7/12/10 Midevening Report: Hefner bid titilates Playboy stock, shares bust out

There was little news in the market today as investors waited for AA's earnings tonight as a signal of things to come as everyone knows aluminum production is what really drives the economy (and yes that was sarcasm).  Without much macro news other than shit continuing to get worse with temporary census jobs ending, republicans filibustering extended unemployment benefits to further punish the people who likely had little to do with the recession (other than likely borrowing way beyond their means), and no new actresses coming out as bisexual this week, we were left with a flurry of M&A driving the market (as opposed to a flurry of T&A, which likely would have led to a strong rise).

The biggest M&A deal occured between two companies about whom no one gives a fuck, as AON is purchasing Hewitt for $4.9B in cash, stock, and old actuarial tables signed by Elizur Wright.  While AON will be in flux for a bit, they should be able to immediately make use of Hewitt's human resource and outsourcing capabilities to fire the appropriate amount of people while making sure that everyone gets a smiley face cupcake.  Once done, they can further get value out of Hewitt's consulting business by leveraging them for a business case to try figure out why the hell anyone would have paid a 41% premium of 7.5x forward EBITDA for Hewitt.  Of course using their now fully owned Hewitt for that study would either be considered a virtuous circle, a vicious circle, or the least fun daisy chain since full bush was still in style.

In other M&A news, Hugh Hefner wants to take Playboy private (after years of taking it to his privates) at a 40% premium to current price, or about what he pays to the Shannon sisters.  Playboy magazine sales were down 48% in Q1 as the business continues to struggle with the invention of a little something called the internet where people can now read the hard hitting and biting journalism Playboy offers for free.  The company has gone through a major facelift over the past year by laying off staff, streamlining functions, and putting out bigger and more well-rounded (and very NSFW) articles.  The fact is, Playboy still has a recognizable and aspirational (as well as ass-pirational) brand and now that Hefner is opening up his robe for the company, there appear to be multiple bidders including PE firms, top competitor Friend Finder, and the creepy guy in the airport gift shop.  The company is definitely at a tipping point with the internet producing more free porn per minute than David Duchovny can view, but in the right hands, and with a stroke of luck, the brand could come strongly back. 

In other M&A news, BP may be selling assets in order to pay for a new Gulf.  The company is said to be in negotiations with Apache to divest $18B worth of some of the largest Alaskan assets in the world.  Finally, JNJ is buying MEND, a company that makes a device for treating brain aneurysms in stroke victims just in time to catch the growing popularity of the KFC Double Down.

Internationally, the European Commission came out with a reform package to boost consumer confiidence from "holy fuck we're screwed" to "at least we're not Kazakhstan."  The package includes EU-wide measures to protect bank account holders by guaranteeing savings accounts up to 100k euro and  investment accounts up to 50k euro while promising to pay account holders within seven days of the almost certain to come bank failures.  Lastly, China anounced exports grew by 44% as more people sink to poverty and can only afford the cheap shit made in China.

In large cap stocks, MSFT is up on news that they are going to make it rain in the cloud computing space by teaming up with Fujitsu to invest money in the growing cloud technology sector while GOOG continues to rise after having their license renewed in China.  Money McBags was told that to get their license renewed, GOOG just had to follow the chinese road rules of stopping at yellow lights, driving 20 miles under the speed limit, and using their turn signal sparingly.

In small cap stocks, NLS is up 16% on no news that Money McBags could find other than people hate making money.  If you remember back in December, longtime reader Matty McSacks hypothesized that NLS was worth ~$4 per share and it was trading at $1.85 at the time.  Money McBags looked in to the matter and thought those estimates seemed high since the company sells expensive discretionary items during a little bit of a recession and after a hella confusing quarterly release and a jump up, NLS has settled back to where it was at the beginning of the year with today's run up.  In their last Q, NLS trimmed their losses to only a loss of $.08 per share but their biggest segment, retail, shed 30% of their revenues as if revenue had spent the entire Q working out on a Mobia.  The drop in direct business was driven by a 37% drop in credit approvals from their finance partner and while Money McBags is no Fair Isaacs, it doesn't take Isaac Hayes to see that credit isn't going to get better anytime soon.  With the direct business lagging, gross margin dropped to 50% from 56% but thanks to restructuring, the company did away with $10MM of operating expenses which allowed them to lose only $2MM and have near breakeven EBITDA.  The company hasn't made money since 2006 and with the economy sputtering again, it's not clear who the fuck is going to be out looking for a new Universal machine to build muscle since they won't be able to afford to buy supplements to help maintain that muscle.  The only arguments that can be made for this company are that it is trading at ~.35 of sales, they didn't burn cash last Q, and they have ~$12MM of unrestricted cash which is ~20% of their market cap.  That said, rat tails, hammer pants, and Bea Arthur will come back before this company does as gyms aren't upgrading their equipment, people continue to get lazier and fatter, and those who used to be able to afford expensive clothes holders for their bedroom (which NLS machines invariably windup being), remember they have something less expensive called a closet and a floor.  So even though the stock is up big today signalling something is happening (like potentially a big short investor getting a capital call), Money McBags would not be a buyer because the consumer remains weaker than a virgin tequila shot.

