Friday, May 28, 2010

Shares of Vivus up on anticipation of phase 3 data on new ED drug (VVUS)

Shares of Vivus(VVUS) are up 4% in a down market today, as the company said they will share phase 3 data about their new erectile dysfunction drug Avanafil.

From the release:
MOUNTAIN VIEW, Calif.May 28, /PRNewswire-FirstCall/ -- VIVUS, Inc. (Nasdaq:VVUS - News) today announced that phase 3 data on avanafil, a next generation oral phosphodiesterase type 5 (PDE5) inhibitor therapy being investigated for the treatment of erectile dysfunction (ED), will be presented next Tuesday at the American Urological Association (AUA) 2010 Annual Meeting inSan Francisco, California.
The key thing being that it is ingested orally, unlike their previous efforts to combat ED.  Ouch.

Thursday, May 27, 2010

Intra-day action

Nice day today for most stocks, except for AlphaNinja holding Monsanto (MON), who has cut guidance yet again, as the glyphosate outlook worsens beyond their (and my) earlier estimates.

The DJIA is up 201points, to about 10,175...though with the volatility of late, who knows where it will finish the day.  One headline put it this way:
"Wall Street Surges on China Comments"
I think it has more to do with positive news coming from the Gulf of Mexico.  Various reports are coming in from the Coast Guard and other channels that the "top kill" procedure begun within the last couple days is proving successful at plugging the well.  Along with that good news is the bad news that the well has probably been leaking between 2 and five times the amount of oil previously estimated.  Fortunately, this is NOT heavy sludge like the type spilled by the Exxon Valdez in 1989.  Shares of BP, RIG, and others involved are up sharply on the news, and my sense is that this success is giving the general market a boost as well.


Wednesday, May 26, 2010

Positive data from Census on housing

The Census released new residential home sales for April 2010 a few minutes ago, and the headline number of 504,000 beat the consensus estimate of 425,000.

From the release:

Sales of new one-family houses in April 2010 were at a seasonally adjusted annual rate of 504,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 14.8 percent (±19.5%)* above the revised March rate of 439,000 and is 47.8 percent (±26.0%) above the April  2009 estimate of 341,000.
The median sales price of new houses sold in April 2010 was $198,400; the average sales price was $249,500. The  seasonally adjusted estimate of new houses for sale at the end of April was 211,000. This represents a supply of 5.0 months at the current sales rate.
Any positive news here is welcome.  The home construction market cannot get back into gear until currently "for sale" inventory is moved, not to mention "shadow inventory" lying in wait.

Copyright 2010 AlphaNinja

Tuesday, May 25, 2010

Intraday action

So the indexes are off their lows, though that could change by the time I finish writing this.  This 12% pullback has turned the DJIA's 70% rally off last March's lows into a 50% rally.

Among the few gainers today are Genzyme(GENZ), up on FDA approval of a treatment for a treatment for pompe disease.  Autozone(AZO) is up after a great quarter, and AK Steel is up on a few brokerage upgrades.

Among losers today is Diamondrock Hospitality(DRH), a hotel REIT that  - I'm serious - picked today to announced the pricing terms of a follow-on stock offering.

Copyright 2010 AlphaNinja

Headed for an ugly open....

The DJIA started the day down about 230 points, at 9,835.  Spanish bank worries and the ugly situation on the Korean peninsula are largely the reasons for the sell-off.  Below are credit default swaps on South Korea, spiking on fears of a war with the North...

On the bright side, Autozone (AZO) reported a fantastic quarter.  Earnings of $4.12 for their q3 came in 53cents higher than expected, and revenue beat by about $100million.  The conference call is at 7am Pacific.  Despite the impressive run for the shares, they now trade at just 12x this year's expected earnings.  My estimates below are probably a bit conservative, as the company will likely spend a little less on capital expenditures than I've budgeted.

