Posts tagged Ford
The market was quiet in the morning despite a slew of solid earnings announcements as it waited for the release of the Europe bank stress tests which were more highly anticipated than Lindsay Lohan’s jail stint, Avatar’s opening weekend, or Mel Gibson’s next career limiting phone call. Well the results came out midday and were exactly as worthless as one could have hoped. Only 7 out of 91 banks failed the stress test including Munich based Hypo Real Estate, Greek based ATE Bank (which apparently “ate” a fuckload of bad loans), some Spanish banks, and Italy’s Bank of Madoffia. Of course these stress tests were weaker than the efficient market hypothesis in the era of high frequency traders or Haiti’s infrastructure, so it’s hard to get too excited about the results.
The stress tests failed to analyze whether banks could withstand a debt default by any European country and neglected to look at the entirety of banks’ balance sheets (which is a bit like asking a female out on date but forgetting to check for an Adam’s Apple) including completely leaving out any government bonds being held to maturity which is only the fucking majority of the sovereign debt held, so that makes as much sense as trying to diagnose rectal cancer with a broken thermometer and a loving touch.
From day one it was obvious that the stress tests were more bogus than Iraq having weapons of mass destruction, MBA programs teaching anything useful, or Ricky Martin being interested in any female who bangs. There was no way the EU was going to have the test results come out and show that a fucklaod of banks had failed and yet they also wanted to try to have some credibility and not have every bank pass because that would have been less believable than the US bank stress tests or GS’ non-admission of guilt in the Abacus CDO manipulations. So the Committee of European Banking Supervisors managed to find some BS Goldilocks scenario where 7 banks would fail in a number deemed to be just right in not causing more fear but also just right in showing that there are some problems. So jolly good show, hope no one in the CEBS tore their black jeans in their rigorous assessment of the data.
The point is, the banks may be healthy or they may not be healthy, but don’t piss on Money McBags and tell him that it’s raining (unless you are Kelly Brook and just downed a case 1787 Chateau Lafite, and in that case, piss away) by claiming the tests that were run give any kind of conclusive evidence about the health of the EU’s banking system. So excuse Money McBags while he yawns this one out while the market rallies on the news.
In other european news, Britain had a 1.1% increase in GDP which was double what economists had guessed but is still nowhere near pre-recession levels. The country hopes their newly introduced dental sector can help spur GDP higher. In Germany, business confidence rose the most since reunification and to its highest level in three years as the whole country celebrates schadenfreude at the downfall of their fellow EU members. Finally, Hungary’s credit rating may be falling to junk after their talks with the IMF went worse than Sarah Palin‘s talks with Bristol about abstinence. A lower credit rating could leave investors in Hungary starving and will cause it to be more difficult for the country to raise money which it won’t likely to be able to pay back anyway. That said, the threat of credit ratings downgrades are coming from S&P and Moody’s who, as always, suck at their jobs worse than a closterphobic magician’s assistant, so take it for what it is worth.
And in China, worries are getting out that banks may not be able to collect on nearly a quarter of the loans they made to local governments for the building of airports, highways, and lunch delivery of the nation’s favorite soup, cream of Sum Yung Gai. Banking regulators haven’t addressed this potential shortfall but Money McBags is sure they will successfully manipulate their way out of it.
In market news, earnings are powering US companies like spinach powers Popeye or herpes powers Britney Spears (she does run on herpes, right? It’s the only logical conclusion with which Money McBags can come up for regarding the affair du Federline). Ford reported a profit again and said they expect next year to be even better thanks to their new vibrating seats functionality. The company was strongly cash flow positive with $2.6B of cash brought in and they say they will be in a net cash position by the end of next year (and net cash is Money McBags’ third favorite position, right behind lowering taxes and reverse cowboy). Ford’s sales were up 28% in the first half which is twice the industry average as consumers move down market and no longer care about status.
In other earnings news, MCD beat estimates yet traded down as it missed whatever the whisper number analysts made up but were to chickenshit to actually put on paper was. Money McBags will never understand the concept of a whisper number (unless it is Olivia Munn whispering Money McBags her number) because it is a bigger cop out than “it got lost in the mail,” “I was young at the time,” or running to Miami to play with Dwyane Wade. In theory, sell side analysts get paid to provide their unbiased opinions while in practice they get paid to pump up the stocks for whom their firms are trying to raise money, to write meaningless daily updates, and to anally rape sheep (ok, one of those may be made up) and the lameness of not having the nuts to put a whisper number in any of their daily drivel says all one needs to know about paid research. Anyway, MCD had a nice quarter with revenue up 5%, same store growth of 4.8%, $1.13 eps, and only 1k blocked coronary arteries in the Q. Strong international growth helped fuel the results as MCD’s cheap menu and and aspirational brand equity resonantes in countries with large poor populations such as India, China, and the United States.
