Posts tagged EU
The market was relatively quiet today as investors brace themselves for tomorrow’s Labor Force Participation Rate Report, Money McBags means Jobs Report, from the (No) Labor Department which will likely be more fictitious than a James Frey memoir, a Jayson Blair news story, or Ryan Seacrest’s girlfriend (at least the girlfriend who supposedly pees sitting down).
That said, even with unheard of negative geopolitical unrest as the Middle East goes through more changes than Chaz Bono, unknown long-term effects of Japan’s nuclear meltdown as low levels of radiation now seep in to US milk making it potentially the second most harmful milk additive after Strawberry Quick, and unconscionable short-term effects of the just released NSFW Kathy Griffin topless pics which caused onlookers to go all Raiders of the Lost Ark, the market remains unflappable so a negative Jobs Report will likely be ignored more than Harry Markopolos by the SEC or full disclosure by the Polyamorous one’s heir to the reasonably priced and bought on discount throne. So while Money McBags is going to drop another ~1k words on the market today and likely another 1.5k-2k tomorrow on the Labor Force Participation Report, fell free to just click on the pics, enjoy National Cleavage Day and buy the fucking dip, because data and thoughtful analysis matter as much in this market as brevity mattered to Tolstoy or panties matter to Yana Gupta (shout out to all the readers in India, can Money McBags get a क्या क्या).
As for macro news, initial claims for unemployment benefits were released and they either dropped 6k from the upwardly revised 394k, or they rose 6k from the downwardly reported 382k of last week, depending on which made up number you choose to use as your frame of reference in the latest version of the government’s “Hold the shock and hope for no awe strategy” where data is more relative than an Alabama resident’s family tree. Basically, this week’s number was the Andy Dick of (No) Labor Department data as it can go either way. That said, this strong (or weak) number follows ADP’s March payroll data that said the economy added ~200k jobs, though sifting through the fine print of the ADP data, it turns out half of those jobs were for unicorn trainers, alchemists, and buttfors (and if you don’t know what a buttfor is, it’s for shitting), so as always, it is hard to trust the numbers.
In other news, factory orders fell .1% which was the first drop in 3 months and only an absolute value sign and a forecastable data set away from economist guesses of a .5% rise. Also, the Chicago ISM index fell from a 22 year high of 71.2 in February to 70.6 in March (and for a business barometer to be at a 22 year high in this ponzeconomy™, it must ingesting some of Charlie Sheen’s second hand smoke). The most interesting part of the data is that the employment component which likely includes future assumptions rose to 65.6 which is the highest level it has been since 1983 but the optimism was likely driven by the start of the baseball season which is the time of year when Chicagoans become most positively deluded.
There was also something released today called the Bloomberg Consumer Comfort Index which rose for the first time in 5 weeks to -46.9, so whoopee that some made up index that Money McBags cares about as much as he cares about feelings, Donald Trump’s birth certificate, or that Dancing with Stars program, went up to a lower negative number. Oh wait, what’s that? The made up number indicates a recession? Now Money McBags knows it is fictitious because if rising input prices (and this is one input for which Money McBags would pay any price), 15%+ real unemployment, and slow wage growth signal recession, then Money McBags isn’t his real name (and yes that was sarcasm).
Finally, the Fed released discount window loan records and it turns out that in 2007 BofA tapped the Fed’s discount window more frequently than Money McBags would tap this ass (though with less effervescence). Bloomberg News reporters received two CD-ROMs with the data, each containing an identical set of 894 PDF files, a character profile for an elf in World of Warcraft named Berspankme, and 7 MP3 files, all of the song Friday. As to the release of the records, JPM Chief Criminal in Charge Jamie Dimon said “I think it will make it harder for people to use the discount window in the future,” to which Money McBags responds “Good.” See, here’s the fucking deal, the discount window isn’t a fucking toy and if a bank is fucked enough to have to use it: 1. Fuck them for sucking at their jobs. 2. Investors should know what is going on since bank financials are more manipulated than Newt Gingrich’s twitter account so knowing a bank is using the discount window provides INFORFUCKINGMATION to the market. and 3. If Money McBags wanted to hear from an asshole, he would have farted, so kindly go back to bilking investors in the quiet of your own gold encrusted office.
As for international news Libyan foreign minister Moussa Koussa defected (and Money McBags can’t figure out if Moussa Koussa sounds like a rejected Dr. Seuss Character (And today Moussa Koussa, the marvelous defectee, ran away from Libya, and that cockrod Qadaffi), or the product of a smurf and an oompa loompa fucking), as NATO heads up the US’s support of Libyan rebels as a way to make sure we get our fucking oil.
Meanwhile, Europe’s recovery showed prices rising and weaker consumption, because, um, that is what happens when prices rise, people generally consume less as their fiat currency becomes more worthless than Wells Fargo debit rewards or script writing advice from M. Night Shyamalan. The problem in Europe (other than that whole hygiene thing) is that the recovery is more uneven than Halle Berry’s chest as Germany continues to at least tread water as their unemployment rate dropped to 7.1% which is the lowest since reunification while Portugal sinks as their deficit continues to get more out of hand than Nekiva Hardy at a Burger King (but to be fair, the fries were cold).
Today Portugal reported a budget deficit of 8.6% of GDP for 2010 which was well above their 7.3% target and they blamed it on changes in accounting rules such as being required to report both credits and debits, to do away with coin flips when marking to market, and to discontinue the use of floating decimal points. As a result of the outsized deficit, investors sent yields on Portugal’s 10 year bonds to new highs, which is going to make it a fuckton harder for Portugal to continue to ponzi scheme their way out of their fiscal issues (and perhaps they should auction off Liliana Queiroz with their next bond issuance to drum up demand).
In the market, not much really happened except Microsoft filed an antitrust case against GOOG, which is like the pot calling the kettle black, Nouriel Roubini calling someone a bit of a curmudgeon, or Camille Crimson calling someone a cumguzzler.