Copyright 2010 AlphaNinja

Monday, May 24, 2010

Oregon Senator Ron Wyden leads the (clueless) charge against Transocean (RIG)

I'm really not quite sure what's going on here, because I'd like to believe that US Senators are not this ignorant.

Senator Wyden has drafted a letter to Attorney General Holder, asking him to investigate Transocean "Money Transfers," which he makes sound like a shady attempt to shield the company's cash from potential lawsuits related to the Deepwater Horizon incident.  In actuality, the "transfer" is a long-awaited cash dividend to stockholders, a perfectly acceptable corporate action.

I've previously outlined RIG's insurance situation, in which nearly all their spill-related liabilities are shifted to BP, per day-rate drilling contract rules.  On top of this, the Oil Spill Liability Trust Fund is explicitly designed to cover expenses in a spill such as the current one.

Wyden either doesn't understand the insurance coverage, doesn't understand what a one-time stock dividend is, or is simply a populist moron with little respect for private industry or the Constitution.  We'll see.

The letter:

Copyright 2010 AlphaNinja

Oh dear. The Texas Rangers' sale plans will not please everyone......

The Rangers will use the bankruptcy courts to "smooth" out some issues related to their proposed sale.

From ESPN:

ARLINGTON, Texas -- The Texas Rangers say the club's sale will be accomplished by midsummer through a voluntary bankruptcy plan that will fully pay the lenders of Tom Hicks' financially strapped ownership group.
The club said Monday the plan was previously negotiated between Hicks and the new ownership group led by Pittsburgh attorney Chuck Greenberg and team president Nolan Ryan.
The deal valued at $575 million includes Rangers Ballpark in Arlington and land around the stadium.
Commissioner Bud Selig said the agreement "serves the best interests of the team, its fans, MLB and all other parties involved."
"All other parties involved" might include Alex Rodriguez, and I can promise you that as the Rangers' largest unsecured creditor (originally reported at ZeroHedge), he'll not be pleased....

Copyright 2010 AlphaNinja

IBM acquires Sterling Commerce from AT&T, should add 6cents to EPS (T)

IBM announced earlier today that it will acquire business collaboration firm Sterling Commerce from AT&T.  Among other things, Sterling helps companies manage the ever-more-complex supply chains involved with global operations.

From the release:
ARMONK, N.Y. and DALLASMay 24 /PRNewswire-FirstCall/ -- IBM (NYSE: IBM) and AT&T* today announced they have entered into a definitive agreement for IBM to acquire Sterling Commerce from AT&T for approximately $1.4 billion in cash. The acquisition of the Dublin, OH-based company will expand IBM's ability to help organizations create more intelligent and dynamic business networks by simplifying and automating the way they connect and communicate with customers, partners and suppliers both on-premise or through cloud computing delivery models.
Organizations are looking for ways to work more efficiently and profitably within their communities of business partners, customers and suppliers. IBM's products and services complement the world-class business-to-business capabilities of Sterling Commerce and together enable the integration of key business processes through the entire cross-channel solution lifecycle -- from marketing and selling to order management and fulfillment.  These offerings also give clients the flexibility to manage their networks of business partners through public or private cloud computing environments.
The purchase price was $1.4billion, but Sterling's revenue data was not shared.  Let's say IBM generously paid 3x sales for this business, and the pretax operating margin will be 25%.  That's an after tax boost to IBM's earnings of 6cents per share.  Not a heck of a lot when considering IBM will do $11.30 in earnings per share in 2010, but it's a better use of cash than letting it sit around earning nothing in a money market account.  Interestingly, this might be a business with a high degree of recurring revenue, which would have made it very attractive to private equity firms.  As I continue to expect, those LBO firms will face more and more competition from cash-rich public companies eager to deploy said cash at lower and lower "hurdle rates."

 Copyright 2010 AlphaNinja

The pain remains, for West Coast home prices....