Also, MSFT put up a big Q after running up yesterday in anticipation of good things happening like the resurgence of the corporate upgrade cycle, stronger sales of Windows, and Excel hardcoating goalseek to always find the lovely Sofia Vergara. EPS was up 48% to $.51 and revenue grew from $13B to $15B, both numbers handily beating analyst guesses though the numbers could contain a trojan horse virus so no one wants to get close enough to them to really dig in.
Finally, Verizon slapped their cocks on the table and yelled “can you hear me now?” as they beat guesses by $.02 per share by earning $.58 per share despite flatish revenue growth and no exposure to the iPhone thanks to better operation. And AXP beat estimates and tripled their profts as customer spend was up 16% and like all financial companies, they lowereed their provisioning, likely just in time to have to raise it again for the second dip in the upcoming recession.
Not all was lobster tails and blow jobs though as AMZN missed their earnings estimates despite growing the top and bottom lines by 40%+. Analysts had guessed the company would earn $.54 per share but instead they earned $.45 per share due to an increase in operating expenses as the company has to spend more on advertising to convince people that the Kindle wasn’t outdated two months ago with the release of the iPad or ~600 years ago with the release of the printing press. Amazon has always seemed like a nebulous investment to Money McBags given the competition, relatively low barriers to entry for specialty sites, and consistently high valuation so he is as happy to not be involved in this stock as Dan Quayle is happy not to be involved in a spelling bee (and yes, Money McBags just whipped out a 20 year old punch line because frankly, 1k-1.5k words of dick jokes a day is a blistering pace, even for a talent like Money McBags).
In small cap news, IBKR reported and managed to shit all over themselves, and Money McBags’ thesis, as if they didn’t just have Montezuma’s Revenge but had his ire, hatred, and angst as well. Their results made Money McBags sadder than he was this morning when read that the inventor of the black box had died until he realized it was this guy and not Roxy Reynolds or Vanessa Del Rio‘s mom.
Anyway, before we get to IBKR’s numbers, Money McBags wants to apologize for saying buying some options in this piece of shit company ahead of earnings would be a good strategy. He believes his logic was sound, but unfortunately he made the mistake of believing he had correctly called the bottom of one of the biggest value traps the market has seen since AIG in 2006 or Elizabeth Berkley‘s acting career pre-Showgirls, so he is sorry for that. Never again will he give a fuck about this shitty company whose market making business which is based on voaltility couldn’t profit when the market was, umm, how to put this lightly, fucking volatile.
IBKR earned $.09 per share in the Q which was down from $.31 per share in last year’s Q and continued the unpredictable nature of this company whose quarters are more up and down than Oprah’s weight (see, Money McBags could write for Leno, no problem) or Faye Reagan on a sybian (he could also write for the AVN awards, he is bi-comedial). Their internet brokerage business fared well and continued to grow increasing accounts by 20% and customer equity by 43% but all of that was irrelevant because their market making business made a mockery of themselves and only had a 5% pre-tax profit margins leading to a profit of $3.9MM which was down 97% from last year.
The stock is such a peice of shit that their CEO who is an ~80% owner has given up trying to make it seem like anything someone would want to invest in and is instead now marketing the stock as some type of hedge for anyone who wants to keep their portfolio from growing too much.
The CEO said: “increasing fluctuations in foreign exchange markets have a corresponding impact on our reported results in U.S. dollars. This makes it ever more apparent that our shares would be more appropriately considered as an investment in a global enterprise based in a diversified basket of currencies rather than in U.S. dollars.”
So any of you out there who own a global enterpirse, buy away.
On the call, CEO Peterffy claimed that the appreciation of the dollar cost them $72MM in revenue or $.16 per share because it’s always one excuse or another. Anyway, Money McBags clearly fucked up and was speculating on market volatility causing earnings to appreciate, which apparently they would have had the dollar not strengthened, but whatever. As Money McBags was speculating, he said to buy options and not the stock so your losses would be minimized, but either way, fuck this company and if any of you ever read Money McBags trying to give an opinion on IBKR other than he has no idea and they hate turning out a profit, you have permission to punch Money McBags in the nuts while forcing him to listen to the melodic stylings of Celine Dion.
It was another volatile day in the market as initial jobless claims came out and were much worse than expectations which is not surprising to anyone except for those who make those expectations. Claims were up by 13k to 472k while analysts had guessed that they would drop to 452k which means on average they couldn’t even get the 50-50 directional guess right. And as usual, claims were part of the weekly we suck at math derby (also known as “Numbers Manipulation Thursday”) as last week initial claims were 457k, so if they grew by 13k this week, that should have made claims 470k, but of course the (No) Labor Department wants to try to mitigate the fuckawfulness of the economy so they always release a slightly better number and then revise it worse when no one is paying attention. So last week’s claims were revised up to 459k and thus we get the true mathmatical equation 459k + 13k = Holy shit we’re fucked (or 472k, potato, puh-tato). The good news is that people claiming extended benefits dropped by 376k, the bad news is that number fell because the government voted to stop paying them, so um, welcome to the double dip (and not the kind where you only get bacteria), make sure you are properly supplied with canned foods, matches, and plenty of viewing material because this could get interesting. And to reiterate, Republicans filibustered a bill to continue extended unemployment benefits which is the first time this has ever happened with an unmeployment rate above 7.5% during a recession and it immediately cuts off 1.5MM unemployed people from cash flow they may need. If ever Money McBags wanted to lose an election, that is exactly what he would do, fuck the people who need help in the midst of the biggest recession in history. What wasn’t reported was that Republican Senators also filibustered dignity and common sense while proposing legislation to have unemployed people serve as speed bumps on Pennsylvania Avenue to keep drivers from going to fast.
