Tuesday, June 30, 2009
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.”
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.
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
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."
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.
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:
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
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????
Thursday, June 25, 2009
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.
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...
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)
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."
"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."
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
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:
-->>Sales were down 7%, hurt by currency exchange issues.
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)