Posts tagged CAT
A flurry of buyouts, headline-y good macro news (just don’t read the “not so” fine print), and the Fed promising to print enough dollars to make everyone a millionaire as Bernanke mimics the First Citiwide Change Bank “volume” strategy, caused investors to celebrate in the morning by doing the Dougie. However, the market slipped end of day as common sense eventually kicked in as the economy is nowhere near out of the woods (though if it is Evan Rachel Wood the economy is in, then by all means, it should feel free not to get out of it). Given the uncertainty, investors could walk out on the market at any minute, like Charles Rangel in an ethics committee hearing, so trade your positions wisely (especially if your position is a reverse cowgirl).
In macro news today, retail sales posted their biggest gain in 7 months as they were up 1.2% sequentially, 7.3% y/y, and a shitload % beyond reason. That said, there were two really interesting things about the number.
1. The 1.2% increase exceeded even the highest guess of all 74 analysts surveyed by Bloomberg in the latest edition of “Guess Your Luck” where economists try to fit their outdated models to the Commerce Department’s random data number generator in hopes of avoiding the dreaded Whammy. As always, Money McBags’ point is that if the data were following any forecastable pattern, then in a normal Gaussian world it would generally fall somewhere in the middle of “expert” guesses (while in a normal Seussian world it would generally fall near a fox wearing socks fixing clocks munching box) but since it was higher than EVERY SINGLE GUESS, something is more wrong here than the theory of luminiferous aether or whatever happened to Bruce Jenner’s face.
2. While the headline number looked good (though nowhere near this good), this is what Money McBags refers to as a shemale number because while the top might have been attractive, in digging down we bumped in to something that wasn’t what it appeared to be or what we hoped to find (unless we were Eddie Murphy). See, the beat was driven by autos and gasoline, so if we strip that shit out of the numbers and just view what the Fed looks at which is core retail sales, we see that core retail sales were only up .2% or as it’s better known: “a rounding error.” Motor vehicle and parts purchases were up 5%, likely driven by people purchasing new crank shafts to fix their 15 year old cars since they can’t afford new ones and gas sales were up .8% likely driven by OPEC needing a new cot for the extra concubine they decided to order.
So netting out the non-core retail numbers, we see that a 1% increase in spend on books and hobbies (since staycations are the new vacations and Jim Davis’ latest Garfield book just hit the stores) and a .7% increase in clothes purchases were offset by a .7% drop in sales of electronics and a .7% drop in sales of furniture. Those numbers don’t seem healthy to Money McBags since electronics are as discretionary as it gets and furniture is obviously intertwined with home sales, so excuse Money McBags as he scratches his head over people finding these numbers positive.
In other macro news, business inventories rose .9% as companies continue to stock up on new locks and deadbolts in anticipation of the next round of layoffs. With businesses now holding 1.27 months of inventory, a cooling is likely to come in the next few months which will be about as good for GDP as hubris was for Amelia Earhart or refusing to carry the one was for Enron. Also, manufacturing in the New York region unexpectedly contracted in November (of course what it contracted was herpes from being so close to the Jersey Shore) for the first time in more than a year thanks to slow sales of “Yankees 2010 World Champions” paraphernalia. The Federal Reserve Bank of New York’s general economic index fell to minus 11.1 from 15.7 with anything below zero showing contraction (while anything below Jasmine Dustin likely showing expansion). Making the numbers worse was that new factory orders slumped to minus 24.4 and unfortunately extra batting practice and praying to Jobu might not help them break out of that slump.
Elsewhere in the US a bunch of Republicans are calling out Bernanke as Indiana Rep. Mike Pence argues “printing money is no substitute for pro-growth fiscal policy.” While Money McBags doesn’t necessarily disagree, he finds it hard to give a shit about the opinions of anyone who doesn’t believe in evolution. And speaking of opinions about which Money McBags doesn’t give a shit, Alan Greenspan said this weekend that high deficits could crush the bond market, but then again, caring what Alan Greenspan says about the economy is like caring what George Custer said about war strategy or Magic Johnson says about safe sex, so a big fucking yawn.
