Posts tagged ISM
The market ran in the morning today on the strength of China manufacturing the fuck out of some shit before falling in the afternoon after realizing that most Americans can no longer afford to buy the fuck out of that same shit (except of course for iPhones, because no matter how poor people get, they still want to be able to masturbate on chatroulette in the comfort of their local Unemployment Office bathrooms to help dull the pain).
That said, the next two days promise to be almost as exciting as Teddy Roosevelt’s charge up San Juan Hill or the build up to Karissa Shannon’s sex tape as the mid-term elections are tomorrow followed by the Fed’s QE2 announcement on Wednesday where the entire market will be able to sell the news faster than any Rupert Murdoch entity. As for the elections, Money McBags gives them a big fucking yawn since a bunch of douchey white guys will either be reelected or replaced by a different bunch of douchey white guys who all propose to be for different things and yet all will do the same fucking thing (and yes, Money McBags is more jaded than an ancient chinese artifact or a clapper).
So kind readers, when you go to the polls tomorrow, remember you have a third option and that option is to vote “None of the above” and write in Money McBags from the Bail Outs Get Us Savings party (BOGUS for short). Money McBags laid out his platform the other week but it involves being 100% up front about ruining the economy and destroying fiat currency. As we learned the other week, not counting moral hazard, GM/Ford, AIG, and the dollar, bail outs have had solid returns for the US of A and with debt piling up faster than Paris Hilton‘s DUIs, social security dwindling like Alan Greenspan’s reputation, and state and local governments getting ready to disappear like manners or as if they had crossed the great Woland, we need those returns. So in the most counter intuitive, yet highly logical way, the BOGUS party will destroy the economy in short order and then bail it out to bring back prosperity. It may not work, but you got anything better?
As for macro news today, personal spending rose less than guessed as apparently people can only buy one Netflix membership at a time. While spending was up .2% (vs. .4% guesses) incomes dropped for the first time in a year which means the savings rate declined to 5.3%. Luckily, that isn’t anything about which to worry because in America, saving is for big pussies. Plus it’s not like 401ks are being tapped at record rates so why wait to pay rent in the future (when it will still likely be too damn high) when you can buy 42 inch rims for your Escalade now? Wait, what’s that, 401k withdrawals are at record highs and the 16%+ unemployed people are no longer contributing to any type of retirement funds? Well, at least we’ll have Marisa Miller.
In other macro news, the ISM’s manufacturing Index rose to 56.9, which was better than guessed and was above the 54.4 in September as apparently the manufacturing sector is now producing broken dreams and taint tickles. Finally, construction spending rose 0.5%, which was better than guessed and was driven by a 1.3% increase in spending on public projects such as building schools, erecting bridges, and filling in man holes (or as it is called in San Francisco, Friday night).
Internationally, the big news was that China’s PMI manufacturing survey rose to a 6 month high after licking one too many of their own lead paint produced toys. The index registered 54.7 in October which was up from 53.8 September and 51.7 in August and has now signaled expansion for 20 consecutive months (though after expanding for that many months, Money McBags believes they were supposed to call their doctor to seek immediate help or simply take the Asa Akira posters off of their walls). Either way, the reading was not just higher than consensus guesses of 52.9, but it was higher than every single analyst guess which shows that heteroskedascity is a more universal language than love or signing.
In the market, ABK may be going bankrupt in this week’s edition of “no shit?” ABK defaulted on their interest payment and may have to file Chapter 11 as they have not been able to raise adequate capital since investors apparently hate shitty companies with broken business models and more liabilities than on Travis Henry’s tax return.
Also, WL was down ~45% in a take under by M&T Bank which once again proves Money McBags’ long standing hypothesis (soon to be fact) that it is impossible to value financial service companies as their balance sheets are more full of shit than a hippopotamus with no asshole and suffering from Prader-Willi syndrome. Honestly, Money McBags has gone on this rant before as he actually spent two long years of his life as a financial services equity analyst, but one has a better chance of solving P vs. NP using only an abacus and one of Gregori Perelman’s nut hairs than one does of properly valuing any public financial services company using only publicly available information.
In small cap news, HSTM rocketed up on heavy volume and Money McBags broke their quarter down recently and thinks the stock isn’t cheap anymore. That said, there has been very weird volume on the name over the past month or so, so it is possible someone knows something and is building a big position. That said, Money Mcbags isn’t the person who knows that something here so he will happily sit out and yet acknowledge that it is a decent little company that seems to be in good niche and operating well.
IMAX also continues to shoot higher and ZAGG sold off by ~12% on twice the daily volume as people take profits after a huge run (and seeing as how those people include the CFO who ditched 90k shares last month at much lower prices, Money McBags remains very wary of this one product company). More importantly though, Money McBags dropped ~1,300 words on QCOR’s quarter earlier today so you should all check it out on your iPhones during that meeting you have today and don’t feel like participating in the discussion.
Rally!!!!!!!!!! With the war in Iraq over, manufacturing data around the world showing more buoyancy than Archimedes’ “principle” in a bowl of jello, and warts finally shown to be unrelated to herpes (which means Paris Hilton now needs to look for two culprits as opposed to just one), the double dip has apparently been averted and the market should be back to 1,600 any day now. Whew. That was a close one but Money McBags is glad it is all over and he can get back to analyzing stocks that trade on fundamentals (not so fast DGIT, KITD, or WGO), using the tools he learned while getting his BA (though it clearly should have been a BS) in Economics and MBA in Finance to analyze quaint and outdated macroeconomic indicators, and guessing muffs to his hearts content. That is until Friday when we remember that no one is fucking employed and people are getting less employed by the day. But let’s not dwell on that after this day of hope and enjoy the rally while it lasts, like finding an oasis in the Saharan desert or a nip slip in a Jessica Simpson red carpet appearance.
The big news today was that the ISM manufacturing report came in at 56.3, above last month’s 55.5 and above analyst guesses of 52.8 and remember, anything above 50 signals expansion while anything numeric signals made-up. Manufacturing was driven by strong demand from overseas, a continued restocking of inventory, and Heidi Montag‘s massive need for collagen and botox. The other positive from the report was that managers’ desire to increase jobs reached 60.4, the highest since December 1983 and that should bode well as long as desire is more than just an unrequited emotion. Unfortunately, it wasn’t all lobster tails and taint tickles in the manufacturing report as new orders sunk to their lowest in over a year but why let forward looking data get in the way of a good rally?
In other US macro news there were mixed reports on the employment situation with some people thinking things look worse than Mayim Bialik on Blossom and others thinking things look worse than Mayim Bialik after Blossom (and you may have to adjust the brightness on your computer screen on that last one to either pitch black or off). ADP reported that 10k jobs were cut in the private sector last month which was much worse than the 13k gain analysts guessed but is consistent with the stumbling economy and analysts not quite figuring out how pluses and minuses work. ADP also revised the 42k job gains from last month to 37k saying they were just fucking around with people and didn’t expect to be able to carry it this far. That said, outplacement firm Challenger, Gray & Christmas reported that job cut announcements fell by 17% from July to the lowest level since the year 2000 as companies only plan to send ~35k more people this month to the government payroll where they can soon be longterm unemployed and have their hopes and dreams for prosperity destroyed like Money McBags’ belief in cougars. So more people lost their jobs than expected, fewer are expected to lose their jobs going forward (though there are obviously fewer jobs to lose), and according to the ISM, factory managers are looking to hire. Recession over (and yes that is sarcasm).
