Posts tagged consumer spending
The market was fairly quiet today with many investors spending their last summer week basking in the sun, sipping on margaritas, and enjoying the last days of the S&P above 1,000. In fact news was so thin this morning that the NY Times business cover story told you about retargeting as the reason why you keep being offered the same candles on every website you read. Then near the end of the day, for no reason other than inertia, the market nosedived as if it were Kirstie Alley and it were diving for a box of Krispy Kreme doughnuts.
The only macro news out today was that consumer spending rose .4% as consumers bought more automobiles, durable goods, and delusion. While the rise in consumer spend is slightly positive (in the same way that learning you have AIDS but your hemorrhoids went away is slightly positive), personal incomes were up less than guessed (well personal incomes for those who actually have personal income) and as a result the savings rate declined from 6.2% to 5.9% which is still well above where it was before the global economy started doing its impression of Taylor Rain in Apprentass 3 (though without the pure joy, excitement, and craftsmanship) but with the economy continuing to get rougher than Keith Richard’s liver at Mardi Gras, a declining savings rate is not a great sign.
Internationally, Japan has laid out a plan to kick start their economy which includes expanding the money available to banks, adding an additional 6 month loan facility for banks, and upping the requirements on all bukkake movies from five participants to eight. Critics say this isn’t nearly enough to help combat the rising yen, prolonged deflation, and increasing appetite of Kobayashi and they contend that unless Japan can figure out significant ways to energize the economy, the country’s growth prospects will remain bleaker than Shigeru Akabane‘s. With the proposed actions by Japan’s government underwhelming more than Eddie Lampert’s performance or the demand for a Gabrielle Sidibe sex tape, the yen reached new highs today and thus unless the government can curb the rise of the Yen (perhaps by showing it pictures of Kathy Griffin au naturale), Japan may continue their decades long slump and further serve as the model for where the US economy is headed.
In stock news, a flurry of M&A continues to occur as companies are sitting on hordes of cash and are facing growth prospects that are diminishing faster than Paris Hilton‘s career (that is if she ever really had one). Sanofi-Aventis’ offer to buy Genzyme for $18.5B was turned down by Genzyme’s board as being “unrealistic” as Genzyme’s board was shocked that anyone would want to buy a company best known for causing viral contamination in the production process (though they say they have fixed those problems by moving most of their production out of Pam Anderson‘s vagina where they had plenty of space and land was unbelievably cheap). Genzyme is known for making drugs to treat rare diseases like Gaucher disease and Fabry disease and is said to be working on a treatment for the dreaded blue waffle disease (and kind readers, as this is a family site, Money McBags can not link to said blue waffle disease but if you are feeling adventurous and have a strong stomach and a short memory, throw it in to google, but remember, you were warned). Genzyme’s biotech portfolio would make a nice fit with Sanofi-Aventis’ developed drug portfolio and given Genzyme’s recent problems and Carl Icahn’s two board seats and likely desire to sell, Money McBags would not surprised to see a deal get done and at a price a bit higher than the delicious $69 offer of today (and that may be the first time anyone has ever turned down a 69 unless Whoopi Goldberg was involved).
In other M&A news INTC announced they are buying the wireless unit of Germany’s Infineon for $1.4B and a year’s supply of sauerbraten while 3M announced a ~$900MM offer for Cogent to help them penetrate the growing biometrics market. This comes on the heels (and don’t ask Money McBags why it aimed for the heels, perhaps it was either looking at nice feet or was a podophiliac) of Cogent competitor L-1 Identity Solutions saying they were likely to sell themselves for ~$1B in a deal to be announced shortly. As the world becomes bigger, more diverse, and more paranoid, tracking people through fingerprints, palmprints, iris detection, and muff recognition, is only going to become more important and standard so seeing this space consolidate is less surprising than the answer to the NSFW #1826.
In small cap news, DGIT got absolutely walloped today as if it had run out of Chicken McNuggets. The company announced that they were lowering guidance for Q3 to $51MM-$53MM (Street guesses were $61.5MM) and EBITDA to $23MM-$24MM with full year guidance now for $230MM-$234MM of revenue (Street guesses were $246MM) and $105MM-$107MM of EBITDA. On that news the company dropped nearly 40% despite having ~$79MM in cash, no debt, a market cap of ~$430MM, and also announcing a 30MM share buyback. So in the immortal words of Beethoven circa 1810, “huh?”
Look, DGIT is a nice little company with good returns, a solid balance sheet and has been growing 20%+ for several years now as the HD advertising market takes off. As Money McBags understands it, the company basically has a box which they place at TV stations and that box allows them to deliver digital advertising content to the station’s tv feeds (the box being on site is valuable real estate and is perhaps the most valuable box in tv after Heidi Klum‘s). The company has been growing though as they can charge a higher price for showing HD commercials than they can for standard definition with pretty much the same infrastructure so as HD TVs and channels continue to grow in popularity, so does DGIT’s revenue and earnings and the fact that they have a box on location keeps out competition. HD revenue was up ~100% for DGIT last Q and grew from $1.2MM in 2006 to $60MM in 2009.