Internationally, Europe may be coming to the aid of Ireland even though Ireland continues to play hard to get while not realizing it has less leverage than Kahagendra Thapa Magar on a seesaw opposite one of Gabourey Sidibe‘s salivating mandibles. The Irish government continues to insist that it doesn’t need financial aid, it can present a credible austerity budget, and it has enough money to finance its operations through spring of next year while the EU continues to insist that Ireland should shut the fuck up and do what it is told. With the IMF perhaps stepping in here, it looks like its time for Portugal to come on down to see if the Price is Right for their upcoming bail out (and remember to have your debt spayed or neutered).
Finally, Japan’s GDP grew at an annualized rate of 3.9% as a result of their stimulus and a new line of Hello Kitty urinal targets being introduced. With incentives for the purchase of fuel-efficient cars and energy-saving appliances (such as solar powered wet vacs to clean up after all of the bukkake films) having ended in September, GDP will surely slow in the next few quarters.
In the market buy outs were the news as Caterpillar hopes buying something called Bucyrus for $7.6B will allow it to metamorphosize in to a different company while EMC is paying $2.25B (or what is known to Money McBags as a weekend in the champagne room at his local Rick’s Cabaret) to acquire Isilon. In other M&A news, BHP told Potash to eat a fat dick and rescinded their buy out offer and instead will restart its $4.2B share buyback program.
Elsewhere, AAPL said that on Tuesday they will have an announcement that “you’ll never forget” so either they have coaxed Hanna Hilton out of retirement or have developed an app to let users bid on OPEN reservations using PCLN while having NFLX stream in the background which will surely push the stock to a billionty. Rumors are that the announcement will involve the Beatles portfolio of music being available on iTunes which would be awesome if this were 1964.
In earnings news, Lowe’s put up a disappointing Q and said revenue was weaker than expected and lowered full year guidance. CEO Rob Niblock said “Ongoing uncertainty in employment and housing continues to pressure our industry…” and then added “You do read the fucking news, right?”
In small cap news TSTC was up 23% on a good Q and this is precisely the type of small cap company over which Money McBags salivates. It is growing rapidly, trading at a way too cheap multiple, completely underfollowed by the street, and potentially set for another movement up off of good earnings. That said, it also has the three things Money McBags avoids in a company, it is Chinese so he can’t do real due diligence on it, it has a shitawful balance sheet, and its technology is less understandable than anyone who broke up with Jessica Simpson. Money McBags is only mentioning them to highlight the difference between investing and gambling (and see, that’s funny because it is all gambling).
About a year and a half ago, when Money McBags still worked for the man, TSTC came in to his fund’s office for a meeting and the sheer awesomeness of it still lingers like the mellifluous scent of a game worn Reggie Jackson uniform. Not only did the CEO bring what appeared to be a concubine under the guise of “personal secretary” (and Money McBags is not joking as this personal secretary was not allowed to look at anyone or talk to anyone), but the CEO also spoke almost no English and brought with him a Director of IR or CFO (Money McBags doesn’t remember his title) who had been with the company for less than a week. So basically every time Money McBags asked a question, the CFO guy would apparently explain it incorrectly and the CEO would jump in but since he spoke English about as well Moses Malone, the whole thing was comlpetely incomprehensible. It was absolutely bizarre and Money McBags just decided to stay the fuck away because he understood less about the company after the meeting than he did before it, and frankly wasn’t quite sure if he was on an episode of CNBC’s version of Punk’d (and if CNBC ever does a version of Punk’d, they should have an episode where they tell John Merriwether that his fund is actually successful).
So the point is, even though the company is ridonkulously cheap (if one can understood exactly what their technology does) as it is trading at <7x full year eps and growing at 80%, there is just too much unknown (like how they plan on managing receivables and when Faye Reagan‘s next movie comes out) to bother. If this were an American company, Money McBags would be all over it because in a few phone calls he could talk to someone who generally understood the company but given that it is impossible for him to do any real research on a tiny Chinese company without being in China or speaking the language, he is going to continue to pass on this like he passes on network TV, decorum, and 19th Century romance novels.