The National Association of Realtors announced that sales of existing homes (versus new homes) rose in April:
Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 7.6 percent to a seasonally adjusted annual rate of 5.77 million units in April from an upwardly revised 5.36 million in March, and are 22.8 percent higher than the 4.70 million-unit pace in April 2009. Monthly sales rose 7.0 percent in March.
Lawrence Yun, NAR chief economist, said the gain was widely anticipated. “The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” he said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low.”

The hangover continues on the West Coast, where the prices got the most out of hand:

And by metro area. These regions have been clobbered, thanks to price-to-median income ratio's hitting 10x during the peak (in LA), versus the national average near 4.6 at the peak and the 3x long term average.

Copyright 2010 AlphaNinja

Entry point is critical, if you're gonna buy Citigroup shares (C)

Of course the "entry point" is critical.  That might sound overly simple, but it's overly important with Citigroup (C).

Citi shares are +2.5% this morning, on a Goldman Sachs upgrade to Buy.  Goldman took a new look at the financials after they've significantly underperformed the broad market.  They like the super-banks like Citi based on a "normalized PE" analysis, with underlying earnings arrived at based on a "normalized" return on equity.  The Goldman normalized EPS for Citi appears to be about 46cents, which is inline with what I'd expect for Citi in 2011.  One could make the case that Goldman is using closer to "peak" earnings figures, rather than "normalized."

Investors would be better off by looking a little deeper than an assumed return on equity, because as we've seen with banks, equity is a moving target.  Below is a simpler look at interest revenue and non-interest revenue at Citi, as well as the operating expenses required to get there.  To be clear, I DO NOT own these shares, but rather am laying out potential earnings (and thus possible price targets).  Buying today gives investors upside of about 105%, versus 58% upside had you bought weeks ago at $5.00 per share.  The scenario below might assume a higher loss provision than is warranted, but offsetting that is generous assumptions about operating expenses.  Even if Citi fires on all cylinders and generates $20+ billion in net income, stockholders are now splitting that net income with 28billion other stockholders, versus 5billion a few years back, thanks to the dilution from new capital.   So, the limited earnings per share power make it a very different investment at $3.75 per share than it is at $5.00.

Copyright 2010 AlphaNinja

Friday, May 21, 2010

Good news and bad news for First Data Corp.....

The good news is that they might not have to worry about pulling off a successful Initial Public Offering!

The bad news is, that's because there might not be any equity to be the "O" the in the IPO.....


Bloomberg today, discussing the recent wreckage in the LBO-debt market:

First Data’s $2.4 billion of 11.25 percent notes due in 2016 have fallen 17.75 cents this month to 66.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The credit card processor, based in Atlanta, which KKR & Co. paid $27.5 billion for in 2007, lost $240 million last quarter and failed to improve profitability, said Stan Manoukian, an analyst at Independent Credit Research in Los Angeles. “Assumptions on revenue and earnings growth made during the LBO purchase by KKR have proven to be a leveraged fantasy.”
A fantasy indeed. I spoke recently with a large pension fund, whose administrators were being wooed by yet another slick LBO fund. They were actually "expressing gratitude" for being able to invest with the fund. Dumb money is not aware of the diminishing returns that lie ahead for private equity, thanks to:
1. MUCH higher equity portions of deals. Like a homeowner who puts 30% down, the upside from leverage is much lower than if he'd put 5% down...
2. The "L" in LBO is tougher to come by. Banks have been torched by previous buyout mania, in which they were "lucky" to be involved in deals where risk was under-priced. Now they're going to have so much debt-to-equity conversions on their hands, the lending side will be much more cautious.
4. With cash earning nothing on corporate balance sheets, the "hurdle rate" for acquisitions is getting lower by the day. That will compete with private equity for deals, pushing prices up and future returns down...

Copyright 2010 AlphaNinja

Dell is like defending a..... (DELL)

Well, you're not supposed to "defend" your investments.  If anything, understand the argument on the other side of your trade, and see if you still like it.

