has written about many times is getting some AAPL momentum today as they produce an iPhone audio chip and as said earlier, iPhone sales were ridonkulous.
4/20/10 Midday Report: Goldman blows quarter out, then offers to blow SEC Chief of Enforcement Robert Khuzami as part of “settlement”
The markets are modestly higher today despite a blow out quarter by Goldman as other blue chip companies mostly met expectations and meeting expectations after an 80% market rally is like trying to impress Grigori Perelman with long division or Tommy Lee with a Hawaiian Tropic girl. The big news is obviously that Goldman released their quarter today by smacking their CDOs on the table and yelling “Securities fraud this!” They demolished analyst guesses of $4.14 eps by earning $5.59 per share on $3.46B of earnings which was 91% growth. Though to be fair, it is not clear how much fraud and market manipulation analysts had in their models as Excel’s goal seek function isn’t yet equipped to handle that. What’s also amazing is how a company who produces nothing other than writing on paper can earn $3B. Anyway, the quarter was so jizztastic for GS that Lloyd Blankfein is going to spend the rest of the day at the spa getting his nails done so they will now match the drapes in his conference room. But all is not well for Goldman, they still have to deal with the SEC’s lawsuit about how they misled investors (but only on that one CDO, wink wink, and if you believe that, Money McBags not only has a bridge he’d like to sell you but he’ll give you a great deal on it) and in the quarter they lowered their compensation payout from 46% to 43% so all of the traders who have been manipulating the market are now going to have trade down from a hooker a day to one every other day and might have to pass up on the third bottle of Dom at their local Rick’s Cabaret.
There is no macro news out today and the only international news is that Greece’s latest bond offering met strong demand. Of course they had to double the previous yield on these short term bonds to 3.65% which was actually below estimates but still hella expensive for the ponzi scheme George Papandreou is running where he will gladly give you three souvlaki’s and a glass of greek wine tomorrow if you pay him for one today. The IMF is starting to get a bit frisky here and is warning about sovereign debt impeding global growth. Wow Captain Obvious, you think? Next week it is rumored that the IMF will issue warnings that staring directly in to the sun may cause blindness, eating foods high in saturated fats may cause obesity, and getting too close to Paris Hilton may cause herpes.
The real story of the day though is earnings with KO, IBM, and J&J mostly meeting expectations but trading down as the market demands quarters to be cleaner than an OCD sufferer’s closet for stocks to appreciate. KO’s profit rose by 20% to $.80 per share taking out one-time charges while their revenue grew 5% to $7.53B. The eps number beat analyst gueses by $.05 per share while the revenue number disappointed as analysts had guessed they would bring in $7.72B. Driving growth was the international business which was up 5% thanks to Brazil and India where sugary sweetnees is still seen as the cool thing to do while North American sales fell 6% thanks to people avoiding higher end products and wanting their teeth to stay cavity free. Money McBags is actually an owner of KO and bought more last week to get some market exposure from a blue chip stock that hasn’t really participated in the recent rally. Despite weak North America sales, KO isn’t going anywhere and will be a place investors go for safety if the market gets chippy again or if it finally consolidates. IBM’s earnings rose 13%, they beat revenue and EPS guidance, and they raised their forecast for the year to at least $11.20 per share and yet the stock is trading down 2% because their service booking dropped 2% in the quarter, margins were slightly below forecasts, and Chewbacca was a Wookie. Finally, JNJ had a 29% increase in earnings yet lowered their outlook due to recent health care legislation which is the same thing every drug company has done so this is more of a non-event than a Larry King divorce. The stock is flatter than Heidi Montag‘s singing voice or her original chest, so a big fucking yawn here.