**Editor’s note: Money McBags knows this headline sucked, but he already used “Retail Stales” and spent way too long trying to think of something better. So feel free to write in your own, you won’t hurt Money McBags’ feelings
7/22/10 Midevening Report: Market shoots up on earnings, hopefully it wasn’t sharing a needle with Greece
The market raced up today as if it were Icarus escaping from Crete and rapidly approaching the tantalizing Sun, though with luck it used better wings and thus will avoid the same fate. Despite more negative macro news, a growing and unsustainable debt, and more longterm unemployed people than a fast food addict has bacne, the market is responding positively to a number of earnings reports because apparently four or five data points are much more relevant than the last 3 months of data, statistics, and common sense.
In macro news, new claims for unemployment were out and as usual, were much worse than analyst guesses. Claims rose by 37k to 464k (though next week that number will likely be revised to 470k, because that’s how the (NO) Labor department rolls). Analysts were only slightly off in their predictions of claims rising by 17k and by slightly, Money McBags means whatever the opposite of slightly is, like considerably, greatly, or a fuckload. But hey, only 45% of the 14.6MM unemployed people have been out of work for more than 6 months and if that doesn’t scream market rally, then nothing does (and of course that number doesn’t include people who simply stopped looking for work as they became more discouraged than the Edsel’s marketing team or Stevie Wonder’s shoe polisher after Mr. Wonder downs a Big Gulp and hits a urinal).
In other macro news, existing home sales fell by 5.1% but since analysts had guessed they would fall by 8.1%, the market reacted positively, choosing to ignore the absolute for the relative, which is a bit like getting excited about your daughter sleeping with Magic Johnson and only coming away with herpes. There are 4MM homes on the market which at the current sales pace equates to a 9 month supply of homes which is bad news for sellers but good news for that one guy looking relocate. And finally, the index of US leading indicators fell .2% but that was .1% better than guesses so another pyrrhic victory for the market to celebrate while it ignores the bigger picture like King Pyrrhus ignored the replenishing forces of roman soldiers.
Of course the big news today is earnings where several companies beat guesses, put out better guidance, and did it all with a straight face. UPS beat analyst guesses and gave above street guidance thus figuratively dropping a deuce on estimates and showing what brown can really do. New guidance was for $3.35 to $3.47 per share which was well above analyst guesses of $3.27 per share and driven by their international business and more people buying shit online since they can’t afford gas for their cars. Obviously an increased pace of shipping bodes well for a recovery somewhere so hopefully the uptick is a result of real business needs and not companies shipping left behind picture frames to the people they laid off.
Caterpillar is another company that put up a huge quarter which made more than just lepidopterists happy. The company crawled its way to 31% revenue growth and 93% profit growth while raising their guidance and destroying analyst guesses as if those guesses were freshly laid ant larvae. EPS was $1.09 and guesses were for $.85 eps and in this market, a beat that large is rarer than a Palos Verde Blue or a pair of underwear worn by Paris Hilton. Also, AT&T called up analysts and told them they suck as the company forecast strong growth for the rest of the year. Earnings of $.61 per share beat analyst guesses of $.57 per share and the beat was surprisingly due to their wireline business as more people celebrate the recession with staycations. And finally regional banks everywhere led by PNC, STI, and BBT put up solid earnings on improving credit trends and a lowering of provisions which seems more shortsighted than Mr. Magoo with two eyepatches on but good for them (for now).
In other stock news GM is buying subprime lender AmeriCredit because they have such a great record running lending businesses. This acquisition is like allowing Roman Polanski to pick up the baby sitter or Ben Stein to give you macroeconomic advice. On the heels of this merger, the Federal Government is said to be already building a fund to be able to bail GM out again when they horribly mismanage this subprime book.
In small cap news, a Money McBags favorite, KITD preannounced their quarter this morning. Now look, Money McBags has written about this company more often than Rudy Giuliani talks about 911 or Taylor Rain goes 5-hole because it is ridonkulously cheap and growing faster than Teddy Roosevelt’s reputation after he singlehandedly corralled 3 outlaws for trial in the Dakota Badlands in 1885. Anyway, KITD’s preannouncement today was for at least $22.7MM in revenue for Q2 which is ~110% y/y growth ~30% sequential growth and EBITDA of at least $4MM which is up from $3MM last Q.
