Posts tagged Citi
The market was down today as foreclosure-gate threatens to shut down the foreclosure process for banks quicker than an AIDS ridden penis has shut down the porn industry, though with potentially much more dire consequences (unless that AIDS penis touched the lovely Tori Black, because Money McBags can think of no more dire consequence than a world deprived of her talents). The point is, the equity markets are just beginning to figure out that earnings in the financial services sector could be slightly more fucked than Josef Fritzl‘s “Father of the Year” campaign and if the foreclosure process is pushed out, or potentially morphs in to some kind of political clusterfuck (like worrying where to put a mosque, or where to put a cigar), then the lingering effects on home prices, consumer spend, and the market will surely upset even the most algorithmic and least fundamental of the HFTs.
Look, Money McBags hasn’t gone through every iteration of what the fuck this foreclosure mess could mean. He’s not sure what exactly it will do to MBS CDOs and fixed income investors, what kind of slippery slope it sets up for those who continue to pay their mortgage, what it does to mortgage guarantors (wait, are they even still around?), title insurers, and every fucking flip this house program on HGTV. That said, at the end of the day he knows the government will come in and bail the banks out at the expense of the taxpayer or the value of the dollar (or likely both). With TARP and the previous bailouts on the books, the government already opened their figurative Pandora’s box (which was nowhere near as delightful as this Pandora‘s box) which let moral hazard out in to the market, never to be put back in, so Money McBags is sure the banks will survive this foreclosure issue, even if the rest of the economy doesn’t. Either way, this bears paying hella close attention to, though this bears paying even hella closer attention to.
In other macro news today, new claims for unemployment came in above analyst guesses in a trend more prevalent and potentially more harmful than reality TV or emailing cock shots. The reported number was 462k (until it is revised upwards next week in the government’s “Hold the shock and hope for no awe” strategy, and yes, Money McBags is as tired of writing that as you are of reading it) which was 17k above analyst guesses that new claims would remain flat at 445k (or down 4k from the upwardly revised number of 449k). Interestingly, the market pretty much ignored this number but if new claims had come in 17k better than guesses, it likely would have been lobster tails and blow jobs for everyone as the market only seems to move on relative good news and ignores the absolute awful news.
Also, the US trade deficit rose 8.8% to $46.4B sparked by imports from China as the devaluation of the dollar has yet to make it competitive with China’s manipulated Yuan (but give Bernanke time on that one). The growing trade deficit should further reduce GDP guesses as economist models continue to play catch up in figuring out how to deal with fat tails (and Money McBags suggests dealing with them lovingly). And finally the PPI was up a modest .4% (with core PPI up .1%) in the daily macro news about which no one gives a fuck.
Internationally, Singapore is doing their best to keep the US poor (and don’t forget to tip your analyst on that pun) as they surprised economists (and surprising an economist is about as difficult to do as Paris Hilton or multiplying by 1) by widening the trading band of the Singapore dollar to protect against inflation. This caused the currency to surge as investors sold off the US dollar which is quickly becoming more worthless than a business school recommendation written by Bernie Madoff or a Reddy Ice dealership in Alaska. Elsewhere, in France workers remained on strike to protest cuts to their pensions as well as the French government’s refusal to make Jerry Lewis’ birthday a national holiday (and yep, Money McBags went there in his attempt to show he can even write for Jay Leno).
In the market, financial stocks went down faster and more consistently than a fluff girl on the set of 65 Guy Cream Pie due to foreclosure-gate and the fact that bank balance sheets are more full of shit than Newt Gingrich’s wedding vows or a constipated elephant with an enlarged colon. BAC, C, and WFC were all down 4%+ as the market fears the litigation write-downs and earnings issues will further make a mockery of the banking business.
But here is what Money McBags likes most about the financial sector, the top-rated financial analyst by Bloomberg Markets was only right on 38% of his fucking calls in the past two and a half years. Holy fucking shit are you kidding Money McBags? The most “expert” of the bank “experts” (or as we say, the anti-Dick Bove), was wrong 62% of the time so riddle Money McBags this, why the fuck does the buy side use these ass clowns when all they do is print irrelevant shit and get stuff wrong? It’s more non-sensical than Schrodinger’s cat or Heidi Montag‘s singing career. Honestly, if the experts are wrong 62% of the time on what is essentially a coin flip binomial distribution (buy or sell), then the number of standard deviations must be so high that either these experts are undeniably terrible at their jobs or the banks are legitimately deceptive and unanalyzable, or the more likely, a combination of the two. So Money McBags has a simple solution for bank analysts, just rate everything a sell and then take the rest of your lives off because that way you are likely to be right much more than 38% of the time which would make you the best at what you do.
In other stock news rumors were swirling that AOL was interested in buying YHOO! after which they may try to buy Pointcast, Geocities, Webvan, GovWorks, MySpace, the very NSFW Youporn, and Hotornot.com as they try to roll up every shitty failed or second rate internet property they can find. Rumor is CMGI is consulting on the deal.
In small cap stocks, one of Money McBags favorite shorts, WGO, put up their quarter today and sold off ~9% as investors realized that paying >20x earnings for a company that sells really expensive consumer discretionary products in a recession that will go deeper and longer than Lexington Steele is not the best idea. Money McBags hopes to get through their Q here on the award winning When Genius Prevailed over the next few days but he doubts his valuation of at most $7.50 per share will change. The reason Money McBags is pushing off the WGO analysis is because one of his other favorite shorts, ZAGG, went absolutely fucking berserk today, rising ~40% after announcing a huge increase in revenue guidance. So thanks for that guys, really.
Money McBags has never liked this company and took such a dump all over them after their last quarter that even a coprophagiac would have been overwhelmed. Based on their $50MM revenue guidance, sputtering growth, and declining margins, Money McBags guessed they would have $60MM in revenue for 2011 and earn ~$.32 per share but today ZAGG announced that they expect 70% revenue growth in 2010 to get them to $65MM this year, so fuck Money McBags, really. Money McBags thesis remains the same and he just doesn’t see how this company has a long-term viable business model as they sell only one fucking product and that is a completely discretionary consumer product at a higher price point than competitors and for the 1MMth time, they don’t even own the patent on the fucking thing. They’re basically just marketing someone else’s technology and have struck out with every other new product they have tried. But whatever, Money McBags has to take his jimmy hat off to them for managing to sell in to more big box stores (he is assuming that is what caused the uptick).
So what the fuck do we do about this company? If they can grow 30% next year (total guess, but before this new guidance that is what they were supposed to grow at this year) and see their gross margins drop to 50% (which is where they are trending as they have to give more of the profit to these high volume channels) while only marginally raising operating costs to ~$20MM (and this is a huge unknown to Money McBags), they can actually earn ~$.60 per share and closed today at ~$7.30 or only 12x that out of his ass guess. So if one believes this wasn’t a one time bump and one believes that selling a piece of plastic to go around an iPhone is a viable business model, then ZAGG looks fairly cheap (and Money McBags just threw up in his mouth as typed that, and unfortunately he had shrimp for dinner).