In other US macro news, pending home sales also hit the shitter (and hit it with the force of a taco bell bean burrito slathered in extra hot sauce and Ecoli) which surprised analysts but shouldn’t have surprised readers of WGP. The pending home sales index fell to 77.6 from 110.9 because the first time home buyers tax went away which is only something that has been known for months. The 30% drop in the index dwarfed the 12% drop analysts had guessed once again proving that past performance is no indication of future performance in regression models when we live in a fat tailed economy. Finally the House passed a financial overhaul bill which will now go to the Senate for a vote on what should be sweeping changes but has been watered down more than Christina Hendricks in a wet t-shirt contest.
In addtion to macro news that was so bad not even Chris Dodd could have done something to make it worse, Goldman was further questioned by the FCIC today on their derivatives trading as relates to AIG (and as usual Money McBags would love to have the FCIC’s Heather Murren question him about the exposure of his long derivative). CFO David Vinnar was nice enough to constantly conflict himself by telling the commission that Goldman doesn’t have a “derivatives business,” but when questioned on how Goldman can call themselves a “top five derivatives dealers in the world,” he acknowledged that Goldman’s derivatives business is “a very big part of what we do.” Money McBags guesses that kind of logical fallacy or semantics masturbation is bound to happen when one talks out of their ass. Anyway, this whole thing is just theatre since if the government really wanted to shut themselves, I mean Goldman, down, it would take about 3 minutes of actual investigation.
Internationally, China is showing more signs of slowing down than Robert Byrd, as new data shows the second derivative of their manufacturing sector is likely abating. Two indexes (indices? indi? indiyouknowwhatthefuckimean) came in below analyst guesses, though still showed expansion (but that expansion is now more like from flaccid to quarter chub as opposed to full pitched tent). Tao Wang (not to be confused with Tiger Wang, Dong Wang, Peter Wang, or Wang Chung) an economist at UBS China said “economic growth is strong but momentum has peaked” and if that is true, the global recovery may need another shot of stimulus or else it could flatline worse than Gina Lee Nolin‘s acting career. In other intentational news, Spain was able to sell 3.5B of 3 year Euro bonds after promising not to default on them and promising to have Rebecca Ronda personally deliver them to all buyers along with a refreshing spanish milkshake. The fact that Spain was able to get their bonds out and not at a too exorbitant yield is a positive, though Moody’s has now placed Spain’s credit ranking on review for a possible downgrade, citing “deteriorating” growth prospects, challenges in meeting deficit targets, and the fact that no one in the country works. That said, Money McBags cares what Moody’s has to say about as much as he cares about Donald Rumsfield’s thoughts war strategy, Chuck Klosterman’s opinion on pop culture, or Aristotle’s view on the heliocentric universe.
In stock news it’s uglier out there today than it was in Barbara Streisand’s bridal suite when James Brolin went out for a smoke. One stock moving nicely up though is Ford as they announced a 13% rise in sales for the month of June led by the Ford Focus, their Super Duty F1 series, and pure luck. That said, the company announced a $4B buyback yesterday so has had good news two days in a row which currently qualifies it for the award as greatest stock ever. In other news, financials continue to sputter because there is currently less faith in the financial system than there is in Norse mythology. The Treasury department has been reducing their holdings of C which is good because the government shouldn’t own public companies, especially ones going $0.
In small cap news, ZAGG is unsurprisingly selling off after it hit $3 for no reason the other day and Money McBags broke down why the stock was at least $1 too expensive. One sector that Money McBags has liked but is getting destroyed today like a college senior’s hopes and dreams is the home health care sector. Small cap names AFAM and LHCG have been solid performers as they offer a service that is both cheaper than hospital stays and better for patients as home recovery rates are better than hospitalization recovery rates. The problem is these companies rely heavily on medicare funding and their billing practices have always been questioned.
