Posts tagged MCD
Today was a quiet day in the market (even quieter than Bernie Madoff’s trading floor on a triple witching Friday or a Money McBags column without the dick jokes) as investors bask in the fictitious and marginally above consensus guessed jobs numbers from Friday (and if you missed it, Money McBags dove in to the jobs report this weekend with all of the skill, finesse, and aplomb of Kirstie Alley diving in to a vat of Cherry Garcia ice cream) and get ready for tonight’s highly anticipated college championship (and Money McBags is taking the Big East entrant and giving the points).
With Money McBags still getting over his hangover from cheering at this weekend’s slut walk (though it was nowhere near as fun as watching this slut walk) and with news more non-existent than this second girl’s vagina (and note to TLC, really? No, hold on a second and read that again, really? Money McBags honestly doesn’t know if that whole thing is an April Fool’s joke or way too much information but either way he’ll be sure to tune in, though with the sound off, his eyes closed, and a barf bag close by) or people who give a shit about Katie Couric leaving CBS news (note to CBS, you have a news program?), today’s column is going to be an old school When Genius Prevailed of 800 words and done because sometimes you have to play the cards which you are dealt.
In US macro news, Republicans released their first attempt at a budget which included cutting $4T by taking away many Medicare and Medicaid benefits in their attempt to become even less popular. Pundits are calling it “Operation Don’t Elect Us” because even if the budget deficit is spiraling more out of control than Lindsay Lohan‘s career or Raj Rajaratnam’s phone bill, cutting entitlements before the elections is one of the worst electoral strategies since Alf Landon’s refusal to campaign and Alton B. Parker’s refusal to be someone else. And as long as the macro news was driven by political gobbledygook, it is worth noting that President Obama announced his formal re-election campaign bid today and he promises to run on the strength of his accomplishments such as not being Bush, that super cool vegetable garden, and did Money McBags already say not being Bush?
In news you should care about if you’ve come to the award winning When Genius Prevailed (other than learning about Eva Green’s NSWF nude scene in the new show Camelot, where viewers apparently “came a lot,” and yes, that wins bad pun of the week so far), oil rose to 30 month highs as the Middle East remains in more turmoil than Southwest Airlines’ planes (where fuselages have developed bigger cracks than the one in Kim Kardashian’s ass) as Libyan rebels are being recognized as the legitimate government by France, Qatar, Italy, and a bunch of other countries who will run when it is time to support them. Rising oil prices obviously don’t bode well for the Fed led recovery (even though energy prices don’t figure in to the Fed’s calculation of inflation which is as non-sensical as Snooki getting paid $2k more than Toni Morrison to speak at Rutgers since we all know she should have been paid at least $10k more because let’s see Toni Morrison perform a San Diego Sandal while shotgunning a beer) which means the odds of QE3 rise by the day. The only other US market news was that the SEC is probing backdoor mergers which is bad news for both Chinese companies and Bree Olson.
Internationally, Japan apparently released radioactive waste in to the ocean (and Money McBags has seen this before and does not like where it is going), so it’s good to see they have things under control. The nuclear meltdown and the fact that the Japanese economy has been stagnant since David Vitters was in diapers caused business confidence to sag more than Chelsea Handler’s boobs as Japan continues to face more known unknowns than Magic Johnson’s wife.
In the market, McDonald’s said they will hire 50k workers which means there might eventually be one clean McDonald’s bathroom, while semiconductor stocks fell after Nomura Securities said the sector is facing weakening demand, peak gross margins, and higher capital spending which is known as the pu pu platter of bad news.
In small cap stocks, COOL keeps running as it was up nearly 20% today as Zumba Fitness continues to make waves in the video game space (waves of fat ripples that is). And Money McBags read a note from Roth Capital today on KITD where the analyst thinks The Platform is not KITD’s acquisition target but some Italian company named Deltarte, which interestingly enough is Italian for “dilution.” Apparently Northland Securities pointed this out a couple of weeks ago but Money McBags doesn’t read Northland research as he considers them the Sidoti of the small cap space (and see, that is funny because Sidoti is in the small cap space).
Look, Money McBags doesn’t give a fuck if KITD buys The Platform, this Deltarte company, or Jim Cramer’s taint hairs, as long as they just buy the $50MM in revenues they said they were going to buy and don’t do it while raising a fuckton of equity. To be honest, Money McBags is getting a bit nervous about the deal even though he has absolutely no information other than KITD’s CEO kind of hedging on their conference call (which Money McBags pointed out in his KITD analysis from last week, and he pointed this out too). Money McBags doesn’t need to go over his thesis for the 1MMth time, but if they don’t make the transformative acquisition they have been talking about, it would just make management seem a bit goofier than the Street already perceives them to be and that is why there is a higher short interest in KITD than in Matt Howard’s pro basketball career (and note to the reader, Money McBags just finished watching Butler absolutely shit all over a basketball court for the final 20 minutes of a championship game which marks the first time Money McBags has watched a scat film in its entirety, so please forgive his writing tonight because he is not sure his eyes are working properly). The point is, Money McBags is getting hella nervous about KITD pulling this shit off but they sort of don’t need to for the stock to work in the long-term. That said, if the deal underwhelms, there could be a steep sell off so if you are in this name just for a quick pop, be careful.
Kind readers, you’ll have to excuse Money McBags today for not being able to put up a full column but you see, as you were all buying the dip and rejoicing over OPEC’s promise to produce the shit out of more oil for the first time in two years (which surely made M. King Hubberd roll over in his energy efficient grave and fans of the Double Down breath a sigh of relief), feeling better about home sales picking up as prices decline (though Money McBags isn’t clear that falling home prices being the driver of sales is good thing, it’s a bit of a Pyrrhic victory, like being adopted but learning you were adopted in to the Brown family (and not just because of the music)), and vociferously supporting the Top Free movement, Money McBags was curled up in the fetal position both feeling sicker and heaving up more bile than James Brolin on his wedding night. Between last week’s bout with the shits and today’s run in with the mouth shits, Money McBags has been struggling. The good news is that he is feeling better right now, the bad news is that he isn’t going to be able to write a full column (though shit didn’t happen today so no big fucking deal), and the best news is that he discovered the lovely Natalia Vodianova.