As for small caps, Money McBags wanted to point out WGO again as their valuation makes less sense than Abercrombie and Fitch’s product choices. WGO announced their quarterly results last week while Money McBags was on hiatus (more on that soon, as rumors continue to fly across the internet and Money McBags promises to address them) and it sucked more dick than George Michael in lock-up. As Money McBags has been saying, their revenue growth is done since dealers have now restocked and sure as fuck, revenue was down 4%. But it’s not just that, as dealer inventories remain elevated as they were up 7% even though WGO deliveries were down 18% and if you do the math, that means shit is not good. But here is the kicker, they earned a headline $.11 eps but said that:
“the second quarter of Fiscal 2011 was positively impacted by the results of the annual physical inventory of work-in-process recorded during the quarter, due to lower actual inventory scrap and production loss than recent historical experience, which had the effect of increasing gross profit and inventories by $3.5 million”
So if we take that $3.5MM out of gross margin, all of a sudden operating income drops to ~$550k and that flows down to $.02 in eps. Yep, 2 fucking cents which is inline with last year and taking out the one-timers from last Q, means they have earned $.12 per share in the last 6 months. So even if they somehow double earnings in the next six months (though with flat revenues, overstocked dealers, rising gas prices, and morons going to jail, that is less likely than a fat chick not swallowing), that would put them at a $.33 annual eps and the company is trading at 41x that. No really, Money McBags is not making any of this up. Shit, Money McBags wouldn’t even pay 40x for something as ridonkulous as Groupon even if all they were offering were coupons for 98% off tug jobs at the World Famous Mitchell Brothers’ O’Farrell Theatre.
Money McBags is holding to his $7.50 generous price target on WGO even though all it has done is go up on him. The fact is, not only do the numbers not support valuation, but neither does the fucking economy. Seriously, what fucking cockknocker is going to lever up to buy a gas guzzler with the Middle East in upheaval and gas prices shooting up like Barry Bonds in a contract year? The valuation is cockposterous as there is more of a disconnect between price and value than there is between Ben Bernanke’s interpretation of inflation and M2, but the good news is, there is plenty of money to be made by shorting here.
11/23/10 Midnight Report: Fed Minutes Show Only Hours Until Dollars’ Demise as the Economy Will Be The Real Turkey This Thanksgiving
The market is limping in to Thanksgiving like Kenny Easterday with a broken wrist thanks to the European Union being on shakier ground than Gabourey Sidibe on a tight rope, North Korea dropping bombs on South Korea after South Korea’s TSA apparently tried to touch Kim Jong-ils junk, and the Fed releasing the minutes from their last meeting which showed less consensus than how to spell “Bernanke” at a Tea Party convention.
Loyal readers of the award winning When Genius Prevailed know that Odette Yustman is hot, but they also know that Money McBags has been baffled, bufuddled, and downright befuckingperplexed at the market’s continued strong rally given that data remains tepid at best and Europe continues try to sweep their problems under a rug more tattered than Elton John’s. So continue to make sure you are careful in your investments because the fan is on and the global economy just downed a bag of Nacho Cheese Gorditas and a six-pack of Metamucil.
As for macro news today, the Fed released their minutes from their last meeting and in them we learned that they downgraded their assessment of the economy from “meh” to “oops” with GDP targets for next year lowered from a range of 3.5% to 4.2% to a range of 3.0% to 3.6% while also raising the completely fictitious upper range of the long run rate of unemployment from 5.3% to 6%. So suck on that NAIRU. The minutes also showed that the Fed discussed that QE2 would sink the value of the dollar (despite their repeated denials of such an effect) and ways to improve their communication with the public such as not lying, using smaller words, and employing cartoon characters.
One other interesting detail released was that the Fed had a special video conference two weeks before they officially met (though the video conference got off to a rocky start when Janet Yellen and Sandra Pianalto were subjected to a flurry of cock shots as Bernanke, Hoenig, and William Dudley thought they were merely on chatroulette). The conference was to discuss hot button issues such as setting explicit targets for inflation and long-term interest rates (targets as explicit as “Fucking higher” and “Cockposterously higher”) and which Fed member had the awesomer name between Christine “Honey I’m” Cumming and Brian P. Sack (and when Money McBags becomes the next dictator, he is going to require everyone with the last name Sack to have the middle initial P.).
In other macro news, GDP was revised up to 2.5% from 2% thanks to stronger exports, better consumer and government spending, and a fuckload more inventories as businesses stock up on broken dreams and malt liquor to make their own Four Loco. Inventory increases accounted for about half of the 2.5% growth so as inventory trickles down in the next Q as re-stocking goes the way of full bush and those fucking annoying Wassup Budweiser guys (thanks to the holiday season ending and federal unemployment benefits drying up), GDP will struggle to stay positive in the upcoming Qs.
Elsewhere, existing home sales fell 2.2% sequentially or 26% y/y depending on whether you are bearish or fucking bearish (actually the sharp year over year decline was driven by last year’s home buying tax incentive, but whatever). Sales were effected by some states postponing foreclosures due to something about robosignatures and straight up fraud, as well as people not having any money. The annual rate of sales is now 4.43MM, which was below the 4.49MM guessed at by analysts, and means there is now 10.5 months of inventory on the market not counting shadow inventory and Ice-T’s wife’s ass.
As mentioned earlier though, it was international news that figuratively pissed in the market’s cheerios today as North Korea and South Korea are nearing war and threatening to use biological weapons such as unrefrigerated kimchi on each other. In Europe, Ireland bent over and took their $100B+ bailout from the EU who once again showed their love for Doin’ Da Butt. This massive bail out has effectively caused the Irish government to collapse as PM Brian Cowen’s Fianna Fail party has officially Fianna-failed. While Cowen won’t step down immediately, he agreed to hold new elections after the budget passes in order to “let some other schmuck deal with this mess.”
Three funds will be created for Ireland in the bail out, one will back up the country’s failing banks, one will allow Ireland to continue government operations without turning to the bond markets for help, and the final one will get Ireland one night with homegrown Claire Tully. This package should allow Ireland to operate without funds from the markets for up to three years, unless they follow Greece’s lead and fabricate their books worse than Stephen Ambrose on a bender. Making matters worse was that Ireland’s central bank Governor Patrick Honohan said, “Irish banks are up for sale” and Money McBags is willing to bid anything between “not a fucking chance” and “eat a bag of dick” because he hasn’t seen assets that toxic since Paris Hilton got her last pap smear.
Luckily, Greece is getting their aid (as they must have received the placebo in the Truvada trials) of $12B in January from the IMF but German Chancellor Angela Merkel pointed out there is now serious bailout risk sweeping the continent as moral hazard from stepping in for Greece and Ireland has created a slope slipperier than OJ’s alibi (he did have an alibi, right?).
In the market, the FBI raided 3 hedge funds after they likely tracked messages posted to Dickflash emanating from those offices. As for stocks, J Crew was up 16% after agreeing to a $3B buyout from two private equity funds who have until the month to return the deal for store credit if they are not happy. HPQ was up 2% after a decent Q in which the company beat analyst guesses on both top and bottom lines and gave above the street guidance. The quarter was highlighted by new CEO Leo Apotheker playing Santa Claus to former CEO Mark Hurd’s Scrooge by reversing pay cuts, reinstating a 401k matching plan, and bringing Skinemax back to break room TVs. Also, NYT strangely shot up again today on unusual volume as algorithms apparently don’t know that the newspaper industry is shrinking faster than gonorhhea cases in the US.