Well today, the SEC announced they are launching an investigation in to AFAM and AMED around the companies billing more home visits to medicare than they actually made. That news is less good than waking up next to an unshaven Kathy Bates. As a result the sector is down 10% today and rightfully so, in fact if Money McBags owned any of these companies he would be puking them out like a bulimic with a vomit fetish. That said, LHCG does not seem to be part of the investigation so it could be a good time to try to pick this up on the cheap once things settle. Money McBags has always preferred LHCG in this group because they are a bit more rural than the others and therefore face less competition. That said, the market is enticing as it is growing 10%-15% a year as the population ages and home health care becomes a more ready solution. It costs medicare $132 per home health care visit vs. $6k for a hospital stay and as mentioned before, recovery rates are better at home because patients aren’t around so many fucking sick people all day.
LHCG earned $.64 a share in Q1 and gave guidance for $615MM to $625MM in full year revenues and $2.75 to $2.85 eps. With the sell off today the stock is trading at only 9x this year’s eps guidance and yet the market is growing by double digits. Revenue was up 17% last Q and guidance does not take in to account any de novo branches which only take a year to reach full margins. The company has ~$13MM net cash to still make acquisitions and the market is ripe for continued rolling up as the top 4 players are only ~10%-12% of the market. The problems are the reliance on medicare funding and the government’s ability to slash that at any time, the need for continued acquisitions, the uncertainty of any future medical liability issues (as with all health care providers), and the current SEC investigation on competitors. Still, this is a growing market and is a cheaper alternative for medicare and insurance companies that ultimately provides better service and better results so why not buy this for 9x earnings when you can? As he said, Money McBags would let this settle because the last time fudged billing fears struck the industry, these stocks got pulverized even though none of the public companies were found to be complicit. So bide your time but put this on your buy list. And to reitirate for those of you new to WGP (and if you’re new, don’t forget to join WGP on Facebook), Money McBags’ buy/interesting list consists of KIRK, KITD, TMRK, CTGX, CRUS, QCOR, NTRI, EPAX and now LHCG among others. Many of those are getting to be pretty washed out (KIRK, KITD, CTGX) and yet have nice earnings streams and solid longterm businesses so once the market is done dying, those are companies that should see positive momentum. And while the market drops, there is always WGO and ZAGG to short, or just buy TWM and watch Wall Street burn.
The market was flattish for most of the day until the last hour as some of the fears about Europe abated in the morning thanks to their banking system remaining open for at least another three months (so long enough for depositors to carve out space in their mattresses and pull their funds before the next bank run). The big news is that european banks didn’t seek as much capital from the ECB as people feared they would with the ECB’s 442B Euro line about to expire like the late great Diaperman. Banks only needed an additional 131B Euro 3 month loan which was below the 210B Euro estimate and only 131B Euro above being healthy. In other international news, German unemployment was down for the 12th straight month as German workers have to put in overtime to make sure their Spanish counterparts can take their proper siestas. Ahhh, to be young and in the Euro.
In US macro news, private employers added 13k jobs in the US in June according to ADP which makes a huge dent in the 20MM unemployed/underemployed/already given up people in the US (and by huge dent, Money McBags means the opposite of that). Really, 13k out of 20MM is as significant as a null hypothesis with a p-value of 1 trillion or as likely to change the current atmosphere as a stink bug crawling in to Lady Gaga’s underwear changes her cuntosis. Analysts had guessed that 60k jobs would be added in June so they were only ~250% too high which for them is good enough to win Institutional Investor’s golden shovel as analysts of the year which can then be used clear out all the crap they have been spewing. One has to remember that analysts have confidence intervals wider than the divergent opinions on global warming or Taylor Rain’s rectum. The report should quell hopes of Friday’s Labor Department jobs number release being positive so the government may need to hire Melissa Archer to deliver the release in order to keep investors from paying attention to the actual numbers. In other US news, the FCIC is beginning their two day hearings on AIG and Goldman’s relationship to understand how those firms exacerbated the financial meltdown through their selling of derivatives and then how Goldman profited when AIG was bailed out as AIG used the bail out money to repay their mortgage partners of which Goldman was one (Goldman was repaid to the tune of $12B and Money McBags is told that tune is a mash up of Flight of the Bumblebees and Don’t Worry Be Happy). While Money McBags doesn’t believe anything will come from this inquiry, if it just puts the FCIC’s Heather Murren in the spotlight for a few minutes, he will at least be moderately titillated (and yes, that is Heather on the left).
In market news, S&P is cutting their ratings of Moody’s which is a bit like Jeffrey Skilling calling Dennis Kozlowski a fraud, Attila the Hun calling Ivan the Terrible a bit mean-spirited, or Lindsay Lohan calling Paris Hilton a whore. S&P cited that with new financial regulation investors now may be able to sue (and rightfully so Money McBags will vociferously add) rating agencies for sucking at their jobs (and as a reminder, their only job is to recognize when bad debt exists, and they missed the entire subprime/Alt-A fiasco like an anorexic misses dinner), there could be reduced demand for ratings if regulation removes the need for companies to be rated by nationally recognized organizations (here here), and Moody’s sucks at their job. It is only a matter of time before Moody’s lowers their ratings of S&P on the same concerns and we get a tit-for-tat ratings agency cock-off. In other news, Playboy announced a restructuring where they will become even thinner by eliminating low level workers but will keep senior executives to remain properly top heavy and Ford was rising after paying down $4B of debt and telling people they changed their name to Tesla.
