Friday, April 30, 2010

4/30/10 Midday Report: Biggest swinging dick on the Street may land in aptly named penal colony as criminal investigation launches on Goldman

The markets are down today due to mostly inline GDP, more shenanigans in Greece, further investigation in to Goldman Sachs, and gravity.  GDP for Q1 was released and the economy expanded by 3.2% thanks to consumer spending which was up 3.6% and interestingly enough coincided with the release of KFC's Double Down thereby spiking sales of Pepto Bismal and artificial hearts.  Guesses were for 3.3% GDP expansion so the economy pretty much performed inline but following a 5.6% expansion in Q4, the economy has now had it's best two quarters since the end of 2003 when the great mortgage fraud frenzy was peaking and anyone who currrently or previously had a heartbeat could get approved for a loan (Money McBags isn't saying it was easy to get a mortgage, but Abe Vigoda owned 6 mansions and one apartment complex during that time and he died in the 1980s.  What?  he's still alive?  Nevermind).  Also, the Fed's inflation target was only up .6% which is the lowest level since records started being kept in 1959 but that target ignores food and fuel prices since why measure the things people actually need to spend their money on when measuring the value of money?  It's a bit like judging a movie based on the font of the opening credits (and Money McBags loves him some Garamond) or a wet t-shirt contest based on the flip-flops the contestants are wearing, but whatever.  Business spend also keeps inproving as it was up 13% thanks to the fact that it is bouncing back from historical lows and an increase in the sale of cardboard boxes to help pack up laid off employees.  While the consumer appears strong in GDP numbers, consumer sentiment dropped in April, though it still beat analyst guesses and was essentially the same as last month.  Consumers are at least flat lining as the average US citizen gives a fuck about whatever is happening in Europe and as job losses have begun to stagnate, they are happily oblivious to any potential impending financial doom.  Money McBags is pretty sure Europe will get their shit together so perhaps ignorance is bliss (though probably not as blissful as Elisabetta Canalis). 

There is more he said/she said/finger pointing/tail wagging/pillow biting in Greece today.  Moody's downgraded 9 Greek banks which is a bit like downgrading hydrogen as a fuel for zeppelins after the Hindenburg crash or Heidi Montag's singing career after her second album was released.  Greek prime minister George Papandreou is back crying for help saying "what is at stake is the survival of the nation.”  But if he were really concerned about the survival of the nation, perhaps he wouldn't have let the debt grow out of control or claimed the comedian Ant as one of Greece's own.  Tomorrow's Labor Day festivities in Greece will likely be subdued as greater austerity measures threaten the ability of Greek workers to continue to produce no valuable output.  Seriously, what does Greece produce besides baklava for tourists and Julia Alexandratou sex tapes?  Perhaps union leaders should focus on that by figuratively solving the problem of what to do with all of the underwear they stole.

In the market, Goldman is getting sacked as US federal prosecutors may open a criminal case against them for crimes against humanity, or securities fraud, potato-puhtaato.  It's not clear what exactly the charges would be since every single investment bank does something criminal every day, but that is how the markets stay efficient.  Money McBags does wonder what will happen to CEO Lloyd Blankfein if GS is found guilty and whether his cellmate will try to put his underlying assets into Blankfein's special purpose entity.

Finally in small cap stocks, Money McBags favorite QCOR put up an ok quarter and yet are off to the races again.  After last Q, Money McBags highlighted this company and mentioned one should buy on any pull back, unfortunately that pull back never occured as QCOR is now up 50%+ since then.  This quarter revenue was up ~13% to $26.2MM and eps came in at $.11.  Both of these numbers were short of Money McBags' estimates (he had $27.5MM in revenue and $.15 eps) and yet the stock is absolutely ripping up like it is on a Red Bull and meth binge.  There are five reasons for this as far as Money McBags can tell. 

1.  Operating expenses were higher than normal as they try to build out their sales and marketing efforts.  Money McBags is 100% behind this as he'd like to be 100% behind Jessica Biel.  Anyway, with costs up to help grow future revenue, a bit of a hit to the bottom line is unconcerning.

2.  They announced that a panel of experts is going to rule on their FDA submission to get Acthar on label for IS on May 6th and QCOR will host a conference call about it on May 10th.  This isn't the final hurdle as the panel merely gives a recommendation to the FDA who then has the final ruling on June 11th, but a positive opinion will be a better sign for QCOR than marrying in to the Kennedy family was a positive sign for Arnold Schwarzenegger's political career.  Getting IS on label would finally allow QCOR to market to doctors in their historically biggest segment.

3.  Kelly Brook is hot.  Ok, this might have nothing to do with QCOR being up, but Money McBags had to investigate to make sure.  It is likely just spurious correlation but it was necessary for Money McBags to test his lurking variable to make sure.

4.  NS is coming.  Holy fucking shit could it be on.  The QCOR cake just got a little more icing on it as NS could be bigger than both their IS and MS segments combined according to management.  They filled 11 NS prescriptions this last Q which is still smaller than one of the late great He Ping Ping's turds but it is encouraging enough that management is going to launch a pilot sales program in April to try to reach nephrology doctors.  Patients with NS need to use Acthar for 3 to 6 months to be cured so the recurring revenue potential is huge for QCOR.

5.  MS continues to grow, ticking up 187% and overtaking IS as their biggest segment.  Remember, just two years ago this segment was about the same size as NS currently is but management dedicated resources to blowing it out, so it does bode well for their ability to execute a NS strategy.

So while all of that was good, numbers were still below what Money McBags thought and he is taking his full year estimate down to ~$.60 from ~$.70.  The big question for Money McBags has to do with why their reimbursement rate as a % of gross sales which had been running at 30%+  was down to ~22% this quarter?  The reimbursement rate takes gross sales to net sales by removing medicare/medicade/etc. expenses.  So with only a 22% remibursment rate, it means gross sales were way below Money McBags estimates and the question is why and what is the rate going to be going forward?  Sure they seemingly cleaned up a bunch of the tricare reimbursment issues, but is this 22% rate the rate to use going forward?  If so, that would be huge for eps and if not, investors may be in for a negative surprise next Q.  That said, with his current $.60 eps estimate (based on a 25% reimbursement rate, 20% sequential quarterly MS growth, no growth in IS, and no growth in NS) the stock is trading at 16x that, even after this run up so it's still not hella expensive especially with the NS potential.  Remember, they said NS could be bigger than their current business so in the ultimate best case scenario (and Money McBags is not saying this will happen, just their big upside possibility), they could more than double their earnings in 2012 (say it takes them 2 years to get NS up and running like it did for MS and they get operating leverage and continued growth in MS) which makes this a ridonkulous buy.  However, Money McBags would like to get a better understanding of reimbursement, a better understanding of what they are going to do with their cash (last Q they said they were going to look to buy another drug but there was no mention of it this Q), and a better understanding of Kate Bosworth.


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