In other earnings news, Hormel put up a good Q with profit up 17% thanks to the strong performance of Jennie-O Turkey and the fact that with real unemployment running at ~17%ish, SPAM is now considered a luxury good, Finally Campbell’s soup was down after missing analyst guesses as their promotional spend didn’t pay off because apparently hiring Mel Gibson as a spokesperson was a case of bad timing.
In small cap news today CTGX continues their ride up (and remember Money McBags told you all about them at the beginning of the year), while KITD continued to bounce after their $96MM equity raise the other day.
That said, KITD had their quarterly call yesterday and Money McBags wanted to briefly go over the highlights as he went over their preannouncement in exhaustive detail the other week. Unfortunately he didn’t get to watch the call as the streaming on their site was somehow fucked up (and Money McBags won’t blame this on their VX Platform, but rather will assume it had to do with trying to watch Carmella Bing‘s latest spankwire.com video at the same time). Anyway, this is what we learned:
1. EBITDA margins were much lower than they have been coming in ~16% but that was due to a bigger sales pipeline than expected leading to more implementations. It was also the result of investing in future growth by doing some hiring. Money McBags is fine with this, especially as EBITDA guidance for 2011 stayed at a spanktastic 24% with 30% EBITDA margins being the long-term target.
2. While DSOs spiked to 116 days, they were down to 78 days at the end of November with 94 days being a more normalized number. So good on them for getting this shit down after late quarter acquisitions caused them to rise.
3. They added 45+ new clients including something called the International House of Prayer, where salvation is served all night.
4. They clearly stated that they have raised enough cash for their transformative acquisition which will be a company with $50-$60MM in revenue and which they will spend ~$100MM (and remember, Money McBags estimated they’d buy ~$40MM-$50MM of revenue for $100MM, so good for his fucking guess). They also said they would only do an accretive deal and they threw in $20MM+ of their own money in this last equity raise. So while Money McBags has given management a ton of shit for their constant equity raises, he has always appreciated that they are risking their money with shareholders. Sometimes it is good to get high off your own supply.
5. They are trying to book as much restructuring and integration charges as they can in Q4 so they can start 2011 with a relatively clean income statement. They’ve also been trying to buy back 450k warrants for quite some time from some cock knocker hedge fund who simply won’t sell. Money McBags thinks this is huge because they could easily put up ~$.75 of eps next year which will trip the shit out of algorithms and screening models that aren’t picking up this GAAP eps negative company.
6. Olivia Munn is hot. Money McBags didn’t learn this on their call per se, but it is a very important thing to remember.
7. They sold the ~$14MM in non-SAAS business they intended to ditch which was EBITDA neutral for them so next year’s guidance is $137.5MM in revenue and 24% EBITDA margins. Well, until the acquisition and then guidance will probably jump to ~$195MM and who the fuck knows about EBIDTA. They also said that due to the long-term nature of their contracts, ~60% to 66% of their 2011 revenue is already in pocket (and those must be some hella large pockets because even if they are carrying a $50MM bill and two $20MM bills, that would still leave ~$1.67MM in ones which is at least two hours for Money McBags sitting stage level at his local Rick’s Cabaret).
KITD remains one of Money McBags favorite names and there will probably be some nice entry points (though not as nice as these entry points) as they get closer to making their transformative deal.
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.
6/8/10 Midevening Report: Bernanke speech fails to significantly rally the market, says he’ll overpromise more next time
The market was relatively quiet today as there was a lack of macro news though Fed Chairman Ben Bernanke was out late Monday saying: “My best guess is that we’ll have a continued recovery, but it won’t feel terrific like a blumpkin from Sara Varone followed by a nice wipe with that oh so soft aloe infused Cottonelle. Instead, it will feel more like having your nut hairs pulled out while listening to the smooth adult contemporary sounds of Sade”. Ok, Money McBags made part of that up but that’s not the point, the point is, Bernanke is hedging on this recovery like he just bought FAZ in his IRA. While he says the economy won’t likely have a double dip recession, he did not say it wouldn’t have a single dip recession followed by a falling off the cliff depression, so it’s merely a matter of semantics. Bernanke also dusted off his Phillips curve (though it wasn’t as curvy as Kimberly Phillips) and added that the central bank would raise rates before the economy returns to full employment, which should be any century now. That’s great, but Money McBags would like to know what the full employment rate is? Is it 4%, 6%, or whatever proof the whiskey was that Milton Friedman was drinking when he came up with NAIRU (seriously Milt, you couldn’t have come up with a catchier name than the Non-Accelerating Inflation Rate of Unemployment? Really? That name could put Ritalin out of business because just reading it has to make even the most hyperactive person drowsy.)? The point is, the full employment rate is a bogus hurdle as there is no set rate so saying rates will rise before we reach that level is as helpful as saying you’ll stop running when you catch the horizon. With the stimulus funds coming to an end over the next few quarters and the economy already starting to show signs of coming down from its stimulus induced bender where it got drunk off of bail outs and hand outs and now finds itself waking up in a pool of its own spending while dry humping Greece’s Aegean coast to the sweet whisperings of Benjamin S. Bernanke and and his magical money making machine, the economy is in a precarious position (though not as precarious of a position as Kirstie Alley‘s girdle).
Internationally, the new government in Hungary has announced a set of austerity measures aimed at solving their debt crisis. The austerity measures include cutting public wages, overhauling the tax system, banning mortgage lending in foreign currencies, and stopping free cookie day at the National Assembly. Also, the European Union’s finance ministers met in Luxembourg with the most important outcomes being an agreement to allow tighter oversight on countries suspected of falsifying economic data and an agreement that Ginger Spice was the hottest of the Spice Girls.
In stock news, AAPL introduced a $199 iPhone which has a front facing camera that should now allow users to masturbate on chatroulette wherever they may be. The new iPhone is slimmer than the previous version, has better picture quality, and doesn’t insist on cuddling when you are done with it. In other stock news, MCD had better than guessed at growth for the month of May of 4.8% worldwide thanks to the fact that they sell cheap shit and people can only afford to eat cheap shit. The company announced the falling Euro would impact yearly earnings but announced that to make up for those lost earning they are forming a partnership with American Heart Association to get a portion of the profits from all angiograms caused by eating their food. Finally, analysts were busy today with INTC downgraded by SIG to neutral because the analyst had to do something to try to drum up trading business for SIG and Dick Bove, who never saw a financial stock he didn’t like and didn’t understand, cut his price target at JP Morgan from jizztastic to just ballticklingly good.
