Wednesday, February 17, 2010

2/17/10 Midevening Report: Fed hints at reversing stimulus, starts by canceling Bernanke's Playboy subscription

The market was up today like a hooker's skirt in Tiger Wood's SUV.  The rally was driven by earnings, earnings, earnings and some macro data.  Apparently people are still building houses as housing starts hit their 6-month high, rising 2.8% to an annual rate of 591k.  This marginally beat expectations and should be a good sign for the economy, even if half of the houses were built from legos and the other half have already been forelcosed on.  In other macro news, the Fed announced that industrial output grew .9% which also beat expectations with capacity utilization coming in at 72%, 8% below the average from the last 37 years.  So there is still room for the economy to rebound and thus produce more of those delightful "For Sale" signs to go in front yards, printers to print out resumes, and muzzles to put over Lady Gaga's face.  Also, import prices rose by 1.4% signalling inflation may be on the way (and for those of you who need a less subtle signal: INFLATION IS COMING!!  And Ben Bernanke is going to have to make inflation think long and hard about baseball for him to try to stop it from coming).  Many analysts were unphased by the rise in import prices claiming oil and natural gas drove up prices, so I guess it's good we don't rely on those fuels at all or else we might have to worry a bit more about the dollar.  Phew.

There was one piece of macro news which caused a brief sell-off before the market put back on its pearl necklace and returned to the ball (and yes, all of those were very bad puns).  The minutes came out today from the last FOMC meeting and the head of the Kansas City branch of the Fed, Thomas Hoenig (known at the Fed as T-Ho), was the one dissenting vote on interest rates.  T-Ho got all up in Benny B's grill and axed him why they needed to say the fed funds rate would remain low for an "extended period," preferring to change the language to say the fed funds rate would remain low for "some time, and shit."  The minutes also revealed that the Fed is starting to look at downsizing their balance sheet and selling into the market the toxic assets, I mean mortgages, they previously bought.  The key message here being that further stimulus to help the economy may be less likely than Brooklyn Decker dumping Andy Roddick for the first guy eliminated from next season's The Biggest Loser.  The Fed might actually be doing something smart here by looking to get in front of a bubble and stopping it before it happens rather than pulling an Alan Greenspan and blowing hot air into it like it was Andrea Mitchell's rectum.

In earnings news, Deere's profit climbed 19% and they raised forecasts thanks to strength in "large ag equipment", or what's more commonly known as: "Rosie O'Donnell's dildos."  Also, WFMI not only had a kashi-tastic quarter as Money McBags predicted yesterday, but is was double fiber kashi-tastic.  WFMI same store sales were up 3.5% and they gave total revenue guidance for 10.5% growth in 2010 while raising full year earnings guidance to $1.20 to $1.25 per share, about 10% above current estimates.  Yeah, it was a good Q but they are now trading at around 25x 2011 earnings which wouldn't be so bad if they were growing by more than 10%.  Of course, EBITDA was up 25% and they raised EBITDA guidance by about 5% to $635MM-$685MM for 2010 which means they're trading at around 7x to 7.5x 2010 EV/EBITDA which actually isn't all that unreasonable.  Money McBag's guess is that there was a whole lot of short covering today and in the next couple of weeks WFMI will come down a bit, but it is still trendier than Jessica Biel giving free blow jobs to bloggers (and trust me, that is going to be a huge trend).

In small cap news, RICK reported yesterday and they managed to not only shit the bed, but then they announced they were going to buy VCGH and shit all over their bed too (though to be fair, VCGH's bed was plenty shitty to begin with). Money McBags never thought he would be unhappy getting fucked by someone at RICK, and RICK not only fucked him, but they sent the 40 year old C-section showing, needle marks in the arm having, 2pm shift D-team dancer to do the job.  Jeesh.  Could they at least kiss me next time before they fuck me?  Actually, scratch that.  I mean I love the lovely ladies at Rick's who express themselves through dance to pay their college tuition, but they probably have more lip herpes than Richard Simmons has anal warts, so they can hold off on the kissing.  Anyway, RICK reported the quarter that Money McBags had feared since they bought their Las Vegas club.  You see, in order to win business in Vegas, Rick's pays the fuck out of cab drivers to bring patrons to their club.  It is labeled as marketing costs, but it is payment of cash to cab drivers as clubs compete for traffic.  All of the clubs kind of collude to keep that price to around $20, but to gain business and to slap their cocks on the table and let other club owners know they are serious, RICK had been occasionally upping the ante to as much as $100.  Well it looks like in this quarter that occasional upped ante was both not occasional and was so far up that it gave itself a cerebral edema from hypobaropathy.  Rick's marketing costs soared by $1.7MM to $2.9MM and treated their earnings like an Alabama professor after learning she wouldn't be tenured.  Now on the call they said the marketing increase was related to more than just the Vegas club and that the Vegas club turned a profit in January and should be profitable for this Q, so that makes Money McBags feel a bit better, like how Jessica Simpson felt when she learned stupidity wasn't contagious, but it is a huge red flag.  Their earnings missed the high end by $.08 which is actually slightly less than the uptick in marketing costs.  Revenue was up a healthy 16.5% but it was achieved in the most unhealthy way, by paying people/cab drivers to show up.  To Money McBags it is a huge concern and kept him out of the stock until a few months ago.  Now on top of their shittastic performance, they announced a $45MM cash and stock acquisition of VCGH which will make them the largest strip club operator in the world.  While Money McBags is a firm believer in bigger is better (such as the fine backsides of Carmen Kinsley and Alexis Texas), this deal has a ton of dilution as Rick is going to have to issue somwhere around 2.5MM shares and thus increase their share count by 25%.  Rick's maintins that they will benefit from synergies such as corporate overhead, regional management, and shared thongs, and thinks EBITDA will be $25MM for the combined company.  They also reaffirmed guidance for 2010 without VCGH of $.90 to $1.05 per share, so they are still fairly cheap on a p/e basis.  The biggest problem is that Money McBags can't really analyze this deal because VCGH stopped filing financials months ago so there is no way to understand if their clubs are even remotely profitable.  So you have a shitty quarter, a questionable deal, and a stock that has been on the move but is still cheap if you believe the marketing uptick was a one-time offense (and Money McBags has no idea about that).  If you own RICK, it might not be a bad idea to trim a bit here, and if you're at Rick's, it might not be a bad idea to see some trim there.  Alot of questions remain after this call such as will decreasing marketing costs hurt top line, what does Rick's new cap structure look like, and can a brother get a table dance?  Unfortunately, after this quarter there will be no sex in Money McBags' champagne room and for those RICK's owners, you should really due some more work.  Money McBags is holding for now, but leaning towards selling some as it's unclear how RICK will still hit their guidance for the year after missing this Q and how they will grow if they lower marketing costs, since if lower marketing costs were to allow them to grow, why wouldn't they have been lower this Q?  Damn you logic.


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