Dell reported earnings last night, and today the stock is down 6%.  The thing is, earnings came in better than expected.  Last quarter, they beat sales estimates by a billion dollars, but EPS was only in line with expectations.

The biggest disappointment with the recent quarter was the gross margin, which came in at 17.6%.  Many people had been looking for higher, especially considering that the mix of revenue shifted towards (what we thought was!) higher-margin non-consumer sales.  Didn't happen.  Dell stated that component pricing was tight, leading to a weak gross margin.  Several analysts on the call probed the company, as they didn't buy the argument that the supply chain was the only reason for the weak gross margin.

On the conference call, management tried to redirect focus towards "operating dollars."  Fine.  Grand.  But there is less and less operating margin to be found from cost cutting.  The balance sheet is obscene (in a good way!), and I can only hope the company deploys cash expeditiously on acquisitions (with the return on cash being zero, note that I don't even care what acquisition it is....).

On to the positives.  The company has actually figured out a way to manage its working capital!  It can be seen in the improvement in free cash flow below.

Those doing the math should take note of today's free-fall in the share price, as it's a good time to buy. The company's Free Cash Flow Yield (FCFY) is somewhere between 16% and 22%, depending on which year you use.  That is literally 16times Dell's cost of capital, based on trading in its 2year debt!  The difference between Free Cash Flow a year ago and Free Cash Flow now, is that the company is more consistently able to keep working capital needs from impeding free cash flow generation.

I continue to like this stock, an example of a "good company at a great price."

Copyright 2010 AlphaNinja

Thursday, May 20, 2010

Uggggly day for the market

The DJIA finished down 376points, to close at 10,068 -->> way off the 11,300 intra-day high of just under a month ago.

Copyright 2010 AlphaNinja

Caterpillar's dealer stats might be a reason for the market sell-off (CAT)

Every time the market sells off the headlines simply revert to "Eurozone, Economy Woes," but that doesn't offer much detail.

I'd offer that a main reason for the DJIA's sharp drop today is the dreadful April dealer stats released by Caterpillar.  Worldwide, dealer retail deliveries are down 4% for the month of April.  Might not sound terrible, but that is one third of the quarter ending June, in which Wall Street expects sales to be up 22%....

Copyright 2010 AlphaNinja

Heavy selling hits US shares

The DJIA is down about 180points as I write this, bouncing slightly off the day's lows.  All 30 members are in the red.  The bond market is strong, as investors flee to the "safety" of government debt.

Here is a "flight to safety" if I've ever seen one:

The US 10year:

As for the DJIA, I'd keep an eye out for bargains (HPQ, IBM, ummm pretty much all the non-financials).  Remember, these firms will not "revert to the mean" and hand away huge chunks of margin if we see a "double dip" recession (we're kinda there already, right?).  They'll let go of people before they let go of profit margins...That's not to say that margins can't fall, but the point is that this index discounts a lot of bad news...

Copyright 2010 AlphaNinja

Wednesday, May 19, 2010

A LOVELY afternoon for income......(CLX,DPS)

Dividend income that is...

Clorox (CLX) announced a pleasant increase to its dividend, increasing the quarterly payout to 55cents per share or $2.20 per year.  That brings the company's dividend yield to a very, very respectable 3.4%.

In bigger news, Dr. Pepper Snapple (DPS) boosted their payout 67% to 25cents per share quarterly, for an annual dividend yield of 2.6%...keep in mind this company only instituted a dividend two quarters ago.

These are bullish signs for these stocks.  In both cases, the dividend payout ratio is quite significant as a % of net income.  And I couldn't be more happy, as a hater of stock buybacks (the other main use of excess cash).  The one thing I would recommended people NOT do is reinvest these dividends  -->>  if the company had a use for that cash, they wouldn't be giving it back to you...