In small cap stocks, Money McBags favorite KITD continues to get pounded like Alexis Texas on payday. With ~70% of their revenues coming from Europe, topline should be impacted by the 15%-20% drop in the Euro with investors seemingly betting on worse. Given that, it is difficult to come up with a short term valuation for KITD as the Euro appears to be falling off worse than proper grammar or Britney Spears’ top. Last Q, the $/Euro exchange rate was somewhere around $1.38 and this Q, it’s likely going to be around $1.25, and after that, who knows? So lets take a worse case scenario where we assume the exchange goes to parity. So that would be a 28% drop in the exchange rate from last Q. Money McBags thinks at the high end KITD can do $150MM of revenue next year, but let’s call it $130MM because of the global uncertainty. The thing is, that number was derived off of the old $/EU exchange so if we knock 70% of their revenue (their EU exposed revenue) by 28%, revenue decreases by ~$25MM. So insted of $130MM, a worst case scenario yields revenue of $105MM and at 20% EBITDA margins, that is ~$21MM EBITDA. The company currently has a market cap of $210MM but they have somewhere around $30MM in cash after their last deal so they have an enterprise value of roughly $180MM and thus are currently at a worst case scenario of ~9x EV/EBITDA and topline growth in that scenario would still be ~20% (and dollar euro parity is almost as bad a scenario for the financial markets as having your daughter bring home Jordan Van Der Sloot for Thanksgiving Break). Of course all of this assumes that their costs and revenue are tied together so if the euro drops by 28% the associated costs with that will drop by 28% and thus margins will remain intact. The point is, Money McBags still likes this company longterm as they are in a rapidly growing space that is going to continue to grow for several years, but there are certainly short term currency issues. However, they are diversifying their revenues in to the US and Asia so as to become less dependent on Europe so while things look bad now, in the long run this company should be fine. With uncertainty comes opportunity and it is getting to the point where this company is just getting stupid cheap.
5/19/10 Midafternoon Report: VIX shoots up, claims it doesn’t have a problem, just wants to try to take its mind off global recession
The market got clobbered again today (until a closing minutes rally) like it insulted Preston Brooks’ uncle or like it had one too many shots of tequila while watching the donkey show. Investors continue to fear the impending doom of Europe with their quaint monetary system, silly accents, and love of black jeans. However, macro news in the US was marginal today with inflation at its lowest level in 44 years which should allow the Fed to keep rates at historic lows until it causes the next bubble. Core inflation, which takes out the effects of things on which people actually spend their money like food, energy, and lap dances, was flat and thus led to the lowest 12 month gain since LBJ was president, yo-yos were a fad, and full muff was the style. Overall though, consumer prices fell by .1% so on average the little money you have left will now get you .1% closer to buying some shit you can’t afford. On the housing front, mortgage demand shriveled up worse than your “jumbo arm” after diving into the arctic ocean immediately after viewing a Hanna Hilton opus. With the federal tax credit for homebuying now expired, mortgage purchase applications fell by 27% despite record low rates and home sellers making sure all of their carpets match their drapes (and for the record, Money McBags is not in favor of carpeting for his hardwood). Making matters worse is that foreclosures rose to a record high 4.63% and now 1 out of every 7 homes is either in foreclosure or delinquency or as it’s known on the Street “a AAA rated Goldman MBS CDO.” Finally, the SEC is trying to put in circuit breakers for all S&P 500 stocks to combat the stranglehold high frequency traders have on the market (and as always, Money McBags is a big proponent of the Camel Clutch as the best stranglehold). While these measures may have the effect of bringing a knife to a gun fight or hiring Magic Johnson to judge a grammar contest, the circuit breakers will seek to pause trading for five minutes if the price of a stock moves by 10% or more in a five-minute period or if Bar Refaeli show up on the floor of any exchange.
Internationally, investors are still freaked out by Angela Merkel’s preemptive strike on naked short sellers and will make sure they have an extra pair of pants with them at all times just in case. Germany’s new shortng regulation has caused investors to wonder what exactly German leaders know that is not public as German bank stocks have yet to come under attack and usually politicians wait for things to crumble before acting. Strangely, the rest of Europe has not followed what could now be the biggest Merkel boner since Fred failed to touch second base (and Money McBags would never fail to touch Angela‘s second base). The failure of other european countries to follow Germany’s lead in regulating their markets is causing investors to question the strength of the EU while applauding Europe’s sanity because we all know what happened last time Europe followed the Germans.
In stock news, does anyone really care? No seriously. The market is not trading on fundamentals right now as forecasts for next year are more dubious than receiving a letter from Ted Kaczynski. Money McBags has been harping on analysts using normalized earnings as a valuation metric for awhile now since normalized went out the door with subprime CDOs, easy credit, and the advent of the very NSFW muff guessing (though Money McBags does use normalized earnings in his EPAX valuation, but there is something to be said about being logically inconsistent, just ask Mark Souder who apparently values families so much, he has more than one). Anyway, HPQ put up a nice quarter last night, beating analyst estimates and raising guidance thanks to strong demand for their PCs, a resurgence of their printer business, and absolutely no influence from Carly Fiorina in the past five years. The company earned $1.09 per share, beating analyst guesses by $.04 and gave full year guidance of $4.45 eps to $4.50 eps which topped analyst guesses of $4.45, or by about the amount of their beat this Q. The printing division grew revenue by 8% as they apparently supply the US Treasury with laser printers to spit out more dollars. In other stocks, TGT put up a solid quarter though not nearly as delightful as BJ’s who swallowed up the competition. BJ’s beat estimates and saw a 4% increase in customer traffic thanks to higher sales of candy, cigarettes and awesomeness.
In small cap news, once again Money McBags favorite KITD is getting demolished on high volume. Either a large owner had a margin call, a Portia De Rossi fat finger, or just wants the fuck out like Ricky Martin trapped in a closet. Here is what Money McBags knows:
1. CEO Kaleil Tuzman bought 100k shares the other week. When a CEO is buying, that usually means good news unless the CEO is Ken Lay and he is buying Enron. That said, this should be at worst slightly positive.
2. Their Q was ok by Money McBags’ standards but caused analysts to increase targets. This should be a slight positive as obviously, analysts are just guessing.
3. They diluted the shit out of shareholders last month and have yet to put the majority of that money to work. This is a big negative.
