Wednesday, April 28, 2010

4/28/10 Midafternoon Report: The debt claims in Spain fall mainly down the drain

Same shit, different day.  The markets continue to bounce around on news of Europe's impending doom, though this time not by the Daleks or the smell emanating from Posh Spice's girl power, but rather from bankruptcy.  While Angela Merkel continues to tease Europe's proverbial cock with her low cut dresses and constant pledging of support to Greece only to quickly pull that support back like Lucy pulling back a football when Charlie Brown is about to kick it, the US vigorously debates financial reform (only whatever the exact opposite of vigorously is).  Unfortunately Senators accomplished nothing in their questioning of Goldman Sachs yesterday as Lloyd Blankfein, or his doppelganger, answered every question asked to him by simply squawking "inconceivable."  When Senator Carl Levin responded "I don't think that word means what you think," Blankfein pointed to the clock behind the Senators and quickly downed a vial of iocane powder while they weren't looking thus ending the day of questioning.  With the drama out of the way, Democrats and Republicans can now get together and argue the merits of real financial reform and agree to sweeping legislation that will correct the wild west of Wall Street where incentives to cheat the system are more perverse than a Vincent Gallo film.  Oh wait, politicians can't even agree to start the debate as they are too busy trying to keep their egos from running in to the common sense portion of their brains.  At least the interests of the American people are at the forefront of all of this, and yes that was sarcasm.

Anyway, macro data was light today with markets anticipating the Fed notes in the afternoon (and as an aside, Money McBags was privy to one of those notes before it was released and it read:  "Janet, when you said you "liked me" did you mean you "like liked me" or just "liked" me.  Circle one.  Bennie B.").  The only economic data is that mortgage applications fell, though that was driven by a lack of refinancing as purchase applications were up 9% with 50% of that gowth coming from people trying to get the $8k government tax credit before it runs out.  These are just more signs that we are skidding along the bottom (though if it were Alexis Texas' bottom, Money McBags would happily enjoy the skidding) and the question remains how long will it take for a real recovery to occur and will Europe going bankrupt deter further growth.

As for Europe, the Greek financial crisis rages on and has now become the second longest greek saga after the Iliad.  However, there was a new wrinkle to the mess in Europe today and that was Spain being downgraded from entree to tapas by Standard and Poor's.  Apparently the 16 hour work week and 24 hour siesta week has finally caught up with the Spanish.  Now Money McBags isn't calling them lazy, but their top tourist attraction is a church that has been under construction since 1882.  Seriously, when it's finished it better have one hell of a good organ and some pimped out confessionals as only Joan Rivers' face has had construction lasting that long.  Anyway, Germany is back to bailing out Greece as expeditiously as possible, or until tomorrow, which ever comes first (and Money McBags bets whichever one is watching Helena Mattsson will come first) so the markets will continue to bounce around this uncertainty.

In stock news, Comcast's profit rose 12% as they grew their subscribers and apparently started charging for calls of complaints.  Advertising revenue was up 24% mainly due to whatever company is behind Xfinity blasting the airwaves to get their new brand image out.  The stock is up almost 2% today and analysts think they might be starting a meaningful growth trend but Money McBags thinks the cable/high speed internet model will be going the way of black and white TVs and civility longterm, so he couldn't care less.  In other stocks news, DOW saw pricing grow 17% and volume grow 16% as they put up a quarter that was so good it seemed to be made out of bone china and not plastic.  They earned $.43 per share easily besting analyst guesses of $.30 and saw strength pretty much across all business lines.

In small cap news, CRUS continues to run so hopefully you are all enjoying an extra visit to the champagne room on Money McBags, while BWLD and SMCI are going down faster than a hefty 18 year old girl in Tommy Lee's trailer.  BWLD same store sales fell by ~3% across the board as Americans have decided that shitty chicken wings, crappy beer, and awful decor are no longer in vogue.  BWLD now thinks they will be challenged to meet their full year targets and Money McBags would avoid this company like he avoids their crapy restaurants.  SMCI is a different story.  Money McBags has written about SMCI on When Genius Prevailed several times and after their last quarter remarked that they were likely reaching the high end of their valuation.  Of course SMCI ran up about 30% since then so good for you if you owned it but after today's ugly guidance, they are almost back down to where they were.  The company actually just put up a decent fiscal Q3, beating top line street guesses with 87% y/y revenue growth and coming in line at $.21 eps.  There is a lot to like about that like, maybe not as much to like as Kate Hudson's thong, but it was good nonetheless.  The problem is that their guidance for next Q was a bit short on the bottom line with guidance for $.20 to $.23 eps and analyst guesses at $.24.  So guidance is for sequential topline growth, but a potential flat to down bottom line as margins appear to be coming back down which is usually a sign of increased price competition.  Money McBags has not had a chance to listen to their call, but since the CEO's english is about as good as Ben Roethlisberger's dating advice, Money McBags is going to wait for the transcript.  That said, the company has a decent balance sheet with $73MM in cash and no debt even though they had negative operating cash flow as their inventories and A/R have spiked (with their topline rapidly growing, that is mostly explainable).  The comany is trading at ~9x this year's EV/EBITDA and depending on your forecast, ~7x to 9x next year's EBITDA.  That said, it's not clear what growth is going to be for next year as this year featured both a bounce back from the dwindling economy and positive momentum with INTC's launch of the nehalem chip.  Analyst estimates for fiscal 2011 are ~$1.20 so if you believe those a $14 price isn't unreasonable for a cyclical company at the peak or moving towards the peak of its cycle.  That said, we may already be at peak earnings for SMCI as they rely to some degree on new chip launches and with nehalem already out, Money McBags is unaware of the next chip release.  The point is, this is a well run company with a real competitive advantage in that they are able to nimbly meet customer demand and get in early in the cycle, but that early cycle may be over for now.  Their CEO still runs it like a small firm which is good in that they have a singular focus, but bad in that he probably needs to step back a bit for it to continue to grow.  Either way, Money McBags doesn't have a great feel for what next year will look like for SMCI and thinks the price is probably pretty fair.  They've been earning ~.20 per quarter so in a no growth scenario, annualize that to $.80, throw a 12x to 15x multiple on it and you get a $10 to $12 stock which is probably the low end of where SMCI should trade.  If they can continue to grow, this is a good entry point so the real question you all should try to figure out is what the fuck is going to drive sales for SMCI next year because if you think they can continue to grow, the stock is reaching another good entry point, though not quite as good of an entry point as Megan Fox's mouth.  Money McBags would never short this company, but without more details it is too early for him to go long.

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