Posts tagged TSYS
The big macro news today was that GDP slowed to 2.4% growth in Q2, that is until it’s revised down next Q to keep up with the administration’s “hold the shock and hope for no awe” strategy. This strategy was further evident in today’s release as GDP from the past 3 fucking years was revised downward because apparently the Commerce Department is still figuring out how to properly use the “solver” function in Excel. The peak to trough decline is now seen to have been a 4.1% decline instead of a 3.7% drop, which officially makes this recession the worst since the 1940s which was so long ago that Abe Vigoda had only been dead for a decade and muff guessing still referred to fashion designers trying to figure out the latest in hand warming trends.
Surprisingly though, and in direct opposition to the downward revision strategy, last quarter’s GDP was revised up to 3.7% from 2.7% which makes today’s number even worse. It also goes against every fucking rule of manipulating data since, you know, the whole point of manipulating data is to use it to your advantage but apparently the new guy at the Commerce Department must have missed the memo while he was busy figuring out how to put a cover sheet on his fucking TPS report.
So GDP was below guesses of 2.6% growth and was mostly hurt by a trade deficit growing wider than the Octomom’s cervix with imports spiking up 28% which is the largest jump in 25 years since the run on french cookies in the mid 1980s, consumer spend slowing to only 1.6% growth after growing 1.9% last Q, and a renaissance of common sense. The one bright spot Money McBags could find was Jasmine Waltz, and the one bright spot he could find in the GDP report was that the equipment and software category grew at an annual rate of 21.9% as businesses need to buy a bunch of shit to do what people used to do. The slower GDP growth comes a day after Fed Bank of St. Louis President James Bullard published an academic paper warning of the potential for the US economy to hit a period of deflation and turn in to Japan from 20 years ago which would be bad for everyone but the bukakke industry.
GDP is now slowing down, the economy has lost 8.4MM jobs, and Christina Hendricks still has not agreed to make a late night Skinamax movie, so any hopes of a speedy, stimulus driven recovery are becoming slimmer than Amy Fisher‘s parents hopes and dreams. Money McBags is sure the Fed will announce something soon to try to kickstart the economy, but based on the fact that they have been in existence for 100ish years and still haven’t figured shit out (largely because economics is a more full of shit field of study than proctology), he’s not holding his breath (though he would gladly hold anything of Hayley Atwell‘s).
In other US macro news, the University of Michigan’s consumer sentiment index fell to 67.8 which is the lowest level since November and 10% below the 76 number it registered last month (though to be fair, it registered such a high number last month because it had put the thermometer next to the heater in hopes of being able to stay home from school). As always, Money McBags has no idea what the difference between a 67.8 and a 76 is other than 8.2 so while market seems mildly happy that the 67.8 came in at .8 better than analysts’ guesses, Money McBags is pretty sure an 8 point drop is worse than a .8 outperformance, even if it were measured on some weird logarithmic scale.
Finally in macro news, the Chicago PMI defied all common sense, data, and laws of supply and demand and rose by more than guessed for the month of July. The PMI jumped from 59.1 to 62.3 while economists had guessed it would fall because, well, because we’re in a fucking recession. Interestingly enough, readings above 50 signal expansion so despite GDP slowing down and consistently high rates of foreclosures and unmeployment causing the midwest to be bleaker and more run down than Warsaw in 1945 or Barbara Walter’s vagina, Chicago area manufacturing continues to grow. It is as perplexing as the 9 dimensions needed for string theory to hold or the Lifetime channel.
Internationally, Moody’s cut Iceland’s rating outlook to negative, said they they could cut it to junk, and warned Iceland that they better “check themselves, before they Reykjavík themselves, because fucking with foreign currency loans is bad for yo’ health.” Iceland defended themselves by properly pointing out that Moody’s is a bunch of asshats and by saying they are a long way off from defaulting on any debt payments. When asked what a “long way” was, Economy Minister Gyfli Magnusson simply replied that he’d like to buy a vowel before quickly mushing off on his dogsled.
In the market, MRK’s profits fell 52% due to merger and restructuring charges associated with buying Schering-Plough and redoing the company cafeteria. Without those one time charges the company beat analyst eps guesses by $.03 and earned $.86 on the Q but the stock dropped as the company trimmed their full year guidance due to price cuts on drugs from European governments and slowing sales of vaccines and Singulair. A company spokesman said they would do their best to continue to promote bad and unhealthy behavior in order to boost sales of their products.