4. They are levered to EU revenues. Another big negative, like hiring Bernie Madoff to help allocate your assets.
5. Kelly Madison puts the ILF in MILF. And that is a huge positive for everyone involved.
6. When the markets are diving, nobody wants to own a weird little company posting negative eps (thanks to one timers and derivative charges) with a promotional CEO who just wants to build something big enough and quick enough to sell. There is obviously risk, that is why they call it gambling, I mean investing.
A lot of little stocks are taking it in the yingus right now. Look at former Money McBags favorite RICK which is down around 30% from where we sold and almost 40% from the top (and it is definitely time to start the due diligence on this stock again, especially if it invloves doing a stress test of their performers’ assets). Heck, FHCO was down 5% today, which was not unforseen by Money McBags, but their business is fine. The point is, no one wants to own dinky little companies when the world is going to zero, so take a deep breath and do some real due dilligence now because when the market stops falling, there will be some very good buys.
The markets fell again today as US macro news was mediocre at best, fears in China have risen from red alert to Kung Pao levels, and Germany has banned naked short selling of stocks and CDS (though you are still encouraged to get long Salzgitter and Money McBags’ “salzgitter” would get very long for Sonya Kraus and he would certainly let her take the other side of his Siemens trade). With the ban on naked short selling in Germany, the markets floundered as traders sought to unwind positions and find alternative ways, or countries, to continue with the same bets they have been making. This market reeks of dislocation worse than Ronnie Brown’s lisfranc.
Not helping matters was that US macro data was more mixed than a can of nuts (and please, write your own punchline). Home building rose in April with new home starts up 5.8%, the most since October 2008 as home builders prove to be more optimistic than Brooklyn Decker‘s bikini waxer. However, construction plans fell to their lowest level this year as the tax credit ran out and people remain unfucking employed. Building permits were down 11.5% and economists had guessed that they would be moderately up which once again proves that a broken clock is wrong 86,498 times a day. In other macro news, seasonally adjusted PPI was down .1% last month due to more people keeping their eyelids shut as a result of allergies (and yes Money McBags has used the PPI pun before, but it is still horribly funny). Core PPI, which excludes the essentials such as food, energy, and oxygen, was up .2%. Money McBags always loves that economists apparently don’t care about food and energy prices as a gauge of inflation which is as rational as a pareto inefficient nash equilibrium like the prisoner’s dilemma (and if Money McBags were ever a prisoner, he would have no dilemma because he simply wouldn’t pick up the soap). Interestingly, energy prices actually slumped by .8% thanks to natural gas prices retreating from booming to silent but deadly and food prices declined by .2% despite meat rising 5.1% and thus beating meat price rises going back seven years. The good news though is that inflation appears to be tamer than a Dane Cook stand up routine.
Internationally, in addition to Germany banning naked shorting (and Money McBags hopes they don’t ban naked cavorting), the EU sent 14.5B euro to Greece today and told them to keep the tip. With that 14.5B, the EU hopes to stave off Greek defaults, restore order to the European financial system, and receive a free two-liter of coke with their souvlaki since their order exceeded $20. Also, the ZEW Center for European Economic Research (ZEW of course standing for zero economic worth) said its indicator of German economic sentiment fell in May to 46 from 53. The good news is that the indicator’s historical average is 27, the bad news is that the 46 was below the consensus guess of 47, and the even worse news is that Lucy Pinder has never been in my kitchen. But it’s not just Europe that is going in to the crapper like last night’s bean burrito washed down with an extra large cup of metamucil and healthy dollop of “we’re fucked,” but also China as Chinese investors are also starting to get more nervous than Jackie Chan trying to roll his “r”s. The stock market in China remains lackluster, down 21% for the year despite being sprinkled with MSG to keep investors coming back for more. Driving the sell off has been expectations of rising interest rates, fear of tighter bank lending to help rein in inflation and quiet soaring property prices, and fortune cookies throughout the region reading “You’re going down” (in bed. Booooyah!!). The markets remain more jittery than Sarah Palin in a spelling bee, so remain careful.
In stock news, Walmart put up a good quarter beating analyst guesses of $.85 eps by $.03. The world’s largest seller of cheap crap had sales of $99B which were up 6% despite a 1.4% drop in same store sales. Guidance was generally inline though management said sales are shifting away from entertainment and apparel and into do-it yourself auto repairs, pharmacy, and tight fitting tops. Home Depot announced a good quarter and raised their outlook, yet the stock traded down as analysts think the outlook to be too rosy after Lowe’s took a giant dump on Q2 forecasts yesterday. Finally, financials fell again as potential new credit card regulations hit card issuers and fear of Europe imploding hit banks. In all, it is uglier out there than Minnie Driver‘s face and tomorrow could get much much worse as fear has seeped back in to the market.
In small cap stocks, everything sucked. KITD got hit with another big block trade around midday despite both Merriman Curhan Ford and Roth Capital’s analysts raising price targets after yesterday’s Q. Money McBags promised he would listen to or watch their quarterly call today but he has been too busy to follow through on that, so his analysis from yesterday still stands. The fact is it is a weird little company, exposed to many different currencies, and highly acquisitve in a market that may soon like none of those three things. So the market may trade this down on technicals and fears, but fundamentally, if you don’t mind some pain for awhile, it is worth holding on to like a drowning straight man would hold on to Christina Hendricks‘ life preservers.
Oh shit, the market sunk today like Bernie Madoff’s grandchildren’s hopes and dreams or like a booze cruise captained by Joseph Hazelwood. Just when you thought investors had forgotten about Greece like John Edwards forgot about dignity (though perhaps he never had any) or Britney Spears forgot about underwear, it is back in the news bringing down the Euro. Fears remain that Greece won’t be able to service its debt (and it won’t, unless perhaps Julia Alexandratou does the servicing), that the Euro may be doomed (is everyone else riding out EUO with Money McBags?), and that Nia Vardalos will finally make a sequel to My Big Fat Greek Wedding. Making matters worse are that Sony warned that they may suffer a “significant impact” if Europe’s deficit spreads, Chinese Premier Wen Jiabao said the foundations for a worldwide recovery aren’t “solid” thanks to the continuing debt crisis and the foundations being made out of tofu (and not extra firm tofu, but the regular mushy shit) and paper (the paper of course being the dying Euro), and Hannah Hilton still remains “retired.” Things are looking so bleak today that even the cheering of Alison Preston likely won’t cure the markets (though Money McBags would still like to put his rah in her sis-boom-bah). One way to stop the debt contagion from spreading is to go all Weimar Republic and inflate the shit out of the Euro, another is to break up the EU and stop rewarding moral hazard which seems to be at what Gremany is now hinting. Breaking up the EU would not only allow Germany and its strong economy to avoid taxing its workers in order to save its freespending neighbors, but it would also allow Germans to practice their favorite past time of schadenfreude. It is scary out there today so take a deep breath and start booking your vacation to Paris because the Louvre is getting cheaper by the day.