Copyright 2010 AlphaNinja

Slight adjustments in the FOMC's 2010/2011 predictions

Earlier today, the FOMC released the meeting minutes from their late April session.

Here are the predictions for GDP growth and the unemployment rate.  I would call these estimates for 2010 unemployment way too low, as people return to the workforce (increasing the denominator) faster than jobs are created...

If you're wondering how much faith to put in FOMC estimates, the answer is not much.  Not that I don't appreciate the effort, but their track record is awful.  The 2010 unemployment rate will come in about double what the FOMC had predicted for this year 24months ago.

Copyright 2010 AlphaNinja

American Apparel off 30% on earnings warning, debt warning...(APP)

Shares of American Apparel (APP) are down big today, after preliminary results for the March quarter showed gross margins 7% lower than the prior year period. The company announced that they will continue to spend like drunken sailors, unconcerned that it may lead to breaking their debt covenants.

From the press release:
American Apparel reported net sales for the first quarter ended March 31, 2010 of $121.8 million, a 6.6% increase over net sales of $114.3 million for the first quarter ended March 31, 2009.
Gross margin for the first quarter of 2010 was 50.4% as compared to 57.2% for the prior year first quarter. Gross margin was negatively impacted by a shift in mix from retail to wholesale net sales, which generate lower margins, and by reduced labor efficiency at the company’s production facilities in the first quarter of 2010 compared to the prior year period. The reduction in labor efficiency was a result of the dismissal of over 1,500 experienced manufacturing employees in the third and fourth quarters of 2009 following the completion of an I-9 inspection by U.S. Immigration and Customs Enforcement, as well as the impact of an increase in the mix of more complex retail styles produced. The unfavorable decline in gross margin was partially offset by the effect of the depreciation of the U.S. dollar versus foreign currencies in the first quarter of 2010 as compared to the first quarter of 2009.
Operating expenses for the first quarter of 2010 were $79.0 million, or 64.9% of net sales, as compared to $69.3 million, or 60.6% of net sales for the prior year period. The increase in operating expenses was primarily caused by increased occupancy, payroll, and depreciation expenses from having an additional 16 retail stores in operation at the end of the first quarter of 2010, compared to at the end of the first quarter of 2009.
Sooo, the company went ahead and spent an extra $10million in operating expenses, knowing full well that it could result in covenant violations. Hmm, how about some math. Gross margin of 50.4% on $121million in sales is about $61million in gross profit. Then subtract $79million in operating expenses and you're looking at an "operating" loss of 25cents per share, versus the consensus estimate at -11cents. To be fair, there's only 2 estimates out there...

While the company's founder Dov Charney see's his firm as an "industrial revolution," it's turned out to be more of an industrial wreck. Featured prominently on the company's site is their LA-based workforce, a refreshing change from the recent focus (no doubt by the pervert founder) on the "best bottom" promotion.

The company's discussion of breaking their covenants, as well as the "highly uncertain" sales trends basically everywhere they do business:

As of March 31, 2010, based on the preliminary financial results for the first quarter of 2010, the company was in compliance with all covenants under its credit facilities. However, based on the company’s preliminary financial results for the first quarter ended March 31, 2010, and based on existing trends, the company anticipates that it will not be in compliance with the Total Debt to Adjusted EBITDA covenant under its credit agreement with its second lien lender at June 30, 2010. The company plans to continue to work with the second lien lender to obtain the appropriate amendments prior to the anticipated covenant default; however, the company can provide no assurances that it will be successful in securing such amendments or, if secured, the terms thereof. Additionally, noncompliance with financial covenants under the company’s second lien credit agreement constitutes an event of default under the terms of the company’s U.S. revolving credit facility, which could result in the company being unable to make borrowings under its revolving credit facility, and potentially both credit facilities being declared immediately due and payable. There can be no assurance that if either or both of these events were to take place, that the company would be able to obtain the additional sources of liquidity required to continue operations.
Based on the continued uncertainty regarding the reduced manufacturing efficiency being experienced at the company’s production facilities, due to the impact that the projected covenant non-compliance at June 30, 2010 may have on the company’s ability to carry out its operating plan for 2010, and due to highly uncertain sales trends in the company’s different sales channels, the company is deferring providing financial guidance for 2010 until it can better ascertain the impact of these factors on its projected financial performance for the year.
Copyright 2010 AlphaNinja

