Posts tagged Midday report
The market is largely in neutral today as investors await the Fed’s decision on interest rates this afternoon. With the lilkelihood of the Fed keeping rates at their current low levels somewhere between the likelihood of Michael Lewis droning on about his bond trading days in his new book or the likelihood of getting herpes from a night of snorkeling Paris Hilton (and that of course is a trick analogy, since the odds of both of those are 100%), investors are anxiously waiting to see if the language of the Fed will change (and as always, Money McBags votes for a change to Esperanto or perhaps even pig latin, you hear that Enbay Ernankebay?). It is likely that the Fed will tweak the language just enough to hint that their accomodative stance (though not as wide or accomodative as a Larry Craig stance) will only last for so long, but there is unlikely to be enough detail for anyone to feel confident in a time frame. If by now you haven’t figured out that rates are eventually going to go up, Money McBags can’t do anything for you other than to help you strap your helmet back on and buy one of your handmade potholders. In US macro news released today, US housing starts were down in February by 5.9% to 575k, but that was slightly better than the 570k economists were guessing. Multi-family dwelling construction was down 30% which is probably bad news for Mormons and John Edwards. The decline in housing starts though is largely being blamed on snow storms in the South and Northeast where construction was down 15.5% and 9.6% respectively, though construction of igloos was up 58% in both geographies. Surprisingly, the West and Midwest both showed greater than 7.5% increases in new home starts, or on an absolute level, 2 houses.
In international news, the 16 EU countries (there used to be 17 but they kicked out Grumpy) agreed to back Greece with loans if needed. While the plan was almost as vague as a Nostradamus prophecy, the term “sexual relations” to Bill Clinton, or the US’s bank bailout plan, European markets greeted it with open arms and one of those cheek to cheek kissing things they so much love to do. The issue could come to a head in April or May when Greece faces more than 20B euros in debt redemptions which is one hell of a night out in Athens. For 20B Euros there should have a been a huge Greek fiesta with Daniela Eleftheraki serving up plenty of pancakes and ouzo. Bouying this positive news in Europe was German investor sentiment which fell less than expected from “heilige Scheisse” to just a case of schadenfreude. Apparently the Germans are slightly more confident that their weiners will produce adequate amounts of schnitzel.
In stock news, GOOG is once again rumored to be pulling out of China which would put them in the same catergory as Sean Waltman. Money McBags will likely buy any dip caused by these rumors as China is a small part of Goog’s current earnings and even if they were to exit, it would likely only be temporary (forest through the trees my friends, forest through the trees). GE is up on a JP Morgan analyst upgrade as well as comments from their CFO. The analyst thinks credit losses have topped out while the CFO said GE will resume growing their dividend in 2011 (if we still have a global financial market) and will use excess cash for buybacks and acquistions (as opposed to hookers and blow I guess). As long as they aren’t acquiring a crappy network TV station or AIDS, Money McBags is all for them trying to grow the business again.
In small cap news KITD is beginning to run (and remember Money McBags told you all to buy and bought in himself in the low 10s the other week) as they presented at a Roth small cap conference yesterday and also announced a new acquisition and that they are buying back 4MM of their outstanding in-the-money warrants. They are buying a firm called Multicast Media Technologies for $18MM of cash and stock ($4.9MM cash, 1.3MM shares) and post deal will have $15MM in cash and 17.7MM shares outstanding. Now Multicast said they earn around $12MM a year in revenues from annualized recurring licensing fees for its IP video management software and KITD expects the acquisition to be immediately accretive. Now remember, KITD guided to at least 60% revenue growth to more than $75MM and EBITDA margin exceeding 17.5%. They’re now adding $12MM to that revenue and should be able to hit those EBITDA margins because they take out cost quickly in this business as all they really need to do is transfer the data to their platform and then fire everyone at Multicast (Sorry guys, but hey, you’ll have company). But let’s not give KITD the benefit of the doubt and we’ll say they only get 10% EBITDA margins on this acquisition in the first year. So now their EBITDA will go up by $1.2MM to $14.2MM. They are currently trading at $125MM market cap with $15MM cash, so on an EV/EBITDA basis that is around 8x in a worst case scenario. If they can get to the 17.5%+ margin on the acquisition, EBITDA will be at least $15MM and would put them at a 7x EV/EBITDA multiple. The company is trading at 1.5x revenues (and analysts and the company maintain that their competitor Brightcove was valued at 12x revenue, though it’s unclear where that rumor started so it should be discounted by as much as one discounts Donald Rumsfeld’s war strategies or Lehman Brother’s book keeping). The only thing holding this company back is that it just has some fundamentally weird things about it that serve as red flags to old and stuffy institutional investors. They have a promotional CEO (not to say he is bad, but he is clearly only in this business for the short run so the higher he can sell it for and the sooner, the better), they were located in Dubai and now have moved to Prague, they rely on acquisitions, and they are still almost as small as He Pingping (and as an aside, the whole editorial staff here at When Genius Prevailed poured out a thimble this morning for the passing of the great Mr. Pingping who died at the age of 21, thus he both figuratively and literally led a short life. Even though he was only 29 inches tall, he lived life to the fullest. So I ask you all to take a short moment of silence now for Mr. Pingping). That said, the numbers don’t lie (well unless you’re Enron, AIG, Refco, etc.) and this company is headed in the right direction. They could easily get their EBITDA in 2010 to $20MM (remember, their guidance says revenue of at least $75MM and EBITA margins of at least 17.5%, so if we call revenue $100MM since its already at $87 after the acquisition and call margins 20%, because it’s a nice round number, we’re at $20MM of EBITDA) and if they just trade at 8x that, there is almost 50% upside. Plus they think the worldwide online video market is $10B and is only 4% penetrated by the cheaper than digitial video IP solution which they provide. Money McBags may buy some more today or tomorrow as the story remains intriguing and the new acquisition will help them beat their already lowballed numbers (though probably not as low as Abe Vigoda’s balls).