In the US, the banking sector is taken a beating like it’s 1986 and it just walked up to Mike Tyson and told him he talks like girl. Politicians finally seem to want to try to regulate the industry that gave poor people loans in order to sell those loans off to greedy rich people not paying attention and thus destroy the global economy. First off, credit card companies are taking it in the first bucket today (that was for all you credit card analysts out there) as the Senate voted on legislation to limit interchange fees. AXP, COF, MA, and V are all down 5% to 10% as a key source of their revenue appears to be drying up like Soul Glo-less jheri curls. Not only are politicians going after card issuers, but they are trying to fix the rating agencies by creating a middleman (or lucky pierre if you will) to determine who will rate bonds. This is a bassackward solution, but still better than having rating agencies bid for business and thus completely take objectivity out of just a little something called objectively rating fucking bonds. First of all, Money McBags doesn’t know why any bonds need third party ratings. Investors should just do their fucking work themselves or rely on the sellside or fucking Yelp.com for all Money McBags cares. Most importantly though, the current system is more screwed up than Oedipus’ sex life or Tori Spellings‘ face, so Money McBags applauds the baby fucking steps politicians are taking but it’s a bit like showering before you bone a hooker because at the end of the day you’re still going to get herpes. Finally, the SEC and NYAG are still going after banks who may have lied to ratings agencies about what they were actually putting in CDOs. Look, Money McBags has said this before, but they were all fucking complicit. Honestly, it would take about 3 minutes going through e-mails to convict every bank and every ratings agency of screwing the consumer like the consumer was walking home and hitched a ride on the the Bang Bus. It was a big shell game only the shell was the global economy and the game was gay chicken and no one flinched so we’re all left with flacid cock in our hands. Be very wary of the financials space right now because if the government wants to be serious and prosecute, there will be no winners, like a Wilford Brimley-Kathy Bates sex tape.
As for macro news, US consumer sentiment was up in May and inline with analyst guesses as the average US consumer can’t find Canada on a map, much less Greece, so it just proves that ignorance, and Madelyn Marie, are truly bliss. Also retail sales rose by .4% which beat analyst guesses of .2%. However, if autos, gas, and building materials are excluded, retail sales dropped .2%. Up .4%, down .2%, whatever, it’s all rounding to Money McBags, but the point is, and Money McBags has to put this extrememly elegantly because he expects his readers all to be very cunning linguists, shit is still fucked up.
In stock news, it was what Money McBags calls an AC Green or a celibate day as shorts were up and longs were down. In addition to credit card issuers having their balances transfered, chipmaker Nvidia put up a big quarter but was down on a forecast more lacking than diction on an NBA studio show. The stock was down 10%+ as they guided to a 3% to 5% revenue decline for the upcoming quarter and analysts were guessing flat to moderately up revenue growth. Videogame makers are also all getting hit as an industry tracker showed the worst year over year sales decline since the Mario Brothers were implicated in the steroid ring and thus became a bit less “super.” Software sales were down 23% and analysts were expected sales to rise, especially off of a week April number last year while hardware sales were down and amazing 37% as teenagers spent more time playing Scrabble on Facebook and learning to YoYo from the way ahead of his time K-Strass.
In small cap news, everything tumbled except sleepy Money McBags holding DFZ and IBKR. IBKR is a bit of an interesting play here as the CEO (who also owns 80% of the company) thinks there is $2 of eanrings power in his business but they face lumpy Qs as their market making business is always long volatility to hedge. Well guess what, unless you have been on the planet Melmac for the past week eating pussy, you are probably aware that volatility is spiking up and thus IBKR’s long vol play should bring earnings back to their market making business. The company takes little balance sheet risk as they are making markets in listed options and hedging their exposures and they have a nice other business which is an online trading platform that is growing 20%+. This business has been more of a value trap than going to the backroom in a Vegas strip club (and as a word of advice, save the $150 and just get 7 lap dances), but this is the kind of environment where they should excel. So if you are itching for risk, this is one way to play the financials space relatively safely and with the trends going in your favor and it’s still pretty cheap trading at only ~8.5x their earnings potential.
Did I miss something yesterday? Jeesh, Money McBags takes a day off to fine tune his factors of production and Europe decides to mimic Ben Bernanke’s “too big to count” strategy by printing up enough Euros to finally finish off the Bialowieza Forest or to get 36 very straight hours with the lovely Ashley Dupre. Perhaps the EU just wanted to test out the theoretical economic J-curve as part of some bs study by INSEAD to help future business leaders understand the value of exporting, but if they really wanted to devalue their currency, they should have just married it to Mickey Rourke. But hey, as long as the EU is content to continue to tickle John Maynard Keynes’ shriveled balls with their embracing of debt, perhaps they’ll go shock thumb on Sir Thomas Gresham’s law by creating a shittier currency than the Euro in order to reinflate the dying currency’s value. Ugh. This bail out continues to promote moral hazard and serves to merely put a band aid on a gun shot wound or a regular condom on Lexington Steele. Giving more money to countries who spent it like Kirtstie Alley at a Sizzler on rib night is just bad business. If your kid ran up a credit card bill, odds are you’d take it the fuck away from them and not increase their credit line which is basically what is happening in Europe. So Greece, Spain, Lucy Pinder, keep buying the shit out of whatever you want because Jean-Claude Trichet and Christine LaGarde have the printing presses on full bore and it’s lend one lend one free day across the continent. And Europeans, start spending those Euros because the currency is about to become as worthless as campaign funds to John Edwards, binoculars to Stevie Wonder, or a lap dance to Richard Simmons.
The market however is rallying again today as apparently the UK is talking about instituting budget cuts. What is encouraging is that Britain is doing this despite its current hung parliament (and an English parliament hasn’t been this hung since the aptly named Dick Long dangled his legislation in the House of Commons in the late 1600s). With all of this commotion in Europe, let’s not forget that China may still be a problem as inflation is rising with home prices up 12.8%. China continues to boom with retail sales up 18.5% and bank lending in the month of April up to $113B. Hey EU, why not just quit screwing around and sell yourselves to China and be done with it. With China’s economy bubblerific, it would be a bit like AOL buying Time Warner, but that worked out well for everyone right (and by everyone, Money McBags means Steve Case)?