It will be interesting to see where gross margin comes in when they announce the Q and how they manage their operational costs, but kudos to ZAGG for getting it done right now and serving up a warm bag of dicks to Money McBags. Money McBags isn’t always right, and he will gladly point out when he is not, but he believes his logic is sound and in the investing game, that is all by which you can really go. So ZAGG wins for now, but Money McBags remains more skeptical that ZAGG will be able to keep this up for the long run than Ann Coulter‘s gynecologist.
The big macro news today was that GDP slowed to 2.4% growth in Q2, that is until it’s revised down next Q to keep up with the administration’s “hold the shock and hope for no awe” strategy. This strategy was further evident in today’s release as GDP from the past 3 fucking years was revised downward because apparently the Commerce Department is still figuring out how to properly use the “solver” function in Excel. The peak to trough decline is now seen to have been a 4.1% decline instead of a 3.7% drop, which officially makes this recession the worst since the 1940s which was so long ago that Abe Vigoda had only been dead for a decade and muff guessing still referred to fashion designers trying to figure out the latest in hand warming trends.
Surprisingly though, and in direct opposition to the downward revision strategy, last quarter’s GDP was revised up to 3.7% from 2.7% which makes today’s number even worse. It also goes against every fucking rule of manipulating data since, you know, the whole point of manipulating data is to use it to your advantage but apparently the new guy at the Commerce Department must have missed the memo while he was busy figuring out how to put a cover sheet on his fucking TPS report.
So GDP was below guesses of 2.6% growth and was mostly hurt by a trade deficit growing wider than the Octomom’s cervix with imports spiking up 28% which is the largest jump in 25 years since the run on french cookies in the mid 1980s, consumer spend slowing to only 1.6% growth after growing 1.9% last Q, and a renaissance of common sense. The one bright spot Money McBags could find was Jasmine Waltz, and the one bright spot he could find in the GDP report was that the equipment and software category grew at an annual rate of 21.9% as businesses need to buy a bunch of shit to do what people used to do. The slower GDP growth comes a day after Fed Bank of St. Louis President James Bullard published an academic paper warning of the potential for the US economy to hit a period of deflation and turn in to Japan from 20 years ago which would be bad for everyone but the bukakke industry.
GDP is now slowing down, the economy has lost 8.4MM jobs, and Christina Hendricks still has not agreed to make a late night Skinamax movie, so any hopes of a speedy, stimulus driven recovery are becoming slimmer than Amy Fisher‘s parents hopes and dreams. Money McBags is sure the Fed will announce something soon to try to kickstart the economy, but based on the fact that they have been in existence for 100ish years and still haven’t figured shit out (largely because economics is a more full of shit field of study than proctology), he’s not holding his breath (though he would gladly hold anything of Hayley Atwell‘s).
In other US macro news, the University of Michigan’s consumer sentiment index fell to 67.8 which is the lowest level since November and 10% below the 76 number it registered last month (though to be fair, it registered such a high number last month because it had put the thermometer next to the heater in hopes of being able to stay home from school). As always, Money McBags has no idea what the difference between a 67.8 and a 76 is other than 8.2 so while market seems mildly happy that the 67.8 came in at .8 better than analysts’ guesses, Money McBags is pretty sure an 8 point drop is worse than a .8 outperformance, even if it were measured on some weird logarithmic scale.
Finally in macro news, the Chicago PMI defied all common sense, data, and laws of supply and demand and rose by more than guessed for the month of July. The PMI jumped from 59.1 to 62.3 while economists had guessed it would fall because, well, because we’re in a fucking recession. Interestingly enough, readings above 50 signal expansion so despite GDP slowing down and consistently high rates of foreclosures and unmeployment causing the midwest to be bleaker and more run down than Warsaw in 1945 or Barbara Walter’s vagina, Chicago area manufacturing continues to grow. It is as perplexing as the 9 dimensions needed for string theory to hold or the Lifetime channel.
Internationally, Moody’s cut Iceland’s rating outlook to negative, said they they could cut it to junk, and warned Iceland that they better “check themselves, before they Reykjavík themselves, because fucking with foreign currency loans is bad for yo’ health.” Iceland defended themselves by properly pointing out that Moody’s is a bunch of asshats and by saying they are a long way off from defaulting on any debt payments. When asked what a “long way” was, Economy Minister Gyfli Magnusson simply replied that he’d like to buy a vowel before quickly mushing off on his dogsled.
In the market, MRK’s profits fell 52% due to merger and restructuring charges associated with buying Schering-Plough and redoing the company cafeteria. Without those one time charges the company beat analyst eps guesses by $.03 and earned $.86 on the Q but the stock dropped as the company trimmed their full year guidance due to price cuts on drugs from European governments and slowing sales of vaccines and Singulair. A company spokesman said they would do their best to continue to promote bad and unhealthy behavior in order to boost sales of their products.
In other earnings news MET insured the fuck out of some shit and beat analyst guesses while Amgen also beat guesses despite lower revenue and profits as both investors and osteoporosis sufferers bend over backwards with excitement over their drug Proli. Also in the market Disney sold Miramax for $660MM to better focus on making shitty vapid films for kids to buy shittier vapider toys off of and C paid a $75MM fine for a little something called misleading investors about the amonut of subprime loans they held on their books. C claimed they only had $13B of exposure when they had $50B but Money McBags is sure the $75MM fine will make up for the billions investors lost by believing any of the publicly audited financial statements C released.
In small cap news, TSYS sold off by 17% after their net income fell by 50% in another quarter more confusing than the ending of a Kafka novel. Remember a couple of weeks ago Money McBags told you TSYS would make an interesting short term trade and on this past Tuesday he said:
“TSYS was up 4% plus and remember on 7/9 Money McBags said it was too cheap and would make a nice short term trade and it’s up just under 20% since then so good for you if you picked up some shares but don’t get too greedy as news on the company remains thinner than OJ’s alibi and it has traded down for a year for a reason.”
So hopefully you didn’t get too greedy and took your profits and went home because we were given more reasons for its shitacular performance this year.
That said, on the surface, the quarter wasn’t horrible, as revenue was an alltime high $92MM, though pretty much flat with the first two quarters of the year and gross profit of $33MM was also up a bit sequentially. EBITDA of $15MM was down a bit sequentially and barely up from last year when revenue was $25MM less so they are clearly having margin/expense issues with gross margin dropping from ~45% to ~36% from last year’s Q. Not really what you’d like to see out of a supposedly growing business. Money McBags is a firm believer in not owning businesses with negative operating leverage unless they are in the start-up stage, so that is a huge red flag, especially for a company that has relied on acquisitions for much of their growth.
That said, the biggest problem seems to be that they saw their text message licensing business slow down and lead to fewer sales of pepetual licenses which was what Money McBags thought was a big growth area for this company. People like the fuck out of texting so it was always a bit confusing why this company’s revenue didn’t scale faster with that and why that is now slowing down for them.
