Tuesday, June 30, 2009

Enormous contract win for Oshkosh(OSK)

AlphaNinja - After hours, there are tears of joy and tears of happiness among MRAP (Mine-Resistant-Ambush-Protected) vehicle manufacturers.

Oshkosh Corp (OSK) was just awarded a $1.05billion dollar contract to supply its M-ATV to US Soldiers and Marines. To put that in perspective, it's 17% of this year's total expected sales.

As Oshkosh trades up 24% after hours this afternoon/evening, Force Protection (FRPT) and Navistar (NAV) are trading off 24% and 9% respectively.

One person who must be disappointed is James McIlree of Collins Stewart, who saw Force Protection as the lead candidate. Well he's right about the (at least) few dollars of downside...

"We continue to believe the risk/reward for Force looks attractive as a win could propel the stock into the mid-teens, while a loss could result in downside of a few dollars per share," McIlree said.

From Navistar's conciliatory press release:

WARRENVILLE, Ill.--(BUSINESS WIRE)--Navistar Defense, LLC today announced that it will continue to grow its business even though it was not selected to produce vehicles for the U.S. Army’s Mine Resistant Ambush Protected (MRAP) All Terrain Vehicle (M-ATV) program.

Navistar offers a unique value proposition of great manufacturing, engineering and sustainment capability,” said Archie Massicotte, president, Navistar Defense. “While we recognize we can’t win every new program, if it has a diesel engine and wheels, we will pursue it.”

And Oshkosh's more upbeat release - they're almost overwhelmed, and may need help from the other manufacturers...

“We are proud that Oshkosh was chosen to provide its M-ATV offering to the U.S. Armed Forces. Our M-ATV design combines the crew protection warfighters have come to expect in MRAP vehicles with the extreme mobility and durability needed to negotiate Afghanistan’s mountainous off-road terrain,” said Robert G. Bohn, Oshkosh Corporation chairman and chief executive officer.

“Due to the urgent need of our Armed Forces for a survivable and highly mobile vehicle, our Corporation’s number one priority is meeting the Department’s accelerated delivery schedule of the Oshkosh M-ATV. Oshkosh Corporation will put whatever resources are necessary to meet or exceed the government’s delivery schedule. While we believe we can meet or exceed the government’s current delivery requirements, we intend to enter into discussions with other manufacturers to determine if they can assist in the production of the Oshkosh M-ATV.”

Energy names stand out among insider buys (HLX, CPX)

AlphaNinja - Below are some of the more notable insider share purchases over the last week. Some people point to insider selling as a possible indication of a company's fortunes -->> I tend to disagree with that in the broad sense, as share-based compensation is a large (or huge) portion of an executive's compensation, and he/she would be expected to monetize a portion of that over time. Insider buys, however, consist of the officer/director using their own cash to increase their stake in their own company. Presumably these folks know more about their businesses than anyone else, so when they step up to the plate it is worth taking notice.

Helix (HLX) - after a near tripling in the stock price since his last buy, the CEO bought another $1mil worth of stock. I like that he's still just as interested at $10 a share as he was at $2.50.


A director of Complete Production Services (CPX) purchased 30,000 shares yesterday, at about $6.04. This is in addition to another 30,000 shares he bought on the 25th. Despite the recent rally, this stock is still down over 80% from its 2008 highs, leading this insider to plunk down some money. Houston-based CPX is facing a brutal oilfield services environment, but with oil back to half of its 2008 high, shares may have overshot to the downside....

Worth mentioning is that insiders can be VERY, VERY wrong. Aubrey McClendon, CEO of Chesapeake Energy (CHK), was a darling of people who track insider buying. The only problem was that he bought all that stock on margin, so when the markets tanked he had to liquidate. People who bought when he did at the highs lost a lot of money.
"These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the worldwide financial crisis,'' McClendon said in today's statement. ``In no way do these sales reflect my view of the company's financial position or my view of Chesapeake's future performance potential.''
McClendon, 49, owned 33.5 million shares, or 5.8 percent of the company's common stock, according to a Sept. 30 filing with the U.S. Securities and Exchange Commission. He was the company's third-largest shareholder.

Quote of the day

AlphaNinja - Yet again, the quote of the day comes from the real estate sector.

Home prices down a ton, but this month it's "not a record." Awesome...