Back when Money McBags worked for the man, his fund owned this stock but he was not the primary person responsible for its coverage so he is a little short on most of the company details as he would usually nod out and dream of Hayley Atwell when this company was being discussed in the weekly meetings. That said, he went back through his notes today but they appear to be less useful than a pet rock, so his analysis and understanding of this name is a bit lacking. The company is now trading at 3.5x this year’s EBITDA guidance or ~3.8x after the share buyback and at ~7x next year’s analysts’ earnings guesses which will likely come down today but should be helped by an ~8% reduction in shares. And even with lowered guidance, the company is still projecting 15% t0 20% revenue growth so its not like their business is going away. Management is chalking up the lowered guidance to “seasonality” which is usually a fancy way of saying “we have no fucking idea” and a mix shift to more of a wholesale customer in their Pathfire platform, so that’s a bit concerning.
Like KIRK from the other week after they guided down and got destroyed, the earnings and actual performance of this stock no longer are even in the same galaxy as the stock price. Whether it’s naked shorting (and Money McBags is 100% against naked shorting unless January Jones is the one who will be naked her shorts), high frequency trading algorithms getting tripped by lowered estimates in First Call, or the ghost of Nipsey Russell, a 40% sell off for this business just doesn’t make any fundamental sense. That said, as Money McBags is not fresh on the story and a bit fuzzy on exactly how their business works so these are the questions he would want answered before making this a position (though to be honest, it is so fucking cheap right now this is one of those times you can almost shoot first and ask questions later, like walking in to an orgy featuring Christina Hendricks, Brooklyn Decker, and Bree Olson).
1. Explain the business model and method of advertising delivery in more detail? How important is the physical location of the boxes you have which serve up advertising and why isn’t this all done through the internet anyway? And yes this is the most obvious and broadbased question possible, but we might as well start at square one.
2. Along those lines, can you explain your internet strategy and the Unicast acquisition which the market didn’t really like back when you did it? What happens when people watch less TV and instead get content delivered to their iPhones and iPads and GOOG phones and soon enough directly to the chips in their heads?
3. Seasonality? Really? You got anything else or did a dog eat your revenue?
4. How fast can HD keep growing? What are current adoption rates and what is the revenue difference you get between serving up HD content and standard definition content? What happens when the market is saturated with HD? How does your revenue grow then and will international offer up opportunities?
5. Do these jeans make Jessica Simpson’s ass look fat or is it really just fat (and for the record, Money McBags finds it delectable either way)?
6. Whom do you consider your main competition and how does their technology or offering differ from yours? How has Google managed to perform in this market?
7. Back to this seasonality, really?
Those are just some quick questions Money McBags would like to get answered to better understand DGIT as it looks like a ridonkulous buy right now assuming there is nothing structurally wrong that caused the lowering of guidance. Money McBags suggests you all do some due diligence here as there could be nice rewards at these levels.
Stocks were bouncing around today as macro data came out, courts made some rulings, and the Unicorn meat industry took a hit. Consumer spending numbers were reported and shockingly, income grew faster than spending which means that either the numbers are going to be adjusted later, consumers had their credit card lines lowered significantly, or common sense has crept back in to the US consumer after a 30 year Dionysian spending orgy (and Money McBags will vote for 1 or 2 before he votes for 3). Spending was up .2% which beat the median guess, while incomes were up .4%, pushing the savings rate to its highest level in 8 months since back when people were snowed in and couldn’t overconsume.
The bigger news on the day though was a couple of court rulings which brought slightly positive news to the markets. First of all, the Supreme Court decided not to listen to the federal racketeering case against the tobacco industry because it would have interferred with their daily viewing of Judge Judy (and Money McBags is told Justice John Paul Stevens would like to drop his case load onto Judy Sheindlin’s thin docket). The decision is a positive for both the tobacco industry and the health care industry as tobacco companies are now unlikely to face large industry crippling fines and instead will be free to continue bringing cancer to people everywhere while also helping the top line growth of health care companies.
The other big news of the day of which Money McBags could give a fuck about (right up there with the World Cup, General McChrystal’s dismissal, and anything having to do with Miley Cyrus), the Supreme Court upheld the Sarbanes-Oxley law except it allowed the SEC to now fire members of the Public Company Accounting Oversight Board (known better as the acronymly challenged PCAOB). So now the SEC, an institution that was so fuck awful that they promoted the person who ignored Bernie Madoff’s machinations despite evidence gift wrapped for them, and an institution so incompetent that they spent their days investigating tranny porn instead of securities fraud (when we all know the night time is for tranny porn, the day time is for NSFW guessing muffs which thankfully is back up and running and its return has truly made Money McBags understand how Pamela Smart’s family felt when they found her alive), has the ability to fire the members of some board that supposedly does something to track public auditors. Well thank you for that Supreme fucking Court, really. Money McBags is glad you are wasting your time on shit like this instead of abortion, gun control laws, and banning Ray Romano from network TV. But hey, it’s great that the SEC can now fire any of the five board members of PCAOB for any reason and not just incompetence, especially as THERE ARE ONLY 4 CURRENT MEMBERS of the PCOAB board. So hoo-fucking-ray that a board which does absolutely nothing based on the fact that no one has ever heard of them and is not even at a fully staffed level, can now be better regulated. Perhaps if we got our panties out of a bunch and stopped regulating regulators (especially ones as irrelevant as PCOAB) and instead tried to stop fraudulent activity, the economy would be a wee bit less fucked.