Money McBags hasn’t had time to listen to their call yet as he has been busy trying to solve the Riemann hyopthesis (he thinks the answer is zero) and looking for more pictures of Sofia Vergara, but he’s sure the call would have been as confusing and unilluminating as ever as this management team has overpromised and underdelivered more than an M. Night Shyamalan film. That said, he’s not sure if they are still guiding to $80MM-$85MM in EBITDA as they are only at ~$30MM half way through the year with one of their growth segments slowing and margins getting squeezed like Ines Sainz‘ ass in an airplane seat.
The company currently has an EV ~$280MM so it’s pretty cheap if you think that they can double their EBITDA in the second half of the year but as Money McBags needs a fucking forensic accountant, a strategy consultant, the Amazing Kreskin, and a fuckload of luck to understand their press release and the different parts of their business, he’s going to stay the fuck away.
Hopefully you all made a nice short term profit and perhaps their call explained a lot, as this company seems way too fucking cheap for what they claim to do. That said, the market isn’t usually this wrong when selling something off over this long of a period of time, so Money McBags will remain happily uninvested. That said, if anyone can clearly and concisely explain their business in two sentences or fewer, Money McBags would be interested to understand.
The market tumbled today like a broke Boy George on a floor covered with dong as consumer confidence continues to fade like LeBron James’ Q score or Haiti. Consumer sentiment fell to 66.5 which is the lowest since August and below the most pessimistic guesses of those not paying attention (also known as economists). The drop in sentiment from June’s made up reading of 76 was the biggest drop in two years and was well below the 75 guessed at by economists who eventually will understand that the old data they used to calibrate their regression models no longer holds in our fat tailed society. Newsflash economists: The world has fucking changed, people are all connected, and whatever correlations you saw in the past are now likely more spurious and outdated than civility, manners, and landing strips. Basically everything in the consumer sentiment survey got worse and that is as bad of a sign for future consumer spend as a “You must be 18 to enter” sign is at a NAMBLA convention.
According to a Bloomberg poll, seven out of ten Americans believe we are in a recession, but then again, four in ten believe in alien abductions and six in ten believe that Kathy Griffin is a woman, so whatever. The economic data has gone from marginal to whatever is worse than marginal and it’s not clear what is going to stimulate the economy out of this except for maybe a Bobbi Eden promise to take care of businesses if they hire. In other macro news, inflation continues to be modest as consumer prices were down .1% spurring louder whispers about deflation where cash will be king, and not some lame ass king like George III, but a cool one like Henry VIII or Kong.
In other US news, the SEC pulled themselves away from their tranny porn just long enough to settle with Goldman for $550MM as related to GS’s shady dealings with their Abacus mortgage CDO. The settlement will be among the largest in the history of the SEC with $15MM a result of the money GS made on the deal and $535MM as a punishment for GS being a bunch of asshats for the past 140 years. Of the fine, $300MM will go directly to the US Treasury where they can either buy 3 new planes for congress, help Timothey Geithner pay his back taxes, or hire Cintia Dicker to massage their data before they stick it in to a GDP model.
Along with a consumer nudging closer to life support (and unfortunately with a pre-existing spending condition, the consumer is no longer eligible for insurance to help them survive), earnings reports were marginally bad at best. BAC plummeted 9% and C dropped 6% after they released decent earnings but showed revenues to be more lacking than rhythm at a Republican convention or diction in an NBA lockerroom. BAC’s revenues were down 11% and C’s were flat but most worrisome was that the earnings beats were a result of reserving less for credit issues with BAC reserving $5B fewer than last year because apparently they developed retrograde amnesia sometime in June. Ugh. This is going to get uglier than an Amy Winehouse-Michael Berryman love child.
In other stock news, GOOG revenue beat guesses but EPS fell short by $.06 as they earned $6.45 per share vs. analyst guesses of $6.51. That <1% miss of made up numbers was enough to drop the stock 7% and the company has said the are going back in to investment mode which spooked investors as if investment mode were a book and investors were Dexter Manley. Even though the 24% rate of growth was a bit lower than last Q’s, this company is still the dominant player in one of the biggest and growing industries on the planet (right after hand set makers, gold mines, and porn) so while Money McBags is scratching his head a bit at GOOG’s continued fourth mover push in to things like handsets and social media, he is still a long term owner because if the consumer dies, they are still going to spend time online guessing muffs as a way for cheap entertainment, so online advertising is only going to get stronger.
In small cap news, everything was down today. JOEZ was out with their quarter and it was mostly inline with analyst guesses of $.01 eps but 50% below Money McBags guess of $.02 eps (and see how Money McBags used 50%, instead of $.01 to make it sound much worse than it was?). Anyway, JOEZ put up a nice topline number, growing revenue by 51% to $26MM but once again had earnings leverage more negative than the reviews for an M. Night Shyamalan movie. That’s right, despite growing revenue 51%, net income dropped by greater than 50% from $1.3MM to $500k defying the laws of common sense and business savvy. With that kind of inverse operating performance, it’s a good thing JOEZ didn’t grow their business 75% because then they might have lost money.
It would be easy to blame the drop in net income on the tax rate which grew to 48% over last year’s 14% thanks to a shareholder unfriendly earnout struck by management when they acquired Joes, so thanks for that guys, really (oh wait, Money McBags isn’t a shareholder, so he doesn’t really give a fuck that JOEZ management treated their stock owners like second class citizens in a third world country when structuring the acquisition), but operating income BEFORE TAXES was down 25% from $1.6MM to $1.2MM. So on the extra $8.7MM of revenue JOEZ brought in this Q compared to Q2 2009, they lost $400K before taxes. Wow. Now look, Money McBags is no Jack Welch (though he did manipulate his earnings this morning to Brooklyn Decker), but losing money on incremental revenue is so obviously bad that even business school professors know it is a failing strategy. It’s ok to have a loss leader, but when your whole business is a loss leader, you may have a problem.
Anyway, the reason for the operating earnings decline was threefold: 1. Gross margins declined worse than Louis XVI’s power in 1792 France or Yasmine Bleeth’s career after Baywatch. 2. Operating costs jumped up as if they had seen a mouse, or Kevin Federline, scurry across their kitchen floor. 3. Their core denim business is witnessing a second derivative decline in growth.
As for gross margins, which continued their descent, this time from 51% to 44%, the company said that the drop resulted from the addition of new lower margin product categories such as the T, the Pant, and the Top. CEO Marc Crossman did say that as volume grows for these products, margins should go back up as they can take better advantage of the factories and thus he expects meaningful margin expansion.
As for the increase in operating costs, that is a bit more troubling as costs jumped up to ~$10MM from ~$7MM which they said was the result of new worker salaries, rent costs, and a big night out at their local Rick’s Cabaret (ok, maybe not the third one, but whatever). The confusing thing though is that costs were up $400k sequentially when last Q JOEZ said operating costs were artificially higher due to $850k of one-time advertising expenses and the moving of their headquarters. If we strip out those numbers, operating costs were up by ~$1.2MM from Q1 or ~15% while sequential revenue was up only ~12%. So basically this company manages their cost structure about as well as Alan Greenspan managed interest rates, Bernie Madoff managed money, or Magic Johnson managed a condom. The company said with their new lines built out they don’t expect operating costs to rise, but again, last Q they pretty much said the same thing and blamed the higher costs on one-time charges which either became two-time charges or were filled in by new costs.