3/15/10 Midday Report: March Madness is officially here as Moody’s thinks people actually care about what they say
The market is flattish today, likely taking a breather to fill out its NCAA bracket while trying to sleep off the headache caused by Dick Vitale’s pontifications yesterday on how loving Mike Krzyzewski is post-coitus. That said, Moody’s is out warning that major economies such as the US, Germany, the UK, and Vivid Video may be closer to having their debt ratings lowered as growth may not be enough to “resolve an increasingly complicated debt equation.” Hey Moody’s, Money McBags has your increasingly complicated debt equation right here and it equals “go fuck yourself.” No really, do it. Money McBags is going to sit here and wait until you take your credit scoring model and shove it right up your asset backed security and wherever else the CDO doesn’t shine. Here’s the deal Moody’s, you are not very good at what you do, you are as good at your job as Bernie Madoff is at investing or Kirstie Alley is at dieting. You completely missed the whole fucking sub-prime collapse and you know what? That was your only fuckng job. It’s like if Robert Newman forgot to bring lanterns to the steeple of Old North Church on 4/18/1775 or US intelligence never found weapons of mass destruction in Iraq (umm, ok, scratch that one). So pardon Money McBags if he doesn’t give two shits about what you have to say, even if those shits are from a homeless AIDS patient with diarrhea and a massive anal fissure. Having you continue to rate debt is like if Ford re-hired the guy who designed the Edsel to produce a follow up called the Edsel Deuce or if Alan Greenspan were put back in charge at the Fed. The point is, even a blind microeconomist can see that the world economy might go to hell, so shut your fucking yaps and go crawl back in to the financial hole which you created. While Moody’s is rating credits, Senator Christopher Dodd is set to announce a tougher financial reform bill today. Unless that bill requires Moody’s and other credit rating agencies to put a disclaimer saying “We suck at our jobs” on every report they release, requires companies writing CDS to actually hold reserves on those CDS since, you know, they’re fucking insurance policies, and requires current and former Goldman Sachs executives to win popular elections before running the country, the reforms will simply be more government lip service (though if it’s lip service from Raven Alexis, then that is the kind of government action Money McBags can support). In other US macro news, industrial production rose .1% in February signaling a continued demand for computers and communications equipment. It doesn’t take a genius like Bill Gates or the guy who created the next great Olympic event (though NSFW) of muff guessing, to understand that technology is going to continue to grow and regardless of the global economy, people are going to continue to use it. Cell phones, computers, iPads, etc. are going to keep driving the way people interact with each other until we finally all just get chips put in to our brains (which is sometime in the next 30 years according to Ray Kurzweil) so being long technology even if this recession double dips is not the worst idea one has ever had (though it is slightly worse than taint tickling Tuesdays or the theory of general relativity).
In stock news, Phillips-Van Heusen acquired Tommy Hilfiger for $3B cash and stock as they apparently woke up thinking it was still 1991. PVH CEO, Ripped Off Van Winkle, said “Well we wanted to buy JAMZ and the company that makes those awesome Hammer Pants all the kids are wearing these days, but if we could only buy one of the three it was going to be Hilfiger. We just want to let people know that PVH is down with OPP.” Also, AIG is talking about cutting their previously announced bonuses by 30% in order to hopefully quiet controversy while still keeping the employees who almost caused a total global economic collapse. Whew. How would AIG ever operate without the people who fucking ruined it? In other news, LA county just retroactively gave Marcia Clark and Cristopher Darden bonuses for their handling of the OJ Simpson case while Tara Reid rehired her plastic surgeons. Siemens is shooting themselves in the face today by pulling the sale of their hearing aid unit. There is absolutely no reason you should care but Money McBags just wanted to see if he could type Siemens while keeping a straight face (and if you’re keeping score at home, he didn’t). Finally, WMT is up after a C analyst upgraded them to buy based on the potential for WMT to gain share from supermarkets and their pending world domination.
In small cap news today, FHCO is getting some national press as the city of Washington DC is handing out 500k of the new and improved FC2 which is not only cheaper to produce with higher margins, but it also tastes great. Money McBags wrote about FHCO about 2 months ago and all they have done since then is go up like a 45 year old virgin’s johnson after viewing this delightful NSFW shot of Money McBags favorite Alice Eve. The company has probably run a little too much but good things are still happening with a potential retail partner still out there and country specific AIDS programs just getting traction. Plus there is that little thing about AIDS not going away. In other small cap stocks, IBKR got downgraded today by KBW due to the ratio of actual to implied volatility in the options market showing no rebound and due to another little thing called “having no actual control over your business model revenue stream.” IBKR is both a market maker for options (though taking on no counterparty risk) and provider of a trading platform for day traders. The problem they have been running in to is that the options market requires them to hedge the volatility and when the actual vol differs greatly from the implied vol, they can find themselves in a situation where they don’t make any money as their margins get thinner than John Edwards’ excuses. Their CEO claims they have $2 in annual earnings power and over a long time horizon their earnings should be smoother than Olivia Munn after a cocoa butter bath, but that long time time horizon may be 100 years at this rate. The fact is they have lumpy quarters and less ability to control the lumpiness than Michael Jackson has the abilty to moonwalk ever again. So if you believe over the long run that those quarters will even out and there really is $2 of earnings potential, buying this stock at 8x those earnings on a down day due to a downgrade is not a terrible entry point. That said, value investors have loved this stock all the way down from $35 and it’s one of the few companies not to have participated in the rally.