Brady shares down, as investors wonder why full year guidance isn't raised... (BRC)

Shares of Brady Corp (BRC) are down 3% (well who isn't today) despite earnings that came in ahead of expectations.  The company beat Wall Street's numbers for earnings per share and revenue, but the disappointment came from the company's reluctance to increase full-year guidance, despite the (fiscal) year ending in just a few months.  Currency effect for Brady contributed 5.8% of the quarter's total 16.3% increase.

Brady shares are not expensive at $31.34, but there's not much to prevent them from pulling back to the mid-20's either.  While Free Cash Flow for the quarter was impressive, over half of it is not quite "free" -->> it must be used for principal payments on debt:

The worry for Brady - a company that is highly leveraged to capex cycles - is that huge amounts of capital spending were pulled forward, and thus growth in these end markets will be sluggish in the years ahead.  That said, the company stressed on the conference call that they have made strides in recent years to focus on industries (oil and gas, for instance) that have healthy balance sheets and little room to reduce capital spending.

Copyright 2010 AlphaNinja

Chatham Lodging Trust Signs contract for four hotels (CLDT)

I've not spoken to management yet, so I do not own shares. But I'm still quite interested in this recent IPO of a hotel REIT that (until recently) owned no hotels.

As I wrote a month ago:

I usually look skeptically at an IPO like this, because you don't want to "take the other side of a trade" with this guy. Meaning his timing has been impeccable, so watch out.
The important difference here is that this Chatham IPO is a "blank check" for Fisher to go buy some depressed hotel assets on our behalf. We can be comforted by the most important aspect of a good IPO...the management is investing alongside the rest of us, as Fisher will purchase 500,000 shares at whatever the IPO price is.

Well the IPO performed much better than other deals have in the past month, yet shares are trading a couple dollars below the well-subscribed $20 offering price.

Today, the company announced the signing of contracts on four new properties, brining the total to ten. The price paid per room is higher than the previous purchases, bu that is due to more favorable geography.

From today's release:

"This transaction increases our geographic diversity and gives us our first Marriott-branded hotels," Fisher said. "With this acquisition, our hotel portfolio now comprises upscale extended-stay hotels and premium-branded select-service properties located in major markets with high barriers to entry near strong demand generators, which is in line with our acquisition strategy. With the closing of this transaction, we will have invested a total of $134.5 million since the completion of our IPO. We have an active pipeline and continue to look for additional opportunities.
"Three of the hotels will require only modest investment in brand-required product improvement plans that occur at a change of ownership, and the fourth is due for a larger upgrade, which we expect will make it more competitive in its market," he added.
The four hotels are:
  • The 133-room Residence Inn by Marriott® White Plains, White Plains, N.Y. (Westchester County)
  • The 120-room Hampton Inn & Suites® Houston – Medical Center, Houston, Texas
  • The 86-room SpringHill Suites by Marriott®, Washington, Pa.
  • The 105-room Courtyard by Marriott®, Altoona, Pa.

Copyright 2010 AlphaNinja

Tuesday, May 18, 2010

Hewlett-Packard up 2% after beating earnings expectations (HPQ)

HP shares are trading slightly higher in after hours trading, after fiscal q2 earnings of 1.09 per share beat Wall Street consensus by 4cents.  Guidance for next quarter is a bit light, but the company is increasing full year (fiscal year ending October) estimates above the consensus.