And it wasn’t just the US that put up good manufacturing numbers today as China produced the fuck out of some shit to ease fears that their economy was slowing down faster than Michael J. Fox’s motor skills. Two measures of Chinese production including the official PMI and HSBC’s PMI both registered above 51 and also above readings from last month and show that China is still the best at manipulating data, Money McBags means running a growing economy. While South Korea and Taiwan showed softening manufacturing, those two are merely the scallions in China’s wonton soup so as long as China is relatively healthy (that is if one doesn’t dig too deep and care about real estate bubbles because we all know real estate bubbles have never caused any harm), that bodes well for Asia. Finally, India and Australia both showed minor declines in manufacturing but both economies continue to grow as they mostly avoided Greenspan’s folly.
In market news, sales for automakers declined precipitously from last August when “Cash for Clunkers” spurred sales and there was still some hope for an economic recovery. GM sales were down 25%, Ford sales were down 11%, and Toyota sales were down 35% as people become pickier about where they spend the money they no longer have. AAPL was up today after holding an event to showcase updated iPods, Apple TV, and plans for world domination (there’s a reason the new Nano has front and rear facing cameras, and it’s not just to make masturbating on chatroulette easier). The Apple TV update is the most interesting as they will be teaming with Netflix to stream videos and Money McBags continues to maintain that Netflix is a hella interesting stock as they keep innovating and finding new ways to deliver content.
Other stocks moving today included Burger King which was up ~15% as rumors are that private equity firms are interested in buying them out, Amazon which was up 6% as they have become the 12,000th company to propose some kind of web based TV application (newsflash, Money McBags will start using his computer for TV when the NSFW Spankwire is shut down and his screen grows to 52 inches, though he could just buy Apple TV or something but whatever), and BAC which was up 6% as they reached a settlement for being such colossal asshats.
In small cap news, every high beta company that had been getting clobbered whether rightly (WGO) or wrongly (CRUS, KIRK) bounced back today. KITD led the charge up 8.5% no doubt as a result of the brilliantly insightful interview with KITD CEO Kaleil Tuzman on the award winning When Genius Prevailed yesterday which may be more of a career limiting move for Mr. Tuzman than going for a hike on the Appalachian trail, yet seems to be working out ok so far.
That said, not every small cap stock was up today (and don’t think Money McBags is overlooking you SFSF, but we’ll get to you another time) as ISLE continued to sell off after a bad Q yesterday. Money McBags has broken this stock down many times including after last Q when he told you all the rise was likely just a temporary short squeeze and this Q they didn’t fail to disappoint (which of course is good for those of us who expected it).
In the Q, revenues were down 2% (and both gross revenues were down while promotion costs were up, which is a neat trick and means their marketing team is really applying what they learned in their business school classrooms), net income from operations flipped from mildly positive to negative, and they missed analyst guesses (analysts were guessing the company would earn $.11 per share and instead they lost $.08 including the $.05 tax benefit they received). Also, EBITDA declined 11% thanks to worse gaming revenues, an attempted equity offering (so they didn’t just try to screw the shareholder by potentially diluting them worse than a network TV showing of Animal House, but they did screw them by having to pay >$1MM for that threat of dilution), and higher expenses due to the acquisition of Rainbow Casino and buying a shit load of disinfectant to try to get the old man smell and puke stains out of all of the carpets.
The company has $65MM in cash and $1.3B of debt (just read that again) which means their balance sheet is uglier and has more unwanted liabilities than Shawn Kemp. Their interest expense this Q was $24MM and it is now greater than their non-cash depreciation charge which can’t make their cash flow statement happy and their enterprise value is ~$1.5B with an EBITDA run rate of $172MM so they are trading ~8.5x EV/EBITDA, which means the company still isn’t cheap. The business is flat with costs rising and the story remains that they are in shitty parts of the country where the economic outlook still remains bleak (Mississippi, Missouri, Lindsay Lohan‘s pants) with old and run down casinos and the only plan to get out of it was to RAISE MORE MONEY (which by the way didn’t work, though it did cost shareholders an extra $1.1MM in costs so hooray for that). Look, if you shorted it after last Q, you’ve done well enough that you should take some profits here but things remain ugly and if we are now at a new run rate of negative earnings thanks to higher interest expense (even ex. the one-time fee to raise equity) and moderating revenue also causing declining EBITDA, there is more down to go. Money McBags doesn’t see why ISLE shouldn’t trade closer to 6x EV/EBITDA since they have razor thin margins to be able to service their debt so there is still at least 25% more to be made here. That said, it’s never good to be too greedy so trade appropriately.
But hey, the economy in the middle parts of the country could come back, people could prefer run down casinos to nice ones, and Lisa Ann could ring Money McBags’ doorbell any minute and ask if he would like any baked chicken, so perhaps ISLE can turn it around. That said, Money McBags finds that scenario unlikelier than Smurfette being a lesbian (and not just because there were no other female smurfs, but also because Papa Smurf was hung like a badger) so do with it as you will.
8/4/10 Midevening Report: Market continues moving on up, can now afford eastside deluxe apartment in the sky
The stock market crept up again today as the equity markets and bond markets continue to decouple like Bristol and Levi, Mel Gibson and sanity, or Carrie Prejean and her top. In terms of macro news, the ISM released their report on the services sector and it both beat analyst guesses of 53 by coming in at 54.8 and was above last month’s reading of 53.8 which Money McBags believes is the first time a piece of macro data has done both of those in the same month since crude inventories were up in May of 2007 as a result of the release of Andrew Dice Clay’s “Dice Undisputed” on DVD. The ISM’s employment gauge rose from 49.7 to 50.9 and that rounding error is enough to give economists with shorter sight than Mr. Magoo a modicum of hope.
In other slightly positive relative macro news, ADP said employers added 42k jobs last month which should be a welcome sign for the 16MM to 20MM people who are still unemployed(and yes, that was sarcasm). At this rate, the recession should officially be over sometime around the year 3MM (about when Xenu will come back to the planet Earth to set off some more volcanoes and elevate disciple Laura Prepon to sainthood) as long as the birth rate also slows down due to the increased number of headaches caused by not having any money. Luckily, the number beat analyst guesses of 40k expected new jobs added according to Reuters, or 30k expected new jobs added according to Bloomberg, or a make believe number of new jobs added according to Money McBags.
Internationally, China seems to be getting a bit more concerned with their housing market as prices are rising faster than Sofia Vergara‘s son’s popularity on take your mom to school day. Apparently the Chinese government wants regulators to give banks a new stress test where in the first part regulators will gauge the impact on bank balance sheets of 50% to 60% home price declines in some cities and in the second part, banks will have to run on a treadmill for 10 minutes while listening to Nancy Sinatra songs and having strobed pictures of Lady Gaga flashed at them. With prices already beginning to moderate, Money McBags is glad that the Chinese government is being a bit proactive here, though it was their initial pro-activity by lending money to any Tom, Dick, or Harry Wang that started this whole mess. The point is China has been bubbling for quite a while, but the global economy needs that growth right now more than a keynesian economist needs a deficit or Roger Ebert needs a jaw, so Money McBags is happy to look the other way for a minute or two while China tries to figure shit out.