In US news, the SEC is getting exchanges to institute new circuit breakers to stop stocks from falling too much too quickly. In this way the SEC hopes to remanipulate the market from the high frequency traders who currently manipulate it. Money McBags still has no faith in the current market structure after last week’s crash that was only stopped by dumb luck. In macro news, wholesale inventories in the US rose .4% in March which was a tick below analyst guesses but puts wholesale inventories at their eight month high which is marginally not bad news for the economy.
In stock news, LM beat expectations, announced a potential $1B buyback, and apparently cured cancer as the stock is up 13%. They earned $.39 per share which bested analyst guesses of $.35 even though they still had $10.9B of outflows. LM also announced a “profit boosting” plan which consists of boosting more people out of jobs to increase overall profit as the investment manager continues to lose assest (though at a much slower pace). Alternatively, Priceline is down 10% today causing investors to all ask the questions “Priceline is still in business? Will they take Beenz?” Apparently PCLN’s guidance was weaker than Money McBags knees after encountering the lovely Raven Alexis as they warned of a slowdown in their international business for the upcoming quarter thanks to a series of events including the Iceland volcano erupting, the weakening of the Euro, and a week long Hanna Hilton marathon on Spice.
In small cap news, CRUS continues to rally after apparently Jim Cramer slathered all over it last night. Money McBags has been pimping CRUS for quite a while now even though he sold it the other day to mitigate his risk (but hey, who needed the extra 20% upside, ugh). Money McBags thinks $1.20 in eps is not unreasonable for CRUS which puts the company at ~10x + $2 in cash. He wouldn’t be buying here because Cramer’s picks tend to get a pop up before sliding back down, but this is a solid growth company (you can read for yourself if you just type CRUS in to the search box here, speaking of which, Money Mcbags would love to search Hayley Atwell‘s box). Money McBags is still concerned about the market structure and the influence high frequency traders have so he is not sure fundamental analysis is really all that worthwhile right now. If you believe in the markets though, KITD is ridonkulously cheap after the sell off last week and has yet to rebound. The issue that Money McBags is trying to work through though is KITD’s reliance on Europe with 70% of their revenue coming from European companies. Money McBags will ponder this as he swapped his holding into GLD but will be back analyzing companies tomorrow.
The market continues to sell off as Angela Merkel happily plays her fiddle atop the Zugspitze while Europe burns below. The debt crisis in Europe continues to gain momentum like it has an improbable, though theoretically possible, coefficient of restitution greater than one or as if it were running for office with the promise that Amanda Carrier will personally “thank” every voter. ECB president Jean-Claude Trichet (also known as the peon from Lyon from his starring roles in Bubble Impact and Wall Street Fighter) warned of an uncertain outlook for the EU after the ECB held rates at 1%. The uncertainty stems from the EU not being sure if Europe’s impending bankruptcy will be caused by hyperinflation or just good old fashioned default. He also defended the ECB’s decision to suspend Greece’s bond ratings by saying “well, we didn’t have a rating lower than junk, so it wasn’t really a tough choice” and when queried about Spain and Portugal, he responded that they are “not in the same boat” as Greece, before mumbling “They’re in the boat that is sinking next to Greece’s boat.” Trichet then lauded Greece’s austerity measures and shrugged while claiming if they didn’t work “c’est la vie.” Slightly positive news is that while Spain’s cost of raising debt was up by ~80bps and a quart of paella, demand remained strong with their latest bond offering being oversold by ~2.5x. However, rumors are that the EU is looking into what is being called a “nuclear option” of buying government debt in the secondary market in order to help keep demand and liquidity at reasonable levels and if that doesn’t work, they will try the “nuclear cough option” which is trickier and has a stronger possibility of backfiring. The point is there is some bad shit going down in Europe and the scary part is that the US suffers from many of the same issues since we love eating hamburgers today, even though we’ll have to pay for five of them on Tuesday. Money McBags prefers to think about baseball, bunny rabbits, and Alice Eve and thus sweep the impending economic crisis under the rug because if he stops and focuses on the real issues he gets nauseated enough to give even the most discerning emetophiliac a stiffy.
In the US, Retail sales slumped a bit in April with some analysts blaming the earlier Easter season and others blaming something called 10% unemployment. Speaking of unemployment, new claims for unemployment dropped last week by 7k to 444k or as Moses Malone would say “fo fo fo.” Economists were guessing claims would drop by 11k so the number was a bit of a disappointment, though not as much of a disappointment as Ron Palillo’s career. One thing that may be keeping claims down is the productivity rate in the US which grew 3.6% and bested economist guesses of 2.5%. See as workers and production become more efficient, employers need to hire fewer people thus prolonging the unemployment cycle. So a big fuck you to all of you efficient workers who are keeping the unemployment rate so high that the economy is still struggling. If Money McBags were president, and trust me he has turned down the nomination many times, the first thing he would do would be to hire Alan Greenspan, just so he could fire him again, the second thing he would do is make Hayley Atwell his Undersecretary of State, and the third thing he would do is promote the terribly NSFW guesshermuff to the work force thus sinking their productivity as they spend hours mastering the competitive sport of muff guessing. And with that one move, producitivity would decrease enough to cause companies to hire more people and thus unemployment would start to abate. Problem fucking solved (and to be honest, Money McBags would love to solve any problem the still NSFW 1600 has).
In stock news, MGM posted a loss thanks in part to their CityCenter development on the Las Vegas strip which had a $255MM operating loss. Apparently people stopped buying overpriced condos in overdeveloped Las Vegas and CityCenter went through a drastic hooker shortage. MGM is trading down 6% on the day but promises it will make it up to investors tonight when they finally hit a hot streak at the craps table. Nintendo is down 3% on a disappointing Q as apparently Mario finally saved the Princess from Donkey Kong thereby leaving the franchise to spend some time alone with his long lost fair maiden. Sales of the Wii were down 20% for the year and the company is guiding to further declines as the market becomes more competitive and saturated and teenagers start to discover something called “outside.”