And finally, they said their denim is now a single digit grower (though Money McBags wasn’t sure if they just meant in department stores, or overall) so they are going to increasingly need to rely on new products to spur growth and to date, the new products have killed their margins. In a trendy business, continuing to hit on new products is more difficult than solving the Poincare Conjecture or listening to a Ray Romano stand-up routine and not wanting to cut out your ear drums, so this is getting to be a tricky proposition.
In terms of their balance sheet, cash is now down from $13MM at the beginning of the year to $8.5MM, driven by a $3.5MM burn from operations due to rising inventories and helped out by growing accounts payable (which sounds about as healthy as a cock sandwich with extra VD). While they aren’t in imminent danger (though at the rate of their cash burn from operations they only have 12 months of leeway), Money McBags would not be shocked by some kind of secondary offering because unless they can get their operations in order and start GENERATING cash, their growth plans are going to have to be put on hold.
So how the fuck does one forecast a company whose growth rate over the past 4 years was 30%, 35%, 10%, and 16%, who sells an expensive discretionary good in the midst of GLOBAL RECESSION, whose management team has grown revenue 46% this year and yet had earnings decline because they understand costs like Donald Rumsfeld understands war strategy or Sheyla Hershey understands when enough is enough, who burned cash in both quarters this year and is getting to the point where the may need to reload faster than Peter North on a day he is filming a double feature, who is in a market that is all about fads and their biggest product is starting to have its growth slow, and who has been so shareholder unfriendly that they stuck shareholders with a 48% tax rate so the management could get a better earnout and thus order a second helping of caviar when they were done screwing equity owners?
One could annualize the $.02 they have made in the first half of the year and call their earnings run rate $.04 and slap some growth on that, but that would be the easy way out. Money McBags is in a good mood today (mostly because he recently discovered Sofia Vergara) so he’ll assume JOEZ can kind of keep this up and grow revenue 35% for the rest of the year and 30% next year (assuming they don’t run out of cash or can raise cash to continue to expand). He’ll call gross margin 51%, operating margin 38%, and the tax rate 45% (though they say it will wind up closer to 40% sometime around the year infinity). Doing that, Money McBags gets to $.16 eps for next year at the high end because every single one of those estimates is giving them a fuckload more credit than they have earned. So next year the company should earn somewhere between their current $.04 run rate and $.16 assuming they don’t have to issue more shares to help quell their cash burn. JOEZ is now trading at between 13x and a bazillion x those numbers.
So in short, Money McBags is glad not to be involved in this company as they have been able to deliver profits about as well as George Will delivers a punchline but if one believes what management says and not what they have actually done (like you know, lose money, mismanage costs, fuck over shareholders, and burn in cash), one could make an argument that 13x for a 40% grower is cheap, of course one could also make an argument that Tori Spelling is hot, so be careful to whom you listen. Money McBags remains fascinated by this little stock though as it’s not often you find 40%+ topline growers who manage to consistetly shrink their profits.
It was another volatile day in the market as initial jobless claims came out and were much worse than expectations which is not surprising to anyone except for those who make those expectations. Claims were up by 13k to 472k while analysts had guessed that they would drop to 452k which means on average they couldn’t even get the 50-50 directional guess right. And as usual, claims were part of the weekly we suck at math derby (also known as “Numbers Manipulation Thursday”) as last week initial claims were 457k, so if they grew by 13k this week, that should have made claims 470k, but of course the (No) Labor Department wants to try to mitigate the fuckawfulness of the economy so they always release a slightly better number and then revise it worse when no one is paying attention. So last week’s claims were revised up to 459k and thus we get the true mathmatical equation 459k + 13k = Holy shit we’re fucked (or 472k, potato, puh-tato). The good news is that people claiming extended benefits dropped by 376k, the bad news is that number fell because the government voted to stop paying them, so um, welcome to the double dip (and not the kind where you only get bacteria), make sure you are properly supplied with canned foods, matches, and plenty of viewing material because this could get interesting. And to reiterate, Republicans filibustered a bill to continue extended unemployment benefits which is the first time this has ever happened with an unmeployment rate above 7.5% during a recession and it immediately cuts off 1.5MM unemployed people from cash flow they may need. If ever Money McBags wanted to lose an election, that is exactly what he would do, fuck the people who need help in the midst of the biggest recession in history. What wasn’t reported was that Republican Senators also filibustered dignity and common sense while proposing legislation to have unemployed people serve as speed bumps on Pennsylvania Avenue to keep drivers from going to fast.
In other US macro news, pending home sales also hit the shitter (and hit it with the force of a taco bell bean burrito slathered in extra hot sauce and Ecoli) which surprised analysts but shouldn’t have surprised readers of WGP. The pending home sales index fell to 77.6 from 110.9 because the first time home buyers tax went away which is only something that has been known for months. The 30% drop in the index dwarfed the 12% drop analysts had guessed once again proving that past performance is no indication of future performance in regression models when we live in a fat tailed economy. Finally the House passed a financial overhaul bill which will now go to the Senate for a vote on what should be sweeping changes but has been watered down more than Christina Hendricks in a wet t-shirt contest.
In addtion to macro news that was so bad not even Chris Dodd could have done something to make it worse, Goldman was further questioned by the FCIC today on their derivatives trading as relates to AIG (and as usual Money McBags would love to have the FCIC’s Heather Murren question him about the exposure of his long derivative). CFO David Vinnar was nice enough to constantly conflict himself by telling the commission that Goldman doesn’t have a “derivatives business,” but when questioned on how Goldman can call themselves a “top five derivatives dealers in the world,” he acknowledged that Goldman’s derivatives business is “a very big part of what we do.” Money McBags guesses that kind of logical fallacy or semantics masturbation is bound to happen when one talks out of their ass. Anyway, this whole thing is just theatre since if the government really wanted to shut themselves, I mean Goldman, down, it would take about 3 minutes of actual investigation.
Internationally, China is showing more signs of slowing down than Robert Byrd, as new data shows the second derivative of their manufacturing sector is likely abating. Two indexes (indices? indi? indiyouknowwhatthefuckimean) came in below analyst guesses, though still showed expansion (but that expansion is now more like from flaccid to quarter chub as opposed to full pitched tent). Tao Wang (not to be confused with Tiger Wang, Dong Wang, Peter Wang, or Wang Chung) an economist at UBS China said “economic growth is strong but momentum has peaked” and if that is true, the global recovery may need another shot of stimulus or else it could flatline worse than Gina Lee Nolin‘s acting career. In other intentational news, Spain was able to sell 3.5B of 3 year Euro bonds after promising not to default on them and promising to have Rebecca Ronda personally deliver them to all buyers along with a refreshing spanish milkshake. The fact that Spain was able to get their bonds out and not at a too exorbitant yield is a positive, though Moody’s has now placed Spain’s credit ranking on review for a possible downgrade, citing “deteriorating” growth prospects, challenges in meeting deficit targets, and the fact that no one in the country works. That said, Money McBags cares what Moody’s has to say about as much as he cares about Donald Rumsfield’s thoughts war strategy, Chuck Klosterman’s opinion on pop culture, or Aristotle’s view on the heliocentric universe.