As for macro news, today was quieter than Cloris Leachman’s uterus except for Nouriel Roubini finding the punchbowl just in time to drop a turd in it by saying if oil hits $140, it will cause a new double dip. Now look, Money McBags isn’t a gloom and doom economist, rather he is a gloom and doom dick joke writer, but saying that $140 oil will cause some countries to fall back in to a recession is as controversial as saying smoking will cause cancer or Marisa Miller will cause awesomeness. As long as Roubini wants to play the obvious game, why not point out the other things that will cause a fall back in to recession (not that we ever jumped out of it) include rising unemployment, continued inflation, and the release of Izabel Goulart nude photos (because that will drop productivity by at least 80%).
The only data that came out was that home sales accelerated a bit as the median price for a U.S. existing home fell to ~$159k which is the lowest since 2002 which was before the wave of securitizations that allowed liar loans and speculation to become more widespread than bad grammar or Tori Black‘s legs on a pay day. Prices have fallen for seven consecutive months, are 31% below their 2006 peak, and will likely continue to drop as foreclosures and shadow inventory cause supply to outstrip demand as if it were Rima Fakih on the main stage.
In the market, banks led the way up as BAC said they will cut costs to increase profits (and based on history, the cost cuts will be loan reserves, so look out below) and the company estimates that in a few years after they are done cleaning up from the mortgage mess, they could earn $35B to $40B a year, which is weird, because Money McBags estimates that in a few years BAC will still be a piece of shit. M&A talk around Sprint Nextel and Deutsche Telekom (as opposed to T&A talk around Kelly Brook and Riley Steele) fueled optimism that buyouts will continue to push the market higher than Charlie Sheen’s breath. And NFLX tumbled again, this time on news that Facebook may begin streaming videos with Warner Brothers and that companies shouldn’t trade for a Bernankity times earnings. Of course the sound you just heard was Whitney Tilson’s prostate bursting from the deep assfucking he just received, but he did prove that having gaydar isn’t the only way to call a top.
In earnings URBN was down 16% on a weak Q as margins got compressed as they had to discount the shit out of their skinny jeans which finally went out of style, MCD announced 3.9% global same store sales growth despite getting passed by Subway as the world’s largest restaurant chain and Kathy Griffin’s face as the world’s largest cause of heart attacks, and Dicks grew quickly for investors as the company rose ~7% after beating estimates thanks to continued strong penetration of the online segment.
In small cap news, after taking it in the yingus yesterday, Money McBags’ names jumped the fuck up because again, they are a bit higher beta than the market. On a day to day basis, Money McBags doesn’t really give a shit about his names because he doesn’t own anything that is overly expensive and doesn’t have solid growth trends behind them so their macro-based volatility matters to Money McBags as much as Smith Barney matters to Morgan Stanley. That said, company specific news does matter and yesterday RICK announced they were buying another club in Minneapolis (hence keeping the twins in the Twin Cities) for ~310k lap dances. The club is located around the corner from a current Rick’s Cabaret and that kind of clustering allows them to cut down on operating costs while providing twice the tits for their customers. The best part is that the deal is going to be immediately accretive so should add to Money McBags’ ~.044 lap dance per share earnings guess for the year. Money McBags believes there is still ~10% easy upside here before you want to think about taking profits so enjoy being a shareholder while the going should still be good.
Writer’s note: This was supposed to be a short column because Money McBags feels like Amy Winehouse looks, but shit, he just dropped almost 1k words so don’t ever say Money McBags doesn’t love you.
A funny thing happened on the way to the frontrun today as after a huge opening driven by slightly positive relative macro data and NFLX’s jizztacular earnings, the market dove on no real discernible news other than maybe investors waking up to just about EVERY FUCKING PIECE OF ECONOMIC DATA released in the last few years (though highly unlikely). As for the real cause, well Money McBags would like to say it was common sense or gravity (that is if gravity existed) but he’s less sure why the rapid sell-off occurred than he is why people hire economists or who killed the bees (though it looks like it was a fungus tag-teaming with a virus that did it).
News sources all say the jump in the dollar caused by traders getting their panties in a bunch about currency wars was the reason, but that is stale news and would have hit at the open if anyone really gave a shit. The most interesting reason Money McBags could find was laid out nicely by zerohedge as they postulated that the dip was triggered by the Fed’s reverse repo (which is kind of like a reverse rodeo, only a bit less romantic) which sucked liquidity out of the market like Taylor Rain on a payday. Whatever the answer, something is rotten with the state of Ben’s market and with real structural problems, one needs to remain more careful than Justin Beiber at a NAMBLA convention.
As for macro news, it was Money McBags favorite day which of course was “New Claims for Unemployment Thursday” where the (No) Labor Department gets to perfect the government’s “hold the shock and hope for no awe” strategy. This week, new claims were down by a headline number of a whopping 23k to 452k which sounds fan-fuckingtastic if:
1. The 23k wasn’t off of an UPWARDLY REVISED 475k from 462k. But hey, what is 13k among friends?
2. 452k wasn’t still an absolute fuckawful number of new claims. The again, with 64k private sector jobs being added a month and only ~160k government jobs being lost a month, at the pace of ~450k new jobs lost weekly, we should be out of this recession sometime between now and when Rosie O’Donnell flies.
3. JWOWW had not turned down playboy. And yes this has nothing to do with the number, but we can all agree it was also not fan-fuckingtastic.
So the 452k beat analyst guesses of 455k and would have beat guesses by more if analysts had put the upwardly revised 475k in to their broken regression models as last week’s data point rather than the 462k. So while the headline number seems like a positive, remember it will be revised upwards to ~460k next week after (No) Labor Department’s analysts get through massaging the data and finishing it off with the least happy ending since Old Yeller.
In other macro news, US leading economic indicators increased for the third straight month (and the month was so straight it refused to even look at other months of the same gender). The New York-based Conference Board’s index of leading economic indicators climbed 0.3% which shockingly matched analysts guesses for the first time since analysts were asked to guess a whole number between 1 and 3 (but to be fair, they were allowed to use their fingers). Also, manufacturing expanded in the Philadelphia region in October as the index rose to 1 from -.7 but was still below analyst guesses of 2. That said, it was the first time since July that factory payrolls grew and the fact that the index wasn’t negative is the second most positive thing about Philadalphia after “not having to live there.”