But here is the interesting part. Money McBags has been worried about them due to the effect of the Euro dropping faster than the commercial prospects for any yet to be released Mel Gibson movie. He first mentioned his concerns here which had to do with the Euro declining ~25% against the dollar in the Q and KITD being highly levered to the exchange rate. Well the CEO addressed this today saying:
“Our record second quarter results superseded the devaluation of European currencies, which we estimate had about a 4% negative impact on our top-line during the period, as reported in U.S. dollars. We estimate that this currency devaluation actually had a small (less than 1%) positive impact on overall cash-flow, since we have slightly higher proportion of costs than revenues in European currencies.”
Wow. While Money McBags doesn’t quite get how the impact was only a negative 4% topline hit, but he’ll take that number all fucking day like a Spanish worker takes a siesta after five minutes of semi-intense labor. So KITD must somehow be weighted more Asia and less Europe than Money McBags thought or something else is going on because he thought costs and revenues were in local currencies, but whatever. That is a terrific number and Money McBags feels much much better about his low end estimates now being so low as to be more preposterous than a professional wrestler becoming a governor.
The other highly positive news on KITD was that their DSOs fell from a way too elevated 128 days to 90 days which had caused a hella lot of fear from investors because when a weird, dinky little company levered to Europe and growing way too rapidly starts having balance sheet issues, things usually turn out worse than one of Andy Reid’s kids or a school for the deaf trying to sing in a round for their yearly concert.
Oh yeah, Money McBags also loved this tidbit:
“The proliferation of Internet-connected devices, coupled with the accelerating worldwide adoption of broadband connections and video-capable mobile networks (3G and 4G), appears to be fueling a strong, overall long-term growth trend in IP-based video asset management systems. “KIT digital is in the ‘sweet spot’ to benefit from this rising VAMs tide,” said Isaza Tuzman. “With the extinguishment of most of our warrants and the incurrence of previous M&A restructuring charges now largely behind us, we are looking forward to providing greater visibility into our strong financial performance and industry positioning, starting with the reporting of our complete Q2 financial results, to be released in mid-August.”"
So what we learned again is that this is a great space to be in and KITD is not just the biggest global player, but continues to leverage their software and relationships to stay in the sweet spot. Plus, by getting rid of all of their income statement shenanigans that causes this company to report operating EBITDA which is not an easy metric for HFT’s, quant funds, and portfolio managers to easily pick up in any universe screen, KITD will make themselves easier for investors to find and evaluate. As Money McBags fully expects their EPS to be more positive than January Jones‘ prom date, being able to get rid of all the extraneous shit will only help the market properly value this company.
On the strength of their Q and the fact that revenue did not get mobelcrated by the declining Euro (mobelcrated of course being the thing that is just a bit worse than excoriated), Money McBags is going to maintain his initial estimates for this year of ~$95MM revenue and ~$19MM EBITDA. The company has a current EV of ~$175MM so it’s trading at ~8.5x this year’s EBITDA and the company is getting 100% revenue growth. Next year, $150MM revenue and $30MM EBITDA is not unachievable and thus at the high end this company is trading at ~6x EV/EBITDA which is way too low for the kind of growth market this company is in even if it is somewhat of a roll up, headquartered in Prague, and loves to dilute the shit out of shareholders.
But wait, let’s throw out all of the nonsense on the income statement and lets say KITD hits $95MM revenue this year and grows 30% next year (again, a low estimate). With 50% gross margins (which is a low estimate compared to the last few Qs) and say ~$40MM in operating costs, and enough NOLs to make even Wesley Snipes smile, you get ~$.95 eps and after today’s run up, the company is trading at only 10x that. Companies growing topline like KITD in this kind of market should not be trading at 10x forward eps, 2.5x current year revenue estimates, or 6x forward EV/EBITDA.
So if you can deal with the warts and likely volatility, this name should easily trade for 20x eps estimates or 10x EV/EBITDA which gives us at least 50% upside from here. Yesterday Money McBags made the case for CRUS once again, today he is telling you he likes KITD better and reminding you that when the stock dipped below $9 on July 7th, Money McBags told you to load up (of course he told you that all the way down as well, but whatever). In the longrun this company should see very nice appreciation so sit back and enjoy the ride as it might be rocky but it’s should be very profitable.
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.