In stock news it’s uglier out there today than it was in Barbara Streisand’s bridal suite when James Brolin went out for a smoke. One stock moving nicely up though is Ford as they announced a 13% rise in sales for the month of June led by the Ford Focus, their Super Duty F1 series, and pure luck. That said, the company announced a $4B buyback yesterday so has had good news two days in a row which currently qualifies it for the award as greatest stock ever. In other news, financials continue to sputter because there is currently less faith in the financial system than there is in Norse mythology. The Treasury department has been reducing their holdings of C which is good because the government shouldn’t own public companies, especially ones going $0.
In small cap news, ZAGG is unsurprisingly selling off after it hit $3 for no reason the other day and Money McBags broke down why the stock was at least $1 too expensive. One sector that Money McBags has liked but is getting destroyed today like a college senior’s hopes and dreams is the home health care sector. Small cap names AFAM and LHCG have been solid performers as they offer a service that is both cheaper than hospital stays and better for patients as home recovery rates are better than hospitalization recovery rates. The problem is these companies rely heavily on medicare funding and their billing practices have always been questioned.
Well today, the SEC announced they are launching an investigation in to AFAM and AMED around the companies billing more home visits to medicare than they actually made. That news is less good than waking up next to an unshaven Kathy Bates. As a result the sector is down 10% today and rightfully so, in fact if Money McBags owned any of these companies he would be puking them out like a bulimic with a vomit fetish. That said, LHCG does not seem to be part of the investigation so it could be a good time to try to pick this up on the cheap once things settle. Money McBags has always preferred LHCG in this group because they are a bit more rural than the others and therefore face less competition. That said, the market is enticing as it is growing 10%-15% a year as the population ages and home health care becomes a more ready solution. It costs medicare $132 per home health care visit vs. $6k for a hospital stay and as mentioned before, recovery rates are better at home because patients aren’t around so many fucking sick people all day.
LHCG earned $.64 a share in Q1 and gave guidance for $615MM to $625MM in full year revenues and $2.75 to $2.85 eps. With the sell off today the stock is trading at only 9x this year’s eps guidance and yet the market is growing by double digits. Revenue was up 17% last Q and guidance does not take in to account any de novo branches which only take a year to reach full margins. The company has ~$13MM net cash to still make acquisitions and the market is ripe for continued rolling up as the top 4 players are only ~10%-12% of the market. The problems are the reliance on medicare funding and the government’s ability to slash that at any time, the need for continued acquisitions, the uncertainty of any future medical liability issues (as with all health care providers), and the current SEC investigation on competitors. Still, this is a growing market and is a cheaper alternative for medicare and insurance companies that ultimately provides better service and better results so why not buy this for 9x earnings when you can? As he said, Money McBags would let this settle because the last time fudged billing fears struck the industry, these stocks got pulverized even though none of the public companies were found to be complicit. So bide your time but put this on your buy list. And to reitirate for those of you new to WGP (and if you’re new, don’t forget to join WGP on Facebook), Money McBags’ buy/interesting list consists of KIRK, KITD, TMRK, CTGX, CRUS, QCOR, NTRI, EPAX and now LHCG among others. Many of those are getting to be pretty washed out (KIRK, KITD, CTGX) and yet have nice earnings streams and solid longterm businesses so once the market is done dying, those are companies that should see positive momentum. And while the market drops, there is always WGO and ZAGG to short, or just buy TWM and watch Wall Street burn.
It was ugly out there today, real ugly, like a Lady Gaga- Alan Greenspan love child with a bad case of facial neurofibromatosis. Investors are worried that China is slowing down (they are), that Europe won’t be able to roll their debt (eventually they won’t), and that US consumer spend will shrivel up like Khagendra Thapa Magar‘s muchkin in a cold shower (it will). Leading the the market down was a sell off in China after the dynamically named research group The Conference Board (which apparently researches everything but how to market a business) said they had recalculated the leading economic index for China to show a 0.3% gain in April which is much lower than the 1.7% gain they reported two weeks ago and they blamed it on a calculation error (no really they did, but Money McBags doesn’t believe that for a second because aren’t asians supposed to be the good ones at math? Oh right, The Conference Board isn’t asian). Anyway, with the people calculating the economic data unable to actually calculate it properly, we are once again left guessing at what is really going on and all we have to go by is what we see and that is a lot of closed retail stores, packed job fairs, and blurry objects as our health care ran out and we can’t afford new glasses. As China is the engine that is fueling the global recovery (the lobster in the bisque, the plutonium in the flux capacitor, or the extra F in the MFF, if you will) any slow down in their economy will certainly put a damper on economic growth and thus reduce all of us to subsisting off of Ramen Noodles and our tears of despair. Also, with Spain having to roll over debt on Thursday, the same day the whole European banking sector will have their one year 442B Euro line of credit from the ECB expire, Europe is jitterier than Michael J. Fox going through the DTs. Thursday could be a momentous day in the market as Spanish banks are hinting that the ECB’s line of credit is crucial to their viability so we may see a financial crash so bad one would think Ted Kennedy were driving it over a bridge.
Unfortunately, US macro news wasn’t any better with consumers only confident that the economy sucks. The Conference Board (the research group who miscalculated China’s leading indicators, so take the following with a grain of salt, though if you’re feeling really adventurous, take it with several grains of salt firmly planted around the rim of a shot glass containing tequila) reported the US consumer confidence index fell to 52.9 from 62.7, a number which was also downwardly revised (likely due to a goal seek input error in Excel). Basically every metric measured by The Conference Board fell except for belief that things will get worse, belief that there will be fewer jobs, and belief that Keynesian economics is a farce. Not helping matters was that the Case-Shiller index posted only a .8% gain despite government tax credits still juicing the system like a Lance Armstrong steroid cocktail. Sure a gain is better than a loss, but the gain should have been higher even with 18 out of 20 cities showing increases. Of course with that tax credit now expiring, there is certain to be a pull back next month so large that it will make even Kenny Rogers shudder. If there were ever going to be a double dip recession, now is the time, so sit back and cross your fingers that the government will re-stimulate the economy and push the second dip off for another few years when you’ll be too old to care.