Internationally, China’s GDP growth slowed to 9.6% though that growth rate still makes it more bubblicious than Gonzo Grape with only slightly fewer cavities. The most interesting part is that China’s CPI jumped up 3.6% to a 2 year high as a result an 8% jump in food prices. However, many witch doctors (Money McBags means economists) think food prices are really up ~30% as the market weighted basket of goods used to calculate inflation in China’s CPI model has not been updated since 1993 and thus real inflation is being distorted by the calculation using old weights and outdated goods such as McDLT‘s, and Zima.
In the market, as mentioned before NFLX soared after a slight topline beat ($553MM vs. $551MM guesses), a bottom line miss ($.70 vs $.71 guesses) and a 52% fucking gain in new subscribers y/y which is amazing considering they still refuse to stream porn. These results drove their valuation from ridiculously overpriced to ridonkuously overpriced (and the difference between those two is like the difference between Nikki Hilton hot and Hanna Hilton hot, so it is quite stark).
That said, an astute reader of the award winning When Genius Prevailed pointed out that without the 300% growth in unpaid subscribers thanks to extending their free two week sign-up promotion to a free month, they would have missed the consensus guess at new subs. But that is just a detail as they only have ~17MM subscribers and there are still 1.5B people in China and once inflation ceases there and those people can afford food again and thus have $ to waste on TVs and then NFLX subscriptions, the valuation will finally make sense. But if you’re going to invest in the market and want to hang with the cool kids, just buy AAPL and NFLX and watch your portfolio grow faster than the Crystal Church’s debt (but don’t forget to have a quick trigger finger because if/when it breaks, these stocks will lead the way down).
In other earnings news, MCD served up a 10% growth in profits which beat analyst guesses thanks to smoothies and people being poor and thus not being able to eat at restaurants that serve actual food. The company had 6% global same store sales growth and said they see this momentum carrying over to Q4. As loyal readers know, Money McBags believes this is a company you should own (if you want to gamble) as global aspirational brands that sell cheap products should continue to do well when mature markets develop dementia since brand equity matters in emerging markets. Finally, EBAY went to the highest bidder today as it shot up ~7% thanks to a strong Q from Paypal as users continue to send money online to free that pesky Nigerian prince.
In small cap news, CRUS got absolutely crushed today like they had gotten in the way of Keely Shaye Smith at two for one day at the local Long John Silver’s. The company was down ~15% on a quarter that barely missed analyst guesses and guidance that was below guesses and sequentially down. That said, their quarter was actually pretty good as revenue grew 81%, earnings rose to $.40 per share, and gross margin was up y/y to 56%.
Money McBags thought they would have a good Q and they certainly did, though his estimates were for $.44 per share based on their guidance and they came up short of that. Numberswise, this company is still fucking cheap as they are on pace to earn ~$1.30 this year and grow revenue 80%+ and are now only trading at ~10x that, but there are three things Money McBags has learned in life: 1. Never spit in to the wind. 2. Never get involved in a land war in Asia. And most importantly, 3. Never own a growth stock when estimates are coming down. Seriously, fuck valuation, fuck common sense, fuck it all, momentum rules these names and once you lose it, it’s not coming back until you put up a couple of quarterly beats in a row.
That said, Money McBags first told you about this stock when it was < $8 so depending on where you sold, you’ve been able to make >100%, or if you’re still holding, you are up >60%, so you’ve done well. And remember, Money McBags told you to start trimming ~3 weeks ago when he said:
“In small cap stocks, CRUS dropped ~6% after yesterday’s rise as fears are that AAPL will be replacing them in the iPhone 5 and iPad 2 and this has been the issue with this company. AAPL basically drives their revenues right now so if they lose their slotting, they will be more fucked than Heather Mills and her partner in a three legged race. This is the reason the company is so cheap despite the fact that they have been putting up huge quarters and will put up another huge quarter shortly. Where there is smoke, there is usually Paris Hilton, but there is also usually fire and Money McBags would be trimming like shit in to this news because if it is accurate, CRUS will tumble. Just ask yourself, would I feel stupider?”
CRUS was trading ~$18 when Money McBags wrote that so hopefully you took his advice. So while last Q he thought they would continue to put up strong numbers (and they have), it appears they are likely rubbing up against some softness (like titty fucking Christina Hendricks) and when that happens with growth companies, just get the fuck out and let value investors have their way.
9/9/10 Midevening Report: Government massages new claims for unemployment data and gives the market a happy ending
The market was up again today as it continues to rejoice that there are only “widespread signs of deceleration” and not whatever is worse than widespread, like “doublewidespread” or “assawful.” The big macro news was that new claims for unemployment were out and they demolished analyst guesses of 470k by coming in at a petite 451k. So hoo-fucking-ray that only 450k-ish more people lost their jobs (that is until it is revised upwards next week in the continued “hold the shock and hope for no awe” strategy that Money McBags has been talking about here for months and on which zerohedge finally picked up. And of course right on schedule, last week’s number was revised up from 472k to 478k, so party on).
But the greatest part about the spanktacular jobs number of this week was that 9 STATES DIDN’T EVEN REPORT RESULTS according to Bloomberg, though that information is not in the actual (No) Labor Department release, because why would the government want everyone to know the numbers are more fictitious than AIG’s financial statements or Chelsea Handler‘s age (if that is what 35 looks like, then Betty White must be going on 50)? You see, it was Labor Day and even government lackeys get to take a day off every now and then to soak their withered fingers and catch up on episodes of the Jerry Springer Show after working so hard from 9 to 5 (not including the hour for lunch) for five days a week and as a result, 9 states simply gave the (No) Labor Department the Heisman (though not Reggie Bush’s, because he may already have given it back).
According to Bloomberg, California and Virginia came up with their own numbers while the government estimated the numbers of the other 7 states who were no doubt too busy putting all of their white clothes in storage to even come up with an out of their asses guess (and if their asses look like this, guess away). So look, it is possible that in the week when ~20% of the states didn’t report numbers (though well over 20% population-wise thanks to California with their sunny beaches, warm climate, and population of bunnies) that numbers would fall by 28k to below even the lowest of analyst guesses (which was 460k), it is possible that the government was able to accurately guess at actual new claims numbers for states that didn’t report (since the government is known for their tip top and cutting edge analysis), and it is also possible that monkeys are currently flying out of Money McBags ass as he hums a Johnny Cash tune and dances the kazachok, because really, after seeing the success of Lady Gaga, anything is truly possible. That said, any or all of the above are unlikelier than Mike Tyson ever smoking weed with Tupac (because had that happened, the world may have ended out of awesomeness) so Money McBags is willing to bet a share of NTZ (which is falling ever closer to $0) that next week the numbers are revised a fuckload upwards and yet the market won’t care. Manipulate on my friends, manipulate on. If only the government could convince all 50 states to not report their new claims for unemployment numbers next week and thus guess at the numbers themselves, the recession would be over much sooner. Perhaps that is a strategy the administration should roll out next month when the non-stimulus fails to stimulate.