In other earnings news MET insured the fuck out of some shit and beat analyst guesses while Amgen also beat guesses despite lower revenue and profits as both investors and osteoporosis sufferers bend over backwards with excitement over their drug Proli. Also in the market Disney sold Miramax for $660MM to better focus on making shitty vapid films for kids to buy shittier vapider toys off of and C paid a $75MM fine for a little something called misleading investors about the amonut of subprime loans they held on their books. C claimed they only had $13B of exposure when they had $50B but Money McBags is sure the $75MM fine will make up for the billions investors lost by believing any of the publicly audited financial statements C released.
In small cap news, TSYS sold off by 17% after their net income fell by 50% in another quarter more confusing than the ending of a Kafka novel. Remember a couple of weeks ago Money McBags told you TSYS would make an interesting short term trade and on this past Tuesday he said:
“TSYS was up 4% plus and remember on 7/9 Money McBags said it was too cheap and would make a nice short term trade and it’s up just under 20% since then so good for you if you picked up some shares but don’t get too greedy as news on the company remains thinner than OJ’s alibi and it has traded down for a year for a reason.”
So hopefully you didn’t get too greedy and took your profits and went home because we were given more reasons for its shitacular performance this year.
That said, on the surface, the quarter wasn’t horrible, as revenue was an alltime high $92MM, though pretty much flat with the first two quarters of the year and gross profit of $33MM was also up a bit sequentially. EBITDA of $15MM was down a bit sequentially and barely up from last year when revenue was $25MM less so they are clearly having margin/expense issues with gross margin dropping from ~45% to ~36% from last year’s Q. Not really what you’d like to see out of a supposedly growing business. Money McBags is a firm believer in not owning businesses with negative operating leverage unless they are in the start-up stage, so that is a huge red flag, especially for a company that has relied on acquisitions for much of their growth.
That said, the biggest problem seems to be that they saw their text message licensing business slow down and lead to fewer sales of pepetual licenses which was what Money McBags thought was a big growth area for this company. People like the fuck out of texting so it was always a bit confusing why this company’s revenue didn’t scale faster with that and why that is now slowing down for them.
Money McBags hasn’t had time to listen to their call yet as he has been busy trying to solve the Riemann hyopthesis (he thinks the answer is zero) and looking for more pictures of Sofia Vergara, but he’s sure the call would have been as confusing and unilluminating as ever as this management team has overpromised and underdelivered more than an M. Night Shyamalan film. That said, he’s not sure if they are still guiding to $80MM-$85MM in EBITDA as they are only at ~$30MM half way through the year with one of their growth segments slowing and margins getting squeezed like Ines Sainz‘ ass in an airplane seat.
The company currently has an EV ~$280MM so it’s pretty cheap if you think that they can double their EBITDA in the second half of the year but as Money McBags needs a fucking forensic accountant, a strategy consultant, the Amazing Kreskin, and a fuckload of luck to understand their press release and the different parts of their business, he’s going to stay the fuck away.
Hopefully you all made a nice short term profit and perhaps their call explained a lot, as this company seems way too fucking cheap for what they claim to do. That said, the market isn’t usually this wrong when selling something off over this long of a period of time, so Money McBags will remain happily uninvested. That said, if anyone can clearly and concisely explain their business in two sentences or fewer, Money McBags would be interested to understand.
7/9/2010 Midafternoon Report: Investors get excited and take off their shorts to allow long exposure to grow
The only US macro data released today was slightly positive (unless you actually read the release and not just the headline) as wholesale inventories rose by .5%, though that will likely be revised downward like last month’s number (and every other data point released in the past two years) which was revised down from .4% to .2%. The good news is that the inventory to sales ratio is only 1.14 which is near a record low, the bad news is that people aren’t buying shit because they don’t have jobs and their money is becoming more worthless by the day. While the headlines tout the increase in wholesale inventories (which is mildly positive), they bury the part about wholesale sales decreasing by .3%, and yes Money McBags understands the difference between a leading indicator and a lagging indicator, but this is the first decline in over a year so is likely the reason why inventories to sales remain so low (ie. the people in charge of stocking up see sales slumping in the future and thus are keeping inventories thinner than OJ’s alibi or an Olsen twin) .