"While the Standard & Poor's/Case-Shiller index of 20 major cities tumbled by 18.1 percent, it marked the third straight month the decline was not a record."

A look by metro area - SF highlighted, as until recently it was holding up well.

A quick look at select metro areas since mid 2006:

With ugly numbers like these, maybe we've hit housing bottom???? I certainly wouldn't take that bet, but for the bold out there, a new trading vehicle will let you invest on a housing recovery with 3x leverage! They also have a negative vehicle should you be a housing bear.

Hostilities....Emulex(ELX) vs. Broadcom(BRCM)

AlphaNinja - Yesterday afternoon (nighttime for East coasters) Broadcom raised its hostile takeover bid for Emulex to $11 from $9.25, elevating this ugly battle in the storage networking space. After flatlining around $11 on speculation that the price would be raised, the stock is selling off this morning as the magnitude of the increase has left some dissapointed.

Broadcom first approached Emulex in December. Since then, Emulex has waged a PR battle, with two main points.

1. The Broadcom offer is too low:

And 2. That Broadcom is being "opportunistic." (Often that's called "savvy")

Emulex lays out a path to increased earnings, but as Broadcom correctly points out, it's a "hockey-stick" (very back-end loaded) 2012 projection.

If Emulex is correct and they deliver non-GAAP (excludes stock compensation) earnings of $1.45 per share in 2012, then the stock could trade to 25 or higher, the levels it commanded last year. But that's in 2012 -->> this year they're expected to earn just 54cents. Emulex' credibility has been hurt by missed earnings projections and worries about design wins. $300mil in cash, about 1/3 of the company's market value, makes this stock even cheaper -->>in ELX's view just another reason to rebuff the buyout offer.

At the end of the day (I love qualifying statements!), the market has not held a very positive view of ELX's prospects, despite management's persistent whining. I completely agree with Emulex that the Broadcom offer is "opportunistic" -->> its' SUPPOSED to be, and that's how a good management approaches acquisitions.

Early movers

AlphaNinja - The markets are at their lows for the day. Weak consumer confidence, and some more bad news from AIG...

Some good energy news, stem cell developments, and possible consolidation in the paper sector are driving the winners today...

Tuesday Premarket

AlphaNinja - Futures (indication of market direction) flat ahead of trading, with a slew of economic data to be released.

AIG still has a lot of exposure to European home loans - derivatives based on them could cause a "material adverse change" (MAC) on the company's results.

The US will remain the world's safest place to invest as long as others (the UK) are in worse shape.

Five states approaching government shutdowns.

One man's thoughts on how to repair California

Prince Walid bin Talal, down 94%, hoping for a repeat of his Citi experience in the 1990's:
“This is a fantastic opportunity. Now is the time to buy,” Prince Walid told Prestige Magazine for an article in its summer issue. “I’m totally, 100 percent optimistic and realistic.”

The "trash-to-trophy" renaissance of the alligator gar

Smart moves in its endowment are paying off for tuition-free Cooper Union

New taxes are likely, as we run $1trillion dollar deficits for a decade with an administration that sees government as savior

Monday, June 29, 2009

MUST READ --Ramius versus CPI (CPY)

(I call this a MUST-READ because it's a great example of the ongoing debate about whether "shareholder activism" is good or bad for a company.)

AlphaNinja - It's like passing notes between middle school classes. This is a true lovers' quarrel, and I'd venture to say the lawyers and PR experts are the true winners. Various funds affiliated with Ramius LLC own about 23% of CPI Corp. (CPY).

Ramius has been a shareholder for five years, and has engaged in a campaign to broaden the board of directors. A big concern of Ramius' is the influence on the board of Knightspoint Partners, who is only a 3.5% shareholder, yet has one of the six board seats, and possibly more influence. (Board members are elected by shareholders, so one could make a point that a 3.5% shareholder should not have more board influence than a 23% holder).

"Ramius’s only desire throughout this contest is to create a more balanced, independent, and experienced Board that is free from the undue influence of Knightspoint Partners. The changes to the Board that Ramius has proposed would create a Board comprised of four independent directors, three of whom have relevant retail experience; one direct Knightspoint representative; and one direct Ramius representative.