3/12/10 Midday Report: Macro data sending more mixed signals than a drunk married co-worker at a holiday party
The market was down in the morning with conflicting economic data having been released. Retail sales increased in February by .3% which easily beat estimates of a .2% decline (though the difference is so insignificant it could be contributed to a rounding error or some d-bag buying that one extra pair of Joes Jeans). Excluding auto sales, retail sales were up .8% which should give investors confidence that people will still buy shit even though they can’t get jobs (and snowstorms in the Northeast didn’t stop people from continuing to run down their savings either). Alternatively, making matters worse was the University of Michigan’s consumer sentiment index coming in below expectations. The index came in at 72.5 (not 72.4 or 72.6 for those of you scoring at home) and was below last month’s 73.6 and expectations of 74. Look, Money McBags continues to be befuddled by what any of those numbers mean. How much worse is 72.5 than 74? Really? If the number had been up just an additional 1.5 points then the market would have been fine. The consumer sentiment number seems more fictitious than Larry Craig’s wife and more preposterous than someone with a constipation fetish (and I’m pretty sure that guy is not a mathematician even though he apparently likes to work things out with a pencil). So retail sales were good, but consumers apparently feel bad about spending on shit they can’t afford. Welcome to America, no go buy a flat screen (that you can’t afford).
In other news, apparently Janet Yellen, the current president of the Federal Reserve Bank of San Francisco (where everyday is funday) is set to take over for Donald Kohn as Ben Bernanke’s #2 in charge after a strong showing in the swim suit competition. It was neck and neck between Yellen and Federal Reserve Bank of Boston president Eric Rosengren until Rosengren went for the hail mary by breaking out a thong and prancing down the runway to the Go-Gos “We’ve Got the Beat.” In the end (both literally and figuratively), the thong worked against him. Yellen is said to be in favor of low rates, economic stimulus, and long walks on the beach. In her free time she studies the labor markets, authors economic texts, and makes a mean peach cobbler. She is also married to a Nobel Prize winning economist who won the award for his work on assymetric information, though he clearly understood the work better than the Nobel judges (and for you non-economics geeks out there, trust me, that was hella funny). So welcome to the job Janet, working directly under Benny B should be quite an experience, just ask Mrs. Bernanke (Oh! drumshot please).
In stock news Schwab warned that Q1 will fall short of Q4 as trading volume in February was down 14% and the company now expects to earn around $.10 per share which is below estimates of $.15. Most troubling is that trading volume was down despite February being the first month of lowered prices for small investors. This either says that trading is inelastic (which it is) and thus they should raise their prices (oligarchy be damned) or they should just keep prices where they are and start a monthly contest to stimulate trading. Money McBags would propose a contest where each time a trade is made, that person should get an entry in to an end of month drawing with the prize being a momentum day trading session with CNBC’s Amanda Drury where she’ll interpret your bollinger bands and show you how your wiener process can cause her some brownian motion (and yes Money McBags used that joke the other day, but it needed to be said twice). Look Money McBags knows Schwab has to lower prices in order to be competitive with other online brokers to bring customers in, not to actually stimulate trading, but still, the whole industry needs to either just make trading free, or stop lowering prices in their poorly played game of chicken. Online brokers are so bad at game theory they must think the Prisoner’s Dilemma is whether the prisoner should pick up the soap or not once he has dropped it in the shower. In other news, POT raised their Q1 earnings guidance from $.70-$1.00 per share to $1.30-$1.50, well ahead of analysts $.94 estimates. The increased guidance was caused by a rebound in potash demand and higher-than-expected margins in nitrogen and phosphate, or to put it more simply, more people were buying the shit out of POT’s nutrients at much higher prices. Money McBags has owned POT for quite some time as a way to diversify his portfolio (he found that simply reading The Biography of Frederick Douglass to his portfolio was not an effect diversyfing tool, though it did increase his portfolio’s empathy) so he’ll take the increased guidance.
In small cap news WILC finally placed their 3MM shares to raise $20MM of cash to go with the $26MM of cash they already have while diluting shareholders by 15% (or about what the stock is down today). The offering price was $6.05 so Money McBags is a fucking idiot for not selling yesterday when he told all of you readers he was a “Vern Troyer taint hair” away from selling. This company is Biz-fucking-zarre. We might as well hold on now until the phone call so Zwi can share his wisdom with us as to why a $70MM market cap company needs almost $50MM in cash and perhaps he’ll also let us know why he includes discontinued operations in his quarterly earnings summaries. Money McBags is less happy about this share offering price than when he found out that that no talent assclown Mario Lopez was boning this chick (and Money McBags would love to be saved by her bells). IMAX is also trading down today after their big Q yesterday which may have triggered a momentary short squeeze while also likely triggering a few cases of epilepsy in those who actually sat through Avatar in 3D.
Money McBags is short on time today and will likely be short on time next week but will still try to pump out a daily market update. Stock analysis may just be lagging. Either way, join Money McBags on twitter and enjoy the weekend.
2/22/10 Midday Report: M&A picking up as small companies take out their diaphrams hoping to trap acquirers before rates increase
The market is running in place today as it awaits further earnings and macro news later this week. The big M&A news today is that Schlumberger is buying Smith International for $11B, while the big T&A news today is that Rhian Sugden is hot. Schlumberger, which sounds like what is served for lunch in Berlin on the set of scat films in order to best prepare actors for their upcoming scenes, is purchasing Smith to improve their drilling technology. Wow, $11B seems like a lot of dough to get better at drilling when if they really wanted to learn how to drill better they could have just rented a Peter North compilation video for $5 and gone on their way (thanks, I’ll be here all week, enjoy the soup). This is the biggest M&A deal of the year so far and with rates as low as they are and only likely to go up (since it’s unlikely Bernanke would lower them below zero and thus pervert the entire financial system like Roman Polanksi on the set of High School Musical 4: Who Ordered the Pizza?), Money McBags is betting the M&A market only heats up from here so it is worth looking at small take-out candidates (like KITD or Meredith Eaton).