In small cap news, ISLE continues to get shellacked and was doing so even when the market was slightly up today. Two day ago Money McBags told you all shorting ISLE would be a good trade and now you should be up 8% to 15% on it depending at what price you were able to short. A healthy company with a ton of debt doesn’t just dilute shareholders by ~23% unless bad shit is happening. That said, this was purely a trade so if you want to lock in your profits and go home, Money McBags would applaud that move like he applauds charitable donations, rags to riches stories, and rainbow parties. Also, old friend COOL has dropped below $.70 and remember Money McBags broke them down after their last Q and said the $1 they were trading at was much too high and he would be short if the stock were more liquid. Well if you were able to short it, congratulations but you might want to start covering because the easy money has been made. The point is, Money McBags has been hitting some good names for you all and providing you with enough dick jokes to make even Bob Saget shudder so tell a friend, tell an enemy, and follow WGP on twitter and facebook because the revolution has begun.
The market is down today as Standard and Poor’s downgraded Portugal to a principality and Greek to junk and not the the kind in a trunk that most investors love, but good old fashioned junk. It was the first time since the advent of the Euro that a European country has lost its investment grade status and Money McBags would be concerned if the rating cut hadn’t coming from an agency who missed something called the subprime mortgage meltdown which only caused the biggest financial collapse in 80 years. The real fear is that the EU can not handle this situation and it spreads throughout Europe like the bubonic plague in the 1600s or black jeans in the last half of the 20th century. Consider the market spooked as it was looking for a reason to consolidate down anyway and now we have it.
In the US, consumer confidence rose to its highest level since Lehman Brothers collapsed and the highest level since the pet rock fad (because seriously, if people were willing to throw money away on fucking rocks, they must have been hella confident that things were going ok). The consumer confidence index came in at 57.9 beating even the highest of forecasts after getting those forecasts in a camel clutch and having them submit. People are generally starting to feel better and the fact that most Americans don’t read the news and have no idea that Europe is teetering on the brink of bankruptcy while their own government printed more money than humanly possible to count (again, the “too big to count” strategy) can only help the blissful ignorance. In other macro news, the Case-Shiller index showed that home prices were up from a year ago but declined on adjusted basis by .1% sequentially. This still beat analyst guesses though prices are basically stagnant which is better than them dropping but is still a long way from a recovery. And grabbing most headlines today were Goldman Sachs executives and Fabulous Fab Tourre who never saw shitty CDOs they couldn’t pawn off on investors, testifying in front of congress about their alleged fraudulent behavior. After hours of questions and answers, all we learned is that Senators don’t have a fucking clue about the financial system and Senator Claire McCaskill, to quote another great Fabulous Fab, “Girl you know it’s true, ooo, ooo, ooo.” Today’s hearings accomplished nothing other than letting some rich assturds (the Senators) grandstand and belittle the richer assturds (GS executives). Excuse me while Money McBags yawns through this part of the saga. The fact is GS did some shady shit as did the whole fucking financial system so unless GS gets more than a slap on the wrist, nothing is going to change. Money McBags is close buying long dated out of the money puts on MCO because when the smoke clears from this cock off, the rating agencies are going to be the musician to the regulators’ very rusty trombone.
In stock news, Ford reported their 4th consecutive profitable quarter and earned $.46 per share which easily blew by analyst guesses of $.31. In the Q, Ford outsold GM for the first time in 50 years and gained 2.7% market share thanks to the Toyota recall and vibrating seat warmers. The stock is getting clobbered though as it had a huge run up and they still sell Fords.