Internationally, world leaders are still coming down from the G-20 summit which likely featured as much excitement as a summer theatre production of Pride and Prejudice. Finance leaders seem to have come to an agreement to cut deficits by 2013 yet made it clear the deficit reduction is an “expectation” and not a firm or binding deadline. In a similar vein, Money McBags has agreed to marry Brooke D Williams by 2012 but that is also just an “expectation” and not a firm deadline (he’ll give her until 2095 if she really wants). So basically, all that happened at the G-20 summit is that no one fucked anything new up and everyone agreed to keep the staus quo until the the status quo causes the next major downturn, whew. Not only were fiscal policies less changed than Michael Vick after a prison sentence and rehab, but banks avoided new regulations as policy makers said any regulations won’t be finished until the next G-20 summit in November, will take longer than two years to institute, and will be just as bad as current regulation but in a different way. So now we wait until Basel III for new regulation which will likely be the worst performing sequel since Karate Kid III: The Puberty Years or Speed III: Runaway Segway.
In stock news, tobacco companies were up due to the previously mentioned supreme court ruling and BA dropped 44% before the markets opened in trades that were cancelled and were either the result of a fat finger (as always, known on WGP as the Portia De Rossi) or the fact that the market structure is more broken than John Edwards’ wedding vows. The market continues to ponder circuit breakers to avoid manipulated fluctuations like BA had before hours (even though only 1k shares were traded). The fact that 50% of volume is made by non-fundamental investors should make fixing the market structure a priority for all 1,800 regulatory groups looking in to Wall Street, including the now can be fired board of the PCAOB where four out of five members exist.
In small cap news, ISLE dropped 14% today as they announced their intention of issuing 9MM shares to raise $100MM (or at this rate, $75MM by the time of actual issuance). The shares should lead to ~22% dilution and Money McBags broke the company down after their last Q in which they put together a marginal quarter and yet were still burning cash. The problem with this company is that their balance sheet makes Greece look like a fucking miser and they have run down casinos that need to be upgraded because even though gambling is essentially inelastic, it’s not inelastic in shitty casinos with 1970s carpeting that smell of old men and despair. So ISLE needs more cash to modernize their real estate and yet is already almost as highly levered as a Bernie Madoff fund (and his leverage was $50B to $1). So there is room for this company to fall even more since the drop today didn’t equal the dilution (32MM shares going to 41MM shares so owners now own ~22% less) and thus if you want a short term short trade, what better way to do it than jumping in on a shitty company with bad things happening?
The market has been relatively quiet today after yesterday’s meteoric rise on news less relevant than the Pound-Dong exchange rate (and oddly enough Pound Dong was also the name of Alexis Texas‘ last movie) or the 93rd decimal of Pi (which incidentally is 2). In US macro news, consumer sentiment was better than analysts guessed, largely because the survey was taken on payday and was done while Melinda Messenger lovingly massaged consumers’ fears away. The index came in at 75.5 which was up from 73.6 last month and above the median guess of 74.5 and was driven by consumers’ stated interest in buying durable goods such as cars and storage crates to put all of their shit in when the repo man comes to take over their homes. Interestingly enough, while consumer sentiment was up, US retail sales dropped proving once again that actions speak louder than words and all of the data is made up anyway. Spending fell 1.2% last month driven by auto sales being down 1.7% even though according to the consumer sentiment numbers, peple are looking to buy autombiles. These two data points couldn’t be more diametrically opposed than John Calvin and free will, Hemmingway and adjectives, or Richard Simmons and pants. Consumers intend to buy cars, but they’re not. Hmmm, maybe because 10% of them are unemployed and another 10% are underemployed or just not looking? Hey, Money McBags intends to buy a gold plated, diamond encrusted caviar dispenser that runs on the dreams of wide-eyed children, but he is just a few million euro short, but that is just a minor detail. So University of Michigan, put that in to your ridiculously misleading consumer sentiment survey and report it. One other interesting data point from the consumer spending numbers warrants mentioning and that is that sales in hardware stores were down 9.3% which likely means that people are spending less time fixing up their houses as they anticipate foreclosure.
