2/27/11 Two Day After Report: Will Market Win Best Actor Award for Impersonating a Healthy Economy?
Once again investors came out in full force to buy the fucking dip on Friday after learning that Qaddafi’s men opened fire on protesters in Tripoli in Moammar’s shoot first, shoot later negotiations policy, GDP was revised down to “QE3 is coming,” gold rose to over $1,400 an ounce once again making Flavor Flav’s teeth the most expensive commodity in the world, and the US government threatens to shut down while individual states bust unions (and if it is this Union’s bust, then Money McBags approves) and teachers across the country get pinkslipped (while others slip pink). So once again cognitive dissonance reigns like Peter the Great in 18th century Russia or like Ms. San Antonio (only without eating so many tacos).
With Saudi Arabia promising to pump out enough oil to support both lost Libyan production and an even better Oil Rumble, and with consumer sentiment rising in everything but how the consumer sentiment number is calculated (Money McBags will guess lovingly and with a fuckload of goal seeking and hard coding), investors ignored every other bit of common sense, toggled away from Kate Upton’s twitter pics, and jumped back in to the market faster than Charlie Sheen jumps back in to a bottle of vodka (or Capri Anderson‘s rectum).
Anyway, Money McBags thought he would try a gimmick for Friday’s wrap-up because all writers need to find new tricks (especially ones like Money McBags as he writes as if he is trying to put his round peg through Karissa Shannon‘s spare hole). So in honor of Sunday’s Oscars, Money McBags thought he would equate each news item of the day to a best picture nominee simply because he needs a challenge.
Inception goes to consumer sentiment hitting its highest level in 3 years because clearly consumers must be dreaming of something other than the declining buying power of the dollar and the shitawful ponzeconomy™ if they really feel confident about anything other than their savings being fucked (and see, that’s funny because most of them have no savings). The Thomson Reuters/University of Michigan/Vivid Video survey on consumer sentiment came in at 77.5 which was up from 74.2 in January and the highest since January 2008 which was right when the last guy on the Street knew that bank balance sheets were more fictitious than a Dr. Boris Sachakov hemorrhoid removal, so um, look out below. The number was above the median forecast of 75.3, above the early February reading of 75.1, and above Money McBags’ sentiment of “you have to be kidding me” because the only times Money McBags has been less confident in the consumer was during the Beanie Baby phase and when Garth Brooks went platinum. Consumers reported “significant” labor market improvements, judged their personal finances more favorably than at any other time in the past three years, and insisted that redneck is a religion.
True Grit goes to GDP which keeps trying to tough it out despite being more fucked than David Wu’s political career. GDP for Q4 was revised down to 2.8% annual growth, below 3.2% guesses, and well below the 5% needed to lower the 9% unemployment rate without just clerically adjusting the labor force participation rate down again (Money McBags’ “Fuck Off” strategy), but hey, just buy the fucking dip. The slower growth was driven by deeper spending cuts by state and local governments who continue to suffer from lower tax revenues and reality.
Toy Story 3 goes to the Ben Bernanke who is treating M2 as if it is Monopoly money as the money supply not only grows faster than Cameron Diaz on the awesomeness scale but is more correlated to the rise in the S&P than tinnitus is correlated to attending a Black Eyed Peas concert. But hey, Money McBags guesses we will learn the hard way that Zimbabwe isn’t just for lovers (lovers of AIDS that is).
The Kids Are Alright goes to the state of Wisconsin whose teachers have missed work to protest cuts to their health care benefits and collective bargaining rights as a union which has caused senate Democrats to flee the state to avoid voting as it is always best to run from bullies. Teacher protests give kids more time to stay at home, fire up the playstation, and plan the next rainbow party, which is alright with Money McBags.
The King’s Speech goes to Libyan dictator Moammar Qaddafi who got up in the center of Tripoli on Friday and threatened to make his country a living hell and kill those who oppose him. When protesters heard this, they rejoiced, claiming a living hell would be three steps up from Libya’s current living situation which is so bad it has been compared to having to french kiss Kathy Griffin‘s sphincter.
Winter’s Bone goes to Winter Pierzina as who wouldn’t want to giver her a bone? And, yes, that has nothing to do with the economy or the market, but it is very important to confirm.
The Fighter goes to all of the protesters in the Middle East and Northern Africa who are tired of some asshole despotic ruler continually oppressing them and are now striving to become that asshole ruler to be able to oppress the factions they hate. How these Middle East protests have not spooked the market more is a question for which Money McBags is seeking an answer (though he is pretty sure the answer isn’t pussy furry).
Black Swan goes to AIG who in a black swan event shit on the global economy a few short years ago as their derivatives book of credit default swaps (which had a one in bazillion chance of blowing up according to the douchenozzles who were writing that shit and whose bonuses relied on writing it, but nothing to see there) found itself in the Gaussian curve’s fat tail and blew the fuck up as insuring something without actually putting aside the money in case that thing you are insuring gets fucked is as dumb of a business as ZAGG or a Wilford Brimley tongue kissing booth. But it gets even better because in an even bigger black swan event, this fucking company is still in business somehow (because apparently criminal actions don’t get punished in the US if you have a good lawyer and are on the government’s payroll) and on Friday they put up a big Q but sold off as investors raised concerns over AIG’s huge property insurance business, its aircraft leasing unit, and how the fuck they can actually trust a company that came within a Verne Troyer nut hair of blowing up the world. Money McBags isn’t saying AIG is a shitty company, he’s saying they are a fucking shitty company.