In small cap news CRUS put up a huge quarter and Money McBags is an owner of CRUS and has talked about it many times on When Genius Prevailed. He first alerted all of you to the company on 1/12/10, told you all he was buying on 1/28/10, and it is now up 75%+ which is enough to take Hayley Atwell out for a nice dinner of tea and my crumpets. CRUS’s Q was way better than Money McBags was expecting though and their guidance pissed all over Money McBags’ estimates as if it suffered from bladder incontinence and had just downed a two liter of Mountain Dew and a box of Franzia. For the Q, CRUS earned $.16 non-GAAP and Money McBags was expecting $.11 with their revenue coming in ~15% stronger than they had indicated. They said all segments were pretty much up, but energy rebouned to $22MM up from $14MM last year and back to where it was before the economy bent over and starting catching pitches from pitchers with low hanging FICOs. Guidance is for $78MM-$84MM in revenue for next Q (Fiscal Q1) with 55% margins and ~$26MM non-gaap operating expenses. With ~65MM shares and enough NOLs to make Wesley Snipes salivate and thus not pay taxes for real, that gets to an eps estimate of ~$.29 if Money McBags is doing the math correctly (and it has been suggested that the correct way to do math is with a reverse cowboy). CRUS didn’t give detailed full year guidance as visibility in to Qs 3 and 4 is low (though hopefully not lower than Stevie Wonder’s visibility in trying to see a shooting star without a telescope) but they gave full year revenue growth guidance of 30%. Of course, guidance for fiscal Q1 already puts them at that 30% revenue growth and it is unlikely that the next 3 quarters will be flat with last year given the audio growth and return of the energy business. Plus, they said none of their new products figured in to their backlog and thus there could be some upside if some of the new applications start taking off. So how the fuck should we value this company? As said previously, Heather Vandeven is hot, but as also said previously, Money McBags had an ~$.85 eps for CRUS for this upcoming fiscal year with ~$.19 coming next Q. So we could assume they will be inline with Money McBags estimates for the rest of the year and gross up his previous $.85 with the $.10 beat in Q1 their gudiance implies and thus get a $.95 fiscal year eps estimate. Alternatively, we can take Q1 estimates as a baseline, say they get an uptick in September’s Q like usual, and the other Qs will all come in the same as Q1 guidance. So 3 Qs at $.29 and one slightly higher gets us to $1.20. Either way, just call earnings somewhere between $1.00 and $1.20 per share and given that, the company is still fairly cheap trading at 10x to 12x fiscal 2011 with $2 of cash on the balance sheet (of course some of that cash is going out the door because on the call they said they were buying a building to relocate their headquarters and it’s not clear what real estate in Austin is going for these days). The point is, this company just grew revenue 87% and the trends are still in their favor as their 35% customer which is AAPL is still selling the fuck out of some iPhones. So hopefully you all bought with Money McBags, and if you didn’t, the stock should consolidate down a bit over the next few days and it is still relatively cheap, so you’ll get another chance. Throw a 15x multiple on $1.00 of earnings and you get a $15 stock and that seems to be a fair low end price.
The market sold off at the open today but is climbing back like a Phoenix from the ashes or Paul Volcker’s economic reputation. Alcoa’s earnings initially brought the market down as they were a bit disappointing and Alcoa is considered to be the first bellweather company to report in this critical earnings season where baked in expectations are greater than they were for Ulysses S. Grant’s presidency, the launch of the Space Shuttle Challenger, or Jay Leno’s 10pm time slot. Alcoa missed on revenues earning only $4.9B instead of analyst guesses of $5.2B while putting up an inline earnings per share number. The company blamed the top line miss on the fact that they sell a fucking commodity and on Canada. Interestingly, even though they were short of analyst guesses on revenue, they still grew the topline by 18% thanks to a 49% surge in the price of aluminum off of the depressed levels of last year (apparently aluminum was depressed because it found copper cheating on him with silver. It’s his own fault though, as steel tried to warn aluminum that copper was a whore and would smelt anything, but he didn’t want to listen). That said, shipments of aluminum slid 3% so demand still has quite a way to go. In other macro news, the US trade deficit widened in February like a hooker‘s purse when seeing Eliot Spitzer walk by her after he has hit the ATM. The trade deficit was up 7.4% to $39B and signaled that US consumers are getting stronger as they once again pass up American made goods for shit produced overseas. Imports surged 1.7% with the majority of that coming from electronics, aparrel, and Laetitia Casta posters.
In international news, Greece had a bond offering to raise capital to help ease their budget deficit and the bonds are seeing stronger demand than Sarah Palin at a tea bag convention, potatoes during the great Irish famine, or Ann Darrow on Skull Island. The latest bond offering was more than 6x oversubscribed which is more oversubscribed than a New Century subprime mortgage B tranche in 2004, the theory of intelligent design in Texas, or the rumored Jessica Simpson Juggs magazine photo shoot. With the EU and IMF backing up Greece (and we all know the Greeks love getting backed-up), investors should have faith that the country won’t go bankrupt and thus the incremental yield being offered by these Greek bonds should be solid investments.
In other stock news, the markets eagerly await the earnings of large cap banks tomorrow while UBS’s regional bank anlayst is getting in front of those numbers by downgrading mid-sized banks. The analyst thinks banks’ earnings and valuations are unsustainable and they are due for a “meaningful pullback” as investors somehow forgot that normalized bank earnings no longer exist thanks to something called banks not lending any fucking money and reserving the shit out of their balance sheets. Ford announced revenues are tracking ahead of last year, though that is like being smarter than Carrie Prejean, creepier than Larry Craig, or less herpe-ridden than Paris Hilton. Ford has done a solid job of managing through the downturn and thinks the economy continues to get marginally better, like day old chinese food and the Winter Olympics. The market is not only anticipating bank earnings, but GOOG is trading up into their earnings release on Thursday after hours. Money McBags is long GOOG as the online advertising market isn’t going anywhere and they dominate it like Tony Danza dominated Judith Light in showing her who was the boss.