In the market today, WFMI sold off like a carton of spoiled soy milk despite beating analyst guesses on revenues and having inline eps while maintaining full year guidance. Revenue was up 13%, eps was up 50%, and same store sales growth was up 8.4%, all respectable fucking numbers, but apparently same store sales growth over the second two months of the quarter was worse than the first month and so far in Q3 it has been only 7.7% so investors are taking that as a sign of deceleration. Well, that and the fact that they lowered the high end of their same store sales growth rates for the rest of the year and lowballed forecasts like forecasts were the ground and they were Abe Vigoda‘s nutsac.
WFMI’s preliminary guidance for 2011 is 4.5% to 6.5% same store sales growth, 10% to 13% overall topline growth, and $1.59 to $1.64 eps which is almost 20% growth on the high end. Money McBags doesn’t follow this stock closely and he fully understands that people hate paying for expensive shit they can get cheaper, that competition is continuing to come in to the market, and that the “organic food” craze may be more full of shit than a constipated rhinoceros with elephantitis of the large intestine, but that said, WFMI is the market leader in the space and eating healthier and better is one way people can still feel like they are treating themselves when they can no longer afford to go on vacations. The stock is now trading at ~22x-23x 2011 guidance which isn’t really cheap for an 11% top line grower but for a market leader in a still emerging market with brand equity and plenty of fucking yoga moms and tofu eaters who need their free range turkeys and chlorine free tampons, it’s not terribly expensive. Money McBags would start doing more research here as the sell off could be a nice buying opportunity.
In other market news, Toyota earned a $2.2B profit thanks to strong sales in emerging markets, cost cutting, and people with short term memories (perhaps caused by receiving concussions from crashing their Toyotas when the brakes gave out). Priceline shot up over 20% on a 72% increase in earnings as european travel came back much stronger than expected despite the volcano in Iceland having spread more ash around the continent than Keith Richards did during he Rolling Stones 1978 European tour. The company guided to eps of $4.78 to $4.98 for this upcoming Q which was well above the $4.18 guessed at by analysts but just enough to win a room at an airport Hilton in Detroit and save enough money to have the scabies taken care of afterwards. Money McBags has never understood Priceline as he likes actually picking the places he will stay, times he will fly, and service providers he will use, but if one views cleanliness, time, and comfort as a commodity, then Money McBags guesses PCLN is for you.
In small cap news, CRTX which Money McBags has written about several times as a name more speculative than Paris Hilton‘s vagina or Greece shot up 9% after it announced it has licensed worldwide rights to its nicotinic-receptor based patents to Targacept which could yield up to $75MM in payments over the next few years which will likely be enough for CRTX to actually buy a strategy. CRTX has been acquiring respiratory type drugs over the past few years so it is a bit odd that they are now in the business of licensing their own portfolio, but Money McBags can only guess the rights they sold were seen as tertiary to their respiratory strategy and won’t choke off longterm growth.
In other small cap news, one of Money McBags’ favorite little companies which had just become too expensive, SMCI, put up another disappointing Q in what is beginning to be a worse trend than flannel shirts or full muffs. Last Q, Money McBags thought they were about fairly priced but asked readers to “figure out is what the fuck is going to drive sales for SMCI next year” because everything pointed to them being at the end of their cycle with INTC having already launched nehalem. Well this Q they once again missed earnings guesses by $.01 while putting up inline-ish revenue up 6.5% sequentially but 63% y/y.
The big issues with this company right now seem to be:
1. Decling margins: Gross margins continue to tick down from the high-teens to the mid-teens and continuing to go to the lower teens would make R Kelly happy enough to pee himself (or someone else), but not investors. About 85% of the Q&A on the call was around this issue and the answers weren’t just difficult to understand because the CEO’s english is worse than Amy Winehouse‘s hygiene but because they gave about 1000 different reasons for the drop. From what Money McBags could understand, margins fell as a result of a mix shift, a shortage of components (perhaps caused by the components jumping into ice cold water), a shift in sales channels to more distributors and resellers, and a terrible case of vertigo. The point is, management didn’t do a great job in giving guidance for where margins will go in the future so investors are left to speculate if 15% is the new 18%.
2. Revenue is starting to slow down or flatten sequentially: Guidance is for flat to 5% up revenue for next Q when last year revenue grew 20% between fiscal Q4 and Q1 so one can’t blame the deceleration between Qs on seasonality (though one could blame it on Erin Andrews‘ red carpet appearances keeping buyers glued to their computer screens). The company was no help with this guidance as they kept referring to their past 30%+ growth rates and those past growth rates are good enough to buy you a cup of soup and maybe some strawberry shortcake for dessert, but that is it.
So how do we value this company when we have no feel for revenues which seem to be decelerating at best and margins that have fallen for any one of about 17 different reasons? Forecasting this company with what we currently know is a more difficult task than keeping ones pants on during a very NSFW european shark attack.
SMCI earned ~$720MM in revenue last fiscal year with the midpoint of guidance for ~$205MM in Q1 this year. With sequential growth slowing and no new INTC chips coming out of which Money McBags is aware, we’ll call revenue ~ $820MM for this upcoming fiscal year, up ~14% which is way short of their historic growth rate, but the law of large numbers and the top of the cycle have to eventually catch up. We’ll give them the benefit of the doubt that margins are at least stable and call gross margin 15.5%, push their operating expenses up ~8% to $80MM, tax them at 32%, and we get ~$30MM GAAP eps or ~$.76 per share. Now there is typically a $.02 to $.03 quarterly discrepancy between GAAP and non-GAAP eps due to stock-based comp so adding that back gets us to ~$.85 eps for next year. The company is now trading at ~12x that but has almost $2 in cash on the balance sheet.
So the point is, we can go through a mental masturbation exercise like we just did because we have no fucking idea how to forecast this company and say it looks reasonably priced based on guesses we pulled completely out of our ass (or what the sell side would call, detailed industry research), or we can wait for trends to get better and not worse. Money McBags likes this company but it will always be a cyclical buy and we are on one of those down cycles now so you can afford to wait on this name unless you can figure out from where growth is going to come and how they are going to get margins back up.
Holy crap is it hot out today. It’s so hot that the only difference between the East Coast and hell is that Jim Cramer isn’t in hell, yet. Anyway, the market was rebounding a bit after downing several vials of muscle relaxant to help cure the severe case of lockjaw it developed from going down so much and so frequently over the past few weeks, but that all changed in the afternoon when reality sunk back in to investors’ portfolios. While this was likely a minor temporary relief rally, like Mel Gibson’s career after his first anti-semitic tirade but before his second tirade where he told his wife that that he was going to burn the house down among other colorful and completely insane ramblings, you should all trade in to it carefully. And yes, things have now gotten so bad that Money McBags is forced to use Mel Gibson’s racist rants as analogies for the market, so we’ve got that going for us, but at least we’ll always have the dot-com boom.
The main problem today is that macro news is lighter than Suze Orman’s resume and that is why the market tried to rally a bit. The ISM released their non-manufacturing index which measures 90% of the legal economic activity in the US and to the surprise of no one (other than analysts, economists, and CNBC), it fell to 53.8 which was a 4 month low and below the 55 guess of analysts. Out of the 11 metrics the ISM measures, 10 slowed down and one stayed the same (something called Supplier Deliveries, and in this economy all deliveries are being supplied in the rear).