In small cap news, everything is pretty much getting shit on like it is playing the foil (or perhaps the saran wrap) in a German scat film. One company Money McBags has talked about before though never felt comfortable enough to own, HIL, just put up a craptastic quarter and is down a whopping 24%. HIL is a project and claims manager for construction projects with most of their revenue coming from outside the US. Money McBags has not listened to their call yet but he went through their release and it looks like the problem stemmed from cost controls worse than those of Stephen Baldwin. Revenue was flattish and basically in line at $104.5MM vs analyst guesses of $106MM but eps missed by a wider spread than Larry Craig in a Manhole bathroom. Analysts guessed eps would be $.11 and it came in at $.06 as SG&A rose from 31.4% to 33.0% of their consulting fee revenue which is a heck of a lot of nights out at the Dubai Rick’s Cabaret. Not only was SG&A up, but backlog fell from $620MM to $540MM, 12 month backlog fell from $280MM to $240MM, and Money McBags’ back log fell after eating a bean burrito with extra hot sauce. Most of the damage was done in their claims management business which is ~75% of revenue and was down ~8% organically largely driven by business in the Middle East (perhaps they lost out to the Bluth Company in building construction in Iraq). Money McBags isn’t sure what the fuck is going on with this business as managament had mostly indicated that things were ok so it is not clear why they managed costs like Corey Feldman has managed his career. If you annualize this Q’s EPS and EBITDA, the company is trading at 20x eps and ~9x EV/EBITDA even with the down 24% today. Unfortunately, that seems a little too pricey until we can understand why SG&A went up so much and how they are going to backfill the loss of organic growth in the Middle East (and speaking of backfill, Money McBags would love fill Marissa Miller‘s back).
And loyal readers, don’t forget Money McBags is on twitter and since he is providing you with top level analysis, insights, and plenty of dick jokes all out of the goodness of his way too big heart, how about telling a friend or 10,000 about When Genius Prevailed? Could you help an analyst out?
2/25/10 Midfternoon Report: Goldman Sachs seeks nobel prize for literature after (under)writing biggest Greek tragedy since Euripides
Greece’s debt issues are once again scaring the market like the snake ridden visage of the famous gorgon from ancient Greek mythology known more familiarly as Lady GaGa. Rising debt, a spiraling deficit, and a massive bidding up of CDS by traders betting against Greece has created somewhat of a Foucault current around the Greek islands which is now threatening to pull the entire EU and global economy in with it. Greece hasn’t been in such imminent trouble since the Battle of Thermopylae and they can only hope that the bankers whom they used for currency swaps did not run to the other side and push up the price of CDS with their inside knowledge of the obfuscated rising Greek debt and hence betray them like Ephialtes did in that same battle. Moodys is now threatening to downgrade Greece (perhaps to Jamaica, or maybe even Puerto Rico), so the global markets are very skittish today, since we all know how great Moodys is at predicting debt defaults (except when they happened to miss something called the entire global financial system meltdown). As if the Greek issue weren’t bad enough, the EU came out today (luckily their parents already knew) and forecast 2010 to be a year of fragile growth, even more fragile than the tears of a newborn unicorn upon learning it is just the figment of someone’s imagination.
In US macro news, orders for durable goods excluding transportation fell .6% which was below estimates of a 1% gain though they rose 3% when including the jump in aircraft orders. While durable good orders may have been down, non-durable goods orders or as their better known as, “shit made in China,” appear to still be doing very well. The new claims for unemployment number was also out today and it was much worse than expectations as it was up by 22k to 496k people filing first time claims. Luckily the labor department shrugged it off as being partially inflated by poor weather in the Northeast causing construction jobs to be cancelled over the past few weeks and also partially being inflated due to something else called employers laying a lot of fucking people off. They said without the weather, new claims would have been down by a “healthy” 10k to 440k jobs lost and if 440k job losses is considered healthy, then the labor department must think Michael Jackson has “just a little breathing problem.”
In stock news, CCE is up 33% on a takeout offer from KO, while KO is down 4% on that same news. KO’s CEO and Chairman said the move was a way to convert “passive capital into active capital” and when asked to clarify what exactly he meant by that, he simply said “Chewbacca was a wookie.” While Money McBags is an owner of KO, and thus 4% less happy today than he was yesterday, the global sales growth trends and brand equity have not changed at all by the deal and thus he is content to hold and potentially add a bit as soon as he can get a hold of some numbers on the deal. In other stocks reporting, SIRI somehow turned a profit this last quarter even if it was still less than $.01 per share. Subscriber growth in satellite radio has largely been stagnant due to the recession and the hundreds of other ways to get music for cheaper prices. With Howard Stern’s contract ending at the end of the year, Sirius may be more fucked than Houston during her 500 man gang bang. This company sells a product that is becoming outdated faster than the eight track or Jennifer Aniston (and take a few seconds on that pun, it will hit you in a bit, but e-mail me if you need help) as the prevelance of iPods, smart phones, and internet radio make paying a monthly fee for that same content as bad of a financial decision as the Olympics were for NBC or plastic surgery was for Greta Van Susteren. Money McBags would stay further away from SIRI stock than he would a hemophiliac AIDS patient in the throes of leprosy.
In small cap news PALM annouced their smartphones aren’t selling as well as they hoped as they have seemingly failed to put a dent in the duopoly that is the iPhone and the Blackberry (and honestly, taking on those two behemoths was about as smart of a move as introducing a soft drink to compete with Coke and Pepsi, a search engine to compete with Google and Yahoo!, or a cure for herpes to compete with Valtrex and staying 100 feet away from Paris Hilton). Palm also said their sales will be “well below” their forecasts like Vern Troyer is “well below” the clown’s hand to ride the roller coaster as apparently even a color blind lepidopterist is better at his/her job than Palm’s head of strategy is at his. Also Money McBags favorite WILC is up 10% today after a ridiculous and unwarranted sell-off over the past week. WILC remains the most ridiculous, cheapest name Money McBags has ever run across which is a bit worrisome because the last thing he thought was too good to be true was marriage, so buyer beware. And finally SMSI put up a decent Q and is up 14%. SMSI is a pretty interesting name in that they sell software that allows netbooks internet connectivity and net books continue to grow faster than a steroid user also suffering from pituitary gigantism. While the Board of Directors looks like they are waiting for the comet Hale-Bopp to hit the Earth, the company has done a decent job over the years of buying technologies in growing markets. SMSI is pretty much a one-trick pony right now with that one trick being connectivity and the pony having been purchased, but they are relatively cheap. Their wireless business grew 22% this year, though the pace slowed as the year wore on while overall topline growth was 9%. They guided to around 20% top line growth for 2009 and estimates are for them to earn in low $.70s per share which is about what they earned this year but their tax rate will be going up. The company has a nice balance sheet with $45MM of cash and no debt and is only trading at 12x estimates despite growing the topline 20%ish (again, profit growth may be negligible due to the tax rate increase). The issue with this company is that they have missed guidance before, have really only one product/area of focus, and rely on acquisitions to find the next new technology. While they have already wrapped up most of the big netbook producers as clients, competition is getting fiercer. So it’s not the best business model but it is moderately cheap with good prospects. The jump today is likely short covering but it is worth reading the transcript of the call and figuring out if a good entry point will exist once the short covering is over.