On the other hand, Knightspoint has continued to assert additional influence on the Board of CPI. The Company’s proposed Board includes five out of six directors that are either directly affiliated with Knightspoint or previously recommended by Knightspoint, despite their only owning 3.5% of the Company, and only two directors with any retail experience. We believe these two directors would not have been added to the Board without our outspoken concerns on the failure of the Board to address this obvious weakness.

In addition, over the past two years, both Mr. Meyer and Mr. Koeneke have received compensation totaling over $2.2 million for providing part-time consulting “services”, while the stock declined by 74%. This pay package represents almost as much as the CEO, CFO, and all other board members earned combined. Stockholders need to seriously question Knightspoint’s influence over CPI."

While Ramius makes good points, the company has accused them of being off the mark both in their criticisms of CPI's directors, and the qualifications of Ramius' nominees to the board. The company correctly points out that the stock price has performed well under the current board, and has increased appreciably from levels at which Ramius was endorsing an outright sale...

Some of CPI's points, filed today:

And more CPI comments today, a bit more "confrontational" if you will...

I almost ALWAYS side with shareholders - no matter what their intentions are, they are the true OWNERS of the company -->>if the company and management don't like that then they should have stayed private. Ramius doesn't seem to be nominating great people, but it is their right to attempt to gain better board representation. In addition, CPI does not get much respect in terms of valuation, with a Price-to_sales of just .29, and forward PE (probably unreliable estimates) of 5.5 -->>that might be Ramius' best argument for change. Can't we all just get along?

Good news in auto-land (TRW)

AlphaNinja - JP Morgan upgraded TRW Automotive (TRW) to overweight this morning, boosting its price target to $15 from $10. The upgrade is due to TRW's Friday afternoon anouncement that it had successfully restructured its debt covenants. They now enjoy looser terms, in exchange for paying a higher rate.

JPMorgan said the credit amendment

"resulted in sizable covenant ratio headroom and no reduction to (large) revolver capacity, making TRW a clear survivor, in our view."

TRW shares are up 24% on the news, and good for them! Details below for those interested in the new covenant ratios, which really start to tighten up in late 2010....

Up almost an identical percentage on the news (or short-covering, who knows) is Lear Corp (LEA)-->> even though these folks are hurdling toward bankruptcy.

Below is a CMA Datavision snapshot of Lear's Credit Default Swaps, showing a 95% chance of defaulting on their debt -->>the common stock (last in line to be paid in a bankruptcy)will be worthless. That quote below means that it would cost you $16mil to insure against $10m of Lear Debt -->>NOT FUN!

Monday's active stocks

AlphaNinja - Markets near their highs for the day. A few deals are giving people confidence...

Among the losers is OpenTable(OPEN), a stock I've written about skeptically. Despite Citi saying they wouldn't buy it at this level, they say the company has a "deep competitive moat." This is an online reservation company - I would not give them credit (yet) for developing much of a "moat" among restaurants.

Notable financing (PTEC)

AlphaNinja - I spend a considerable amount of time on this site writing about "notable financings," etc. I do this because the manner and price at which a company raises money tells us a lot about the company - both about the stability of earnings, and what the future cash flows might be like. If one of your neighbors is able to obtain a mortgage at 4.5% while the guy across the street pays 8%, you can extrapolate who is in a better earnings and liquidity situation. The same goes for stocks.

The following transaction would be the equivalent of a 12% mortgage with a 50% down payment.

Phoenix Technologies (PTEC) announced that it has "placed" 5.8million shares with certain private investors. In order to pull this off, the company had to offer shares at $2.25, a 29% discount to its previous close. Gross proceeds to the company will be $13million, but actual net proceeds will be about $12million. Hefty, hefty "transaction fees." The underwriting bank alone takes 5% of the offering, or $650k. Taking into account the other fees, and the offering price is more like $2.06, an even bigger discount than acknowledged.

For a look at why PTEC has to offer stock at such a discount, just a peek at the March quarter's results show us why. They burned through about $10mil in cash, so the $22mil remaining cash on the balance sheet will not be enough to carry the company through a prolonged "downturn," if that's what we want to call this.