Internationally, Australia kept interest rates at 4.5% claiming “uncertainty about the pace of future global growth.” Though if you read the fine print, they say the uncertainty is whether it will be 0%, negative, or global economy crushing. Finally, the market waits for Thursday’s ECB policy meeting where Jean-Claude Trichet will try to the soothe the market’s fear of european banks failing by assuring them that stress tests will be run and then offering the market a nice sitz bath. While it’s nice that the ECB is contemplating stress tests (which will no doubt show that european banks need to add more fish oil to their diets, start running for 30 minutes a day, and clean up their fucking balance sheets to try to get healthy), there is absolutely no way that european banks don’t get a clean bill of health and there is absolutley no way the ECB’s assessment will be correct. 151 banks just rushed to get funding from the ECB which is the most in a year and if that is a signal of health, than my name isn’t Money McBags.
In large cap stocks, a report from the Semiconductor Industry Association showed chip sales were up 47% last month thanks to demand from China, India, and the Lawson family. This has helped lift chip stocks and regardless of the economy, Money McBags is a believer that the pace of technological advancement will continue to accelerate and thus having some semi exposure in your portfolio should be a longterm benefit like windpower should be a benefit to the environment, saving should be a benefit to the economy, and a tracheotomy to Lady Gaga should be a benefit to ending noise pollution. Also, BP was up today after an upgrade by RBS from “Hold” to “Buy.” In addition to that upgrade, RBS announced they will be dropping the “R” from their name to hereby just go as “BS” and are retroactively initiating coverage on Enron with an “Accumulate” and Kate Beckinsale with a “Sell.”
In small cap news, it is ugly out there. Money McBags favorites KITD and KIRK continue to get pounded even though they are so cheap that if they were materials, not even China would use them. KITD is a bit funky because so much of their revenue is Euro driven so Money McBags has no feel for their upcoming revenue because a lot will depend on the average fx rate they use in conversion as well as the actual revenue split. So he expects them to miss analyst revenue estimates in the short term but long term, this company is growing 50%+ ex. currency effects, it is in a fast growing market, and they are among the biggest players with cash to spend to continue the roll up. This is the time to be building a position here even though the market is totally full of shit. You wait for chances like this to buy good companies cheaply, same with KIRK, so keep KITD and KIRK front of mind.
One interesting name which continues to fall and is becoming more appealing is IMAX. Money McBags broke them down a few months ago but basically they have been able to grow rapidly due to a JV theater strategy that has allowed them to open more theatres and take less risk. The did $42MM of adjusted EBITDA in Q1 but that was driven by a little something called Avatar which has now passed through the theater system like a kidney stone through a urethra only with less pain and with more aliens.
In the quarter prior to last, the company did ~$20MM in EBITDA (so $80MM annual run rate) and estimates are for $100M both this year and next year with the Avatar business leaving but new theaters picking up that lost growth. The current EV is ~$800MM so the company is trading as 8x to 10x EV/EBITDA which isn’t terribly cheap on the high end, but at the low end, it is getting to be attractive (not quite Alice Eve attractive, but probably Amber Lancaster attractive, and Money Mcbags is ok with that). The problems are that there has been a lot of retail money in this name which needs to get out, there is fear of pricing pressure killing their high ticket premiums, it is unknown how many JVs they opened this Q, and the business still relies on content and content is fickle (as noted by the brilliant WGP which every now and then misses the mark, like perhaps today, but in Money McBags’ defense it is very very hot).
The most recent Shrek movie underperformed because at some point even little kids can only take so much of Mike Myers so that, on the heels of Avatar going CGbye, is setting up IMAX for a top line miss. Today, the stock was down 10%+ on no news other than pretty decent numbers for the latest Twilight movie which is sure to slowly, unoriginally, and vapidly kill pre-teen brain cells everywhere. IMAX brought in $9MM from that likely abortionally bad movie in the opening week which is certainly at least as good as they could have expected.
Look, Money McBags could talk about EBITDA, revenue growth, and Ashley Greene in 3D, until he turns bluer in the face than a depressed smurf but the issue with IMAX stock is not the fundamentals, it’s the investor base. The stock was a high flyer, a momentum trendy name that drew in a lot of retail investors who institutional investors and hedge funds were able to continue to milk until deciding to blow out. Basically, once Avatar left and the story went from “we have the hottest fucking movie in history in a unique format” to “come watch an animated donkey in 3D,” growth investors ran. They bought the rumor and sold the news as if the news had slept with Magic Johnson. So now IMAX is in that weird stage where momentum investors have left and it is not yet cheap enough for value investors to buy. That thesis makes less fundamental sense than string theory, but it is what it is. So with institutions having puked this out, retail sellers are now taking their losses and when they wash out, value investors may start to kick the tires, check the oil, and make sure all of the company’s johnson rods are in order.
So look, Money McBags thinks this company is certainly on pace to do $80MM-$100MM of EBITDA this year and will likely at least hit those same numbers next year as JVs grow and people take even fewer vacations and thus spend more money on cheap family entertainment. So if you are a longterm owner, you don’t need to ditch anything here. That said, this should trade down with the market as people take gains and value investors probably won’t get interested until ~6x EV/EBITDA and if they earn $80MM-$100MM of EBITDA, that is still 25%-40% down to go, so you can probably still find a better entry point. Now it is possible for the company to earn much more than $100MM of EBITDA next year, but one has to make a few leaps of faith on JV openings, content, and the economy not going to $0, to get there, which is why Money McBags prefers to use the safer $80MM-$100MM run rate. The company basically needs to show they can perform without Avatar and while Money McBags thinks it is likely they will continue to drive traffic, he would hold off buying for another 20% down (and if it rockets up and you miss it, you need to be ok with that) because no matter how much you try there are four things you shouldn’t do in life: Spit in to the wind, start a land war in Asia, forget to look for the Adam’s apple, and fight the market. So keep IMAX on your watch list and get ready to pounce when it washes out.
Stocks bounced around today like BP’s excuses for the Gulf oil spill or like Kelly Brook’s “oil domes” while she jumps on a trampoline. Solid US economic data pushed the market in to positive territory in the morning, giving investors a slight glimmer of hope before that hope was flushed away like a 3 story building in a Guatelamian sink hole or the Sears Tower in Paris Hilton‘s pants. Leading off the slew of economic reports was that manufacturing in the US grew at a faster pace than analysts guessed with the ISM index coming in at 59.7, a whopping .7 above expectations. The rounding error was driven by increased demand for exports which will clearly be short lived as the dollar strengthens against the Euro. That said, the ISM’s employment gauge climbed to its highest level since May 2004 when the subprime boom was still just a twinkle in Alan Greenspan’s eye. Factories did add 101k workers through the first four months of the year which is likely a huge relief for the 20MM americans still unemployed, and yes, that was sarcasm. Construction spend in the US also rose by 2.7% which was the most since April of 2000 but it was likely spurred by the ending of the first time home buyers tax credit so it is more likely an outlier (like the straight Wiggle) than a sign of real recovery.