Internationally, other than a sumo wrestling gambling scandal throwing Japan in to a tizzy (and Money McBags would hate to be the officer in charge of the cavity searches in that case), news remains light. Jean-Claude Trichet was out talking again about the EU’s financial crisis and he said that it is too early to claim the crisis is over, that bank stress tests should help the recovery process (wink, wink), and that there needs to be stricter penalties for countries who ignore the EU’s deficit limits such as having to move to Latvia, having to hand copy the entire novel Pride and Prejudice while listening to the melodic soul singing of Celine Dion, and having all pictures of Zita Gorog taken away. Most interestingly, Monsieur Trichet maintained that austerity measures and cutting government spending will not hinder economic growth thereby figuratively pissing on John Maynard Keynes’ ashes and Paul Krugman’s soul (though Krugman clearly sold his soul to Mephistopheles years ago as it is the only way to explain his ascent to NYTimes columnist).
In the market, China renewed Google’s license to operate in the country instead of revoking it or simply giving it to Sum Dum Gai. Google could have been forced to shut down their chinese operations but instead they will continue to allow users to opt-in to receive either censored or NSFW uncensored search results. In other news, RIMM is rocketing up today as NTP has filed a lawsuit against AAPL, GOOG, and others claiming their wireless handsets infringe on NTP’s patent of awesomeness. RIMM had settled previously with NTP for $612MM so they are free from this round of lawsuits and thus, for a day at least, can enjoy their declining market share and substandard product in peace.
In small cap news, two ridiculously cheap stocks that Money McBags has written about before have started rallying proving the old value investor theory that what goes down, must go up (unless it’s ZAGG). One of those is NTZ which a month ago and 20% above its open today, Money McBags said:
“buying shares of NTZ is dumber than jumping in to a Hot Tub Time Machine set for the 1980s and then going Lucky Pierre between Magic Johnson and Rock Hudson. You might as well have bought shares of Amercian Home Mortgage right as the subprime mortgage market was melting down, invested in Daguerreotypes in the mid 19th century, or hired Bernie Madoff to manage your assets.”
As Money McBags explained before, NTZ (or more commonly known to longterm holders as NTZero) sells high end furniture, mainly in Europe, and seeing as how Europe is instituting a little something called austerity measures and high end furniture is a more expensive and discretionary purchase than caviar infused lobster tails or a night with Heather Vandeven, that doesn’t bode well for the company. That said, NTZ is trading at <3.5x EV/EBITDA and has 1/3 of their market cap in cash (even though they burned some last Q). The point remains that this company is either going to blow through their cash and go out of business (5% chance), is eventually going to come out of this and be worth a fuckload more than it is today (70% chance), or is a total fraud since Italy’s version of the SEC is likely more hands off than Richard Simmons at a Rick’s Cabaret (25% chance). Money McBags will wager a couple of Vietnamese dongs (as always, his currency of choice) that this is a real company and while he has absolutely no idea when it will turn around, has no faith in the global economy rebounding, and still thinks owning a high end furniture maker in a global recession/depression is as wise as covering yourself in chocolate and shouting “fire” while standing in the doorway of a crowded theatre filled with overweight arsonphobia sufferers, at some point this stock should trade for at least 7x EV/EBITDA which makes it a double from here (unless the EBITDA falls off a cliff, though if it does, there is more of a cusion right now than in Jessica Biel‘s pants) but that may not happen until 2025, so act accordingly.
The other name that is runnning now is TSYS and Money McBags first wrote about them in February and since then they have done nothing but go down like they were auditioning for a role in The Curious Taste of Benjamin’s Button. Their last quarter was decent enough and their guidance has been fine but margins have been compressing, there has been concern about government spending drying up, and it is harder to get one’s arms around their business than it is for a young lass to get her arms around Whitezilla’s “business” (and you can google that at your own risk). They have a number of sort of related yet disparate businesses including a mobile location based software business, a text message enabling license selling business, and a government satellite communications software business. The company announced a new deal with the Army last night that could pay them as much as $9.8MM through 8/2011. TSYS’s EV is ~$325MM and their guidance remains for $80MM-$85MM EBITDA, so it is currently trading at ~4x EV/EBIDTA and oh by the way, they just grew EBITDA by 45% last Q and revenue was up by 30% (though most of it was driven by acquisitions in the commercial segment). Again, this is a bit of a confusing company and portfolio managers just don’t want to spend the time learning the different businesses and the complicated way in which results are reported (honestly, try reading one of their quarterly earnings releases, it makes Thomas Pynchon seem like Dr. fucking Seuss). That said, it is ridiculously cheap and with the new contract, perhaps there is more faith that government spending for their technology will continue. The stock has pretty much spent all of 2010 dropping but it may finally have bottomed out (because how much lower can it really go?) so this might make a nice short term trade.