In small cap news, PALM is tumbling because potential buyers must be coming to their senses or must have read When Genius Prevailed yesterday to realize that buying the #6 player (and likely dropping with Microsoft introducing the Kin) in a competitive and near commodity market is about as good of a business decision as investing with Bernie Madoff or letting Dexter Manley write your presentations. In other small cap news, JOEZ is apparently still not fitting investors well despite offering a nice booty fit as it trades down another 4% to $2.60. Money McBags has put some analysis behind JOEZ numbers over the past couple of days and thinks it is getting to a more reasonable valuation (of course being down almost 30% in 4 days will do that to you). What is interesting is that the analyst from Roth Capital came out with an upgrade of JOEZ yesterday and had close to the same numbers as Money McBags with ~$.07 eps for 2010 and $.13 for fiscal 2011. The key difference being that Money McBags thinks $.13 is a bit of a stretch, though possible (In fact $.15 wouldn’t be out of the realm of possibilties), and that even if they were to hit $.13, they shouldn’t trade at 28x that which is where the Roth analyst’s price target is. The stock is now trading at 20x the fiscal 2011 $.13 estimate which is a reasonable valuation for JOEZ growth if you think $.13 is attainable. If Money McBags were a betting man, he’d bet that the butler did it, but he’d also bet that JOEZ will earn somewhere between $.10 and $.15 per share in fiscal 2011 which is actually not a very small range but he just doesn’t have a good feel for management’s ability to execute a business since their margins have yet to show the leverage associated with scale. Either way, the valuation is becoming more reasonable and if it were to drop a bit more, Money McBags might think about buying some. Until then, he’s going to wait for the institutions to finish puking this thing out and see where it is when the smoke clears as volume over the past few days has been higher than Lindsay Lohan on a Columbian vacation as people just want to get the fuck out of this stock right now.
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.
1/28/10 Midday Report: Global economy still more fragile than faberge egg wrapped in Donald Trump’s ego
The market is down again today thanks to Qualcomm giving a subdued forecast and something again about people not having jobs. Luckily, according to the Fed, the recession may be over which has left many of the 10% of unemployed people loudly cheering from their urine stained cardboard boxes. The Fed upgraded its economic outlook, reaffirmed it will end liquidity backstops and a $1.25T program to buy mortgage-backed securities, and then shook their magic wand over the grave of Benjamin Strong while singing an incantantion from the Atharva Veda. While they pledged to keep the benchmark rate low for an “extended period” (and remember by low they mean zero, and by zero they mean free money for banks), they did question how long inflation will remain “subdued” citing the fact that they just printed enough money to deplete the rain forest or for PacMan Jones to make it rain for six consecutive hours at his local Rick’s cabaret.
Despite the Fed’s modestly upbeat statement, weekly claims for unemployment came out today and while they were slightly better than last week (in the same way that Paris Hilton is only slightly dumber than a centipede), they were still worse than expectations as there were 470k new filers and expectations were for 450k. Additionally, durable goods orders were well below expectations growing .3% in December vs. expectations of 1.7% growth. This was driven by a 38% decline in orders for civilian aircraft, a 5% decline in orders for computers, and a 10% decline in things that “cost money.” However, if transportation is excluded, durable goods orders grew .9% which was above the .5% median estimate. So as always, you show me some data and I’ll make it look good or bad, depending on what you want to hear (she was fat, she had a good personality. Potato, puhtaato). Those analysts who have used Excel have a word for it, it’s called “solver.”
In international news, George Soros is now looking for a seat on the “China is a bubble” bandwagon joining Jim Chanos and everyone else looking at the market on a daily basis. I’m not saying China is moving too fast, but it shunned foreplay and offers of lube and then demanded to receive immediate insertion in to it’s Shanghai. Also Greece continues to worry economists but at least they are being honest about their problems as their finance minister, George Papanotgonnaworkhereanymore, has denied reaching out to other governments for help. Despite needing to raise an estimated 54B in euros, the finance minister said they can solve their budget crisis themselves and currently “have no plan B,” which puts him with Joseph Hazelwood, Tischman Speyer Properties, and John McCain.
As for earnings today, Ford posted a $2.7B profit for 2009 which was their first profit since 2005 and they now expect to also be profitable in 2010. When asked how he did it, Ford CEO Alan Mulally said “two words: vibrating seats.” NetFlix also put up a huge quarter earning $.59 per share vs. analyst estimates of $.49 per share. The company citied that 48% of users had watched streaming videos up from 41% in Q3 and 28% in Q4 2008 which should help deflate some business model concerns that people will stop using DVDs and shift to the on demand delivery model because NetFlix is showing it can also sucessfully provide movies on demand (unless you demand adult movies because NetFlix is prude).