While US economic reports were as positive as a Pam Anderson hepatitis test, international macro data was as negative as an antithalian at a county fair. Leading the way was data on unemployment in Europe where the 16 countries who use the Euro saw unemployment rise from 10% to 10.1% with Spain coming in at a robust 19.7%. Making matter worse was that the Euro fell to a four year low against the dollar, though it claims it is just low because it is practicing its limbo technique for its 18th birthday bash also honoring the Treaty of Maastricht and Kaya Scodelario. The Euro remains on shakier ground than Al Gore’s marriage as it drops towards $1.20. In other international developments, China’s manufacturing grew at a slower pace than guessed as the government tries to curb its bubblicious growth. China’s Purchasing Manager’s Index fell to 53.9 which was lower than the 54.5 estimates even though it included an ample dose of MSG. The government is said to be introducing taxes on property holdings, cutting back loans provided by state owned banks, and only allowing one chopstick to be used at all meals. China has simply grown too fast as the government unleashed huge spending programs last year so efforts to reign in the economy now are better than trying to do it later when it’s too late, you hear that Bernanke? Finally, the Bank of Canada raised the country’s interest rate by 25 bps to 50bps causing the loonie to weaken a bit against the US dollar. It was the first rate hike by Canada in three years and Canada now becomes the first G7 country to raise rates as inflation begins to rear its ugly head.
In stock news, HP is set to cut 9k jobs due to automation and CEO Mark Hurd’s cold heart while AAPL is rising on reports that it has sold 2MM iPads and those are just the ones purchased by Steve Jobs’ ego. GOOG is also up today and they announced that they will only allow employees to use Linux operating systems blaming the overall crappiness of MSFT Windows for their Chinese operations being hacked. The dumping of MSFT has made Bill Gates feel like he was back in high school. Finally, BP is getting shit canned again, as they should be, with their “top kill” attempt to stop the oil leak failing worse than Gary Coleman’s liver (what, still too soon?). Money McBags has avoided writing about this catastrophe because thinking about it makes him wonder if he has been incorrectly using the word “clusterfuck” for all of his years.
In small cap news, QCOR continues to rally with investors awaiting FDA approval for QCOR to be able to market their Acthar drug to the infantile spasm market. You know, the market in which they already have the leading fucking market share. Money McBags has broken down this stock many times (just put QCOR into the fancy search box up top) and is excited for their nascent NS market but he is still confused as to why their Net Sales were such a high % of their Gross Sales last Q. Also, a small crappy company Money McBags follows yet has been embarrassed to bring up before, NTZ, put up a decent quarter on Friday but is now continuing its slide to $0. NTZ produces high end upholstered furniture like sofas, love seats, and bondage benches (ok, maybe not the last one but the definition of “love seat” can be so nebulous). But here’s the kicker, NTZ is an Italian company with ~50% of their sales coming from Europe. So it sells a high end, highly discretionary consumer product targeted to european clients with Europe in the midst of bail outs, a crumbling Euro, and record unemployment. Wow. Investing in this company is like those old SNL Bad Idea Jeans commercials. Honestly, buying shares of NTZ is dumber than jumping in to a Hot Tub Time Machine set for the 1980s and then going Lucky Pierre between Magic Johnson and Rock Hudson. You might as well have bought shares of Amercian Home Mortgage right as the subprime mortgage market was melting down, invested in Daguerreotypes in the mid 19th century, or hired Bernie Madoff to manage your assets. So why is Money McBags following/writing about this company seeing as how it is apparently more fucked than Taylor Rain in a Monsters of Cock video? Simple, because it is cheaper than balls in the Castro. The company just put up a quarter where they actually had revenue growth, but to be fair, revenue had fallen more than Eliot Spitzer’s dignity after emptying his “mini-bar” at the Hotel Mayflower so the comps were easier than winning a spelling bee on a short bus. Their net sales grew 14% to 126 Euro and their margin was up y/y from 25.5% to 38.5% which was inline with last Q. This was enough to give them a .5MM euro operating income which is still piss awful (and not regular piss, but burning gonorrhea piss), but at least it is positive. Of course, after taxes they lost 1.3 euro but tax rates in Italy are about as predictable as Lindsay Lohan‘s behavior after taking a powder break and as far as Money McBags can tell more spuriously correlated to profits than the market currently is to company fundamentals. So lets throw out the taxes and look at EBITDA. NTZ had ~8MM euro of EBITDA this Q and translating that to dollars is about $.99 or enough to buy a pack of M&Ms. Actually, with the Euro now settling in around $1.20, that would be ~$9.6MM in EBITDA and the company has a $196MM market cap and $66MM of net cash (55MM euro) so ~$130MM enterprise value. So if you annualize their EBITDA, it’s trading at ~3.5 EV/EBITDA and less than .5 sales. Sure they burned through a little cash this quarter, sure annualizing that EBITDA is giving them credit they may not deserve, sure they have one year of profitability in the last five, and sure they are selling one of the stupidest fucking items in one of the worst possible markets in the last 100 years, but how much worse can things get? They cut selling expenses by ~15% for the year last year and are running at about that same rate so they have seen nice operating improvement and if sales can level off, there is no reason this company shouldn’t trade at more than 3.5x EBITDA. The point is, despite their CEO dropping another turd in the punchbowl by saying on the quarterly call that “the economic crisis and the worsening market conditions are not yet over and the Group order flows for the first months of 2010 with respect to the last months of 2009 confirm a slow down as compared to the previous positive trend,” this company is trading as if its business is going to zero, which may well be the case, but they still have $66MM net cash and decent brand equity. Even if Europe crumbles like Alan Greenspan’s reputation, rich people are still going to spend on shit they don’t need and as long as this company can stay afloat and keep their cash burn to a minimum, there should be long term upside. Money McBags is not saying you should buy today, or even ever, but this is a stock that will shoot up faster than a heroin addict going through the DTs if and when the global economy stabilizes. So put this on your watch list, be glad you haven’t owned it, but be ready to pounce if shit starts gettting better.
Buenos dias on this lovely Cinqo de Mayo as investors smack the market like a pinata in hopes of breaking it open to catch some falling CDS. Things remain ugly today as Europe is still on the verge of going bankrupt thanks to Greece’s steroidal Wimpy strategy of having a gyro today while promising to pay for five of them on Tuesday. Unfortunately this strategy is finally coming back to bite Greece on its hairy proktos. Fear continues that Spain and Portugal will be next to need bailouts while even more fear continues that Heidi Montag will put out a new album or Alan Greenspan will find someone to listen to him again. Moody’s put Portugal on review telling the country that they need to start paying down their debts, show up to class on time, and stop throwing spitballs at Spain. Moody’s is threatening to cut Portugal by two notches from the contrived “Aa2″ to the less contrived “AaYour’efucked.” Of course as always, Money McBags cares what the rating agencies have to say as much as he cares about John Meriwether’s advice on starting a hedge fund or Fabulous Fab Tourre’s sales pitch for subprime bonds. Moody’s will likely be late once again to the dance with their downgrade of Portugal as by the time Moody’s figures it out, Portugal will long have fled the prom in a fit of tears after busting out of their prom dress and leaving their assets exposed and devalued. Making matters worse in Europe is that Europeans hate to shower and it’s getting hot outside, but making matters even worse than that is that three people were killed when Greek workers protested the new austerity measures yesterday. On the bright side, that is one way for the government to extinguish the debt, though on the negative side it’s a bit morally lacking. In the protests a bank branch also burned to the ground, luckily, the bank only held subprime debt and thus was worth more as ash than as a solvent entity. And finally, EU central banker Axel Foley Weber warned about “grave contagion effects” of the Greek debt crisis for the rest of Europe but added that it doesn’t mean the EU should use every instrument necessary to quell it such as more bailouts, rate changes, or sticking bananas in tailpipes (though if it is Kristin Bell‘s tailpipe and Money McBags’ banana, Money McBags will heartily disagree).