In stock news, shares of C were halted at one point today because the market couldn’t believe the company hasn’t hit zero yet. The stock traded down 17% thanks to what is being reported as a fat finger trading error (and again, we call that the Portia Di Rossi because someone who looks like this must have some hella fat fingers to keep the lovely Ms. Di Rossi satisfied) though it was likely just the run of the mill high frequency trading stock manipulation. New circuit breakers were put to work for the second day in a row and trading in C stock was shut down for five minutes until it had time to cool down and think about what it had done before re-opening down only 5%. In other news Barnes and Noble dropped 20% as with the advent of TV, the internet, and the NSFW spankwire.com people no longer read books. The CEO announced the company will be investing $140MM in to their digital book business and their digital book reader, the absurdly named NOOKie (and if Money McBags were running BKS the first thing he would do would be to change the name of the NOOK to something more catchy like “iPhone” or more honest like the “not going to be around for long” since the market is going to be dominated by the Kindle and iPad). Anyway, 2011 guidance was for break even to a $.40 loss per share due to falling margins and investment, and as analysts had guessed the company would be profitable, shares sank faster than General McChrystal’s chance at winning a Medal of Honor this year. Finally Verizon was break even in a down market as they are rumored to be signing a deal with Apple and Tesla Motors (TSLA) shot up 40% on its first day of trading despite never earnings a profit, having $300MM of lifetime losses, not forecasting a profit until 2012, and having their business revolve around selling an electric car when we all know eletric cars only exist in the land of make believe where it rains gumdrops and every Friday is free blumpkin day at the local Rick’s Cabaret.
In small cap news everything was down except for ZAGG which Money McBags exhaustively broke down for all of you earlier today (so check it out, really). A name Money McBags told you about last week, KIRK, continues to get hammered but it is getting to the point where one may have to actually step in, put some gloves on, and catch the falling knife as it’s now at 8x Money McBags’ high end earnings estimates with ~20% of its market cap in cash. Also ISLE was down 6% after Money McBags said yesterday it would make a good short trade. Of course Money McBags isn’t bragging about that call because everything went down faster than a call girl working for tips only, so any short call from yesterday looks prescient. There may be a short term rally tomorrow but Money McBags is warier of this market than Thomas Hoenig is wary of keeping rates too low for too long, so he is staying on the sidelines for now.
And don’t forget WGP is on Facebook, even though it goes against everything in which Money McBags believes.
It’s quadruple witching Friday today in the market which is unfortunately just the day where stock index futures, stock index options, stock options, and single stock futures all expire and not the day where the market finally gets a 5-some with Elizabeth Montgomery, Barbara Eden, Melissa Joan Hart, and Omarrosa. While this is usually a volatile day, the market has been quieter than the Clinton’s bedroom as there has been little macro or company news released today. That said, owners of gold are being showered with rewards as gold has reached a record high today thanks to investors betting against the current fiat system remaining viable. While it’s likely we’ll hit a deflationary period before inflation takes off like Shawn Kemp from a delivery room, holding gold as part of your portfolio right now as a hedge against volatility and the potential crash of the Euro makes more sense than pairing Suaterenes with a nice foie gras. In other US news, Tim Geithner is apparently getting new and more power which he has easily earned given how he has revived this economy from dead to about to die again and helped to bail out the firms who caused this mess. Geithner is set to lead a new council run by the Treasury Department to identify companies that might be shut down because they pose a risk to the financial system. So does that mean the government is going to shut down the SEC, FCIC, FINRA, FDIC, and NAMBLA? Don’t they all do the same fucking thing? Hey, I know how to solve a problem, let’s just create other fucking groups to do the same thing that current groups do but hope they do it better. Unbelievable. Money McBags just wants to know when more bureaucracy has ever fixed anything other than creating meaningless jobs. Somewhere Josef K. is scratching his head.
Internationally, the Eurozone added Estonia as the lastest member in their global ponzi scheme. Estonia now has to pay $1B to Greece, and then Greece will pay 80% of that up to Spain, who will then pay 80% of that up to Germany. Funding problems solved. While it is certainly odd timing for a country to be joining the eurozone, Estonia said they had no choice after the University of Texas decided to stay in the Big 12 and and Utah beat them out for the last spot in the Pac 10. “It’s a great day for Estonia,” remarked Estonian prime minister Andrus Ansip, who was perhaps (an)sipping on a little too much Saku Originaal as getting in to the Eurozone right now is about as desirable as joining a tv show co-starring Ted McGinley or being drafted by the Washington Generals. Anyway, for those of you unfamiliar with Estonia, here are some quick facts: They were 4th out of 173 countries in the Worldwide Press Freedom Index narrowly being edged out by Canada and their NSFW Naked News, they’ve previously been occupied by more countries than Zsa Zsa Gabor’s vagina, and the person they most admire is Yosemite Sam. They’ve been independent since 1991 and are finally looking to settle down after 20 years of hard drinking and nordic flirtations in order to raise their favorite offspring Tiiu Kuik in a stronger family environment. So welcome to the Euro Estonia, just don’t burn all those Kroons quite yet. In other international news, the IMF backed Spain’s austerity measures after downing one sangria too many and learning about imaginary numbers.
In stock news, C is planning on raising $3B because they haven’t lost enough investor capital already. Just remember, this bank is so poorly run and has such bad judgment that they fired someone for being too hot, and she’s not even really that hot, I mean we’re not talking about Sara Carbonero for fucksake. And the best part about this is that they are raising money for their private equity and hedge fund groups right before Paul Volcker slaps his rule on the table and bans banks from owning those type of funds. Wow. Good for the funds but that makes about as much sense for C as it did for Saddam Hussein to build a new palace in Baghdad in March of 2003 or Simona Halep to go bra shopping right before the summer of 2009. Money McBags is sure C’s CEO Vikram Pandit will retain some type of personal interest in these funds when the Volcker Rule takes effect so I guess it makes sense for him but for C shareholders it seems like a whole lot of wasted time and energy (though if you’re a C shareholder, you have bigger problems to worry about than the company raising money for funds they are going to have to give up soon). In other news, CVS and WAG decided to end their snit over prescription drug benefit reimbursement and just go back to screwing Medicare and the American health care system together. Finally Moody’s lowered their ratings of BP by 3 notches from the unintelligible Aa2 to the just as unintelligible A2 (or maybe it was the other way around, who the fuck knows). It’s nice to see that weeks in to one of the biggest environmental disasters in history, Moody’s is still on the ball. Good job guys, Money McBags eagerly awaits your downgrade of daguerreotype companies within the next 6 months. Though to be honest, any investor who needs Moody’s to tell them BP is more fucked than a cupcake in Kirstie Alley’s house probably shouldn’t be investing.