And before we go, on Friday Money McBags told you about TSYS and the opportunity it presented for a short term trade.  The company was up 3.5% today (though on light volume) with IWO down ~120bps so something seems to be going on there.  The company is hella cheap and while their earnings releases and segment financials are more complicated to decipher than a Rube Goldberg contraption or what the fuck your lady friend is actually saying to you, they are in growing markets and seem to be winning business.  Money McBags doesn't have a great longterm feel for the company since he doesn't quite get the step function revenue stream of their text messaging business and why they never seem to make that next step up, but if they can really hit their guidance of $80MM-$85MM of EBITDA this year, this stock should see solid appreciation now that it has seemingly bottomed.

1/21/10 Midday Report: With healthcare solved, Obama to take on banking industry

The big news spooking the market today is Obama's unknown plan to try to regulate banks.  He is now said to be giving former Fed Chairman Paul Volcker the keys to palace and Volcker is rumored to be getting all Glass-Steagall on bankers's asses telling them they can't trade financial securities using their own deposits.  Money McBags is usually for the free market (especially if that free market specializes in foie gras or taint cleanings), but large financials firms need to be regulated.  They have too much sway over the global economy, like Rasputin had over the Tsaritsa Alexandra or ugly chicks have over former President Bill Clinton.

The other news moving the market today is that China's GDP rose the fastest it has in two years as it grew 10.7% thanks in part to their ability to make really cheap shit and therefore have consumers need to continually replace said really cheap shit when it breaks/tears/poisons them.  Q4 economic growth was driven by a $586B stimulus package, subsidies for consumer purchases, a credit-fueled investment boom, and buy one get one free happy endings at local Shanghai massage parlors.  The strong growth in China has investors worrying that the Chinese government will finally try to slow down their lending to avoid more of a bubble than they have already created, which in turn will dampen the global economic recovery.

In US macro news, first time claims for unemployment rose last week by 36k to 482k defying analyst expectations for a 4k drop.  Money McBags is not going to harp on analysts for getting the number wrong as he knows it's not easy to guess at a number that can be anywhere from 0 to 300MM, but guys (and gals), can we at least get the fucking direction right?  You have a 50-50 chance on that one which is slightly better than your odds of not contracting herpes from shaking Tiger Woods' hands, so can we do a little better?  Luckily an economist for the  U.S. Labor Department (or as it is soon to be renamed, the U.S. Non-Labor Department or simply You're Fucked) cleared everything up by claiming that last week's numbers were higher than expected in part because the Christmas and New Years holidays created a backlog in some states.  To quote this brilliant economist: "It is not an economic thing -- it is an administrative thing."  He then went on to explain that the recent market crash also "wasn't an economic thing, it was a math thing," John Edwards denials about being some broad's baby daddy "wasn't a lying thing, it was a syntax thing," and for the ladies out there, swallowing after a hummer "isn't a romantic thing, it is a nutrition thing, so bottoms up" (when of course, we all know it is both).  The main point is, whether or not the rise in new unemployment claims was due to an anomalous administrative glitch or more people simply losing their fucking jobs (you know, what the statistic actually measures), there were still at least 450k people who recently filed for unemployment so this economy is about as healthy as Amy Winehouse at an all you can smoke crack bar or a Krispy Kreme donut with extra transfats.