Revenue was up in each geography, and segment operating income improved quite a bit:

As HP increases their guidance for revenue and earnings, it looks like sales for this year will increase about 8%, with 2011 increasing another 6%.  Those are better growth numbers than their fellow uber-mega-large-cap DJIA technology peer, IBM, which is looking at 4% revenue growth this year and next.  Despite that, HP trades for 9.5times this year's expected earnings, cheaper than IBM.  And that's before netting out balance sheet cash, which is 13% of HP's market value compared to 8% at IBM.

I have Free Cash Flow Yield for HP running at about 9.5-13%, depending on whether you prefer trailing or forward estimates.  That is literally triple what HP's 2018 debt is yielding:

Copyright 2010 AlphaNinja

Fidelity National buyout talks fall apart, so they're gonna party like it's 2006 (FIS)

Shares of Fidelity National Information Services(FIS) are down about 5.5% today, after they ended talks with Blackstone regarding an LBO.

From the NYTimes:

A group of private equity firms led by the Blackstone Group has dropped plans to place a $15 billion bid for Fidelity National Information Services, citing concerns over price, people briefed on the matter told DealBook on Monday.
The group, which also included THL Partners and TPG Capital, refused to meet a demand from Fidelity National’s board for a “substantial increase” over the $32 a share that was proposed, these people said.
Don't worry, the news gets worse.
With the buyout shops out of the picture, FIS is going to "party like it's 2006!"
They're thinking about doing their own "leveraged recapitalization," which involves using debt to fund share buybacks. It is nothing but financial engineering, and it will not result in a more valuable company, just like a person borrowing $50k to buy a new car didn't actually increase their net worth.
JACKSONVILLE, Fla.--(BUSINESS WIRE)--FIS (NYSE: FIS -News), one of the world’s largest providers of banking and payments technology, today issued the following statement:
At this time, discussions have ceased regarding a potential leveraged buyout of FIS. The Company has determined to pursue a leveraged recapitalization with a substantial share repurchase. Further details will be provided as soon as appropriate. There can be no assurance of the potential outcome or timing of this potential recapitalization and share repurchase.

Copyright 2010 AlphaNinja

Wal-Mart up 2.3% after beating earnings estimates (WMT)

Shares of Wal-Mart(WMT) are up 2.3% this morning, leading the DJIA to a 70point gain. The company reported Q1 earnings that beat consensus expectations by 3cents per share. Guidance for the coming quarter was light (93-98cents per share versus 98 cents expected), but the stock is up nonetheless. Investors see a stock that is pretty inexpensive, despite tougher and tougher prospects for growth.

From the release:

Excluding fuel sales, Wal-Mart's domestic same store sales came in at the low end of expectations. Customer traffic was down, but average ticket (amount spent per customer) was up.

For the coming quarter, WMT expects the US environment to remain difficult, yet they are committed to their 2010 capital program, which calls for a ramp-up in spending after light years in 2008/2009:
"The company grew sales by 6 percent and added more than 3.6 million square feet of selling space during the first quarter," Schoewe added. "In fact, we are confirming our initial capital spending guidance of $13 billion to $15 billion this year, as we continue to invest in new stores and remodeling our existing stores and clubs."
And it is that capital spending that keeps Wal-Mart from offering a big Free Cash Flow Yield (FCFY). As they invest heavily in new stores and remodels (which they must!), that holds back Free Cash Flow.

Multiple compression can be seen below, as WMT hits new lows in terms of what investors will pay for each dollar of earnings. The company will do what it can to fight this (share buybacks, dividends), but it means these shares probably will not be offering investors out-sized total returns in the near future. On the bright side, Wal-Mart's international operations are much heavily weighted toward actual growth areas than many other DJIA components who focus heavily on Europe. India is a big wild card, as Wal-mart is only involved there in a joint-venture manner presently. Once the country opens up its laws to allow Wal-Mart to sell directly to consumers, this could be a big growth market.