In market news, Mary Schapiro is going after high frequency traders as tenaciously as a squirrel (or Ricky Martin) goes after a sack of nuts. High speed transactions now account for half of the market volume which is as healthy for the markets as Miley Cyrus‘ singing is to a hemophiliac (because her singing of course makes one’s ears bleed). Money McBags applauds Ms. Schapiro for not letting this relatively arcane corruption of the markets continue without regulation especially as high frequency trading was more negligent in the “flash crash” of the other week than the E! channel has been negligent in the devolution of american culture. Circuit breakers are now being put in to the market to halt shares of actively traded stocks when they move by +/- 10% in a 5 minute period which means BP stock should be halted on an hourly basis.
Internationally, things are relatively quiet today as the market awaits Greece’s impending default which is a worse kept secret than Burt Reynolds’ toupee or Lindsay Lohan’s implants. Greece has less ability to pay back their debtors than Athens did of defeating the Spartan-Persian alliance that ended the Peloponnesian war. Europe continues to hope that the IMF bail out can push Greek’s default out far enough so that Spain, Italy, and Amy Winehouse, can get themselves in order before the figurative shwarma hits the pita. In other international news, inflation in China rose to a 19 month high with consumer prices up 3.1%. Given the increasing pricing pressure and the rapid growth, China may start to allow their currency to fluctuate in a tight band, that is until the drummer of the band OD’s on heroin and the lead singer shacks up with the 2010 version of Bebe Buell.
In stock news, BP is pondering a dividend cut, something about needing the funds to help to clean up a mess resulting from spilling a fuckload of oil all over the Gulf and ruining an entire ecosystem. BP shares are now down nearly 50% after they tried to turn the Gulf into their own personal scat film.
Finally, Money McBags promised he would get to MLNK today. Why? Because apparently he likes writing about shitty stocks that underperform on a more consistent basis than the Alabama public school system. MLNK is a global supply chain management company that basically sets up shop next to electronics makers in Asia/Europe/The US. They manage the shipping process of the electronics makers’ products, the rebates and warranties, and then either don’t charge enough for their services or haven’t figured out how to do them efficiently, hence they lose money. They also recently bought a company called Tech for Less which sells used and refurbished computers which would seem like a good business to be in given the economy, but this business is only ~4% of revenues and based on how they run the rest of their business, is likely losing money. Anyway, this quarter MLNK’s revenue was down 7% to $213MM and below expectations because their new business is taking longer to set-up and their unit volumes are shrinking as inventories are no longer being added by retailers due to the fact that people seem to have stopped buying shit. New business revenue was $16MM compared to $44MM in fiscal Q3 last year which is so bad that Bernie Madoff wouldn’t even want to fake invest in this company. With revenue down, gross margin was down as well from 14% to 11% and EPS was a loss of $.08. However, taking out discontinued operations (though perhaps the whole operation should be discontinued), the loss was only $.03 per share. Non-GAAP income which is a proxy for EBITDA was $8.3MM, down from $16.1MM and defines the term “fuckawful.” That said, the company has no debt and $161MM of cash, cash equivalents, and broken promises. Free cash flow was $500k, just below last year’s fiscal Q FCF of $16MM, and yes, that was sarcasm. They did institute a new $10MM share buyback plan which Money McBags appreciates since he will likely be selling his shares so is glad there will be a buyer. And in the most bizarre ending to an earnings call ever, there were no questions. None. Zip. Zero. Nada. Investors were more silent than an electrolarynx user with a severe case of laryngitis.
So basically the only one who marginally gives a shit about this company is Money McBags since despite their consistently awful performance, MLNK is cheaper than a tattered Rusty Kuntz rookie card (and quick bit of trivia: “Rusty Kuntz” was actually the pre-production working title for the sitcom The Golden Girls). The company has a $288MM market cap and $161MM in cash so an enterprise value of $127MM. Their EBITDA had been as high as $18MM per Q, but this quarter shrunk again to $8MM. If we annualize the $8MM, they are trading at 4x EV/EBITDA and they previously said they expect business at the end of the year to be better. Of course last year they said they expected business at the beginning of this year to be better and it has fallen off faster than Yasmine Bleeth’s looks, so what they say needs to be taken with a grain of salt, or several grains of salt around a shot glass filled with tequila which is what the management team seems to be drinking before they give guidance. Money McBags has no idea how to evaluate this company any more as consumer spend is once again going in to the toilet and MLNK has shown less ability to execute than the state of Ohio. There is basically no good news for this stock on the horizon, they have significantly underperformed for several quarters in a row, and no one is interested in the company. So basically this is a value investor’s wet dream (well, that is if MLNK were going Lucky Pierre between Benjamin Graham and David Dodd, then it would be a value investor’s wet dream), or it’s a straight up value trap. Money Mcbags is likely going to dump his shares but it’s such a small position (and growing smaller by the day), that he may hold it for the improbable chance that they get better at their jobs.