In other macro news, the US trade deficit dropped by 14% which was the most in almost 1.5 years and driven by both an increase in exports and a decrease in imports thanks to strong pre-orders for the Kendra Wilkinson sex tape. More importantly, the US trade deficit with China also narrowly shrunk but there is no truth to the rumor that it was driven by tainted shipments of Coca-Cola from China which were found to contain inordinate amounts of a substance being referred to as “pee pee.”
Internationally, Britain is keeping their rates flat as their Monetary Policy Committee left the official bank rate at 0.5% saying they’d make it zero, but then their economic system would be a total farce so at least this way it looks like they can still do something. In other British news, Kate Beckinsale is hot, while in even more British news, Britain fined GS $27MM for failing to disclose the S.E.C.’s investigation in to GS’s shady Abacus deal. While the fine is merely for show as $27MM is more inconsequential to GS than proper grammar is for a rapper or a US vice-presidential candidate (though coincidentally it is exactly how much Lloyd Blankfein shits out in a day after his breakfast of gold plated dodo bird eggs and jewel encrusted leprechaun nipples), it does once again point out what a bunch of asshats GS’ management team are.
In stock news, AAPL was up thanks to lowering the restrictions they have for App approvals which means the world of porn just grew a little bigger and for that, we should all thank Steve Jobs. MCD was down 2%+ today after their monthly same stores sales came in below analyst guesses, yet they were still very strong. Overall same store sales were up 4.9%, 4.6% in the US, 2.2% in Europe, 5.6% in Paris Hilton‘s vagina where she apparently has enough room to operate more than just a McDonalds, and 7.8% in the rest of the world. The stock has certainly had a run but Money McBags continues to think that brands like MCD and KO should be longterm holdings as the world becomes poorer and developing nations become more westernized.
In small cap news KITD jumped up today, likely on news of two small acquisitions, a sort of competitor of theirs getting funding, and it looking so fucking ridiculously cheap that not even Kelsey Grammar would date it. The acquisitions are of a company called Accela Communication based in Massachusetts and the assets of Megahertz Broadcast Systems based in the UK (so kudos for KITD for buying a company for whose employees they won’t have to provide dental insurance). For these two entities, KITD is paying $7.4MM (~$4.5MM in cash) and acquiring ~$8.2MM of run rate revenues but thinks they will be able to expand that as they sell their software and platform to the acquired companies’ customers. As Head of Americas Lou Schwartz said: “Our acquisition of Accela, while relatively small, is highly synergistic” and with Accela serving more than 150 corporate customers, that opens up more cross sell opportunity for KITD. More importantly though, KITD appears to be working hard as likely Member of the Tribe Lou Schwartz should have been at home for the High Holidays instead of showing up in press releases. So in theory, KITD should now be at ~$108MM in revenues for next year with no growth (and no growth for KITD in 2011 is as likely as Bill Gates moving to Fort Gay).
Money McBags has written about KITD ad nauseum but as long as they focus, continue to execute, and stop dicking around with internet bloggers, they should outperform and help all of us shareholders support our local college students. And Money McBags promises his analysis of DFZ’s Q will be out in the next 24 hours. Unfortunately time does not grow on trees, but since time is relative, somewhere in the Universe the DFZ analysis has already won Money McBags Institutional Investor magazine’s analyst of the year award which fittingly is a golden cup completely full of shit.
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.
6/8/10 Midevening Report: Bernanke speech fails to significantly rally the market, says he’ll overpromise more next time
The market was relatively quiet today as there was a lack of macro news though Fed Chairman Ben Bernanke was out late Monday saying: “My best guess is that we’ll have a continued recovery, but it won’t feel terrific like a blumpkin from Sara Varone followed by a nice wipe with that oh so soft aloe infused Cottonelle. Instead, it will feel more like having your nut hairs pulled out while listening to the smooth adult contemporary sounds of Sade”. Ok, Money McBags made part of that up but that’s not the point, the point is, Bernanke is hedging on this recovery like he just bought FAZ in his IRA. While he says the economy won’t likely have a double dip recession, he did not say it wouldn’t have a single dip recession followed by a falling off the cliff depression, so it’s merely a matter of semantics. Bernanke also dusted off his Phillips curve (though it wasn’t as curvy as Kimberly Phillips) and added that the central bank would raise rates before the economy returns to full employment, which should be any century now. That’s great, but Money McBags would like to know what the full employment rate is? Is it 4%, 6%, or whatever proof the whiskey was that Milton Friedman was drinking when he came up with NAIRU (seriously Milt, you couldn’t have come up with a catchier name than the Non-Accelerating Inflation Rate of Unemployment? Really? That name could put Ritalin out of business because just reading it has to make even the most hyperactive person drowsy.)? The point is, the full employment rate is a bogus hurdle as there is no set rate so saying rates will rise before we reach that level is as helpful as saying you’ll stop running when you catch the horizon. With the stimulus funds coming to an end over the next few quarters and the economy already starting to show signs of coming down from its stimulus induced bender where it got drunk off of bail outs and hand outs and now finds itself waking up in a pool of its own spending while dry humping Greece’s Aegean coast to the sweet whisperings of Benjamin S. Bernanke and and his magical money making machine, the economy is in a precarious position (though not as precarious of a position as Kirstie Alley‘s girdle).
Internationally, the new government in Hungary has announced a set of austerity measures aimed at solving their debt crisis. The austerity measures include cutting public wages, overhauling the tax system, banning mortgage lending in foreign currencies, and stopping free cookie day at the National Assembly. Also, the European Union’s finance ministers met in Luxembourg with the most important outcomes being an agreement to allow tighter oversight on countries suspected of falsifying economic data and an agreement that Ginger Spice was the hottest of the Spice Girls.