Copyright 2010 AlphaNinja

Monday, May 17, 2010

Pactiv up 18% on LBO rumors (PTV)

Packaging company Pactiv (PTV), maker of Hefty bags, is up this afternoon on rumors that Apollo Management is interested in taking the company private.

The thinking here is that the parts are worth more than the whole...even after today's move, the shares only fetch 12.5x this year's earnings estimate.  Personally, I'd much rather see another public company rush in to deploy their own cash, rather than a buyout firm levering up the company's cash flows.

Copyright 2010 AlphaNinja

GLG Partners accepts a "liquidity event" from Man group (GLG)

Hedge fund manager GLG Partners (GLG) has agreed to a takeover by German asset manager Man Group, for $4.50 per share.  That's a pleasant $50% premium to Friday's close, yet a massive discount to the IPO price of just a few years ago.

Despite that ugly chart above, it's better than the alternative for some hedge fund managers...usually when they close up shop, well, "that's it."  In this case, management and employees (over 50% of the shareholders) are exiting at a $1.1billion market value.  Lest current shareholders think they're getting a raw deal, management actually agreed to 3year lockups (before they can sell Man Group stock) and accepted stock valuing their shares at less than what other shareholders are receiving in the deal.  Sounds like (1.) they're sticking around for a while and (2.) something isn't looking too bright for GLG as a stand-alone firm...

From the release:
Under the terms of the merger agreement, Man will acquire the outstanding common stock of GLG not subject to the share exchange for $4.50 per share through a merger with a wholly owned subsidiary of Man. The $4.50 per share cash consideration to be paid in the merger represents a 55% premium to the closing price of GLG’s common stock on May 14, 2010, the last trading day prior to the announcement of the execution of a definitive merger agreement. Immediately prior to the closing of the merger, under the terms of the share exchange agreement, Man will acquire all of the common stock of GLG held by the principals and the equity participation plan partnerships in exchange for Man ordinary shares at an exchange ratio of 1.0856 Man shares per GLG share. Based on the closing prices of GLG and Man stock on May 14, 2010, the exchange ratio represents a value of $3.50 per GLG share. The share exchange is subject to a cap on the value of Man shares to be received of $4.25 per GLG share.
Consider this.  GLG Partners, the acquiree, is selling for $1.1billion and they manage about $23.7billion, so the deal price is about 4.6% of assets under management.  Compare that to what they paid for Societe General's Asset Management unit, and it looks like they're right to cash out while they still can!

From GLG's recent 10k:

On December 19, 2008, we entered into (i) an agreement with Société Générale Asset Management (“SGAM”) to acquire Société Générale Asset Management UK (“SGAM UK”), Société Générale’s UK long-only asset management business, for £4.5 million (approximately $6.5 million) in cash and (ii) a sub-advisory agreement with SGAM UK related to approximately $3.0 billion of AUM. On April 3, 2009, we completed the acquisition of SGAM UK’s operations, which had approximately $7.0 billion of AUM as of that date, and its investment and support staff, based primarily in London, and thesub-advisory agreement was terminated.

Copyright 2010 AlphaNinja

Saturday, May 15, 2010

Weekend 9% of the DJIA, IBM's recent presentation is a must read

In order to trust IBM's 2015 projections, it's important to see how they've delivered on their 2010 promises, made back in 2007:

The team's presentations are all a must-read.

Palmisano's "strategic overview" is quite short and light.

Financial Discussion by Mark Loughridge, much more in depth.  I'd note that they see other tech companies' margins, and see opportunity, especially as software jumps another 50% in terms of revenue mix...

Individual Presentations:

Sales and Distribution.
Global Business Services
Global Technology Services
Systems and Technology
Productivity Initiatives

Copyright 2010 AlphaNinja

Friday, May 14, 2010

New lows for the DJIA, as the Euro fails to hold 1.24.....

The Dow is off about 220points today, with all eyes on Europe:

Copyright 2010 AlphaNinja