In small cap news, SFSF got an upgrade today to buy from an analyst at something called Janney Capital Markets or known better as “Morgan Stanley wasn’t hiring.” The analyst raised SFSF to a buy claiming that the worst for them is likely over and that they should be able to continue to grow bookings at 20%. The company has a decent balance sheet with ~$300MM in cash and no debt though most of that is thanks to a recent follow on offering to give them some powder for future M&A and they are already using some of it to buy Inform for $40MM of cash and stock. The company is in a niche space of selling performance/compensation management software for businesses to evaluate employees, essentially outsourcing and making HR more efficient while relegating the number of smiley face cupcakes employees receive. They sell the software as a service which should yield a better multiple than the traditional software model. That said, this comany still has no earnings and guidance is for at best breakeven this year with revenue growth already in decline and estimated to be 17% for 2010. Money McBags is a bit perplexed by this stock as the valuation assumes a hefty growth rate and analysts seem to be valuing them on the fictitious EV/adjusted FCF and anytime a company is being valued on a non-traditional metric, that usually points to something being fucked up (and in this case the fucked up is the earnings which are less positive than Don Rickles at an ugly convention). The company is up 4% on today’s upgrade but Money McBags thinks the valuation is way ahead of itself especially as the company relies on big deals, hence the rebound in the last half of last year. Money McBags is staying away from this stock for now as it seems too rich despite a decent software offering and being in a market less penetrated than Ellen Degeneres, but it is that market potential that keeps SFSF on his radar.
And don’t forget Money McBags is now testing out twitter, for reals this time.
4/19/10 Midafternoon Report: Goldman causing Wall Street to rethink how they do business, instituting “no more e-mail” rule
The market is teetering again as the big news remains the SEC’s charges of fraud against Goldman Sachs. These charges have Money McBags giddier than a emetophiliac at a Phillies game because Goldman has long been manipulating the markets while massaging the government’s taint to get away with it. The best part about this is after GS (or BS for Boldman Sachs) goes down like Janine Lindemulder in Where the Boys Aren’t 12, the rating agencies will be next as they were as complicit in the financial disaster as hydrogen was in the crashing of the Hindenburg or as Jane Austen was in ruining high school English for generations of virile males.
Not only is the SEC getting their investigation on, but Europe is following their lead, which is somewhat similar to the blind leading the blind or Ron Gallagher following Leo Gallagher (though with fewer watermelons). Prime Miniser Gordon Brown’s knickers are all in a bunch and he has been seen taking puffs of a fag to calm himself down over GS’s “alleged fraud” claiming to be shocked at the “moral bankruptcy” exhibited by the investment bank. Though frankly, being shocked at the moral bankruptcy of an investment bank is a bit like being shocked about abstinence programs not working with teenagers, Shannon Tweed starring in a bad (yet delicious) movie, or the late great He Ping Ping not being able to dunk a basketball. Germany’s Chancellor Angela Merkel is also tryng to get involved in the mob rally against GS by demanding details from the SEC in what could be Germany’s first hostile action against the Jews in 70 years (and for those of you new to WGP, Money McBags lights the menorah, so he’s allowed an occasional Jewish joke). Of course tomorrow GS reports their quarter which will likely show a huge (manipulated) trading profit so the market should be more susceptible to violent swings over the next few days than a schizophrenic dropping E at Burning Man or Mike Tyson on a Tuesday afternoon.
Macro news was very positive today with the leading US economic indicators rising by 1.4% in March which was the most in ten months and the biggest rise it has had since discovering Olivia Munn. The rise was better than economist guesses as seven of the ten indicators increased led by interest rate spreads, factory hours, and box office receipts due to Amanda Seyfried‘s latest work, the NSFW Chloe (and we hear the US economic indicators gave the movie to GDPs up). The index of coincident indicators also rose by .1% with payrolls, not coincidentally, making their first substantial contribution.