In stock news, AAPL introduced a $199 iPhone which has a front facing camera that should now allow users to masturbate on chatroulette wherever they may be. The new iPhone is slimmer than the previous version, has better picture quality, and doesn’t insist on cuddling when you are done with it. In other stock news, MCD had better than guessed at growth for the month of May of 4.8% worldwide thanks to the fact that they sell cheap shit and people can only afford to eat cheap shit. The company announced the falling Euro would impact yearly earnings but announced that to make up for those lost earning they are forming a partnership with American Heart Association to get a portion of the profits from all angiograms caused by eating their food. Finally, analysts were busy today with INTC downgraded by SIG to neutral because the analyst had to do something to try to drum up trading business for SIG and Dick Bove, who never saw a financial stock he didn’t like and didn’t understand, cut his price target at JP Morgan from jizztastic to just ballticklingly good.
In small cap stocks, Money McBags favorite KITD continues to get pounded like Alexis Texas on payday. With ~70% of their revenues coming from Europe, topline should be impacted by the 15%-20% drop in the Euro with investors seemingly betting on worse. Given that, it is difficult to come up with a short term valuation for KITD as the Euro appears to be falling off worse than proper grammar or Britney Spears’ top. Last Q, the $/Euro exchange rate was somewhere around $1.38 and this Q, it’s likely going to be around $1.25, and after that, who knows? So lets take a worse case scenario where we assume the exchange goes to parity. So that would be a 28% drop in the exchange rate from last Q. Money McBags thinks at the high end KITD can do $150MM of revenue next year, but let’s call it $130MM because of the global uncertainty. The thing is, that number was derived off of the old $/EU exchange so if we knock 70% of their revenue (their EU exposed revenue) by 28%, revenue decreases by ~$25MM. So insted of $130MM, a worst case scenario yields revenue of $105MM and at 20% EBITDA margins, that is ~$21MM EBITDA. The company currently has a market cap of $210MM but they have somewhere around $30MM in cash after their last deal so they have an enterprise value of roughly $180MM and thus are currently at a worst case scenario of ~9x EV/EBITDA and topline growth in that scenario would still be ~20% (and dollar euro parity is almost as bad a scenario for the financial markets as having your daughter bring home Jordan Van Der Sloot for Thanksgiving Break). Of course all of this assumes that their costs and revenue are tied together so if the euro drops by 28% the associated costs with that will drop by 28% and thus margins will remain intact. The point is, Money McBags still likes this company longterm as they are in a rapidly growing space that is going to continue to grow for several years, but there are certainly short term currency issues. However, they are diversifying their revenues in to the US and Asia so as to become less dependent on Europe so while things look bad now, in the long run this company should be fine. With uncertainty comes opportunity and it is getting to the point where this company is just getting stupid cheap.
6/4/10 Midafternoon Report: Jobs report challenges Marmaduke movie for biggest bomb released on Friday
The (No) Labor Department’s jobs report came out today and was well below analyst guesses which sent the market tumbling like Tony Hayward’s Q score at a Greenpeace convention. The US added 431k jobs in May which was the biggest increase in a single month in over a decade since the internet was founded and needed people to set up all of the tubes. While on the surface that number seems spanktastic (though not nearly as spanktastic as Rosie Huntington-Whiteley who Money McBags would let hunt his whitey anytime), the market was surprisingly not fooled by it. First of all, analysts had guessed 500k jobs would be created so the actual number came up shorter than a Kristen Bell skirt or Bernie Madoff’s alibi. But what makes matter worse is if one digs in to the numbers it is doubtful any real jobs were created despite the government claiming that a whopping 41k private sector jobs were created, and honestly, bragging about 41k private sector jobs being created is like bragging that you won the spelling bee on the short bus. But let’s look at the numbers more closely.
Of the 431k jobs created, 411k were temporary census workers and 31k were temporary service workers. So already were at a net -11k permanent job creation number unless the government decides to turn the US into Oceania and thus take a new census every month thereby making those temporary jobs permanent. Now the Labor Department said the government cut 20k permanent jobs so the 411k census jobs added led to a net 391k new government jobs. So since the top line number was 431K, they solve for x in 431k – x = 391k and get “you’re fucked,” I mean ~40k for private sector job growth. But here’s the thing, as we said above, 31k of those ~40k were temporary fucking jobs so even using the government’s hunky dory jobs created numbers, there were only ~10k PERMANENT private jobs added to the economy or 10k total permanent jobs lost including the government figures. That number is more piss awful than having to listen to Lynyrd Skynyrd put to music any of George Will’s essays about baseball. But wait, it gets even fucking worse, like being married for 21 years, or being for 21 years and then finding out your spouse was gay the whole time, and yes I mean you Fran Drescher (though to be fair, having to hear Fran Drescher every morning might turn Money McBags gay as well). You see the BLS uses something they call a birth death-model to estimate the lag between the creation of new businesses and the close of businesses that their survey misses in the short term. They don’t release the methodology so it is the biggest black box Money McBags has seen since Vanessa Del Rio graced the screen in the 1980s. For May, the BLS’ birth death model showed an increase of 215k jobs, which again is an estimate likely based on population levels, claims for unemployment, and shoving one’s thumb far up one’s own ass. So based on our previous numbers where we showed 10k permanent private sector jobs were created and 10k overall permanent jobs were lost, we can now deduct a number somewhere between 0 and 215k from that (and Money McBags believes the number is closer to 215k since the birth-death model is likely more fictitious than strippers who dance just to put themselves through college) to get the real job DESTRUCTION number which was likely more negative than a disgruntled anion. So we’ve got that going for us.
Other tidbits from the jobs report show that 6.8MM people have been out of work for more than 6 months, the average length of unemployment is now 34 weeks which is the longest period since the government started keeping track in 1948, and Chewbacca was a wookie. Some may spin the drop in the unemployment rate from 9.9% to 9.7% as positive but that was more likely caused by people leaving the workforce as the Labor Force Participation Rate, which oddly enough measures the labor force participation of working age adults, decreased to 65.0% from 65.2%. So no matter how the government spins the jobs number, it sucked harder than a young lady trying to fellate Whitezilla all by herself.