In international news, the Euro continues to sell off as investors grow more worried about Europe slipping back in to recession as a result of the potential Greek bail out. The WSJ has a long and narcolepsy curing expose today on Europe’s clandestine use of complex financial instruments to prop up their economy over the past few years which served to hide the actual amount of debt and deficit on the continent. Apparently European countries used currency swaps like a tranny uses a gaff to doll themselves up and make themselves presentable. Well with Greece leading the debt spiral, Europe’s adam’s apple is beginning to show and those investors who put money into Europe and quietly wondered why Europe would only give them moderate returns (oral) are now finding out exactly why that was. Things are still a bit dodgy overseas which will likely cause further market volatility over the next few weeks, but it could also offer some solid opportunities.
In market news, Lowe’s put up a good Q with top line revenue growth of 2% and 27% growth in earnings as they beat estimates by $.02. Lowe’s CEO said the results ”suggest the worst of the economic cycle is likely behind us” and cited an uptick in the sale of big ticket items, like bulldozers to demolish foreclosed upon houses and storage sheds to keep one’s valuables while the owners huddle in masses of cardboard boxes yearning to breathe air free from pollutants and disease. Lowe’s gave conflicting guidance saying they expect the recovery to boost sales but that the spring quarter’s profit will be below expectations and as a result, the stock is flatter than the singing voice of an American Idol contestant or the state of Illinois.
In the small cap space RICK is shaking off their awful quarter (which Money McBags broke down for you last week) and is up 10%. Now loyal readers know Money McBags was more disappointed with Rick’s quarter than Abraham Lincoln was with General McClellan’s slow pace in 1861, but somehow investors seem to be buying into the VCGH deal. Money McBags was considering selling some RICK after the Q, but he is glad he held on for now. That said, his target price was $16 and as RICK inches closer to that Money McBags will be reevaluating the company more often than Elin Woods reevalutes marriage or Christopher Reeve reevaluated riding horse back. In other small cap stocks, CTGX (a holdng of Money McBags) is due to report this week. CTGX has two businesses, one of them is basic, boring, and less sexy than Betty White in a GMILF video, and the other one has the potential to be hotter than any of the great Janine Lindemulder’s classic Where The Boys Aren’t movies. Their boring business is basically staffing and solutions to IBM for IBM’s server installation business. CTGX provides people and knowledge to allow IBM to outsource this function. It’s more boring than a Jane Austen novel and they have less control over it than an incontinent has over their urethra after drinking a 7-11 Big Gulp. Basically, if IBM is installing servers, CTGX gets work, if not, there is nothing they can do about it. The problem with this is that the staffing business has 3% margins and is 2/3 of their revenues with IBM being about 1/2 of that (and for you non-maffematicians, 1/2 of 2/3 is 1/3). Plus that business has been down 40ish% due to the economic decline. This is one of the reasons they started a new strategy a few years ago to focus on the health care IT market. The most exciting part of this strategy has been their foray into the electronic medical records business. Say what you want about Obama-care, but EMR is coming and the government will be funding it. CTGX’s health care IT business is now 25% of their revenues and growing (with EMR being about 1/3 of that). They are one of only 8 companies that can install EMR systems and they focus on the smaller hospitals and charge on the order of 40% less than competition (which of course means they can move their price up as the demand picks up). The goverment is already giving big monetary incentives to hospitals to install EMR but are mandating that hospitals have these systems up and running by 2015. Now look, Money McBags is not a health care expert but he does know there are a fuckload of hospitals and only 8% of them currently have adequate EMR systems. So the demand is going to be huge while the supply is shorter than a Britney Spears mini-skirt or an Ogden Nash couplet (for example, the government thinks it will take 212k people over ten years to install adequate systems and there are currently only 10k people trained to do this). CTGX won 6 new EMR deals last Q but they say the market is still slow as hospitals are having trouble getting funding due to banks tightening up on lending. That should pass and government incentives are picking up and CTGX thinks this business will take off in 2011. The company is trading at around 20x 2010 earnings estimates which is hella expensive for a 3% operating margin staffing business, but their health care business has higher margins and is growing. CTGX is basically an option right now. As long as their staffing business doesn’t completely fall off (and it appears to have stabilized), they should earn enough in the next few years to support their EMR busines while it continues to grow. It’s a small position for Money McBags as it is a bit early, but it will be interesting to see if their core business was able to maintain in the past quarter.
2/11/10 Midday Report: EU says they will bail Greek out but offers few details, claims they were drunk at the time
The Greek debt crisis in Europe is still causing uncertainty in the markets as the leaders of the EU gave a tepid, vague, and Spicoli-ian response to their discussions and plans to bailout the Greeks. The president of the EU, some guy named Jose Barroso who also doubles as the Prime Minister of some place called Portugal where he is said to survive off of the magic lillies from the river Tejo opined: “There is an accord.” He then went on to give a little more detail by saying: “it’s a Honda Accord, but still it’s an accord. Oh I keed I keed. We have a great accord, for me to poop on” as apparently Triumph the Insult Comic Dog is big in Portugal these days. German Chancellor Angela Merkel then said: “Greece won’t be left alone but there are rules and these rules must be adhered to. On this basis we will agree on a statement.” Of course the rules are that Greece has to drastically cut its spending, increase many of its taxes, and be home before 9pm, but the good news is that the leaders of the EU have finally agreed on a statement. So whoop-de-dam-doo, we have a statement. Unfortunately Money McBags has yet to find that statement anywhere and unless the statement is “we’re bailing out Greece, now pass the saganaki,” it is unclear what has actually been accomplished despite Herman Von Rompuy claiming that the EU will provide “determined and coordinated action if needed.” That’s great to know, really, but if you could provide that action BEFORE THE FUCKING EU IMPLODES, that would be much appreciated. You know Mr. Von Rompuy, if that’s even your real name, the rest of the world is trying to run an economic recovery here so could you stop pussyfooting around (unless it’s your foot and Abbey Lee’s pussy, then please take your time) and lend the Greeks some fucking money already. Jeesh. I haven’t seen a supposed plan with fewer details since Hank Paulson scribbled his TARP strategy on the back of a napkin using only ketchup packets and Alan Greenspan’s tears. The EU leaders are being so vague they are making Sorities paradox look easier to reach a conclusion about than Sarah Jessica Parker’s gender (trick question, because she’s a tranny).