Also, the Philly Fed showed the pace of manufacturing slowed a bit in January as the index fell to 15.2 from 22 and was below the expectations of 17.  Apparently a positive number still signals growth so since we have no idea of the impact of the relative values of the arbitrary numbers (how much worse is a 15 than a 17?  And about 10% is not likely the correct answer), all we can say is that the Philadelphia area produced some shit, though it was likely all stolen by the residents, so should have minimal economic impact.

In stock news EBAY put up a huge quarter as PayPal revenue was up 28% thanks to an uptick in Nigerian princes needing funds to return to their homelands and reclaim their fortunes, while Starbucks (SBUX) beat analyst estimates by quadrupling profits from a year ago.  Same store sales were up 4% proving that overpriced coffee may be a giffen good.  The biggest stock news of the day though was Goldman Sachs beating profit estimates by raking in $4.95B in the Q.  More surprising than Goldman's success under the Obama administration was the Streltsys' profitability during the reign of Ivan the Terrible, the benefits earned by the Imperial Guard during the Napoleonic era, and Haliburton's favorable business wins during Dick Cheney's vice-presidency.  Goldman's revenue was mostly inline and their outperformance was caused by putting aside only $16B for bonuses.  The pay ratio dropped to 38.5% which means the average worker will be forced to scavenge with only a $500k bonus and with the way the dollar is dropping, that means these poor Goldman employees will only be able to buy one Maybach and 3 nights with Charisma Cappelli (though to be honest, if all 32k employees had 3 nights with young Ms. Cappelli, she may get a little tired, so to those Goldman employees reading this out there, try to be in the first 1k if possible).

As for small stocks, HAFC continues to love it's long time shareholders as it erupts for the second day in a row on no news.  As stated yesterday, TBV is somewhere around $3.60 so this stock has plenty of room to move up, but this is very speculative as Money McBags trusts that TBV number about as much as he trusts politicians, Mexican water, and 35 year old virgins.  Also, anything that has recently risen, like RICK, is selling off faster than Rachel Uchitel's 10 minutes of fame.  This is going to present some buying opportunities for the better companies.  Over the past several weeks Money McBags has mentioned several companies he thought were solid but had run up a little too much (CRUS, NTRI, TMRK, heck even INTC) so use this sell off wisely to re-evaluate and make some smart decisions like the guy who married Christina Hendricks.  Oh yeah, a big shout out to When Genius Prevailed reader Matthew who has nailed NLS like a 19 year old girl in her first Monsters of Cock video.  Kudos on that pick.

12/31/09 Midday Report: Let the New Year's party begin (Except for the 10% of you unemployed)

2009 finally ends tonight and what a year it has been.  The market sunk to a low of 666 before being exorcised by a low quality rally and a bottle of jesus juice, the US goverment bailed out the financial system and printed enough money to make Bill Gates seem like a pauper, unemployment spiked to multi-year highs bringing back Great Depression slogans such as "Brother can you spare a dime?" and "What can we get for $10?" (the answer of course being "everything you want."), and Hannah Hilton announced her retirement sending Money McBags into a deep and prolonged depression of his own.  It was a momentous year but that is in the past and as the year 2010 begins, we all need to refocus on the markets and follow the data closely because things aint so cheap out there anymore so mistakes can be made (though probably not as big as this mistake or this one).

In market news today, weekly unemployment claims came in lower than expected as companies build back inventory and try not to Scrooge people during the Christmas holiday.  The 432k initial jobless claims were the lowest in a year and a half so there is some optimism.  Of course, those filing for extended unemployment benefits rose by 200k to just under 5MM.  That's right, 5MM people have been out of the work force or longer than their 6 months of unemployment checks, but there is nothing to see here.  In actuality, we appear to be at an inflection point where the economy has bottomed and is stabilizing so there is hope for growth, of course, they said that in Japan in 1991 as well.

In stock news, not much is happening today.  Financials are up a bit (and as always, remember they are raking in the dough right now with free money from the FED and people and businesses who need that money willing to pay a lot more for it than free), RICK is rising again as the weak dollar makes those $20 lap dances oh so much cheaper for the international crowd, and NLS may be providing us with a good entry point should we believe the analysis of whengeniusprevailed random message board posters (as always, buyer beware).

So a Happy New Year to all of you from Money McBags who will leave you with this one thought for 2010.