Comments on cost-reductions:

"Our second quarter performance reflects the substantial impact of the weakened global economy on the PC industry," said President and CEO Woody Hobbs. "Inventory reductions across the global supply chain and reduced end-user PC demand drove weaker core systems revenues, and since we continued to fund important market adoption initiatives for our new products, our result was negative cash flow from operations for the quarter. In advance of these expected results, we took decisive actions to reduce our cost structure and improve operational efficiency."

From their 8k filing:


AlphaNinja - Markets waffling early. Dow up 50bps, S&P +37bps, Nasdaq -5bps (Bps=basis points, or hundredths of a %) after Asian markets ended mostly down. Healthcare stocks down, energy up.

Porsche-VW drama gets even more ridiculous. After Porsche didn't have the funds to exercise its options on VW (a multi-billion dollar profit if they could do so), VW now offers to buy half of Porsche...

Google tyring to convince regulators that it is both "not that big," and vulnerable to competition. After the strong start that Microsoft's BING has had, I'd agree.

Interesting piece about righting the ship at RoyalDutchShell.

People have been gushing over the opportunities in the junk bond market - but remember that yields are high there for a reason...

A preview of this week's lone IPO, the remote-access firm LogMeIn

While other auto-related companies waltz into bankruptcy without a concern in the world for shareholders, TRW is putting up a fight...

Sunday, June 28, 2009


Steaming ahead despite the recession, Acer is about to overtake Dell as the number 2 PC seller.

Farrah, MJ, and now Billy Mays, all in a 3day period?!?!

MJ and private equity...

Barrons' Michael Santoli brings up a point that AlphaNinja often comments on. Take a cue from the bond market - when companies like Microsoft can borrow money for 3-5%, the stock should not yield 10% on a free cash flow basis, or have a 6-7% dividend yield like AT&T.

As Andrew Bary noted Wednesday in a timely Barrons.com piece, debt buyers flocked to Merck 's (ticker: MRK) $4.25 billion bond issuance, happy to pick up a 10-year tranche at a yield just over 5%. Meanwhile, Merck's common shares are shunned, despite a 6% dividend yield and depressed valuation.

A clever friend asks: How many companies through history with a stock trading below eight times current-year profits -- a level usually associated with risky, cyclically sensitive businesses -- have been able to issue 10-year paper around 5%? Consider, too, AT&T (T), whose 6.7% stock dividend yield is comparable to the rate on some of its longer-term debt. And Microsoft (MSFT), which in May sold debt for the first time, paying 3% to 5.24% for money it doesn't need. So, this means Microsoft sold bonds valued between 33 and 19 times the bonds' promised "earnings," while its shares sell for 13 times

Barrons interview with CALPERS head Joe Dear. Pasted below are his thoughts on equity markets going forward. Note that he's excited about the pension board's recent "reaffirmation" of its investment expectations, and his belief in equity returns of 8% going forward -->> with absolutely no rationale to back it up. This guy manages $174billion, by the way. Troubling....

"I think we've seen a real turn with respect to growth and prices. But I would expect to see lower returns in equities over the long term. The significant thing that the Calpers board did was [not so much about] allocations, but the fundamental reaffirmation of expected returns in asset classes. We looked very hard at what happened in 2008 and reviewed our capital-market assumptions. We made some tweaks, but reaffirmed our belief in returns in equities versus fixed income versus cash, and the fundamental relationships between asset classes.

So as a long-term investor, we think the markets are going to produce good returns that will enable us to make our assumed rate of return of 7.75%. I think that's a big statement, because you could have looked at what happened last year and ask: Can your returns show cash as the highest returning asset class? We decided that cash isn't [the highest-returning asset class], and that returns are going to revert to the historical relationships."

Friday, June 26, 2009

Hey, it's the 80's! (DBRN, TWB)

AlphaNinja - That quote from Karate Kid came to mind when I saw the Tween Brands (TWB) website. Is it me or could the girl on the left play a part in any number of 80's classics????

Moving on - Dressbarn announced a deal to buy Tweenbrands yesterday in an all-stock deal for aboout $157million and the assumption of TWB's debt. What is really cool about this is that BOTH stocks rose yesterday. Typically in an all-stock deal, the acquirer's stock drops while the company being acquired rises. The reason that they rose is probably because DBRN paid such a ridiculously low price for the (flawed but fixable) TWB business.