In US macro news, ADP reported that 32k jobs were added to the economy and it was the third month in a row of increases while Challenger, Gray & Christmas stopped by for some milk and cookies before reporting that planned layoffs decreased by 40% from the previous month. Also, mortgage applications soared to a 7 month high thanks to the ending of the federal home buyer tax credit and an extra strong dose of meth while the ISM reported that service industry expanded at the same pace as last month as a result of a Viagra milkshake and being shown Carmen Electra workout videos.
In stock news, News Corp put up a good quarter thanks to revenues from Avatar which Money McBags will see as soon as he grows a vagina. The company is trading down 5% though as they warned of a likely fourth quarter profit decline due to rising costs and lower revenues in their Fox network TV business, decelerating revenue in their cable business, and lower revenues in their film division as they are replacing Avatar with a film slate including the sequeals Alvin and The Chipmunks Get Rabies, The Thunder From Down Under Presents: What Happens in Vegas, and My Big Fat Greek Bankruptcy. In other market news, GOOG is up today on news they are going to start selling e-books and investors realizing that GOOG is only a nut hair away from world domination.
In small cap stocks, Money McBags’ biggest small cap holding KITD is getting pounded like they walked up to Brock Lesnar and told him not only is his mom a whore, but she’s like a shotgun because one cock and she blows. KITD has ~70% international revenue so with Europe about to join Atlantis and Chritsina Applegate’s breasts in the annals of fictional places that once really existed, it is not a surprise that there is some movement down. That said, Money McBags believes in this company and is in it for the long term (and by long term, he means until CEO Kaleil Tuzman sells to CSCO or whomever). Tomorrow pay attention to EBIX reporting quarterly results which Money McBags is sure will look good but will lack any semblance of detail as that business is more obfuscated than John Goodman’s belly button or Tiger Woods’ sense of dignity. On any metric the company is a screaming buy yet the red flags with CEO’s disdain of the Street, his self promotional nature that makes Kim Kardashian seem like a recluse, and his penchant for changing auditors like Ben Roethlisberger changes alibis, is alarming. Money McBags is going to stay away but if any of you can get comfortable with whatever it is in the insurance business they are doing other than installing johnson rods, you could have some nice upside. FHCO also reports tomorrow and with any luck they will have been protected from the European debt disease. FHCO has had a nice run on good earnings and a newly declared dividend and remains a strange and small company which Money McBags likes. He doesn’t own it as it ran a bit too much for him but he’s going to reconsider after they report the Q. Money McBags did make a couple of trades today by hedging his portfolio with EPV and selling his CIT shares for no reason other than to take profits and get some risk off the table. CIT should actually fare well with new CEO John Thain, a cleaner balance sheet (but who really knows for sure how clean it is no matter what the 10k says), and a valuation of right around book value. Should the market continue to drop, Money McBags will look to re-enter CIT while should Abigail Clancy‘s knickers drop, he will look to re-enter her.
Before we get to the markets, Money McBags found a picture of the hottest female in the history of history and wanted to share it with his readers as a sign of his gratitude. This is the hottest female ever*, so you’re welcome. Anyway, stocks are up today as macro data was more encouraging than a Stephen Hawking pinky raise or Anne Sullivan Macy. The ISM reported that manufacturing expanded at its fastest pace in 5 years to a whopping 59.6 (and if it had been 59.9 the market may have shot more loads than a Japanese bukakke film). Prices paid (cough, inflation, cough) drove the index higher while the unemployment gauge slipped once again. More importantly, first time jobless claims fell to 439k, while even more importantly, Audrina Patridge is hot. The Street is hoping that the 6k drop in first time unemployment claims will bode well for the Labor Department’s unemployment report to be released tommorow on paper made from the tears of the homeless. However, providing the proverbial turd in the punchbowl, or the penis in the MFF scene, was a report released today by some firm called Challenger, Gray, and Christmas who bah humbugged on the labor market by reporting that job cuts accelerated in March. The outplacment firm announced that the pace of job cuts had increased 61% sequentially from February but optimists will point out that the job cuts were down 55% from March of last year. So hoo-fucking-ray. The economy is either better or worse depending on your comparison. It’s like the old saying, in the land of the blind, the one-eyed man is king (though in the land of the blind, the one-eyed man better not develop macular degeneration because there sure as fuck won’t be any ophthalmologists).
International markets are all a buzz today as Asia and Europe saw strong manufacturing reports which signal the recovery is coming. China’s manufacturing expanded for a 13th consecutive month, Europe’s manufacturing industry expanded at its fastest pace in three years, and somethng in Japan called the Tankan index of sentiment jumped from minus 25 to minus 14. April fucking fools!!!!!!! Oh wait, that data is actually real. Wow. The international markets may have found their Viagra or Peter Gowland’s private photo collection.
In stock news, RIMM missed their earnings estimates by $.01 eps and their revenue estimates by 6%. So despite earning $1.27, showing better margins, and growing 18%, the stock is down 5%+. Money McBags is actually surprised it isn’t down more because when a growth stock in a competitive market needs to make their numbers and whiffs, nothing good can happen. Goldman Sachs cut their rating on RIMM to sell and basically called them a has been in the handset market. Their products are less differentiated than a Dahm triplet and a whole lot less delicious. Money McBags puked out his RIMM shares because fool me once, shame on me, fool me twice and you can go fuck yourself.
In small cap news everything is up except for Chinese power generation company APWR who handed out fortune cookies with their earnings release yesterday that all read “suckers.” Their guidance was 30% below analyst guesses who apparently were just chasing windmills when covering the stock (and that is funny because APWR produces windmills, but you all knew that anyway, right?). Also, there was a comment in yesterday’s blog comment section asking about MLNK and Money McBags will address it here. The reader wanted to know what was going on with MLNK and if it is still a hold. Money McBags broke down their fuck awful quarter a few weeks ago and nothing has changed since then of which he is aware. They earned $13MM of EBITDA and said this upcoming Q was going to be worse while they would see some sequential improvement after that. Of course they also said that last quarter would be flat and it was down worse than a than a clinically depressed person who just lost their dog and had a virus wipe out their computer’s porn collection, so who the fuck knows if management can be trusted. Their excuse for missing the quarter is still a little squirrely as they blamed their clients for delaying decision making but Money McBags doesn’t quite get that. HP’s revenues were up ~10% and HP is like 25% of MLNK’s business, so why the fuck didn’t that help drive revenues more? And if MLNK is earlier in the cycle, why did they not see revenues jump by more in the previous Qs or why is their revenue being impacted by clients delaying their decision making now (since decisions should have already been made for this upcoming cycle). The simple fact is the company is underperforming, but even so, they still earned $13MM of EBITDA in the Q. They have a $163MM in cash and a $375MM market cap so an enterprise value of $210MM. If you think their business bounces back after likely sucking this Q coming up (Money Mcbags’ words, their guidance), then a $52MM EBITDA run rate is possible and thus they are trading at 4x that. The stock is cheap on that basis, but on an EPS basis, they’ll probably be lucky to earn $.45 this year so are trading at almost 20x that for no growth. The EV/EBITDA and cash give us some downside protection so Money McBags sees no reason to sell, but he also thinks this is dead fucking money for a while. Their business should ramp with electronics sales (though it didn’t despite HP being up 10% as Money McBags said earlier, so if someone can explain that, Money McBags is all ears), so if the economy can really come back, they should be able to grow the business. Look, it ain’t fucking AAPL, but it is sort of cheap with a cash cushion that has some nice operating leverage. So in short, the downside seems a bit limited but the upside may be further away than Paris Hilton’s Academy Award (One Night in Paris excluded).