In small cap news today CRUS is trading down heavily after they had their quarterly release which was exactly inline with their pre-announcement and included guidance above the street. Guidance was for next Q to have $55MM-$59MM in revenue, 54% to 56% gross margins, and $24MM-$26MM in operating costs with $1.5MM being non-gaap. Remember, this company is barely paying taxes right now so you can get to about $.11 of non-gaap earnings for next Q which is above the $.09 of the street. Now the stock could be trading down with AAPL being down since they provide an IC for audio in the iPhone and there could be concerns that the iPad will cannibalize iPhone sales and thus hurt CRUS’s revenue, but I have no idea if they are providing any ICs for the iPad so that is just conjecture for why they may be down today. Money McBags laid out his case for CRUS after their pre-announcement on 1/12/10 and said this: “Money McBags would hold off on buying today, but there is still probably $2-$4 of upside (15x FY 2011 $.60 estimates + $2ish in cash per share) and that is if the energy market does not have a big comeback. It is worth tuning into their 1/28/10 call to see what they have to say, so put this on your watch list and be ready to buy the dip.” So he is now going to listen to their call and may buy this dip (though he hasn’t yet so as always, do your own research).
In other small cap news, EBIX pre-annonuced that they had $10.3MM cash from operations in the Q, $19.3MM cash on the balance sheet, will be resuming buybacks, and are in fact a real business. The CEO, Robin Raina, also gave this statement: “In recent times, I have been asked about the decline in stock price and the rather high shorting numbers on our stock. As the CEO of Ebix and one of the largest stakeholders, I continue to believe in Ebix and the opportunity to make Ebix the largest insurance player globally. The Company continues to do well on all fronts and we expect Q4 results to be in line with our expectations. We have always believed in letting our numbers speak for themselves and towards that extent we will continue our efforts to create new benchmarks in terms of revenues, cash growth, earnings, and net margins for Ebix.” Money McBags has mentioned it here before, EBIX has a ridiculously good business from a numbers perspective, but there are concerns as to how real those numbers are given their predilection for firing auditors, complexity of business model and tax domiciles, and a CEO who thinks he is god’s greatest gift to the planet (when we all know that Hanna Hilton is god’s greatest gift, with duck confit and spankwire.com being a close second and third). The point is, this is either a ridiculously great buying opportunity for EBIX or you are just going to be giving your money away. As Money McBags can’t say which with any certainty, he is happy to sit on the sidelines as a spectator, though he’d be happier to be sitting on the sidelines as a spectator for the upcoming Brooklyn Decker photo shoot or the live reunion of the cast from the Facts of Life.
1/5/10 Midday Report: After 330 years, stock market proves Isaac Newton wrong: Gravity, schmavity. What goes down, must keep going up
The market continues it’s latest rally despite at best mixed news today. The biggest news is that pending home sales dropped more than Dolly Parton‘s boobs have in the past 5 years (and for the record, she now calls them “anklets”). The 16% drop was more than the expectation of a 2% drop after a 3.7% gain last month. Of course the gain last month was due to the first time home buyer tax credit which stimulated the existing home sales market like Simona Halep once stimulated the WTA. The number today should not be shocking as when there are incentives for something, and then those incentives go away, that behavior does not always remain when it comes to a non-reflex behavior like Economics. You hear that Pavlov? You can keep ringing that bell, but I know there is no tax-incentive in the dish, so stop fucking with me and get me my $5k deduction while I lick my balls some more. On second thought, I’m just gonna keep doing this, so you can get me the deduction later. Arf. Therefore, it is not surprising that the initial sell-off in the morning based on this news has reversed.
The one real effect of the news though was the dollar falling again as optimism that the Fed will raise rates sooner rather than later is beginning to wane, like Alan Greenspan’s misguided influence. This thought was reitirated yesterday at The Boar’s Nest by Fed Governor and Bo and Luke’s long lost and full chromosome having cousin, the lovely Elizabeth Duke. Ms. Duke was quoted as saying: “In the current environment, the FOMC continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” So perhaps Greenspan’s influence isn’t waning afterall, ugh. Duke then went on to say, “to quote my good friend Roscoe P. Coltrane, in time, the economy will be “Good, Good, Good.“”
In market news, Ford has reached it’s highest price since 2005 as traders anticipate Ford’s December sales numbers which are being released today. A strong number will be very positive for the economy because if people are buying Ford’s shitty cars, they will likely buy anything and thus discretionary spend will be back. Finally, Kraft upped their offer to buy Cadbury to the tune of issuing 370MM new shares in the proposed take over. This has drawn the ire of Warren Buffett who owns a 9.4% stake in Kraft. Buffet argued that issuing shares will dilute the already cheap Kraft stock at a price $6ish below where Kraft bought shares back themselves in 2007, will give Kraft a “blank check” to renegotiate the deal higher whenever they want, and will make him really really angry to the point that he will go to his room and not come out or talk to anyone until the company rejects the plan. The 78 year old Buffett was then heard to complain about those damn kids on his lawn, CBS’s decision to take Matlock off the air, and the fact that dames no longer have yams like Eleanor Powell.