The terms:

Under the terms of the merger agreement, each share of Tween Brands, Inc. common stock will be exchanged for 0.47 shares of Dress Barn, Inc. common stock. Based on Dress Barn Inc.’s stock price of $13.24 as of June 24, 2009, this consideration would be equivalent to $6.22 per Tween Brands, Inc. share, representing an aggregate equity value of approximately $157 million.

At the time of annoucement, the deal was for $6.22 for each TWB share, but right now TWB shares are fetching $6.64, about 7% above the deal price. Companies that agree to be purchased in share-exchange deals are hitching their fortunes to the buyer's stock. That was BAD news back in the 2000(ish) timeframe when stock's were hugely inflated, but good news if the acquirer is making sound decisions. Yesterday's deal tells us a few things.

The most striking detail is that this buyout valued TWB at .14 times sales --->>> a ridiculously low multiple compared to the rest of the apparel retail universe. This is an embarrassment for TWB's management, to effectively throw in the towel at such a low valuation. Fortunately for TWB shareholders, the market is looking favorably at Dressbarn's savvy dealmaking, which they have hitched their fortunes to by way of the stock-exchange deal.


AlphaNinja - Dow and Sp500 down on the day, while the Nasdaq is in the green. Probably b/c of Palm's good quarter.

Mid-day movers:

Thursday, June 25, 2009

Conagra (CAG) dissapoints, down 4.5%

AlphaNinja - Conagra (CAG) reported earlier today. Missed earnings by 1cent.

The stock traded down 4% today, but the company performed extremely well. The commercial Foods segment, despite sales actually declining, increased segment margins demonstrably.

Companywide earnings also improved markedly, after shedding some lesser-performing assets

Consumer Foods Division profit contributions raced ahead of actual sales growth, impressive:

The stock traded down today not because the quarter was all that bad, but b/c the stock is richly valued. Sure, the PE is about 11 based on upcoming earnings. But Free Cash Flow will be less than net income, as the company spends more on capital expenditures than it adds back in depreciation. Free Cash Flow looks to yield 6% of Market Value - sorry but that's too expensive.


New idea for your next bachelor(ette?) party....

AlphaNinja - Leave it to the Russians....

PIRATE HUNTING!!! I don't know if this is real or not.

Luxury yachts offer pirate hunting cruises
Luxury ocean liners in Russia are offering pirate hunting cruises aboard armed private yachts off the Somali coast

Wealthy punters pay £3,500 per day to patrol the most dangerous waters in the world hoping to be attacked by raiders.
When attacked, they retaliate with grenade launchers, machine guns and rocket launchers, reports Austrian business paper Wirtschaftsblatt.
Passengers, who can pay an extra £5 a day for an AK-47 machine gun and £7 for 100 rounds of ammo, are also protected by a squad of ex special forces troops.
The yachts travel from Djibouti in Somalia to Mombasa in Kenya.
The ships deliberately cruise close to the coast at a speed of just five nautical miles in an attempt to attract the interest of pirates.
"They are worse than the pirates," said Russian yachtsman Vladimir Mironov. "At least the pirates have the decency to take hostages, these people are just paying to commit murder," he continued.

BREAKING - Fitch downgrades CA general obligations to A-

AlphaNinja - Just passin' it along....Fitch and the ratings agencies have been SO bad, and SO late, that this could be a contrarian indicator signalling a bottom in California's economy! I'm kidding, but only a little.

from Briefing:
Fitch downgrades state of California GOs to 'A-'; Rating Watch Negative

Fitch Ratings has downgraded the state of California's (the state) long-term general obligation (GO) bond rating to 'A-', from 'A', and placed the bonds on Rating Watch Negative. The rating action affects GO, lease appropriation and related bonds of the state. The downgrade to 'A-' is based on the magnitude of the state's financial and institutional challenges and persistent economic and revenue weakening. Fitch expects the state's finances will continue to be strained through fiscal year 2010 and beyond regardless of any likely outcome to the current budget impasse. Baseline revenues are estimated to decline 19% (before the effect of tax changes) in the current fiscal year ending June 30 (fiscal 2009), then stabilize in the upcoming year, leaving a $20+ billion gap to close. This gap follows nearly $35 billion in measures approved in February to close projected imbalances through fiscal year 2010. Achieving and sustaining solutions of this magnitude will continue to pose an ongoing risk to budgetary balance, even excluding the potential for further revenue weakening. The placement of the state's bonds on Rating Watch Negative reflects short-term concerns about the state's ability to achieve a timely solution to the liquidity crisis. Timely implementation of measures under consideration could significantly improve the state's liquidity posture; however, absent such actions cash will be depleted by the end of July.