As for the US macro economy, initial claims for unemployment were out today showing a drop of 43k last week to 440k overall. This is lowest level in five weeks and may signal a “drop in the administrative backlog” which of course was likely caused by not having enough administrators to process the claims since most of the administrators had been laid off. The US economy appears to be stagnant right now and the question remains how long any recovery will take.
As for stocks, Pepsi reported an inline quarter and reaffirmed guidance and announced they will be increasing their share buy backs due to stronger than expected free cash flow. Earnings were driven by their snacks business line which feature such products as Doritos, Lays, and their new launch of Cheetos’s Atherosclerosis sticks with the slogan “turning even your heart attacks orange.” The company thinks they will have low teens 2010 earnings growth and is currently trading at a perfectly respectable 15x 2010 estimates. If Money McBags did not pick KO in the Pepsi challenge, he might consider adding a little PEP here.
In small cap news, not a lot is going on today as WGO is about to drop through ther support levels and EBIX is about to test the $14 level. As far as new information, an analyst from SocGen initiated coverage on KITD with a sell rating and a $9 price target citing concerns about KITD’s lack of profitability, potential future goodwill impairments, and receivables growth outpacing revenue growth. Now just two weeks ago Money McBags broke down KITD for all of you with the main points being that they are in a growing market and are forecasting $13.5MM of EBITDA next year while trading at cheap EV/EBITDA and revenue multiples. As for SocGen’s criticisms, first of all, a bank that almost went under due to a fraudulent trade shouldn’t throw stones, unless those stones are made of diamonds, gold bullion, and Alexs Texas’s behind and aimed at those investors who lost money. Secondly, KITD’s receiveables did rise as they made several acquisitions and consolidated those receivables. The hope is that their collections will be better than the acquiree’s and that they can churn out better revenue growth. Money McBags does agree that it is something which needs to be watched. However, SocGen’s valuation might as well have been written in French because it makes less sense than people who give a crap about the Sports Illustrated Swimsuit issue (not that Money McBags is against scantily clad lovely ladies, but we have something called the internet which makes the SI Swimsuit model look about as risque as a Nun showing some ankle or Jay Leno’s monolgues. Honestly, the most entertaining part of the SI Swimuit issue this year was finding out there is a model named Cintia Dicker (dicker? Money McBags doesn’t even know her. Though to be honest, he would do more than just dick her)). The analyst’s $9 valuation is achieved by taking some weighted valuations (including a $10.60 value derived from a DCF, which is higher than the current $10 price) and applying some sort of sector, company, and speculative discounts to that weighted valuation (why the discount isn’t just put into the actual discount rate of the valuation is beyond Money McBags, but then again, so is the appeal of American Idol, so what do I know?). Anyway, Money McBags hasn’t seen anything that contrived since Michael Jackson married Elvis’s granddaughter. The analyst took down the valuation by 5% based on “company appeal” because of KITD’s low liquidity. Excuse-moi? Comment t’appelles tu? Merde Tete? The main point is KITD is a speculative play, something which Money McBags said in his initial review of them and that is why Money McBags is not yet an owner. That said, the company is a market leader in a fast growing market. Yes, the acquisition model is a bit worrisome and the management team is a bit too salesy, but there is real potential for a company like this with locked in recurring revenues from Fortune 100 companies, to be a big winner. It is worth following KITD and maybe even buying if you can comfortable with the risks, that said, it is not a “sell” as SocGen so daintily pulled out of their derrieres.
2/10/10 Midday Report: Bernanke’s statement stuns meteorologists, causes it to rain on market’s parade in the middle of a snowstorm
The big news moving the market down today was the statement from Ben Bernanke about the FED’s future policy plans. Bernanke was supposed to testify in front of the House Financial Services Committee but the snow storm in Washington caused the hearing to be postponed giving Barney Frank more time to make snow angels and less time to suck at his job. Bernanke did release his full statement which serves to make Crime and Punishment read like a fucking Dr. Seuss book (I will kill her with an axe, I will kill her with hot wax. It will be an act of enormous enormance! No rational performer’s performed this performance!). I’m not saying it was boring to read, but Ambien is said to be suing Bernanke’s statement for patent infringement. However, since Money McBags is here to serve the people, he made it through the whole statement and can sum it up in fourteen words: “We did a bunch of shit, now we are going to try other shit.” The important parts are that eventually rates will rise (duh), though not in the immediate future, and in the meantime, the FED will investigate other ways to control interest rates and bank lending, such as paying banks interest on reserve balances held at the FED. Below are Bernanke’s actual words on this (no jokes, real information):
“By increasing the interest rate on reserves, the Federal Reserve will be able to put significant upward pressure on all short-term interest rates, as banks will not supply short-term funds to the money markets at rates significantly below what they can earn by holding reserves at the Federal Reserve Banks. Actual and prospective increases in short-term interest rates will be reflected in turn in longer- term interest rates and in financial conditions more generally”
The FED has also been developing a number of additional tools to use to reduce the large quantity of reserves held by the banking system. Those tools include offering term deposits, selling securities, and using reverse repos and their more deliciously effective cousin, the reverse cowboy.