127 Hours goes to every company that had earnings or analyst ratings changes on Friday because in 127 hours (or 3 to be more precise) no one will remember and the stocks will trade on new speculation (and by new speculation, Money McBags means the Fed’s continued capital injection). In earnings on Friday, Salesforce.com apparently sold the fuck out of some forces beating earnings guesses and raising full year guidance as cloud computing remains hotter than Tulip sales in the Netherlands in the 1600s or two lip sales in Eliot Spitzer’s hotel rooms in the 2000s. In other earnings news, ADSK saw profits rise 23% on a 16% increase in revenues and the company is now up 45% for the year as more people use their autocad software to design the cardboard boxes in to which they have moved.
In other company news, FSLR was down 6% despite higher profits as the solar panel maker burned investors by forecasting weaker sales this year and warned it would cut prices to compensate for the end of solar subsidies in Europe. That said, a flurry of analysts raised their price targets on the stock because lowered sales forecasts didn’t effect their hardcoded models. Finally WFC climbed after Goldman raised its rating on the stock to “buy” from “neutral” after the analyst was told he hadn’t published anything on WFC in a while and needed to drum up some trading flow.
The Social Network goes to NTRI, as the company tries to help people lose weight and become more social (and yes, it is a stretch giving them The Social Network but unfortunately Cash For Chunkers 2 somehow slipped through the Academy’s nominations), who put up an assrific quarter (and not a regular ass, but a swamp ass) and traded down 30%. Wow. They dropped further than Cloris Leachman’s boobs and it was a result of Weight Watchers absolutely killing them with the new “points plus” program (and remember, Money McBags will soon be instituting his own “points plus tits” program on the award winning When Genius Prevailed), awful pricing, and a complete swing and a miss with a new strategic plan. Money McBags has written about this company many times as they have a great business model and brand equity, but as for management’s execution, well Money McBags is all for it.
As for Q4, revenue was down ~16%, though gross margin was up ~250bps to 56.5% and they managed to cut marketing costs by ~$9MM so they still earned a sort of reasonable $.25 per share and had ~$17MM of EBIDTA. So that is marginally ok, but what fucking killed them is their guidance as they gave full year 2011 eps guidance of $.40 to $.50 after earning $1.22 per share in 2010 so fuck you very much. Basically, by losing out on new customers in Q4 and with January new customer starts down 30%, they lose the compounding effect of having those customers continue on and that pretty much sinks the year. They say they’ve recovered in February with new customers starts up 20% because they ditched their new and improved failed strategy (though the only thing it seemed to improve is short interest and cash burn) and cut prices (so bye bye margins), but when a company says: “it is clear that we need new product offerings and new sales channels to re-energize top-line growth going forward, and to that end we plan to invest in new product development efforts in 2011,” usually you want to pull out faster than if you were boning the Octomom without a condom.
So do we put our value hats on and buy here? Hmmm. First of all, you all know Money McBags likes value investing and catching falling knives as much as he likes Jane Austen novels or cuddling, but given this company’s business model which can quickly generate a ton of cash, it is tempting to bottom feed here (though Money McBags would rather feed on this bottom), especially with their ~5% dividend yield which they should be able to pay from cash generated this year (unless they continue to make worse business decisions than Stephen Baldwin). That said, this management team has been truly awful, no really, they have destroyed more value than HD porn (because honestly, one doesn’t need to see every single herpe). They fucked up their promotion with WMT a few quarters ago and now they spent who knows how much money on a quantitative study to better target customers, implemented that study, and saw new business decline at least 30%, so perhaps they shouldn’t have hired Madoff consulting to run that quant study.
They are still trading at >30x the midpoint of their guidance, no longer have that great of a balance sheet with only ~$10MM net cash, and on an EBITDA basis, if you add back ~$11MM depreciation, ~$9MM of stock comp and other non-cash charges, and ~$6MM of taxes, you get a guess of~$50MM of EBIDTA for 2011 and the company is trading at ~7x that which is not really cheap considering REVENUE IS GOING TO DECLINE THIS YEAR FOR THE SECOND YEAR IN A ROW (guidance is for >$400MM, and they had $510MM of revenue in 2010 and $524MM in 2009). If anything, this is still a short because valuation is out of line, Weight Watchers is eating their lunch (and puking it back up later to stay fit), their product is too expensive and actually, pretty shitty, and their margins are going to get crunched as food prices rise and they discount more. So while there may be a brief dead cat bounce, Money McBags would short into that. That said, if an activist management team comes in to take over, Money McBags would be happy to buy in to this company because they have a ton of leverage if they can remember how to exploit their brand equity. Fat people aren’t going anywhere, and they are always going to be hungry, so this company has every advantage if they can just get back to their roots.
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