Notice I bolded "further revenue weakening." Revenues, or "taxes" to those of us non-politicians, are dropping so fast in CA that it makes the tax-raising debate almost a moot point. When you generate something like 50% of income taxes from the top 1% of earners, it's going to be volatile - especially when those earnings are largely tied to the imploding capital markets.

Market tanking on the news, hey why not...

California Credit Default Swaps, or the likelihood of defaulting on debt. How the state is better off than when this figure peaked in December is anyone's guess...

Acxiom (ACXM) down big, as expected

AlphaNinja - Acxiom (ACXM) is down 23% today after cutting revenue guidance a little, and earnings guidance a LOT. The company reduced earnings guidance to about 5cents for the 1st quarter, a tad below the 20cents the street was expecting.

A business description:

The conference call's prepared remarks and Q&A session centered mainly on the question of what kind of revenue was being "deferred," and how "discretionary" it is.

Details from the call:

-->>While no customer accounts for more than 10% of revenues, CEO Meyer said that the revenue shortfall was due to "financial difficulties on certain clients"

-->>claimed they did not "lose" any customers. Rather, the amount that clients spand on discretionary projects above and beyond "base" contract revenue, is very volatile right now. IN the CEO's words, "they either happen in a week or they don't happen in a week."

-->>sales pipeline and backlog (likely revenue) is improving, but the "timeframe" for these revenues to be booked is becoming longer.

-->>Europe is in "far worse" shape than the US, as they see competitors going out of business

One analyst tried to get a bit more clarity on earnings-per-share for the full year, which as of last night was estimated at 94cents (or net income of about $74mil). He asked if the 7cent high-end for this quarter might be the lowest quarter earnings, to which the CEO said "look at seasonality" - basically agreeing.

I'll take full-year EPS down to say, 50cents, getting to net income of $39mil. Adding back D&A, stock comp expense, and subtracting Capital expenditures gets be to Free Cash Flow of around $200million, or 29% of today's Market Value ($691mil). I purchased shares a few minutes ago, and while certain I didn't "bottom" the stock, that big FCFY (Free Cash Flow Yield) is too lush for me to ignore.

A look at why Acxiom's FCF is so much higher than net income is below. They won't continue to amortize such a degree, but when that slows down then the income statement will show higher earnings.

(Disclosure - long ACXM)

Up we go

AlphaNinja - Markets screaming higher.....

The major averages up nearly 2% each...

...Due to the blockbuster deal between two teenage girl apparel retailers...?

KKR is gonna dump stock on the public, one way or another...

AlphaNinja - Do you want the other side of this trade? Kohlberg Kravis Roberts & Co., the world's largest private equity firm, is struggling in its attempts to "tap the public markets."

"Kohlberg Kravis Roberts & Co. continued its relentless push to sell shares to public investors, unveiling a new plan that it hopes will place its shares on the New York Stock Exchange by late 2010.
The move is the latest in a two-year quest to list shares, one that has been repeatedly thwarted by market havoc and problems in KKR's $47 billion investment portfolio. The plans are a fragile sign that some of the market's most sophisticated investors remain hopeful for an economic turnaround in months ahead."

KKR is certainly hopeful for an "economic turnaround," but this development could more accurately read, "a sign that the world's most sophisticated investors need a better investment climate in order to peddle shares to the public at elevated levels."

"KKR says a public listing will give it a large capital base from which to grow and also provides a currency to make acquisitions. It also will ultimately give firm founders Henry Kravis and George Roberts, both 65 years old, the ability to cash out their stakes over time."

Make no mistake about it - there is ALWAYS a market for the founders to "Cash out" their stakes - just not at the valuation that an IPO to "dumb money" might reap for them. Pension funds that cannot justify putting more money into private equity capital calls are selling their stakes to vulture investors - at big discounts.