In international news, everything was down as the Euro broke through the critical $1.20 mark on its way to extinction. Traders now see $1.18 as the next short term technical downside target for the Euro until it falls below that. The latest fears coming out of Europe revolve around Hungary which is apparently starving for funding. The newly elected vice president of Hungary, Lajos Kosa, channeled his inner Joe Biden late yesterday by saying that Hungary is in a Greece-like sovereign credit crisis. In response Prime Minister Viktor Orban didn’t deny the issues but did call Kosa a dicknut for speaking out of turn and promised to punish him by uninviting him to the new administration’s meet and greet with Zita Gorog. The new government is now in the process of determining the real state of the budget, and will report this weekend on whether they are fucked or just lovingly violated. The fear of Hungary defaulting is causing a spike in european CDS and has caused the price of European default insurance to rise to it’s highest price since Jean-Paul Marat forgot to lock his bathroom door.
In stock news, everything is down as the government can’t even properly manipulate the economy anymore. MCD is showing weakness because they annonced they will have to recall 12MM Shrek drinking glasses that contain the toxic metal cadmium. The irony in this is that the cadmium glasses are still less toxic and better for you than the nine piece Chicken McNuggets. And WMT had their annual shareholders meeting today where they announced a five year plan to add 500k jobs, insitute a $15B stock buyback plan, and continue to make the world a worse place.
In small cap news, WGO took it in the winnebago again today since the stock remains more overvalued than multi-family dwellings in Detroit before the subprime crash. Money McBags has been through this before but the company is not going to make money this year and is trading at a valuation that makes less sense than the rules of cricket. This is a best a $7.50 stock and on high volatility days it will get pitched around like the SS Minnow because valuation is based solely on hope and hope doesn’t put food on the table (though Hope Dworaczyk could put her melons on Money McBags’ table any day). The fact is, every small cap closed down except for somehow CTGX, JOEZ, TZA, and TWM (and that last two are funny because they are leveraged small cap short ETFs) because no one wants to hold illiquid little shit when the economy is still struggling, Europe is going to 0, and we now have to give a fuck about some do-shit country called Hungary who dropped a steaming pile of ghoulash on the markets today.
Oh well, at least try to have a good weekend.
The news today is earnings, earnings, earnings, and Sophie Turner. The markets are inching up after a strong slate of mostly positive earnings reports (not so fast AT&T and GILD). However, before we get to earnings which featured Apple taking other handset makers out to eat, getting them drunk, and then giving them a cleveland steamer as a reminder of their dominance, Greece is back in the news. Investors are worried that Greece may take 45B euros in aid before actually agreeing on the terms which is very TARP-esque of them (one wonders if they are going to use Hank Paulson’s preferred contractual device of a napkin to agree to country changing policies). With terms of the aid more open than Joslyn James‘ anus right before Tiger Woods “sinks a putt,” the risk premium on Greek bonds has soared to 512bps which is higher than anything in Greece has gone since Icarus let his ego get the best of him. Concerns remain that Greece may not be able to pay the 8B euro coming due in a month and in a show of support, Greek workers are about to embark on their 3rd 24 hour strike since the crisis began which would be crippling if that weren’t somehow still more hours than they typically work in a day. Luckily for them, France is gearing up to loan Greece 6B to 8B euros as part of the aid package. French economy minister Christine Lagard, who in 2009 was named Best Finance Minister in Eurozone by the Financial Times after a stunning rendition of “Mo Money Mo Problems” in the talent portion of the show, tried to calm the fears of a Euro meltdown by opining: “I won’t say Portugal is next in line…” before adding “but I just saw Prime Minister Jose Socrates listing the Iberian Peninsula on Craigslist for “roses.” Boooyah!!! Can I get a Quelle Quelle?”
As for earnings, AAPL crushed their quarter with iPhone sales up 130% leading to a 90% increase in profit and a 49% increase in sales. Apple earned $3.33 per share, well above analyst guesses of $2.45 and said they were “shocked” by how well the iPad was selling. Holy fucking shit is it on. Apparently Apple’s app for taking over the world is a little too good as their products are selling faster than Adam Smith’s invisible hand can fondle unwitting young ladies during New York’s Fashion Week. In other earnings news, Morgan Stanley traded the fuck out of some shit (and Money McBags apologizes for getting overly technical there) earning $1.03 per share after one-timers largely because of their sales and trading unit. Book value is up to ~$28 per share and ROEs are creeping back up hitting 13%. Like every other investment bank, revenues and profits were driven by fixed income traders who bought and sold shit we’ll never know about, who we can’t actually track to see what the fuck they are doing, and who are likely ignoring all but one SEC regulation (and that one of course is to not get high off their own supply). The paper economy lives on, long live made up shit. Also, MCD beat guesses by earning $1.03 per share after one-timers and Money McBags is an owner of this stock because there is huge brand equity for continued international expansion. Operating margins were up 2.2% and same store sales were up 4.2% for the quarter and 5.2% in March driven by 4.2% growth in the US, 5.9% growth in Europe, and 7.9% growth on Mars. MCD is not going to be a high flyer but it offers a nice yield for a franchise that should do well in a world becoming more globalized, even in a down economy.
In other earnings, BA beat numbers, YHOO had a nice bottom line (though not nearly as nice as Jessica Biel’s bottom line) yet missed on revenues since they compete with something called GOOG, and AT&T had a good Q but is selling off as new subscribers were the lowest since 2004 during the bizarre and short lived rotary phone trend. Also, VMWare put up a huge quarter and Money McBags did something he rarely does by buying the quarter of a ridiculously high priced stock. Honestly, Money McBags hates buying things this overvalued more than he hates long walks on the beach, sentences that end with prepositions, and Jane Austen, but he believes in virtualization. This not a fucking fad like Wacky Wall Walkers, YoYos, or the way way too short lived rainbow parties. Revenue was up 35% to $634MM, Non-Gaap earnings were up 45% to $.32 per share, free cash flow was up 68% to $326MM, and overall cash on the balance sheet was a healthy $2.8B. Guidance was for 30% 2010 revenue growth of $2.6B to $2.7B which means the company is currently trading at around 9x 2010 revenues but closer to 6.5x 2011 revenues ex. cash. Yeah, it is a total bullshit metric and Money McBags crapped all over metrics like this yesterday when he advised that SFSF was too fucking expensive, but companies like VMWare often get purchased at multiples of revenue between 6x and 10x so we’re still at the low end of 2011 potential revenue multiples. It certainly isn’t cheap and on a P/E basis it is trading somewhere between astronomical and Warren Buffet heart attack high, but they are a market leader in a space that is absolutely here to stay. IT departments are cutting costs quick and deep, like Lexington Steele losing his virginity, and VMWare’s virtualization software is at the forefront of this (or, to continue with the Lexington Steele analogy, the foreskin of this). Money McBags believes in this sector and cloud computing almost as much as Burton Malkiel believes in efficient markets or as much as aspiring Hollywood actors believe in Scientology and it is why Money McBags will soon be buying TMRK (who by the way received a big investment from VMWare last year). So yes, the stock is pricier than an Ashley Dupre blumpkin, but sometimes you have to pay up for quality.