In stock news, C earned $4.4B thanks to trading profits, slightly lower reserving, and the government bailing them the fuck out last year. There is less reason for this bank to exist than there is for the institution of marriage as C was one of the worst offenders in the destruction of the global economy over the past several years and should have been divorced from the financial system instead of the system paying C alimony and child support for all of its bastard businesses. C was more poorly managed and had worse risk controls than Jamie Lynn Spears but hey, what a difference a $45B bailout can make. I guess the old adage is untrue as apparently you can polish a turd. CEO Vikram Pandit claimed to be “proud of our first-quarter results” and some analysts are praising management which is a bit like praising a pregnant intravenous drug using woman who slept with Eazy-E and shared needles with Althea Flynt for giving birth to a healthy baby. C’s adjusted earnings were $.14 per share which was ahead of analyst guesses for a break even quarter and was helped by decreasing their loan loss reserves by 5% from the previous quarter and 16% from Q1 last year. C still saw weakness in their Citigroup Holding carveout which lost ~$900M and is of course where C siphoned off all of their bad mortgages, bad credit card assets, and Charles Prince’s last remaining shred of dignity. C’s book value is now slightly over $4 per share which is still more than Money McBags would pay for it. Their beat, like every other financial beat, was due to trading gains and with GS about to get the “turn your head and cough” treatment from the SEC, regulation is on its way which will start hindering these fictitious trading gains. In other stock news, Haliburton’s earnings were down 45% as Dick Cheney is no longer the VP and Eli Lilly beat analyst EPS guesses but is down due to warning that the new health care law will cut into revenue since they are now going to be restricted from selling drugs at usury prices.
In small cap news, TMRK slipped under $7 despite this positive article on cloud computing today (though it was in the NY Times so could have been made up like unicorns, leprechauns, and Brooklyn Decker (because seriously, no one is that hot)), while PALM shares continue to fall after investors come to their senses about the valuation in an acquisition. Also, Money McBags has been looking in to EPAX lately and while you’d still be earlier in buying it than Roman Polanski is early on the statutory rape scale (except for maybe in West Virginia), it is worth keeping an eye on it.
EPAX’s main business is to book/plan/promote educational international travel tours mostly to school students and school groups. They have obviously been hit during the recession as parents have reigned in their spending more than young laidies have reigned in full bushes in the 2000s (and Money McBags is very appreciative of that). However, sending your kids overseas is a once in a lifetime experience that many families are going to continue to do because little Johnny really needs to go to Amsterdam to learn that not all red lights are bad. The point is, there is always going to be some demand for these kind of experiences and this has been a very well run business throughout the last decade with high returns and good cash flow. The company has earned $1 per share over the last two years after peaking at $1.53 in 2007 and is currently trading just above $12 with $43MM in deployable cash which is ~$2 per share. So in a normalized world, they should earn at least $1 per share and thus are currently trading at 10x that plus the $2 in cash which is way below where a company with high returns and a nice business model should trade. They used to trade at 20x to 25x earnings so if they can grow earnings again, there should be multiple expansion (of course if they wanted their mulitple to expand, they could just show it a picture of Jessica Pare, but that would be too easy). The key issue is when do parents start feeling safe enough about their incomes that they send their kids overseas again to see the Mona Lisa and that certain place in France where the ladies wear no pants (and for the record, Money McBags is told there is a hole in wall where the kids can see it all)?
Since this travel occurs mostly in the summer and is booked way ahead of time, trips for this year have continued to fall off a fucking cliff. As of February, bookings were down 21% from a year ago and it is not likely that number will shift very much between now and the summer. So if we take last year’s revenue, reduce it by 21%, use the same gross margins and reduce operating cost by the 5% of the workforce they plan to layoff this year, we get to a measly $.49 of earnings for 2010 which is fuck-awful bad for this company. Analyst guesses are ~$.60 so Money McBags’ rough estimate is a bit worse than the Street, but the number is less relevant than the direction. The point is, this year is already a fucking wash and everyone knows it. The key question is what happens next year. If the economy gets better, parents will start spending on this shit again, guaran-fucking-teed so if they can get their revenue back up to where it was in 2009 (~$98MM) when the economy also sucked balls that would be around 25% growth and the leverage in model should allow them to quickly move back to ~$1 eps which would be 70%-100% earnings growth from 2010 and wouldn’t you pay more than the current 10x for that? Again, Money McBags is flying blinder here than Ricky Martin at a Rick’s Cabaret as he has no idea when the spend for this travel comes back. It may lag by another year since these trips are more expensive and discretionary than a Bar Mitzvah party, but it will come back eventually. So here is a company with $1 to $1.50 in earnings power, still struggling, but trading at a very low multiple of potential future earnings with the questoin being do those earnings come back in 2011 or 2012. It is definitely worth looking in to and perhaps buying a sliver now, but there is no rush. Money McBags is going to wait for another quarter to see if there is any guidance for what 2011 looks like, and if it is positive, he will be starting a position.