The WSJ on KKR, or KPE as it will be called soon:

Putting a precise public-market value on KKR is difficult, but based on KPE's market value, the parent company's value could be in the range of $4 billion to $5 billion. That is a steep discount to KKR's expectations from 2007, when it was expecting market values of $12 billion to $15 billion.
"In some ways I find this IPO refreshing because it's not being driven by market euphoria," said Josh Lerner, a Harvard Business School professor. "It only makes sense if KKR can succeed in the years to come."

I agree with the sentiment that it will be "refreshing" to see this thing come public. People have been burned (their own fault by the way) by firms that try and cash out at the top - Fortress(FIG)and Blackstone(BX) are a few examples, as is former value king Pzena(PZN). Be thankful if you didn't buy when these guys decided to sell - I'm sorry, when they decided to "raise capital" through the public markets:

Thursday Premarket

AlphaNinja - Futures (indication of where the market will open) are down slightly, on weak jobless numbers and a lack of buyers to step in and halt this weeklong slide...

Are we overestimating foreign demand for our ever-plentiful Treasurys?

Friday's "cap and trade" bill, the largest tax to ever hit American consumers, is being helped along by a laughable analysis by the Congressional Budget Office. (This isn't Russia, is it Danny?)
"Edward Markey, Mr. Waxman's co-author, instantly set to crowing that the cost of upending the entire energy economy would be no more than a postage stamp a day for the average household. Amazing. A closer look at the CBO analysis finds that it contains so many caveats as to render it useless."
The CBO acknowledges this in a footnote: "The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap."

Investing like Buffet would turns out to be a better strategy than investing in Buffet himself.

As municipalities are hard-pressed to sell debt, Obama bonds are filling the gap...

The developing world will be the leaders of the economic rebound...according to the developing world.

Small loans, but a huge impact - micro lending.

Weak job market has been a bonanza for small businesses seeking freelance workers

Wednesday, June 24, 2009

Acxiom (ACXM) reduces revenue, earnings outlook

AlphaNinja - Digital marketing whiz Acxiom (ACXM) guided revenue for Q1 to a range of about $250m, well below the consensus estimate of $280m, and sees earnings of about 5cents per share, as opposed to the 20cents the street is looking for.

Not a ton of detail in this afternoon's release, nor much to be optimistic about in terms of the company proactively "fighting" in these tough times:

John Meyer, Acxiom’s chief executive officer and president, stated, “Our first-quarter revenues are expected to decrease 17 to 21 percent compared to the first quarter a year ago, as adjusted for the data pass-through contract of $22.2 million included in revenue for the prior year first quarter. The outlook for revenue in the near term remains challenging. We continue to feel the effects of market consolidation, as well as clients continuing to defer decisions on their marketing spending or canceling programs, both of which have an effect on our revenue and our ability to estimate revenue.

Was that unintentional humor? Yes John, we'd agree with you that customers "deferring decisions on their marketing spending" and "canceling programs" could affect your revenues detrimentally!

Taking down the full year EPS estimate by 20cents still gets me to a rough estimate of $220million in Free Cash Flow for this upcoming year, a 25% FCFY (Free Cash Flow Yield as a % of market value). That's huge, and may be why Eddie Lampert, a big Free-Cash-Flow chaser, is the 3rd largest shareholder. With the stock dropping big after hours, it may be worth buying some in the morning.

Lampert's position in the stock, unchanged from the previous quarter:

Nike (NKE)beats, but shocks the street with weak futures orders

AlphaNinja - Nike (NKE) released earnings after the close. They beat earnings per share estimates by 3cents, and revenues were in line with expectations at about $4.7 billion for the 4th quarter ended May.

-->>Sales were down 7%, hurt by currency exchange issues.
-->>Gross margin down more than sales, (-12%). Nike cited "higher product input costs and product markdowns taken to manage inventories."

-->>Nike managed expenses very very well, as Selling & Administrative costs amounted to 29.6% of revenue, a big decrease from a year earlier.

A breakdown by region - EMEA (Europe, Middle East & Africa) continues to be a sore spot.

The worst news of the release was the following sentence:

"The Company reported worldwide futures orders for Nike brand athletic footwear and apparel, scheduled for delivery from June 2009 through November 2009, totaling $7.8 billion, 12 percent lower than orders reported for the same period last year."