In macro news, the US trade deficit increased, widening to $40B as both exports and imports increased. However, the rise in the dollar over the last couple of months may be hurting export growth in a classic Catch-22 situation, like mark to market accounting for bank balance sheets in a declining asset economy or finding Gia Carangi in your bed in 1985 and not having any condoms. While the trade gap was driven to some degree by a larger quantity of petroleum being imported, and while a 3% growth in exports is still growth, the US needs exports to take off like a young Milton Friedman in the mid 1940s in the University of Chicago Economics department where he proved the hypothesis that chicks dig rising permanent income (generally speaking).
Internationally, China’s exports grew 21% while imports grew 85%. Container companies were said to have raised their shipping rates as export growth is causing steel containers to become more scarce in China than Andrew Johnson supporters in 1867 or female smurfs. The export growth in China has increased the calls to unpeg the renminbi and let it float to reflect its actual value, of course if it were up to Money McBags, he would just peg all currency to the the Vietnamese Dong (and yes, learning that Vietnam’s currency is named the dong was pure comic gold for Money McBags, like whe he ran in to Tiger Wang on linkedin. Of course it does make Money McBags wonder if Lexington Steele would be the richest man in Vietnam due to the amount of dong he carries. Thanks, and don’t forget to tip the waitress, though not too much because she has a bit of vertigo).
And we can’t forget about Greece where civil servants went on strike and walked off the job for 24 hours thus shutting down airports, hospitals, and schools, in their attempt to become Camden, New Jersey. The EU’s bailout will force the country to freeze salaries, raise the retirement age, and require citizens to purchase deodorant. But it’s nice to see the workers protesting these cuts becuase I am sure they didn’t receive any benefits from the enormous amount of debt taken on by the Greek government (and yes that was sarcasm).
In stock news, The New York Times had a quarter that beat expectations but the company continues to run a declining and outdated business. Their newspaper advertising revenue was down 17%, slightly better than the 30% decline from the first three quarters of the year, but still about as good as Emo Phillips hosting a Def Comedy Jam remake or Jennifer Love Hewitt’s ass. New director of strategy, Phil Von Werescrewed, said “we expect the newspaper advertising revenue to level out any quarter now, unfortunately that level is going to be zero, so we’re actively looking at new ways to be profitable, like shutting down, or restarting out dauggerotype business.” In comparison to the Times’ 1940′s business, BIDU announced first quarter revenues to be above estimates as they gained advertising dollars from Google’s potential pull out of China (which would make GOOG the most famous thing to pull out of Chyna since Triple H).
In small cap news, DFZ continues to rise after their huge Q which Money McBags broke down for you yesterday. Money McBags did have a chance to go through their call last night and it all sounded pretty good. They did say they expect to be unprofitable for the next six months which is consistent with previous years as the first six months of the calendar year is mostly replacement and replenishment business (hence their desire to make an acquisition to counter the seasonality of the slipper business). However, they did guide for slight revenue growth, though to be somewhat offset by an increase in marketing, but gross margins should be over 40% for the year, operating margins between 10% and 12%, and they are having no input pricing issues in China. The company has earned $.95 so far this year, so let’s just call it $.90 in total for the fiscal year assuming a loss of $.05 in the next two quarters (though Money McBags thinks they might actually earn a profit with international sales increasing and the Dearfoam brand getting increased marketing, but whatever). They are now trading at 11x this number which is for the fiscal year ending in June (so not even really forward earnings). That is a ridiculously low multiple for a cheap growing company with a solid balance sheet. Money McBags thinks this is at a minimum at $12 stock but could easily see $15 if they continue to execute.
2/8/10 Midday Report: Debt crisis forces EU to pull Super Bowl ad, can only afford to broadcast it on new 24 hour Michael Bolton Hip Hop Channel
The market opened down again before bouncing back a bit as people are more worried about Europe’s debt problems than they are about global warming, health care spending, and that thing on Drew Brees’ face. The President of the EU’s Central Bank, Jean Claude Trichet (and it must be pointed out that his name is an anagram for “tend rich ejaculate,” which is exactly what he is doing by tending to the crisis caused by an overspending splooge filled orgy by the already rich European bankers), is steadfast that Europe’s debt problems are not an issue and budgets can be cut but he has as much sway on how Europe’s countries operate as James Polk did over the Treaty of Guadalupe Hidalgo (Shout out to Nicholas Trist. Word word). The point is Monsieur Trichet can recommend whatever he wants and can publicly fellate Greece/Portugal/the whole Iberian Peninsula until he is blue in the face (pun completely intended), but it will likely come down to the countries of the EU acting in unison to bail out a country (or several) which are irrelevant to them. The EU is the ultimate free rider system for small countries like Greece to continually take risks since there are no real political repercussions as the rest of the EU has exactly zero votes in any Greek election or Greek policy. So when Monsieur Trichet said over the weekend when being asked questions about Greece: “I doubt that, in a press conference, Ben Bernanke would have a question on Alaska or Massachusetts,” that was a completely bogus, non-sensical, and irrelevant remark because Bernanke/the US Federal Government could absolutely fuck with Alaska or Massachusetts while all the EU can really do to Greece is tell them their kabobs were a little dry and to “maybe not suck so much at managing your budet.” Any other line of action could potentially lead to a complete disbanding of the EU and that would be about as helpful to the global economy as Mr. Horton was helpul to Arnold and Dudley in picking out bikes in that very special Diff’rent Strokes. The problem is that the EU may simply prove to be pareto inefficient, like lesbian porn where somehow adding a money shot would make everyone better off.