In small cap news CRUS continues to rocket up. Money McBags believes $24 (20x his $1.20 estimates) is a plenty fair price but at $20 he’d start to think about trimming to take some of the hella sweet profits you’ve made off the table (and rememeber Money McBags first brought CRUS to your attention when they were trading under $8 and he told you he bought them shortly thereafter. The fact that he dumped them after the “Flash crash” for liquidity reasons doesn’t change his valuation, it only makes him angrier that he believes the market structure is so broken that fundamentals may not matter). And if any of you are interested in a high flying small volatile momentum name, check out SPRT. Money McBags will try to break them down next week but they are basically outsourced and remote computer repair. It’s like Geek Squad only you don’t have to have a fat smelly skeevy fuck show up at your house and stink the place up while he wipes all of the porn off your computer to clean up whatever virus you downloaded while searching for that Miley Cyrus upskirt pic (and Money McBags will not be linking to the pic since he believes in the legal system). It’s certainly an interesting and potential low cost business model and the company is currently scaling up their technicians faster than a young hollywood starlet scales up her ambitions. It is doubtful that in this market Money McBags would ever own this stock because a lot has to go right for it to be valued even near what it is trading today, but it has a nice story has some real opportunity, and more than anything it has strong momentum and a rapidly accelerating business. If you have money you don’t care about, send it to Money McBags for a night out at Rick’s, otherwise, do some research here as this might be a good trade.
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.
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.
4/8/10 Midday Report: Citi execs sorry they broke the economy, wipe their tears with their outsized bonuses
Money McBags is back and the markets are selling off a bit as apparently people somehow still care about Greece going bankrupt (but then again, some people also still care about the Poincare conjecture, the etymology of Star Wars languages, and saving the whales, so whatever). Seeing as how Greece hasn’t been relevant since the Battle of Corinth or the internet rumor of a Maria Menounos side boob shot, their financial crisis shouldn’t be enough to derail the market from rallying back. What should be enough is continued unemployment as new claims for unemployment rose last week by 18k to 460k which was worse than economists’ guesses of a drop to 435k. So once again supposed experts even got the coin flip direction wrong (Money McBags told them to call tails instead of heads). Economists are blaming the Easter holiday for some of the variation in the jobs number because the floating holiday comes at a different time each year and seeing as how no calendar existed last year and the day Easter fell on this year was a complete fucking surprise, it makes sense that data to allow economists to properly seasonally adjust for Easter would be difficult to obtain. The Easter excuse is about as plausible as a bunny laying colored eggs, Santa Claus, or a male friendly lesbian (shout out to Chasing Amy on that one, it’s too bad Kevin Smith died shortly after that movie came out, he had such promise. And if he didn’t die, how does one explain Jersey Girl or you know, the last 10 fucking years of his supposed career?). The positive news on the jobs report is that continuing claims decreased by 131k to 4.5MM which is the lowest it has been since December of 2008 and companies like Home Depot say they are starting to hire more workers. Money McBags is more positive on the economy than he has been in months and is looking to add to his exposures if the market consolidates here.
Internatonally, as mentioned before Greece is still taking up all of the headlines as they try to boost their resume from reality star to working actress status, and if this debt issue doesn’t work, they’re either going to adopt a Malawan kid or try to get Crete drunk and have octuplets. Bonds of the country are slumping worse than sales of Alan Greenspan’s new book: Bubbles for Dummies: How any Dummy can create one. The premium for Greek bonds over German bonds is now 427bps, the highest it has been since the Euro was created and the great deodorant crisis of 1964. Of course, Greece isn’t going anywhere so hedge funds, asset managers, and Pete Rose can bet against them all they want, but if the country survived the release of My Big Fat Greek Wedding, it can survive anything. In other international news, China is going to revise their currency policy where they will now let it float and perhaps appreciate as much as 2% against the dollar. This is another small step in trying to prick the Chinese bubble but most importantly, China is trying to do this without using any MSG. Also, Europe is keeping their benchmark rate unchanged at 1% as they hope the cheap cost of capital can pull them out of recession by increasing the sales of black jeans.
In stock news, United and USAirways might be merging which is a little like if syphilis and gonorrhea had a baby and you had to spend 6 hours sitting next to that baby on an LA to NYC flight. Of course this merger fits in with the old adage, two wrongs don’t make right (though two Wrights make an airplane, three rights make a left, and I believe four rites make a Scientologist) as two crappy airlines don’t make a good one. Also, Citi’s failed management team has been testifying before congress where they have promised to tell the truth about how they were more incompetent than Gabirelle Sidibe’s dietician or John Edwards penis. Charles Prince opened with: “Let me start by saying I’m sorry,” which was succinct, to the point, and no doubt a great solace to all of the people who lost money due to his criminal risk controls. He then expanded on that by saying: “I’m sorry the financial crisis has had such a devastating impact for our country. I’m sorry about the millions of people, average Americans, who lost their homes. And I’m sorry that our management team, starting with me, like so many others could not see the unprecedented market collapse that lay before us.” Well thanks for that Chuck, really. I am sure every average American will sleep better on their worn out mattresses knowing that you feel badly that you missed the biggest financial crises in the last 80 years even though you were in the fucking center of it. Either you are blinder than Mr. fucking MaGoo after downing a bottle of Wild Turkey or you were just a greedy fuckwad, so let’s just be up front about everything. You didn’t “not see the unprecedented market collapse” you didn’t bother looking for it, which is you know, something on which someone running a bank is supposed to focus, it’s called risk fucking management, jeesh. So while you were out getting your teeth whitened for the 38th time, your company wrote, traded, and packaged enough bad loans to help sink the global economy, but Money McBags is glad you are so sorry that you have now permanently relocated to your multi-million dollar Florida mansion where you no doubt sadly eat caviar off of hookers’ ass cheeks all day (and just a head’s up, that stuff in the crack may not be beluga). But hey, thanks for being sorry dickbag.
In small stock news, JOEZ has been rocketing up into their quarterly results release after hours tonight. Money McBags broke the stock down after their last earnings call and will do so again tomorrow, but in the meantime the stock has become more fashionable than Giselle Bundchen in a pair of their jeans. Money McBags does not get $150 jeans as he understands fads as well as prisoners understand game theory or Tiger Woods understands texting (hey, Tiger, your messages don’t just disappear into thin fucking air. A blind person leaves fewer tracks when walking through the mud than you did while cheating on your wife, but kudos to you for being more clueless than a colorblind synthesthesiac). Money McBags will start breaking more stocks down again next week as he is evaluating a number of names. KITD remains his top pick as they have more potential than a slightly overweight 18 year old girl with low self-esteem and no gag reflex. What is interesting about KITD is that their smaller competitor, Brightcove, just raised another $12MM in their 4th round of financing. Brightcove is barely breaking even (so is KITD, though this year KITD should earn at least $.55 and likely closer to $1) but this round of financing should allow them a nice private plane with all of the accoutrements for their likely upcoming IPO road show. Money McBags is creaming at the possibility of Brightcove going public and thus giving analysts/the market/Pauly Shore a public comp for KITD to show how undervalued KITD remains. So keep your eyes on Brightcove (while Money McBags will try to keep his eyes on Michelle Lombardo‘s not so bright cove) for any news to help with valuation.