*April fucking fools’.
Wow. The market ripped up today like it was competing for the Ansari X Prize in 2004 or like it was rushing to claim the last seat in a dream Hayley Atwell-Kate Bosworth Ultimate Surrender match (nsfw, unless your work doesn’t suck). Technology led the way thanks to an upbeat report on chip sales and the fact that we are at the inflection point of exponential technological growth, regardless of the economy (or at least Ray Kurzweil’s fancy graphs say so*). Chip sales were up 47% from last year and .3% from December leaving Semiconductor Industry Association President George Scalise (whose last name is an unfortunate anagram for one of the world’s worst afflictions, “ass lice”) to explain that sales were helped by “growing demand for semiconductors used in personal computers, cell phones, automobiles and industrial applications.” He then pointed to the reporter and while being egged on by his minions used the old SIA favorite line, “Is that a pre-Moore’s Law semiconductor in your pants or are you just happy to see me.” Along wth a positive report on semi sales, consumer spending was up .5% despite incomes only being up .1% which led to the lowest savings rate since January of 2008, you know, back when the market was crashing because EVERYONE WAS FUCKING OVERLEVERAGED. So at least it looks like that problem has been solved. This country continues to treat savings like Lindsay Lohan treats vaginal hygiene or Larry Craig treats truthfulness, but hey, at least spending more than one earned sent the market on an orgiastic run today, so damn you common sense. In other macro news today, the ISM’s factory index fell to 56.5 from January’s 58.4, which was a 5 year high. While a number falling is usually a bad thing, unless it’s the number of times Sweet Homa Alabama is played on the radio, the ISM index was still above 50 and that magical made-up line of delineation apparently indicates the economy is still in expansion based on the at times subjective inputs of the purchasing managers reporting to the ISM. However, according to the ISM website, a “PMI in excess of 42 percent, over a period of time, generally indicates an expansion of the overall economy,” so that magical 50 number that people are claiming is good, could be as low as 42 and everything would still be ok. Whew, I am glad we have an arbitrarily declining scale to measure whatever it is the PMI measures, though perhaps they should hire some of the 20MM unemployed people to take more exact readings on what managers are purchasing.
In stock news, AIG sold their Asian life insurance unit to Prudential for $35.5B and PRU’s promise to love them long time. The sale will allow AIG to pay back the government and strategically rids them of one of their most profitable companies, thereby continuing AIG’s policy of doing things that suck. While selling assets is something AIG needs to do to get out of debt, selling their profitable business is a bit like McDonalds selling Burger King the rights to the Big Mac and thus leaving them with just the Filet O’Fish and Salmonella McNuggets. AIG is also determined to sell their US life business to MET, which means they can focus on their prized P&C business which was only one of the biggest reasons they underperformed last quarter. In other large cap news, Sandisk was up 11% today after raising their first quarter revenue guidance by 6% during Friday’s analyst day. This caused analysts to upgrade the stock including Wedbush’s Betsy Van Hees who had a sell on the company but was able to finally get the sand(isk) out of her vagina and raise SNDK to neutral.
In small cap news, Money McBags favorite MLNK shot up 6% likely on the positive semi news which should augur well for the computer market. MLNK still remains more undervalued than a taint licking. Money McBags broke MLNK down for all of you in January, but the company has treaded water since then despite the fact that their $.17 quarterly eps can easily turn into $.22 with just continued cost cutting. Add in just a Pam Anderson‘s dignity amount of growth and you’re at $.25 per quarter eps or $1 for the year. So with very little positive news, MLNK could take off and rise out of it’s way too cheap valuation of 10.5x eps and 4x-5x EBITDA with a ton of cash on the balance sheet. This stock should be owned by anyone who hates being poor, so Mickey Rourke need not apply. Also, another Money McBags stock which is frequently blogged about on When Genius Prevailed, RICK, briefly bounced up to Money McBags sell target of $16 today before getting absolutely ass raped around noon. No one has witnessed a nooner that violent since David Carradine dined alone in his hotel closet. Look at the chart below and notice right at 12:45 someone wanted to get the fuck out like RICK was two girls and they were the one cup. Huge volume. The stock usually trades about 200k shares a day and in a 15 minute span almost 600k shares blew out on the market. Perhaps every quant fund had Money McBags $16 price target hardwired in as the sell time as we all know Money McBags moves markets, or perhaps one of the 20 funds who own 600k+ shares had a little too much champagne in the chanmpagne room, but fuck did someone want out of this thing.
Money McBags is a bit flummoxed by the need to puke out so many shares and it reeks of a capital call, except funds should be relatively stable now, so this run for the door is more perplexing (and nowhere near as delicious) as teenage girls claiming that having anal sex still leaves them virgins.
Tomorrow’s blog may be out late, so follow Money McBags on twitter for updates.
*For those futurist tech geeks out ther Money McBags hopes to put his singularity near Kurzweil’s prophesized spiritual machines, especially if they’re as frisky as Riley Steele. So keep grokking Spock, my friends, keep grokking Spock).
2/3/10 Midafternoon Report: Market seeking direction like troubled teen in ABC afterschool special, though with less crying and less Meredith Baxter Birney
The market is mostly lower today despite some moderately postive macro reports (moderately positive in the way that learning you have syphilis is moderately more positive than learning you have nut cancer). The ISM said the service industry expanded in January for the first time in three months, which may be one reason RICK is bouncing back today since they provide the type of service into which all industries should be expanding. While the ISM’s index for the service industry rose to a whopping 50.5 (and again, for those of you playing at home, anything above 50 signals growth, so 50.5 signals about as much growth as Ben Bernanke’s cranium follicles), it was slightly below analyst estimates. Also, ADP came out with their job data for January showing only 22k jobs had been cut which was inline with forecasts and the smallest drop in two years which is good news for everyone but those 22k people who lost their jobs or the 15MM or 20MM (what’s 5MM among friends) people who remain unemployed.
In world news, the EU is getting all up in Greece’s souvlaki telling Greece that they are ok with the deficit reduction plan but will be watching them closer than a 25 year old virgin watches the lovely Amanda Seyfried at a movie premier (and as an aside, Money McBags had never heard of the delightful Ms. Seyfried until yesterday but he will now be investigating her full body of work which we can all assume is spanktacular. Unexpectedly finding this charming young lass is like finding that that undervalued small cap stock with no analyst coverage, growing at 40%, and trading at less than 4x cash flow). The EU commissioner for economic and monetary affairs called the Greek government’s objectives and targets “ambitious” but”“achievable.” He added, “every time we observe slippages we will ask the Greek authorities to adopt additional measures such as putting less tzatzki sauce on their gyros, conserving water by showering only twice a month instead of their usual three times, and allowing Maria Menounos to man the Athens welcome center kissing booth.”