Money McBags has been busy so today’s report will be brief, like the Anglo-Zanzibar war of 1896 or Gary Coleman’s remaining days (what, too soon?). The market tanked again and closed down 8% for the month of May which is the worst May in 48 years which was so long ago that the Hulk comic book had just been launched and Brigitte Bardot was at the peak of her ungodly powers. Sinking the market today was that it was open, well that and Spain was downgraded by Fitch from cultutral institution to Europe’s bitch. Fitch cut Spain’s rating from AAA to AA+ which means absolutely nothing to Money McBags because he doesn’t use the metric system. That said, if there is an algebra teacher in the house, Money McBags would love to have them solve for X in the equation AAA – X = AA+. The director of Spain’s Treasury, Soledad Nunez, whose first name is so awesome that Money McBags can’t bring himself to mock it, reminded the market that AA+ is “still a high rating” before reminding the market that Fitch is worse at their jobs than he is.
In US macro news, incomes rose .4% but consumer spending was flat in the first logical economic move by US consumers since sales of the pet rock fell to 0. Spending growing at a lower rate than income growth implies that people are actually saving which would go a huge way towards cleaing up this debt driven culture in the long run.
In stock news, some shit went up but most shit went down because we’re in a bear market with more downside volatility than Lindsay Lohan with a dime bag. AAPL was one company that was up strong today on a price target increase to $325 from BofA Merrill, or as they are better known as BofS Merrill. With iPad sales predicted to make PCs obsolete and allow NSFW muff guessing enthusiasts to take their sport on the road with them, Apple is one company that should continue to do well even if Europe falls in to the ocean. In other stock news, GS is said to be ready to settle with the SEC to avoid fraud charges but unless the settlement is inconceivably large for Lloyd Blankfein to handle, Money McBags would like to see this go to trial. If Goldman is not guilty of fraud than Money McBags’ understanding of the words “fraud” and “guilt” are worse than George W. Bush’s understanding of the words “mission” and “accomplished” or Tiger Woods’ understanding of the word “fidelity.”
Anyway, sorry for a brief marginally funny report today but it has been busy at Chez McBags. Of course, if you send 10 or1MM of your friends to When Genius Prevailed, Money McBags will be able to spend more time analyzing the markets, knocking out dick jokes, and sharing his love of all things Sonya Kraus. So enjoy you’re long weekend and remember to be careful out there.
5/3/10 Midafternoon Report: Consumer spending up as sales of moral hazard increase (though to be fair it does come in blue this season)
Stocks are off to the races again today and the good news is that the market is seemingly being ridden by Calvin Borel. Sending the market up is that Greece is once again set to be bailed out, Warren Buffet was out defending Goldman Sachs, and people are spending more than they earn. Hold on a second on that last one. Now look, Money McBags is no historian (though he knows the difference between Dred Scott and Avy Scott, knows that neither tea nor pot was involved in the Teapot Dome scandal, and knows that the War of 1812 not only ended in 1815 and thus is a bit of a misnomer but also ushered in the “Era of Good Feelings” where bipartisanship was shunned and taint tickling Tuesdays swept the nation), but spending more than one earns is what got us in to this whole fucking recession. Anyone remember the popular sport from the mid 2000s called flipping fucking houses? Well it caused the economy to be flipped as people just borrowed the fuck out of shit because banks were able to package all of those crappy loans and sell them to yield hog investors who wanted those extra 10bps of interest income. The point is, consumers not managing their personal balance sheets with eyes on the future (though if their eyes were on Katie Price, Money McBags can almost forgive them) is a recipe for fucking disaster which we just learned, oh I don’t know, 24 months ago. Ugh. To highlight the shortsightedness of consumers, consumer spending was up today, but it grew twice as fast as incomes grew. And if you do the math on that (and remember, math likes to be done in the reverse cowgirl position), that means savings declined, which again, is exactly what got us in to this mess. American people apparently just like buying shit and then whining about it when they lose their jobs and can’t afford to pay their too expensive mortgage or their maxed out credit card bills. This is a nation of infants and if they don’t figure it out soon, Money McBags is going to go door to door with Jeremy Grantham and the pinheaded Suze Orman and he and Jeremy will take turns buggering Ms. Orman and her inflated FICO until people understand having money saved for retirement is more important than buying a new Shake Weight. Rant over.
In other macro news, manufacturing grew at its fastest pace since 2004 as the ISM’s factory index rose to 60.4 which was inline with analyst guesses. The growth was driven by new equipment orders and increased production of default notices. Also new construction was up modestly, but the fact that it was up at all has Bulls giddier than Peter North’s son on take your kid to work day. What drove new construction was public construction which was up 2.3% and state and local government construction which was up 2.5% as new line dividers were constructed to keep the crowds at the unemployment office running smoothly.
Internationally, Greece is getting a 110B bailout in euros over a three year period, until tomorrow when Angela Merkel’s cold feet and colder heart once again change her mind. To get the bailout, Greece has to instill a 30B austerity plan, cut their debt, and promise to tell native born son Yanni to shut the fuck up. Even with the bailout, Greece’s debt is estimated to rise to 140% of GDP in 2014 which is a whole lot of souvlaki they can’t afford. The bailout may be giving investors a day to breathe a bit easier but with the amount of debt Greece is going to have to repay and the cuts to their publc spending, the country is now facing real threats of deflation and the first potential revolt since Alexander Ypsilantis led the Filiki Eteria.