With the market rallying, if you’re itching to go long it’s best to pick up these already beaten down names than ones that can still fall when the rally ends next week. So if Money McBags were you, the first thing he would do is empty your bank account and take one hella long trip to Vegas, but the second thing he would do is spend some time this weekend trying to get a better handle on TSYS because there is a very good chance of a solid return at these levels.
The market was up stronger today than a shot of tequila washed down with a hefty glass of grain alcohol or as its known in the Hasselhoff household: “breakfast.” If you haven’t heard, the Chinese are coming and this time it’s not just from looking at Gaile Lok it’s because they are still hella interested in investing in Europe because apparently they love them some Lucy Pinder. As a tribute to Art Linkletter, China’s foreign exchange regulator said one of the darndest things today by refuting reports that China was reviewing their euro holdings as being “groundless.” Of course Money McBags would take it more seriously if the statement from the Chinese government didn’t end with “in bed.” Fears of China dumping their Euro debt holdings caused the market to tank in the close of trading yesterday but investors appetites for equities have quickly come back as if it is 30 minutes after eating chinese food. Investors are hoping this puts a floor on the Euro but more importantly, they are hoping the coke they were given by the Chinese foreign exchange regulator at press conference contained no pee pee.
In US news, GDP was revised lower going from 3.2% to 3% leaving everyone guessing whether the next downward revision will be 2.8% or the square root of -3 since the number is completely fucking imaginary. The reasons for the downward revision were that consumers spent less than initially estimated (duh), business spent less than initially estimated (big duh), the trade deficit widened, and we’re in a FUCKING GLOBAL RECESSION with markets that are less decoupled than two hydrogen atoms in a covalent bond or the lovely ladies at the end of an extremely NSFW Ultimate Surrender match. In addition to lower consumer and business spend, state and local governments saw their spending drop by 3.9%, the fastest that rate has dropped since 1981 which was so long ago CDO’s didn’t exist, Ben Bernanke was still teaching MBAs at Stanford, and the competitive NSFW sport of muff guessing had not yet been invented. A decline in state and local spending will mean more teachers being laid off, fewer police on patrol, and an increase in car axle sales due to larger and more prevalent street potholes. In other bad US macro news, new claims for unemployment fell by 14k to 460k, but missed analyst guesses and sent the 4 week moving average higher. The disappointement will only be matched by next week’s disappointment when new claims are revised lower.
In stock news, everything was fucking up, well, everything except for MCO. Moody’s once again is taking a hit as hedge fund investor David Einhorn ripped the company a new ratings model in his speech at a hoity toity hedge fund dinner where the managers drank the blood of young bald eagles while rolling around in $1,000 bills and the tears of the first Dalai Lama. Einhorn’s biggest issues with MCO are that they don’t have a long enough time frame and they suck at their jobs. Money McBags has been riding the short MCO gravy train for quite awhile now as he maintains there is absolutely no reason for ratings agencies to exist other than to serve investment banks and help them perpetuate fraud in order to maximize the bankers’ internal profitability. In earnings news, Tiffany’s put up a good quarter with profit more than doubling to $.50 per share causing analysts to throw up their breakfasts as TIF easily beat their guesses of $.35 per share. The company cited strong growth in Asia and Europe with sales up 50% and 25% respectively as apparently rich people don’t give a fuck about the global recession. The company also raised guidance above estimates citing continued strong demand and their customers not being in touch with reality. In other earnings news, both Costco and Jo-Ann Stores put up good numbers as people bough the shit out of bulk goods and cloth to make their own pantaloons. Appraently people are doing this in order to save up for a Tiffany’s bracelet.
In small cap news, everything rose like Gemma Arterton’s popularity during take your kid to work day on the set of the Prince of Persia. Leading the way was TSYS which was up 20% and Money McBags has mentioned them before as the sell off in the name has been way overdone. Sure they put up a quarter crappier than Wilford Brimley‘s used adult diaper with NIM falling and their government systems business showing weak organic growth, but their guidance is still stellar. Guidance is for $85MM EBITDA and 30% revenue growth which means they are trading at ~5x EV/EBITDA. So sure competition from GOOG and NOK is coming and sure their management team talks a good game, but with the sell off, they are now just too cheap and set up for a couple of quarters of expectaion beats with analysts dashing to take down numbers. Money McBags wouldn’t buy today as there was likely more short covering than on a swimsuit photo shoot in the Middle East, but value investors should dig in to this company.