In stock news, investors are getting less confident in the market with the expectations that the market will fall 10% or more at its highest level since 1984 according to a survey of investment writers. Of course those investment writers also thought 2008 would be a banner year for the S&P, Dewey would defeat Truman, and Fermat’s last thereom would go unsolved (hey guys, all you had to do was carry the 1). Money McBags was happily not one of the writers polled because he refuses to be associated with other financial writers and their groupthink (plus there was that incident last year at the Financial Writers of America Conference involving a punch bowl and a Money McBags’ turd, so it’s not clear he is welcome anyway). Also, Time Warner and AOL both put up good quarters, just not together, as they proved that two heads are often better than one (unless the head in question is Bar Refaeli‘s, and then one is perfectly acceptable). Time Warner not only beat estimates, but they raised their dividend thanks to strength in their film and cable business which was able to provide a boost for continuing publishing declines (why buy an investment magazine when you can read Money McBags for free?). AOL’s earnings were $.01 per share, though their revenue shrunk by 17% because people don’t use fucking dial-up internet service anymore. Jeesh. To diversify out of the dial-up business, AOL is said to be working on an updated abacus (featuring different colored beads), tins for dageurreotypes, and a re-invention of the wheel (they are apparently making it square).
In small cap news, HDIX (aptly named H sucks a DIX by Money McBags who owned them for a while last year) is up 89% on a buyout proposal from a Japanese company named Nipro (or as it’s pronounced in the US, Nipple). HDIX makes cheap over the counter diabetes blood test readers that sell for less than half the price of competitor’s products and work just as well. It was that thesis that led Money McBags to buy the stock last year as the recession should have caused people to trade down, of course it was HDIX’s shitty performance that caused Money McBags to sell well before today’s payoff. In other news, CKSW is down after their inline Q though guidance was for slighly above street revenue estimates for 2010. Money McBags has yet to fully go through their quarter but the sell-off is likely because license revenue did not grow. That said, their book to bill was greater than 1 (and book to bill is a strong leading indicator of future performance, like packs of unopened condoms at the beginning of a gang bang), they are forecasting near 20% growth, and are trading at 16x or so 2010 earnings or 3x revenues. The company isn’t terribly cheap, but they are growing, their fleet optimization software is supposed to be the best in the business, and they have a burgeoning partnership with SAP to deliver this software. Money McBags will look in to their Q a bit more tonight, but this is another watch list stock for all of you out there because they have a market leading technology in a growing market and a huge partner (SAP). This smells more of an acquisition candidate than Paris Hilton smells of AIDS.
2/1/10 Midday Report: Pat Sajak miffed as $3.8T budget allows government to buy as many vowels as they’d like.
Obama’s budget is out and it looks like more stimulus is coming as the administration continues to try to sweep the recession under the rug (though I hear it is a delightful afgahn this time as Mrs. Obama has uncomparable taste). The budget is roughly $3.8T which is equivalent to 190MM lap dances or as it is known in the NFL, “Wednesday.” Who knows, spending our way out of this recession may work, as I have found that spending my way out of depressions by dropping $20 bills like they’re unpinned hand grenades (which is fast, furious, and with immaculate precision) at my local Rick’s cabaret, is a suitable remedy. Basically, the new budget is attempting to buy more time for the economy to recover on its own while channeling its inner Keynes and hoping the multiplier on GDP is somewhere near 1 billion. Given the exponential pace of technological innovation and Keynes’ logically thought out and unprovable equations (like all of economics with its oh so idealisitic goals which never work in the complexity of the real world, like a contractor with no competition or anything made in China) it is possible it could work. The only problem is it gives investors more mixed signals than an indecisive three year old with tourettes. Q4 GDP seemed decent, but it was driven largely by stimulus spend so it is hard to gauge if the economy really did improve (Money McBags maintains that inventories were just being built back up and may have even overshot their targets since consumer spend was stimulus driven). Of course, to pay for the new stimulus, taxes will go up on the evil banks who we bailed out who continue to get money for free, big businesses, oil, gas and coal producers, people who make more than $250k, and Gabe Kaplan. But fear not because the budget does contain a plan to trim future deficits to give or take $1T (that is unless things remain bad) so Keynesians can still rejoice that in either case the US will still owe a fuckload of money.
In macro news, the market is up today as the ISM reported that manufacturing in the US expanded at its fastest rate since August of 2004, back when everyone was buying new flat screen tvs for the 8 houses they were about to flip. The index rose to 58.4, besting analysts forecasts and the 54.9 reading of December. Anything over 50 signals expansion which means my pants are constantly over 50 whenever Jessica Simpson comes over for dinner. Also, personal income was up .4% slightly ahead of estimates while consumer spending was also up .2% but below estimates.
In stock news, Exxon Mobil’s proft fell 23% but they still beat estimates thanks to their exploration and production businesses as well as higher oil prices (OPEC this, bitches). They did have some weakness in refining to the tune of a $287MM loss which may signal a shift from those gas guzzling SUVs and will likely require CEO Lee Raymond to stop double dipping his balls in gold (only one dip now Mr. Raymond).
In small stock news ARTG and ISYS both beat estimates and yet are trading very differently today with ARTG, to use a technical term, taking it in the yingus. ARTG provides services to help power and optimitize e-commerce and we all know that even in this poor economy, e-commerce continues to grow faster than a Yeti’s taint hair (and trust me that is fast, but don’t ask how I know). They earned $.06 non-gaap on 9% revenue growth and recurring revenue grew to over 50%. They did around $10MM of EBITDA which would put them at a EV/EBITDA run rate of 10x to 11x but if they can continue to grow even modestly, they could earn almost $.30 next year. With $85MM in cash, the company is now trading at around 13x next year’s earnings with a nice cash cushion, though not as nice as Carmen Kinsley’s cushion. But here’s the thing, they annonuced a 25MM share offering today despite all of that cash and gave the bland statement that it is for working capital and other general corporate purposes, such as possible acquisitions and the beginning of “Lobster Tail Tuesday’s” in the company cafeteria. With 134MM shares already outstanding, adding another 25MM dilutes the company by about 16% and thus the previous numbers all have to be reduced (the $.30 eps this year is more like $.25). The stock is down 10% on the dilution, so actually up a bit on the decent quarter and now trading at around 16x a potential $.25 eps number which is still relatively cheap for a company growing like ARTG and selling at a lower multiple than comps. The big unknown is why a company with $85MM in cash and with positive cash flow from operations who could have been an acquisition candidate themselves, needs to dilute shareholders for another $100MM. Their biggest competitor is IBM so clearly $180MM is not going to allow them to take over Big Blue, so the question becomes who do they plan to buy with the capital raise or what business do they plan to enter? Money McBags awaits to get some clarity on their use of cash but the company remains in an advantaged market and is trading at a reasonable, though not cheap multiple, so deserves paying attention to. As for ISYS, they earned $37MM in revenue and had net income grow 50% to $2MM with gross margins expanding above their target 37% to 38.4%. ISYS basically builds satellite systems for the military and after going through a few years of CEO turmoil and being in tertiary businesses, they have seemingly turned the company around and started to focus on their core capabilities. The company has talked about a goal for 2010 of $20MM of EBITDA (analysts are closer to $15MM) and the company currently has about a $120MM enterprise value so is trading at 6x EV/EBITDA that goal. Of course, the recent Q had $2.5ishMM of EBITDA so the $20MM relies on the rest of the year to pick-up. They are up 5% today on their decent Q and if they can continue to improve margins and win deals, they could easily trade above $10. It’s not the sexiest company in the world, but the relaince on military spending which per Obama’s new budget isn’t subject to the discretionary freeze, should give them ample revenue opportunities.