In the markets today, Warren Buffett was out defending Goldman because, well because he owns a fuckload of GS preferred so you know, he has to defend his fucking book. Buffett defending Goldman is about as much of an endorsement as Michael Brown defending the hurricane Katrina response, Jerome Kerveil defending his trading, or Tara Reid defending plastic surgery. So big fucking yawn there. In other market news, United and Continental announced a $3B merger. The deal was actually consummated a month ago but was held up due to weather (feel free to steal that one Jay Leno). And Apple annonuced they sold over 1MM iPads thanks to them coming installed with Diora Baird wallpaper. Lastly, semiconductor sales were up 4.6% in March as PC and smartphone sales continue to rise and inventories climb back to normal levels. Money McBags is longer the technology/smartphone trend than Lexington Steele is before a scene with the lovely Lisa Ann.
In small cap news, Money McBags bought TMRK close to the open today in the mid $7.30s. He has talked about TMRK many times (starting on 1/4/10) and finally pulled the trigger for no particular reason and he has no idea why it is up so much today other than the fact that Money McBags is a market mover. Money McBags is feeling better about TMRK after they raised $50MM last week which should give them enough growth capital and they are still trading at a discount to larger peers. TMRK has a competitive advantage in that they have a lot of government business (~22% of revenue) and they are in a market growing 20% a year with some big players (Amazon, Google) who are clearly going to be looking for acquisition targets to consolidate the space. TMRK is trading ~9x 2011 EV/EBITDA estimates but that is lower than where EQIX bought SDXC and not only that, but VMware who is the leading software developer in this space (and portfolio holding of Money McBags) has a nice sized investment in TMRK. If VMware doesn’t know this space better than 99.7% of the world, than Money McBags will eat a giant shit sandwich with extra diarrhea. Now Money McBags doesn’t expect this stock to rocket up any time soon as they are still going to have lumpy quarters and are still investing in building out data centers, but cloud computing growth is more real than Pam Anderson‘s tits (though perhaps that is a low bar) so TMRK should continue to be in a fragmented multi-year growth industry. In other small cap news, NTRI reports tonight and Money McBags is very curious to see what happens to their advertising spend. If you remember, two months ago Money McBags broke down NTRI‘s craptastic guidance which was so bad it caused investors to throw up for days and thus more effectively lose weight than using NTRI products. The company is still trading ~7x EV/EBITDA which is pretty cheap for a solid cash generator and nice business model when they aren’t fucking up their advertising strategy. Money McBags has no idea what NTRI’s Q is going to look like but it is worth paying attention to tonight because the stock should be more volatile tomorrow than Mike Tyson after missing a week of his medication and having some of his pigeons stolen. This could be a good entry point (though still not as good of an entry point as Jessica Alba’s derriere), so pay attention to earnings.
4/30/10 Midday Report: Biggest swinging dick on the Street may land in aptly named penal colony as criminal investigation launches on Goldman
The markets are down today due to mostly inline GDP, more shenanigans in Greece, further investigation in to Goldman Sachs, and gravity. GDP for Q1 was released and the economy expanded by 3.2% thanks to consumer spending which was up 3.6% and interestingly enough coincided with the release of KFC’s Double Down thereby spiking sales of Pepto Bismal and artificial hearts. Guesses were for 3.3% GDP expansion so the economy pretty much performed inline but following a 5.6% expansion in Q4, the economy has now had it’s best two quarters since the end of 2003 when the great mortgage fraud frenzy was peaking and anyone who currrently or previously had a heartbeat could get approved for a loan (Money McBags isn’t saying it was easy to get a mortgage, but Abe Vigoda owned 6 mansions and one apartment complex during that time and he died in the 1980s. What? he’s still alive? Nevermind). Also, the Fed’s inflation target was only up .6% which is the lowest level since records started being kept in 1959 but that target ignores food and fuel prices since why measure the things people actually need to spend their money on when measuring the value of money? It’s a bit like judging a movie based on the font of the opening credits (and Money McBags loves him some Garamond) or a wet t-shirt contest based on the flip-flops the contestants are wearing, but whatever. Business spend also keeps inproving as it was up 13% thanks to the fact that it is bouncing back from historical lows and an increase in the sale of cardboard boxes to help pack up laid off employees. While the consumer appears strong in GDP numbers, consumer sentiment dropped in April, though it still beat analyst guesses and was essentially the same as last month. Consumers are at least flat lining as the average US citizen gives a fuck about whatever is happening in Europe and as job losses have begun to stagnate, they are happily oblivious to any potential impending financial doom. Money McBags is pretty sure Europe will get their shit together so perhaps ignorance is bliss (though probably not as blissful as Elisabetta Canalis).