In recent years Nike has usually surprised to the upside on futures orders, which give a "basic" look at what revenues might be in the next 6months. Down 12% does not hold up well with Q1's current street expectation of -6%, which is why the stock is off sharply after hours. Trading down 4% to near the $50 level, could be a great entry point. Conference call just started, I will update tonight/tomorrow.

Supervalu guides down (SVU)

AlphaNinja - Earlier today Supervalu (SVU) announced that earnings would come in "substantially below" the street's expectations, as their customers have become even more value-conscious than previoulsy anticipated. Shares are down 12% on the news.

If you take the consensus earnings estimates for the full year down, the company could still do $500million in free cash flow, which is a 18% yield on its market cap. Sounds nice, but the company has a HUGE debt load of $8.5billion, or about three times the company's market value. The debt load is largely due to Supervalu's purchase of Albertsons.

In the most recent quarter, the interest coverage ratio ([earnings before interest,depreciation, taxes] / interest expense) was about 3 -->> we'll see what it falls to this quarter. According to the company's 10k filing, debt covenants require a coverage ratio of 2.25 through the end of this year, so the company does not look to have a lot of wriggle room. That is likely why the company's FCF is such a high % of its market value-->>high risk, high reward.

As I'm fretting over the company's ability to cover its interest payments, its puzzling (at least to me) that SVU recently increased its dividend and continues to buy back stock in this environment. Either a misdirected focus on capital use or a show of confidence amidst a gloomy environment.

SVU recently hired a talented Walmart exec as its new CEO - hopefully a good move seeing as Walmart's grocery operations are seen as the biggest threat to operators such as WVU, SWY, KR. If we can get some clarity of the safety of SVU's ability to service its debt, this company's shares are a great buy - I'm just no so sure yet.

2 hours into trading...

AlphaNinja - The markets are up handily, thanks to good results from Oracle(ORCL) last night and positive durable goods orders. Orders are up, but shipments were still down...just sayin'....

Market conviction isn't all that supportive of this rally -->>SPY volume is about 26% of normal even though we're 31% into the trading day...

It's never fun owning stocks that are down when the market has its first good day in a while....not fun for those who own Supervalue(SVU) today.

(Disclosure ->AlphaNinja is short the sp500 = long SDS)

Monsanto's quarter (MON)

AlphaNinja - Agricultural chemical concern Monsanto (MON) announced earnings for May's 3rd quarter of 1.25, versus street expactations of 1.17. Revenues came in at $3.16billion, well under the expected $3.45billion. The market won't be too excited about this "beat," as it comes after the company already reduced its earnings guidance on weak Roundup sales.

The earnings release alone is cause for immediate concern, in which the company announces:
New Competitive Dynamics Change Outlook for Roundup Franchise

In Monsanto's May realease they stated that Roundup sales weakness was largely "weather-related," yet now acknowledge what may look like a permanent "trade-down" to generic competetors. MON is creating a separate Roundup division to better align costs and focus on the product.

-->>Roundup issues aside, the Seeds and Genomics division, (71% of revenue), was up 10% year over year, helping to offset the disastrous 47% decline in Roundup sales.
-->>Gross profit during the quarer actually improved to 58% of sales from 56% in the year ago quarter.
-->>Selling and General Expenses drop to 16% of revenue from 17%
-->>Research & Development costs up to 9% of revenue, from 7%
-->>pretax income 32% versus 31% last year.

Monsanto breaks results down into two segments - put simply they're the seed division and the "productivity" division, the latter of which involves products like Roundup that protect and help the crops.

The seeds division had remarkable improvements year-over-year. While sales were up 10%, it's EBIT (earnings before interest and taxes) was up 37%. EBIT margin as a % of sales improved a whopping 7% year over year, and the division's contribution to total company EBIT improved from 53% to 80% --->>awesome performance.

The ag productivity segment had a dismal time, with Roundup sales down 47%. Divisional EBIT dropped to $211m from $501m, and the division now chipped in just 20% of the companywide EBIT.

Monsanto guided full year earnings to the low end of previous guidance, equating to about 4.40 per share - right in line with the street consensus. That's a PE of 19 based on MON stock trading up to 81.5 right now. Granted the company is a great operator, but that's a rich PE, especially while one division is in turmoil and the other is putting up numbers that will be very tough to replicate. The balance sheet is pristine though, so I don't expect much downside for Monsanto.