Break out the menorahs as it’s Passover and thus time to light the candles, forgo yeast, and drink Manischewitz until the market makes sense and Mayim Bialik becomes attractive. The market is up today as economists ponder their own four questions: 1. “Why is this market different from any other market?” 2. “Why in this economy does the market not dip when in all other recessions it dips twice?” 3. “Why does the market continue to go upright, instead of reclining for a bit as news has been only marginally not bad?” 4. “What does a Jew have to do to get a table dance (And in honor of passover, Money McBags would only take table dances from fellow yids Nikki Reed, Bar Refaeli, Emmanuelle Chriqui, and Joan Rivers)? That said, in macro news today consumer spending was up modestly by .3% which was a bit less than the .4% from January and a whole lot less than that of you know, a healthy fucking economy. It could have been worse though with February snowstorms but luckily most people were still able to consume by staying inside and ordering shit they didn’t need from QVC with money they don’t really have. Excluding food and fuel as the Fed likes to do when looking at consumer spend (which is a bit like excluding Enron when talking about financial fraud, excluding Fischer Black when talking about Myron Scholes, or exculding rhyming couplets when analyzing Dr. Seuss), spending was equal to last month’s spending and up 1.8% from last year. Salaries for the month were flatter than a Steve Forbes tax rate and household savings fell once again to 3.1% of disposable income or the lowest it has been in over 2 years. It’s good that people didn’t learn anything in this downturn and continue to run their personal finances like the US government runs their Keynesian budget. The difference of course being the government can’t max out on their AMEX black card while consumers can only run up so much debt before getting BAC to renegotiate their mortgages.
In international news, Greece is selling 5B euros of 7 year bonds to try to pay for all of the shit it bought after having one ouzo too many and winding up face down on the floor of a Greek massage parlor in a puddle of it’s own debenture. This is the first bond offering since the EU and IMF said they would bail Greece out of their fiscal calamity and will likely to be the most expensive bond offering since the Quantum of Solace (and Jay Leno, feel free to steal that one when your Jaywalking bit becomes stale. Oh wait, we’re already five years late for that). The good news is that the Greek government just needs to raise another 48B euros by the end of the year, the bad news is that the Greek government needs to raise 48B euros by the end of the year. So I guess Greece’s financial position depends on whether you see the glass as half full, half empty, or as cracked as Alexis Texas’ backside. The seven year offering should help extend the average maturity of Greece’s debt and thus divert this crisis until the next remake of Clash of the Titans (and Money McBags eagerly awaits the parody to come out titled “Ass of the Titans” starring Kim Kardashian’s better half).
In stock news, the US Treasury announced that they are going to sell all 7.7B common shares of C they own sometime in 2010, as soon as they find a big enough sucker, I mean buyer. The Treasury assures investors though that C is in good standing, at least that is what Money McBags thinks they said in between coughs that sounded like “bullshit.” In other stock news, Ford sold Volvo before it crashed (though if Volvo had crashed, at least no one would have been harmed). Ford is getting $1.8B for Volvo from a Chinese conglomerate called Zhejiang Geely Holding Group and seeing as how Ford only paid $6B for Volvo 11 years ago, their -70% return makes it Ford’s best business decision since cancelling the Edsel. So good on you Ford. Money McBags really likes this acquisition for China because if ever anybody needed a safe car (other than maybe Mary Jo Kopechne), it is asian drivers.
In small cap news QCOR continues to rise and Money McBags broke QCOR down for all of you after their earnings in the first week of March. The company is up ~40% since then and there is still value there as they could earn $.70 this year and thus are trading at less than 12x that number and still at only ~.3 EV/sales. They have a drug which people need (its demand is as inelasitic as the demand for medical care, an Olivia Munn nude scene, or chocolate Necco wafers) and are finding new markets for it to grow (multiple sclerosis spasms, nephrology spasms). Money McBags is still waiting for a sell off to buy. More importantly, KITD is having their earnings call tomorrow and Money McBags is anticipating this more eagerly than he is anticipating the movie Chloe which features Amanda Seyfried in all her sapphic glory. Money McBags has broken KITD down on When Genius Prevailed more times than an Olsen twin has binged and purged and more times than Michael Lewis has inserted himself into his books. This was the last detailed post on KITD but in a nut shell (and it’s not clear why anyone would be in a nut shell, but whatever), the company has 99% recurring revenue, 99% retention rates, and this year is going to grow more than 99% (though almost half through acquisitions). Of course there was a glaring error in Money McBags break down of KITD in the blog post to which he alluded, and for that he is more ashamed and embarrassed than Kathy Hilton on take your daughter to work day. Money McBags took Google Finance’s market cap as fact when in fact Google’s calculation uses KITD’s sharecount from the end of the previous quarter. Since then, KITD has raised a number of shares for acquisitions and to pay off warrants so their actual share count is now 17.7MM which puts their actual market cap at $223MM, not the $125MM implied by Google Finance. Therefore, KITD is trading at 11x their upside EBITDA for the year and isn’t quite as cheap as an Albanian hooker, yet is still cheaper than 2010 Kansas Final Four t-shirts. The company is going to book $85MM to $100MM of revenue this year and next year it is not inconceivable that they can grow by $50MM (or the same absolute amount they will grow this year). They are in a market (IP video) which is 4% of the overall online video market and is cheaper than competing technologies such as digital video or simply hiring the people from online videos to perform live at your house. Not only that, but even if they don’t gain share from more expensive alternatives, the online video market is growing at a 38% CAGR (which isn’t quite as exciting as a sorority kegger, but still pretty good) so just by inertia or as they say in business school “being in the fucking market” they should be able to grow. So if they just grow at the market rate, that is $138MM in revenue next year and if they just gain a bit of share from the current 4% IP video market share increasing, they can get to that $150MM number. Their EBITDA margins are 17.5%+ so let’s say they get those to their 20% target , then the upside is $30MM of EBITDA next year, so they are trading at 6x to 7x EV/2011 EBITDA. Not only that, they should become EPS positive. With 48% gross margins at $150M in revenue they could earn $72M in gross profits. SG&A has been running at $32-$35MM a year, but let’s say they somehow have to increase their cost structure (even though they really don’t in order to grow) and have $40MM in SG&A in 2011, that gets them to $32MM in operating earnings and since they have more NOLs than the Pythagorean theorem has proofs, that $32MM should all flow to the bottom line. With 17.7MM shares, that is an upside of $1.80 eps which puts the stock at 7x 2011 earnings. And honestly, that number is so fucktasticly low that surely Money McBags’ maff must be wrong so feel free to run your own numbers. As for downside, let’s say they come in at a low $85MM in revenue this year and grow 20% off that to reach $100MM next year (as opposed to the $150MM upside). Using the same cost structure, they would earn $.45 per share next year and be trading at ~25x that right now which would be a bit expensive for a 20% top line grower, but not outrageous. So downside seems pretty limited if you trust the management of a company run out of Prague by guys who are in the business of building companies quickly and flipping them (and yes that last sentence made Money McBags want to throw up on his socks). Tomorrow’s earnings will be very interesting and if there is a guidance raise, Money McBags will likely be buying even more. That said, if they disappoint, this stock could easily trade down 20% because they have to execute given their current business stage.