Posts tagged EPAX
The market bounced around today as it tried to find a direction like scientists are trying to find the elusive “God particle” (though apparently scientists have figured out where it isn’t which includes Jane Austen’s writing, Bernie Madoff’s bank account, and Jamaica. But newsflash Einsteins, you might want to check Brooklyn Decker‘s vagina because if the “god particle” isn’t there, Nietzsche may have been right.).
Anyway, the big macro news was that consumer confidence fell to a five month low with consumers still worried about jobs, the potential death of fiat currency and subsequent return to the barter system, and Eliza Dushku‘s consistent refusal to do nude scenes. The index fell to 50.4 from an upwardly revised 54.3 and economists had guessed it would come in at 51, so good on them for almost correctly predicting one number out of the thousand they guess on yearly. That said, a drop in consumer confidence could lead to further declines in spending which is as good for the economic recovery as fat tails are for trying to forecast using gaussian assumptions, tickets to the Ford theatre were for Abraham Lincoln, or The World’s Biggest Gang Bang was to Annabel Chong‘s pelvis.
In headline manipulatedly (and yes that is more of a rehetorical tautology than “free gift,” “short summary,” or “Kathy Griffin manly”) positive macro news, the Case-Shiller home price index was up 1.3% on a non-seasonally adjusted basis, .5% on a seasonally adjusted basis, 4.7% year over year, and 30% in the land of make believe where every party is as delightful as a rainbow. Of course the numbers are more worthless than a hand job from a quadriplegic with carpal tunnel disease as the Case Shiller index uses a fucking three month average so inflated home sales from April due to the now expired the government tax credit are still in the numbers. What we do know is that home prices are at least 29% below their inflated peak from four years ago, foreclosured properties are at record highs, and Sofia Vergara is hot.
The market remains at a headscratchingly confusing time (though if it were Money McBags’ head and Diora Baird doing the scratching, that would be a lot less confusing) with macro data continuing to be marginally bad at best and yet earnings coming in moderately good at worst. So which is the leading indicator and which is the lagging? It is a question that is proving to be a bigger conundrum than anything the Sphinx, Hamlet, or Andy Rooney ever asked (go to ~1:13 in the video).
In Europe, all but one of the 27 members of the EU agreed in principle to new BASEL regulations, with only Germany holding out as they wait for a bigger signing bonus, guaranteed playing time, and use of the EU locker room to entertain groupies during breaks in the negotiations. The new proposal is less onerous than earlier proposals and give banks more leeway to define what counts as Tier 1 capital potentially including stakes in other banks, future tax benefits, and monopoly money. Regulators are still debating the amount that banks will ultimately need to hold as reserves but Money McBags is pretty sure that whatever the number winds up being, it won’t be enough for the next bubble.
Also internationally, Germany’s consumer confidence from the GfK institute rose to 3.9 but as Money McBags doesn’t use the metric system, he has no idea what that means. That said, with Germany being Europe’s largest and least funny economy, rising confidence can’t be a bad thing.
In the market, DuPont (ticker DD) announced a good Q which was the second time today the market got excited about a set of double Ds with JWOWW having rung the opening bell. DD earned $1.17 per share, beating analyst guesses of $.94 eps as a result of 26% revenue growth driven by a 33% increase in emerging market sales. They also raised 2010 earnings guidance to $2.90 to $3.05 per share from $2.50 to $2.70 and told analysts to suck it.
Deutsche bank made analysts look like deutsche bags by putting up a big Q as well. DB posted a 9% rise in earnings despite weak performance from their investment banking business which had to take a quarter off from manipulating the market while new regulations were being discussed. That said, it was a good Q for the German bank who is still likely drunk and throwing out the saran wrap from their traditional German scat party as a way to celebrate having passed the europe bank stress tests last week (though the tests were about as vigorous as a Kirstie Alley workout video).
Finally, BP was down after posting a $17B second quarter loss thanks to creating the worse unnatural disaster since the Lohans failed to get an abortion 24 year ago. And Apple will now be forced to allow third party software on the iPhones which means porn lovers everywhere just lost another 30 minutes of their day. The real purpose of the ruling by the copyright office is to allow iPhone users the ability to unlock their phones without any repercussions and thus have the ablilty to change their wireless service provider from AT&T to something that works a little bit better, like smoke signals, shouting, or semaphore.
In small cap news, CTGX reports tonight and Money McBags expects an inline quarter at best with EMR still a few Qs away. 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.
Last week EPAX, a small, overlooked, and horribly performing name which Money McBags thinks is an interesting company put up a Q as crappy as expected. Money McBags broke down this company in quite a bit of detail a few months ago but they basically arrange for international student travel so little Jimmy can lose his virginity to an Amsterdamian hooker all under the guise of educational experiences. The point is, the business sucks right now as if it were Jesse Jane on the set of Island Fever 4. The company sells expensive, completely discretionary trips to Europe in the biggest recession in 70 years when in the internet age all one has to do to spend a night in Paris is steal their neighbor’s wifi signal. This last Q, gross margin was down ~15% and with operating costs flat at $12MM, eps was down ~20% to $.79 per share in what is traditionally the strongest Q for the company as it is right before the summer travel season.
Money McBags’ estimate remains at $.49 eps for this year and the company released guidance for $.48 eps to $.52 eps (and yes, Money McBags’ $.49 eps estimate was from way back in April when the street was still at ~$.60, look it up, so his 15 minute earnings model proved to be more precise than sell side analyst models which is less surprising than finding out that Gary Colemn didn’t live to age 50). The point is, the company is still struggling with enrollments down 17% and their recently launched Discover Adventure travel progam having underwhelmed like a bachelor party in which Mayim Bialik jumps out of the cake (or more precisely, eats her way out).
So why the fuck would Money McBags be interested in a company whose EPS is going to decline by 50% and is trading at >20x current year guidance? Simple, volume. Well, actually volume has little to do with it but cash does. The company has $53MM in deployable cash and a market value of $210MM so ~25% of their value is in cash or roughly $2.50 per share. Not only that but this company can scale quickly as they are already running a lean operation and until this year were able to maintain $1 in earnings power.
So the upside is that people become a little less freaked out about the economy in a year, EPAX buys back shares with some of their cash, and Hanna Hilton comes out of retirement and offers her fans free ice cream sundaes for continuing to have supported her in her down time (and yes that has very little to do with EPAX, but whatever).
This company is an interesting way to play a recovering economy and while Money McBags doesn’t think that is going to happen anytime soon, it is a cheap way to hedge one’s negative bets. Money McBags doubts the stock does anything for at least another 3Qs and he doesn’t own it nor is he going to buy it, but it pays ~2% yield and is one way to play a market recovery with some downside protection.
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.