In small cap news, a Money McBags favorite and his largest small cap holding KITD is bouncing back after a big block trade on them yesterday afternoon which sent them stumbling. The stock is probably range bound to down until they announce a new acquisition or until their next quarterly call in a couple of months so there is no reason to panic and if you are are not an owner, buying any dip is certainly worthwhile. Also, CRUS which Money McBags owns and has written about many times is getting some AAPL momentum today as they produce an iPhone audio chip and as said earlier, iPhone sales were ridonkulous.
Today marks the one year anniversary of the bear market’s devilish low of 666. To celebrate the nearly 70% rise since then, unemployed workers throughout the country are taking a day off from job hunting to resole their well worn and tattered shoes while Wall Street bankers are wiping their delicate behinds with their beluga caviar scented toilet paper made from the eyelashes of the Dalai Lama as a symbol of their spoils. That said, macro news is more non-existent today than John Edwards’ ethics. The only slight news comes from Federal Reserve Bank of Chicago President Charles Evans saying that weakness in the job market will cause the Fed to keep rates low for some time and they will continue to be more accommodative than Mr. Roarke was to Heather Locklear when she visited Fantasy Island (and one can only imagine the fantasies Tattoo had about her islands). Mr. Evans also said that as a result of the deep recession, policy makers may need to shift their view of full employment to correspond to a 5.25% unemployment rate as opposed to the 4.75% they currently use as a base line. So good on you Charles. Way to lower the bar instead of trying to find proactive solutions. It’s like if Perfect 10 magazine(NSFW) all of a sudden started putting 9s in their photo spreads or if Einstein rejiggered his theory of general relativity by adding some fictitious comological constant (umm, ok, maybe scratch that last one). At least we now know why Charles Evans is considered to be one of the Fed’s fluff girls as he is a Federal Reserve Bank President and yet not a voting member of the FOMC.
In international news Greek Prime Minister George Papadopolis is supposed to meet with President Obama, though there is no word as to whether Mr. Papadopolis will be bringing Webster along with him. In the meeting, the Greek Prime Minister will walk through his detailed plans of economic recovery with President Obama which will include vilifying hedge funds who bet against Greece and their faltering economy while placing the rest of the blame on a faulty johnson rod Greece had installed last year.
In stock news, Burger King had disappointing same store sales numbers for the first two months of the year posting 8% declines across the US and Canada. They blamed 3% of the decline on bad weather and the other 5% on shitty food. This comes a day after McDonalds posted slightly up US same store sales. Burger King’s CFO Ben Wells said “For us weather is a big deal because you don’t stroll to a Burger King restaurant, you have to be in an automobile.” Now look, Money McBags is no Le Corbusier so he is not an authority on how cities are laid out, but if the weather is bad, wouldn’t more people be getting in to their fucking cars and driving places than walking? Yeah, I get that if you’re snowed in you’re not going anywhere, but that should have hit McDonalds too. Consider Money McBags skeptical of that excuse.
In small cap news MLNK came out with their earnings last night and to call their earnings crappy would be an insult to crap everywhere. Now Money McBags is an owner of MLNK and has been touting them on When Genius Prevailed from time to time, so this just shows that nobody is perfect (except for maybe Jayde Nicole). This was Money McBags’ break down of MLNK last Q, the key part being management said this Q (their fiscal Q2) would be flat with fiscal Q1 and the end of the year would see an uptick. So they earned $18MM of EBITDA in fiscal Q1 and taking their guidance that put them at a $72MM run rate or an EV/EBITDA so ridonkuously cheap that even Matthew Lesko couldn’t believe it. That said, they fell short of their guidance this Q and earned only $13MM of EBITDA and then took down guidance for next Q (fiscal Q3) saying it will be flat to lower than fiscal Q2, with fiscal Q4 then being up sequentially from fiscal Q3 (though unclear if it will be up from this Q). Oy, fucking vey. So let’s use $13MM as the new EBITDA run rate assuming it drops next Q but picks up to this level again in 2Qs, with anything after that being unknown (though it should be up). So a $52MM annual EBITDA run rate with $163MM in cash on the balance sheet and no debt yields an EV/EBITDA of still only 5.5x after today’s drop. So it is still cheap and Money McBags has no intention of selling, but the fact that they were down when ther biggest customer HP had revenue up 8% this Q (and HP is 28% of revenue) is a bit head scratching (though if it were Money McBags’ head and Destiny Dixon were doing the scratching, everything would be ok). MLNK revenues in the Q were down 9% Y/Y and 4.5% sequentially, but those numbers include $4.8MM of revenue from their acquisition of Tech For Less, so comparable revenues were actually down about 2% more than that (though they said this is usually a sequentially down Q). The good news is that gross margins were up 100bps and they generated about $30MM of FCF and guided to positive FCF for the year. Europe was a main driver of weakness, down 16%, as were getting new engagements which were down 62% from last year’s fiscal Q2 which probably isn’t a great sign unless you hate making money. They said this was “a direct result of our clients delayed decision-making due to the economic headwinds in the spring and summer of 2009″ but then later they say that the six month lead times they get should put them at the front of the cycle. Hmm, Money McBags is now more confused about their business cycle than Larry Craig is about his sexuality (or at least publicly about his sexuality, because he knows in private he loves burgling turds). Luckily, Money McBags is not the only astute one out there as some guy from Harvest Capital Strategies spoke up on the conference call and asked: “you initially had expected Q2 to be flattish with Q1 and then a gradual uptick in Q3 and Q4 to now a down Q2 versus Q1 and the subsequent down Q3 versus Q2 before we see a resumption of sequential growth. Maybe if you can can just provide a little more color around what changed in the last three months?” Management said there were three reasons for the change: 1. Volumes were simply less than they expected in their base business. 2. Start-up activity is taking longer to get up and running so new business that was supposed to be in Q2 will now be in late Q3 and early Q4. 3. A little something called “Shut the fuck up” (ok, maybe they didn’t say this one). Anyway, to sum this all up Money McBags can’t be right all of the time. With consumer technology spending bottoming out, he though MLNK would see the benefits (as did their management) and they didn’t. That said, the company remains cheap (thanks to the 10% drop today) but their growth may now take longer to come back than John Travolta’s career after Staying Alive or Tiger Woods’ dignity (ok, hopefully not that long). Money McBags is not selling here, but he’s not buying either. This company simply should have done better.