The market was up today as apparently it has been corrected like Stevie Wonder’s vision or Larry Craig’s family values. With Europe now fixed, unemployment shrinking, and monkeys flying out Money McBags butt, it should be back to lobster tails and BJs in no time. The good news is that nothing has really changed between today and yesterday, while the bad news is that nothing has really changed between today and yesterday. Money McBags remains more fearful of the markets than he is of supply side economics, Sylvester Stallone’s face, and girls with bacne so he is just trying to ride today out until the next correction begins.
In US news, the Senate passed a financial reform bill, despite the protestations of Senator Maria Cantwell who won the Huffington Post’s sexiest Senator competition, narrowly edging out Senators Barbara Mikulski (who shocked the judges with a daring hail mary by sporting a thong in the swimsuit competion) and the delightful Mary Landrieu (who tittillated the judges in the talent competition with her pig hunting calls. Soowee indeed.). In the bill, financials will have to go back to their room and think about how they have made the market feel. The legislation includes restrictions on predatory lending (which is bad news for cougars like Kelly Madison who are among the fiercest predators in the animal kingdom), a way to liquidate failed banks without bail outs (like um, doing fucking nothing), and restrictions on derivatives trading (like maybe making sure they all have underlying assets, and Money McBags would love to lie under Lisa Ann‘s assets). It also creates a “financial stability oversight council” which will exist until it fucks up by watching too much trannie porn like the SEC and a new council is created in ten years to clean up this mess. This council reads like a who’s who of economic red tape and includes the Treasury secretary, the chairman of the Federal Reserve, the comptroller of the currency, The “Million Dollar Man” Ted Dibiase, the director of the new consumer financial protection bureau, the heads of the Securities and Exchange Commission and the Federal Deposit Insurance Corporation, Scrooge McDuck, the director of the Federal Housing Finance Agency, an independent appointee of the president, and Malachi Constant so it goes. Wow. It’s like a mental masturbation all-star team where the head of every shitty bureaucracy in the US can get together to form a super bureaucracy and fight off the Legion of Boom. One troubling sign for the markets is that LIBOR rose to a ten month high as risk aversion is back like herpes, since it will never really go away.
In Europe, Germany’s lower house (the Bundestag) voted to contribute to Europe’s bail out followed by their upper house (the Bundesrat) agreeing as well which made Chancellor Angela Merkel (the Bundeshag) unpopular among the German people. Causing concern in Europe today was that the Markit composite purchasing managers’ index fell in May to 56.2 from 57.3 a month earlier. It was the sharpest fall since February 2009 when managers’ subscriptions to Nuts magazine were taken out of the index.
In stock news, DELL beat earnings and revenue guesses but gross margin disappointed like William Henry Harrison’s almost neverending inaugural address (I mean I know there was no televsion or movies or Spankwire to get home to, but really Will, couldn’t you have skipped all of that Roman history crap and just gone with some war stories and then got the fuck out of there? You know it was fucking snowing, right?) or the Pam Anderson-Tommy Lee sex tape (and calling it a sex tape is phonier advertising than the Ed Asner workout video). Dell not only missed on margins, but they tempered investor expectations by pointing out that the iPad is really fucking cool. In other stock news both Ann Taylor and the GAP put up good quarters and gave solid guidance as mediocre fasion is the new style.
As for small caps, TSYS continues to get hammered and Money McBags will investigate next week. This company should be growing as they offer mobile location based software and text message licenses so it is curious that their performance seems to be more stagnant than Mitt Romney’s political career. Money McBags has had a busy day so he apologizes for the lack of new research, next week he will get back to analyzing companies and trying to make money in a market that is rigged against retail investors. He remains very concerned about a big market drop next week but until then, he hopes you have a good weekend and tell a few thousand friends about When Genius Prevailed.
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.
The market is bouncing back today even though it is a relatively quiet day news wise (though not as quiet as a Lindsay Lohan straight to video movie premier or a Trappist monk game of hide and seek). Pending home sales in the US rose 1% after falling 16% last month thanks to renewed tax credits and something called math. Sure the 1% rise is good, but it is still down 15% from October, so let’s not break open the bottles of Dom and tins of beluga just yet. The biggest problem with home sales is that frictional unemployment has dropped the frictional and is just plain old unemployment. People are no longer moving between jobs and thus moving to new houses because, to close the transitive logic, there are no jobs. Also, Paul Volcker is supposed to testify in front of the Senate Banking Committee today where the 82 year old will rant about proprietary trading at banks, how he used to walk 2 miles up hill both ways to get to school, and then wonder why none of the dames look like Clara Bow anymore. The banking industry awaits Lord Volcker’s testimony like a necrophiliac awaits the cremation of a loved one.