In US news, a flurry of blue chip upgrades are keeping the market from continuing it’s sell-off. Google was upgraded by Merrill Lynch/BAC (from hereon out to be known as “at least we’re not Rodman Renshaw”), as the analyst cited their cheap valuation based on the metric he decided to use which would support that cheap valuation (mutiple of cash flow less cash). Of course all the analyst had to do was point out GOOG’s recent jizztastic quarter (and for those of you not down with the lingo, there are very few things that are better than jizztastic), the fact that they are down 10% since then, and say “They’re fucking Google dipshits.” The other big upgrade was Home Dept being added to Morgan Stanley’s best ideas list. This caused Money McBags to also update his best idea list to now include a threesome with Hanna Hilton and Jessica Biel, lobster newburgh, and the light bulb. Disney was also upgraded to neutral by Morgan Stanley due to an improving economic outlook and CIT hired a worldclass rain maker in John Thain to take over the company as it climbs out of bankruptcy. Now Money McBags loves to deride CEOs for their bad decisions and big egos, but he is a fan of Mr. Thain who was able to actually get something for Merrill Lynch in selling it to BAC as the market was free-falling like Scott Lee Cohen’s political career. Thain is a terrific choice for the potentially undervalued CIT and this company deserves a new look by investors.
Interestingly, companies have been performing well this quarter with more than 73% of S&P 500 companies that have reported, beating analysts’ estimates which is the 2nd highest percentage since Bloomberg began tracking the data in 1993. Of course, the market rose in anticipation of this since the market is more forward looking than Roman Polanski’s dating rolodex (and seriously, if you don’t get that one e-mail me at firstname.lastname@example.org and I’ll explain it). So we’re now at an important inflection point with Europe potentially imploding, the US maybe getting on solid footing, and jobs still harder to come by than an original or funny Jay Leno monologue.
In small cap news today, an analyst from Robert Baird (and if you’ve never heard of Robert Baird, don’t worry, neither has Mrs. Baird) upgraded Winnebago from underperform to neutral based on “valuation.” Now Money McBags finds nothing more convincing than a valuation upgrade of a company who HAS NO EARNINGS and is not going have any earnings for 2010 and maybe even 2011. That is awesome, really. If Money McBags were to guess what the analyst based his valuation on, he would guess the number of shots of tequila that analyst had last night to dull the pain he feels for having to work at Robert Baird and not a sell side shop that people have heard of before. After upgrading WGO, the analyst was seen climbing into his Edsel and heading to his home on Three Mile Island while eating a packet of pop rocks and chugging a coca cola. Now look, Money Mcbags does not have the report and does not know what Baird’s price target for WGO is, but if it is anything above $8, it is way too much. This was Money McBags’ analysis of WGO from 2 months ago, and while his short call has worked about as well as the brakes on a Toyota Prius, he stands by that call like WGO stands by their losses.
Oh yeah, one more thing. Money McBags preemptively signed up for twitter at this account www.twitter.com/moneymcbags He has no idea if he will ever use it, but it is there.
2/5/2010 Midday Report: Unemployment rate drops as more jobs are lost, for next trick, unemployment rate to solve world peace by creating more wars
The market is down again today as Europe’s sovereign debt problem keeps rearing it’s ugly head like Mayim Bialik on the ABC Family network. The big news in the US markets is that the unemployment rate fell to a measly 9.7% (though if you include people who stopped looking for work and those working part time, it was 16.5%, but that is just a minor detail, like needing to keep your eyes on the road when you drive or not crossing the streams). The economy lost 20k jobs in January while totals for November were revised up by 60k (to 64k jobs created) and the totals for December were revised down by 65k (to 150k jobs lost, or as they say on the streets, a “fuckload”). While the revised numbers essentially cancel each other out, it does leave us wondering if any of these numbers are reliable at all, like the brakes on that shiny new Prius you just bought. Money McBags will wager Alan Geenspan’s credibility and Eliot Spitzer’s dignity (and since both of those are non-existent, it may be a bit of a sucker’s bet) that the 20k number released today is not within 20k of the actual revised number to come out in two months when no one will really care. The point is, people are not working regardless of what made up number Hilda Solis and her No-Labor Department release.
In international news, potential sovereign debt defaults in Greece, Portugal, and Spain have investors questioning the viability of the Euro like people with working auditory canals question Heidi Montag’s singing career. European Central Bank President Jean-Claude Trichet (or as he’s known in investment circles, “deluded”) has said there is nothing to worry about as the budget shortfall will be smaller than that of Japan and the US. He then called Haiti and said not to worry because their recent earthquake was smaller than the Chile earthquake in 1960, and later was heard telling NBC President Dick Ebersol not to worry because ad revenue is way overrated. With the debt of Greece, Spain, and Portugal all forecast to be near or above their GDPs by 2011, investors are questioning if/when the EU will bail them out. The good news is that the Greeks are trying their best to help out in all of this mess by going on a two day worker’s strike, which means they will be working three more days than they usually do (though to be honest, a worker’s strike to protest an economy in the shitter is like the state of Alabama burning books to protest their high illiteracy rates or Noise Free America blasting anything by the Black Eyed Peas to protest noise pollution).
In business news Toyota is apologizing for selling you a car that could kill you but reminding you that even if your brakes went out causing you to plummet to an early death, at least you would have cut down on your carbon footprint while you were alive by owning a Prius. Berkshire Hathaway is selling $8B of debt to finance their acquisition of BNI and outfit executives with their own conductor caps (of course those conductor caps will be made 100% from the shards of Giaocometti’s “The Walking Man I”). Finally, AETNA missed on earnings as their medical costs grew 14% as a result of increased brain aneurysms for those who sat through an entire screening of Avatar (that joke was brought to you by the Jay Leno Appreciation Society, making comedy dull and unfunny one observation at a time).