Also, WILC is up almost 10% today on big volume after their Q last week. Money McBags will break that Q down in the next couple of days, but he has let you know many times that this company isn’t just chopped liver.
3/8/10 Midafternoon Report: Market more mixed than reviews of Oscar telecast (and for the record, Money McBags gave it two thumbs in the ears)
The market is quiet today, likely still in bed after staying up all night to watch something called The Hurt Locker win so many Oscars that that the people who couldn’t get tickets to Avatar may now go see it (that is if Alice in Wonderland is also sold out and they hate fun). The biggest news in the markets today is that AIG sold the second of its crown jewels, their foreign life insurance business Alico, to Met Life for $15B and with both of the AIG family jewels gone, they now qualify for a spot in the 2010 Eunuch Olympics. A business hasn’t sold off two profitable units like this since Pam Anderson downsized her boobs (of course she had them re-inserted faster than Warren Buffett talks up his own book because you always have to keep the things that make you money). This sale gives AIG enough cash to pay some of their debt back to Uncle Sam and thus keeps their proverbial kneecaps intact for at least another couple of months because Uncle Sam doesn’t play when you have his money, just ask Wesley Snipes. Unfortunately, AIG still owes the US government another $50B and seeing as how they have now sold off two of their biggest profit centers and their business won’t generate $50B in profits until sometime around the year “two thousand and go fuck yourself,” it is unclear what tricks they will do next to appease Uncle Sam (Perhaps Uncle Sam will “lend out” some of AIG’s CDS expertise to China to try to smooth over relations and yield a happy ending for the two super powers). You just don’t take daddy’s money and get away with it.
In stock news MCD same store sales were up 4.8% in February driven by overseas sales and the $1 menu in the US. Money McBags is an owner of MCD as he believes in their affordability and brand equity in the fast growing developing nations. So even if Money McBags won’t get high off his own supply by refusing to eat the swill that they serve at McDonald’s (he would rather eat a Gabourey Sidibe burger out of the bun than whatever it is they serve at MCD’s), Money McBags believes in the company. In other large cap names, RIMM got an upgrade from the Bank of Montreal today which has driven the stock up almost 5%. The BMO analyst raised his price target to $88 citing expected strong Q4 sales, a potential guidance raise, and Apple aboot (BMO and RIMM are Canadian after all, eh?) to go out of business because iPhones are for sissies (ok, that last one may have been made up). Now look, Money McBags is never a fan of owning the second best competitor in a space (he’ll go Bang Bus any day over Backseat Bangers), but he will admit that he owns some RIMM simply because it is as cheap as a homless man’s balls for it’s growth as it is trading at less than 20x 2010 EPS estimates and less than 15x 2011 eps estimates despite continuing to dominate the business handset market like Nipsey Russell dominated the 1970s game show circuit (where he did more than just fill in Brett Somers‘ blanks). RIMM is getting 20% topline growth and 30%+ bottomline growth and you’re only paying 15x for that. The stock is still a reasonable buy but it is unlikely to be a longterm holding for Money McBags as their end game is becoming more challenging than playing herpes roulette with Paris Hilton.
In small cap news, apparently a fuckload of people dropped some acid this weekend and went down to the local IMAX to see Alice in Wonderland (and Money McBags would march his hairs to the IMAX if it were Alice Eve‘s wonderland they were showing. He’d definitely let young Ms. Eve mock his turtle while he chesired her cat.). IMAX theatres pulled in nearly $12MM this weekend as this 3D spectacle eclipsed even Avatar’s opening run and led IMAX to sell out every seat they had for the entire weekend. This has sent IMAX stock up 9% but Money McBags is still not buying as the stock is expensive and the movement today is likely retail money on the announced headlines. IMAX could run some more as its momentum coming out of Oscar weekend could be so great that it attempts to defy the laws of physics and create a coefficient of restitution greater than 1, but this story is longer in the tooth than Kirsten Dunst. In other small cap news, EBIX annonuced their quarter and is trading down despite a 55% increase in revenue, a 53% increase in net income (operating leverage be damned), a 99.5% customer retention rate for the year, $12MM in cash flow for the Q, and a forward p/e less than 15x. Money McBags has written about EBIX many times as nothing about the company makes sense and their financials and business are more opaquely complex than the Weiner process of Brownian motion (and I can assure you that is nowhere as dirty as it sounds). The stock is ridiculously cheap based on the fundamentals of the business but shorts have been all over it due to aggressive acquisition accounting, receivables growth outpacing revenue, the CEO having a bigger ego than Joe Francis has, and a proclivity to switch auditors at the drop of a questionable debit. Short activity was addressed on the call as a caller brought up that short exposure has climbed from 200k shares to 10MM in six months and the fact that EBIX has changed their auditors more times than Heidi Montag changed her face. CEO Robin Raina addressed this with some kind of Jedi mind trick ping pong analogy (no really he did) and a quote from some Latin American intellect whose name yields zero google hits (the transcript from the call has Robin “Making it” Raina quoting some guy named Joe Moppi which is either spelled wrong or more fictitious than EBIX’s growth rate, can we get an auditor on this?). Kidding aside, Money McBags still has no idea what to do with this company. He has a hard time believing it is total fraud but there is enough smoke to just keep him away from it. That said, if you can get comfortable with their numbers, the stock is ridonkuously cheap. Money McBags wouldn’t short it, but as always, there are easier ways to make money (like KITD, MLNK, or CRUS).