In global macro news, Australia held their interest rates flat which was somewhat of a surprise since their economy is healthier than a vial of Jack LaLanne‘s urine (and that is for my older readers, but I can assure you young’ens out there that there is nothing on this planet healthier than the dickwater of the workout guru Mr. LaLanne who even at the age of 96 still can still rip a man’s heart out with his pinky finger). For those sheltered Americans out there, Australia is more than just boomerangs, crocodiles, and Miranda Kerr and Patsy Kensit pillow fights (though if it were just Miranda Kerr-Patty Kensit pillow fights, that would be sufficient). For the past several years Australia has benefitted from being close enough to China to supply it with natural resources out the wazzou while serving as a middleman in the shipping/trade business. Additonally, their banks missed out on the opportunity to cut up packages of mortgages and sell them for additional yield by inflating the mortgage market through lending money to speculators who bought and then sold houses to other speculators who couldn’t afford the houses in what is known now as the subprime vicious circle (and the circle was even more vicious than a daisy chain at an overeaters anonymous meeting). The point being, Australia has had a robust economy during this downturn and thus Australia holding their rates is a bit of a good sign that inflation is not running away, but it is more likely just a pause in their monetary rate hikes
As for stocks, Lexmark put up a huge quarter tripling earnings to $.76 a share and giving guidance for next Q of $.80, thus besting the $.62 earnings per share estimates. The printer maker also beat revenue projections and attributed their success to strong customer demand and the fact that HP makes such shitty printers. UPS also saw profits triple, yet their topline was down 2.5% and their CFO said the first quarter ”will be the most challenging of the year.” He then said it will be more challenging than the time they tried to ship a plane full of angry circus bears who hadn’t eaten in a week. However, the CEO said “It looks like this recession is finally over,” so I guess there’s nothing to see here.
In small cap news, ARTG was upgraded or maintained at strong buy today by most analysts on the street even though they chose to dilute shareholders yesterday like ice cubes in a Makers Mark at an overpriced NYC bar. Money McBags addressed this in yesterday’s Midday Report and its comments section, but ARTG has plenty of cash on their balance sheet so the capital raise is likely for a big acquisition and thus investors need have confidence in ARTG’s management team’s ability to negotiate and integrate a large deal before they become shareholders. Estimates are for around $.20 earnings for 2010 but $.25 could be reasonable so the stock isn’t expensive (nor extremely cheap) at 16x to 20x earnings. COOL is up 5% today as investors perhaps forgot the assrapingly bad Q they recently put up (here were Money McBags thoughts) though this should give shorts a better entry point. And TSYS was initiated as a buy by JP Morgan and a $12 price target and this is a company Money McBags has followed off and on for a while and used to own. They basically provide licenses for text messaging to carriers, location based services (like E911), and satcom solutions for the government. You really only need to know that text messaging is still growing 100% a year (TSYS powered almost 2B messages a day last year, which is fuckload of teenagers saying “cu l8r”) and they provide gateways for carriers to be able send these volumes of text messages. These licenses are sold as a step function so the company’s revenues haven’t scaled lockstep with the exponential growth of text messaging, plus there is competition and the pricing keeps coming down. That said, they did recently get a new deal with Verizon and their government business has been a solid performer. Estimates are for TSYS to earn $80MM of EBITDA in 2010 and they are currently trading at around 6.5x EV/EBITA. That is very cheap for a company that can still grow 20%+ (though the growth rate has been declining and that is not all organic growth). Today may be a good entry point though as the stock has been trading down and earnings are in two days so the JP Morgan analyst would not want to release a glowing report of the company two days before earnings were he/she not confident in the numbers. Now look, Money McBags is prone to mocking analysts like Adam Sandler is prone to starring in bad movies and Alexis Texas is prone to having to try on many pairs of jeans until she finds a pair to properly fit her best asset, so having faith in this JP Morgan analyst is a bit hypocritcial (though not as hypocritical as Larry Craig’s gay rights (wide) voting stance), but the timing of the report should be a signal that TSYS’s Q will be good or else the JP Morgan analyst is a complete dope (and unfortunately we can’t rule that out, so let’s say a 25% chance because JP Morgan is mildly reputable). It may be worth picking up some shares for at worst a trade. Money McBags does not own TSYS right now but may buy some before earnings after he does some more digging. If any of you have done work recently on TSYS, feel free to share with the rest of us, and if any of you have Hayley Atwell‘s phone number, feel free to share that too.