In small cap news TSYS beat their quarterly esimates thanks to 15% revenue growth and 17% EBITDA growth to $10MM. For the year EBITDA was $50MM and 2010 guidance was for $80MM-$85MM EBITDA with revenue guidance for over 40% growth (though they are an acquisitive company so that is not all organic). The company is now trading at around 7x 2010 EV/EBITDA and continues to be in growth markets and consistently beats estimates. Of course it is down 5% today despite the solid Q and the good backlog because apparently people hate owning businesses that work. Some analysts are concerned about their long term net interest margins but the company is getting cheap enough for those concerns to be less worrisome than a back hair on Marissa Miller. Money McBags is not yet an owner of TSYS, as he is going to let the market creep down a bit before he gets his invesment on, but this company is worth all of you digging in and trying to get a better feel for their organic growth and competitive advantage in the location based software and military businesses.
Money McBags is off until Monday, so enjoy the Super Bowl.
Tim-motherfucking-ber. The market is nosediving today like a Biggest Loser contestant going after the last gravy covered deep fried twinkie at an all you can eat “stuff that’s bad” for you bar (and no offense to you weight-challenged people out there, but did you really need to go on a TV show to figure out you need to eat a fucking salad every once in a while? I mean for fucksake, it’s not like you need to decipher M-Theory or particle physics, you just need to stop eating crap and walk a little. Jeesh.) Driving the market down is what we here at When Genius Prevailed call serial unemployment (as opposed to Quisp’s cereal unemployment, which we hear has caused Quisp to resort to tickling Franken’s berries to pay the rent). New claims for unemployment came out and they were higher than last week and above analyst estimates. Claims rose 8k to 480k while expectations were for a drop to 460k. 10MM people continue to receive unemployment benefits or extended benefits and to give you an idea of how large of a group that is, it is is roughly equivalent to the population of Portugal, Belgium, or people who will show someone their tits on Bourbon Street should the Saints win the Super Bowl (and Money McBags fully supports Saints fans). So the economy may be getting a bit better but as long as there are so many displaced workers, full recovery will be difficult (to put it mildly) which is why the S&P is probably a wee bit overvalued, like long walks on the beach, Alan Greenspan, or Michael Chabon novels. Alternatively, labor productivity increased in January above analyst estimates as those with jobs have to work a fuckload harder to keep them (so instead of slacking off and looking at Miranda Kerr pictures for 6 hours a day like workers in a healthy economy like Australia, US worker now only slack off for 4 hours a day and are forced to look at internet pictures of Shirley Hemphill). Also positive news is out today on factory orders which gained again in December as businesses build back and try to maintain inventory.
In international economic news, investors are getting more skittish on Europe as they deal with the Greek budget crisis which will likely cause the EU to revive their hit doin da butt in making Greece their submissive (though luckily, and not to overgeneralize, but the Greeks seem to enjoy that). Fears are now spreading to Portugal, Spain, and any other country where two hour midday siesta’s are followed by 3 hour midafternoon siestas. Also, China is gettng a bit frisky with the US, objecting to claims that they are keeping down their currency in order to help exports. The Chinese Foreign Ministry spokesman said they will stop artificially deflating their currency when the US stops artificially inflating the value of free speech.
In stock news Cisco put up a nice quarter (and for the record Money McBags has been long CSCO, though the stock has moved strongly sideways on him) as revenue was up 8% and their adjusted earnings of $.40 beat analyst estimates of $.35. While many companies have beat earnings forecasts, CSCO was one of the few who also beat on the top line and not only that, they said the global technology environment is getting better and they will be hiring 3,000 people. So take that rise in jobless claims to 480k, Cisco will be hiring 3k of the 15MM-20MM unemployed so the recovery is on like Donkey Kong. CEO John Chambers did say that “we are already in the second phase of a capital spending increase” which is great news, though Money McBags was unaware that phase one had actually ended.
In small cap news, TSYS reports tonight and Money McBags eagerly awaits their earnings release which he discussed two days ago while JOEZ put up a nice quarter. Now Money McBags understands the appeal of Joes jeans about as much as he understands the appeal of Desperate Houswives or unshaved lady parts (and that is not at all). They are expensive jeans which people really have no reason to buy given the recession and cheaper alternatives. That said, Joe’s grew net sales by 42% as apparently people not only like the jeans but things called “woven shirts” and “denim leggings” (we’ll assume “pants ponies” are not one of Joe’s SKUs). The company earned about $.05 per share (excluding their big one-time tax benefit due to chugging a jar of metamucil and thus releasing their valuation allowance) thanks to the increase in sales and a higher gross margin. For the year, they earned somewhere between $.09 and $.13 depending on how you want to deal with their taxes and had around $3MM of EBITDA in the latest Q. On the call they talk about aggressively growing stores and categories so they will continue to expand which means a bigger marketing spend and a more complicated business to manage. On the positive side, they have $13MM cash, no debt, and products that snugly fit the lovely Anna Lynne McCord. It’s possible that they can continue to grow and keep gross margins the same with some better channel distribution, so maybe they earn $.15 per share next year, though that is a total stab in the dark guess based on growth off of last year and something analysts refer to as “putting a finger in the air.” The company is trading at around $1.85 today, is rapidly growing, and is relatively cheap (1.5x current revenue and if they can best their current earnings number, under 20x eps). If you want retail risk in this shaky economy, this is one way to get that with some pretty nice upside. Money McBags will not be purchasing JOEZ, despite the potentially good returns, because he just doesn’t get overpriced jeans and never trusts the easily changing fashion tastes of US consumers (the ones who brought you the rat tail and Hammer pants). That said, people are making money here and it does not appear to be ridiculously overpriced for a growth company.
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.