There is more he said/she said/finger pointing/tail wagging/pillow biting in Greece today. Moody’s downgraded 9 Greek banks which is a bit like downgrading hydrogen as a fuel for zeppelins after the Hindenburg crash or Heidi Montag‘s singing career after her second album was released. Greek prime minister George Papandreou is back crying for help saying “what is at stake is the survival of the nation.” But if he were really concerned about the survival of the nation, perhaps he wouldn’t have let the debt grow out of control or claimed the comedian Ant as one of Greece’s own. Tomorrow’s Labor Day festivities in Greece will likely be subdued as greater austerity measures threaten the ability of Greek workers to continue to produce no valuable output. Seriously, what does Greece produce besides baklava for tourists and Julia Alexandratou sex tapes? Perhaps union leaders should focus on that by figuratively solving the problem of what to do with all of the underwear they stole.
In the market, Goldman is getting sacked as US federal prosecutors may open a criminal case against them for crimes against humanity, or securities fraud, potato-puhtaato. It’s not clear what exactly the charges would be since every single investment bank does something criminal every day, but that is how the markets stay efficient. Money McBags does wonder what will happen to CEO Lloyd Blankfein if GS is found guilty and whether his cellmate will try to put his underlying assets into Blankfein’s special purpose entity.
Finally in small cap stocks, Money McBags favorite QCOR put up an ok quarter and yet are off to the races again. After last Q, Money McBags highlighted this company and mentioned one should buy on any pull back, unfortunately that pull back never occured as QCOR is now up 50%+ since then. This quarter revenue was up ~13% to $26.2MM and eps came in at $.11. Both of these numbers were short of Money McBags’ estimates (he had $27.5MM in revenue and $.15 eps) and yet the stock is absolutely ripping up like it is on a Red Bull and meth binge. There are five reasons for this as far as Money McBags can tell.
1. Operating expenses were higher than normal as they try to build out their sales and marketing efforts. Money McBags is 100% behind this as he’d like to be 100% behind Jessica Biel. Anyway, with costs up to help grow future revenue, a bit of a hit to the bottom line is unconcerning.
2. They announced that a panel of experts is going to rule on their FDA submission to get Acthar on label for IS on May 6th and QCOR will host a conference call about it on May 10th. This isn’t the final hurdle as the panel merely gives a recommendation to the FDA who then has the final ruling on June 11th, but a positive opinion will be a better sign for QCOR than marrying in to the Kennedy family was a positive sign for Arnold Schwarzenegger‘s political career. Getting IS on label would finally allow QCOR to market to doctors in their historically biggest segment.
3. Kelly Brook is hot. Ok, this might have nothing to do with QCOR being up, but Money McBags had to investigate to make sure. It is likely just spurious correlation but it was necessary for Money McBags to test his lurking variable to make sure.
4. NS is coming. Holy fucking shit could it be on. The QCOR cake just got a little more icing on it as NS could be bigger than both their IS and MS segments combined according to management. They filled 11 NS prescriptions this last Q which is still smaller than one of the late great He Ping Ping‘s turds but it is encouraging enough that management is going to launch a pilot sales program in April to try to reach nephrology doctors. Patients with NS need to use Acthar for 3 to 6 months to be cured so the recurring revenue potential is huge for QCOR.
5. MS continues to grow, ticking up 187% and overtaking IS as their biggest segment. Remember, just two years ago this segment was about the same size as NS currently is but management dedicated resources to blowing it out, so it does bode well for their ability to execute a NS strategy.
So while all of that was good, numbers were still below what Money McBags thought and he is taking his full year estimate down to ~$.60 from ~$.70. The big question for Money McBags has to do with why their reimbursement rate as a % of gross sales which had been running at 30%+ was down to ~22% this quarter? The reimbursement rate takes gross sales to net sales by removing medicare/medicade/etc. expenses. So with only a 22% remibursment rate, it means gross sales were way below Money McBags estimates and the question is why and what is the rate going to be going forward? Sure they seemingly cleaned up a bunch of the tricare reimbursment issues, but is this 22% rate the rate to use going forward? If so, that would be huge for eps and if not, investors may be in for a negative surprise next Q. That said, with his current $.60 eps estimate (based on a 25% reimbursement rate, 20% sequential quarterly MS growth, no growth in IS, and no growth in NS) the stock is trading at 16x that, even after this run up so it’s still not hella expensive especially with the NS potential. Remember, they said NS could be bigger than their current business so in the ultimate best case scenario (and Money McBags is not saying this will happen, just their big upside possibility), they could more than double their earnings in 2012 (say it takes them 2 years to get NS up and running like it did for MS and they get operating leverage and continued growth in MS) which makes this a ridonkulous buy. However, Money McBags would like to get a better understanding of reimbursement, a better understanding of what they are going to do with their cash (last Q they said they were going to look to buy another drug but there was no mention of it this Q), and a better understanding of Kate Bosworth.
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.
Wow. The market ripped up today like it was competing for the Ansari X Prize in 2004 or like it was rushing to claim the last seat in a dream Hayley Atwell-Kate Bosworth Ultimate Surrender match (nsfw, unless your work doesn’t suck). Technology led the way thanks to an upbeat report on chip sales and the fact that we are at the inflection point of exponential technological growth, regardless of the economy (or at least Ray Kurzweil’s fancy graphs say so*). Chip sales were up 47% from last year and .3% from December leaving Semiconductor Industry Association President George Scalise (whose last name is an unfortunate anagram for one of the world’s worst afflictions, “ass lice”) to explain that sales were helped by “growing demand for semiconductors used in personal computers, cell phones, automobiles and industrial applications.” He then pointed to the reporter and while being egged on by his minions used the old SIA favorite line, “Is that a pre-Moore’s Law semiconductor in your pants or are you just happy to see me.” Along wth a positive report on semi sales, consumer spending was up .5% despite incomes only being up .1% which led to the lowest savings rate since January of 2008, you know, back when the market was crashing because EVERYONE WAS FUCKING OVERLEVERAGED. So at least it looks like that problem has been solved. This country continues to treat savings like Lindsay Lohan treats vaginal hygiene or Larry Craig treats truthfulness, but hey, at least spending more than one earned sent the market on an orgiastic run today, so damn you common sense. In other macro news today, the ISM’s factory index fell to 56.5 from January’s 58.4, which was a 5 year high. While a number falling is usually a bad thing, unless it’s the number of times Sweet Homa Alabama is played on the radio, the ISM index was still above 50 and that magical made-up line of delineation apparently indicates the economy is still in expansion based on the at times subjective inputs of the purchasing managers reporting to the ISM. However, according to the ISM website, a “PMI in excess of 42 percent, over a period of time, generally indicates an expansion of the overall economy,” so that magical 50 number that people are claiming is good, could be as low as 42 and everything would still be ok. Whew, I am glad we have an arbitrarily declining scale to measure whatever it is the PMI measures, though perhaps they should hire some of the 20MM unemployed people to take more exact readings on what managers are purchasing.
In stock news, AIG sold their Asian life insurance unit to Prudential for $35.5B and PRU’s promise to love them long time. The sale will allow AIG to pay back the government and strategically rids them of one of their most profitable companies, thereby continuing AIG’s policy of doing things that suck. While selling assets is something AIG needs to do to get out of debt, selling their profitable business is a bit like McDonalds selling Burger King the rights to the Big Mac and thus leaving them with just the Filet O’Fish and Salmonella McNuggets. AIG is also determined to sell their US life business to MET, which means they can focus on their prized P&C business which was only one of the biggest reasons they underperformed last quarter. In other large cap news, Sandisk was up 11% today after raising their first quarter revenue guidance by 6% during Friday’s analyst day. This caused analysts to upgrade the stock including Wedbush’s Betsy Van Hees who had a sell on the company but was able to finally get the sand(isk) out of her vagina and raise SNDK to neutral.
In small cap news, Money McBags favorite MLNK shot up 6% likely on the positive semi news which should augur well for the computer market. MLNK still remains more undervalued than a taint licking. Money McBags broke MLNK down for all of you in January, but the company has treaded water since then despite the fact that their $.17 quarterly eps can easily turn into $.22 with just continued cost cutting. Add in just a Pam Anderson‘s dignity amount of growth and you’re at $.25 per quarter eps or $1 for the year. So with very little positive news, MLNK could take off and rise out of it’s way too cheap valuation of 10.5x eps and 4x-5x EBITDA with a ton of cash on the balance sheet. This stock should be owned by anyone who hates being poor, so Mickey Rourke need not apply. Also, another Money McBags stock which is frequently blogged about on When Genius Prevailed, RICK, briefly bounced up to Money McBags sell target of $16 today before getting absolutely ass raped around noon. No one has witnessed a nooner that violent since David Carradine dined alone in his hotel closet. Look at the chart below and notice right at 12:45 someone wanted to get the fuck out like RICK was two girls and they were the one cup. Huge volume. The stock usually trades about 200k shares a day and in a 15 minute span almost 600k shares blew out on the market. Perhaps every quant fund had Money McBags $16 price target hardwired in as the sell time as we all know Money McBags moves markets, or perhaps one of the 20 funds who own 600k+ shares had a little too much champagne in the chanmpagne room, but fuck did someone want out of this thing.
Money McBags is a bit flummoxed by the need to puke out so many shares and it reeks of a capital call, except funds should be relatively stable now, so this run for the door is more perplexing (and nowhere near as delicious) as teenage girls claiming that having anal sex still leaves them virgins.
Tomorrow’s blog may be out late, so follow Money McBags on twitter for updates.
*For those futurist tech geeks out ther Money McBags hopes to put his singularity near Kurzweil’s prophesized spiritual machines, especially if they’re as frisky as Riley Steele. So keep grokking Spock, my friends, keep grokking Spock).