GE’s(GE) CEO Jeff Immelt announced today he bought $2 million worth of GE stock today at $32.70 and$33 a share.
Disclosure (“none” means no position):None
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Author: ToddSullivan
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AmeriCredit Data Shows Improvement
It looks like Leucadia’a (LUK) investment in AmeriCredit (ACF) was a wise one. Based on the company’s history, we ought not be surprised.
On Tuesday, ACF said delinquency and gross charge-off rates in its subprime trusts improved in February, while net charge-offs increased by 1.1 percent month-over-month. The results are showing a seasonal improvement and unlike its mortgage brethren, results are not showing deterioration.
Now, charge-offs are rising and one would expect that to continue although I would expect the ultimate pain to be below the mortgage industry for the simple reason that folks can walk away from a home and move into an apartment, they in most cases need their cars to get to work.
How much of a earnings deterioration should we expect? In 2007 (ending June) they earned $2.73 a share, up from $2.09 in 2006. In the first half of 2008 to date they have earned $.34 cents a share vs $1.28 in the same period last year.
Assuming the same general trend the second half, expect EPS to be approx. $1 a share for 2008. Now, potential ACF value investors may get a beneficial calendar anomaly here. All expectations are for a second half 2008 recovery in the general economy. That coincides with Q1 and Q2 2009 for ACF. While 2008 got caught perfectly for the negative events of the year, 2009 looks to be positioned perfectly for the recovery.
This means that this years expected disappointment may be met with out-sized improvement next year. If they can just match 2007 performance, the stock currently trades at 4.3 times those earnings. Matching those earnings ought to be a bit easier in 2009 because a lower cost of capital vs 2006 will give a boost to margins as borrower rates ought to remain a bit elevated. Should the economy lag into 2009, I would still expect a significant improvement over the $1 this year.
Here is the company’s latest review, done in March.
Disclosure (“none” means no position):None
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Altria’s Investor Day Notes
Altria (MO) had its investor day in NY to discuss it upcoming spin.
Shareholders as of March 19 will receive 1 share of Phillip Morris International for each Altria share they hold on March 28, the spin date.
Guidance:
Altria (MO):
* 2008 full-year diluted earnings per share from continuing operations are projected to grow approximately 9% to 11% from an adjusted base of $1.50, excluding PMI.
* Long term total annual shareholder return of over 12% when combined with the dividend
* EPS growth in the range of 8% to 10%
* An anticipated dividend payout ratio of 75%, with an initial post-spin annualized dividend rate of $1.16 per share;
* A planned share repurchase program of $7.5 billion over the next two years, which will commence in April of this year;
* Approximately $1.0 billion in cumulative annual cost savings, $300 million of which were realized in 2007 and approximately $700 million in additional savings to be realized by the end of 2011.
* Tests in both smokeless and snus are going “very well”
Phillip Morris International (PM):
* Full-year diluted EPS from continuing operations are projected to grow 12% to 14% from a 2007 pro-forma adjusted base of $2.78.
* Long term revenue growth, net of excise taxes, of 4% to 6%; shipment volume growth of 1% to 2%; operating income growth of 6% to 8%; earnings per share growth in the range of 10% to 12%
* Dividend policy anticipates a pay-out ratio of 65%. The initial annual dividend rate has been set at $1.85 per share.
* A share repurchase program of $13 billion over two years.
* Expect to return approximately $21 billion to shareholders over the next 2 years.
* $1.0 billion in cumulative annual cost savings by the end of 2010; and a cumulative total cash flow of approximately $22 billion by the end of 2010.
Why is the cig biz so good? Altria’s cost to produce 1000 cigarettes is $16.40. Talk about profit margin? This is 16% to 21% lower than the competition.
I own Altria and plan to hold both for the foreseeable future…
Disclosure (“none” means no position):Long MO, Long PM (post spin)
Here are the results of the latest Fed auction.
On March 10, 2008, the Federal Reserve conducted an auction of $50 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:
Stop-out rate: 2.800%
Total propositions submitted: $92.595 billion
Total propositions accepted: $50.000 billion
Bid/cover ratio: 1.85
Number of bidders: 82
The 2.8% is a dramatic decline from the 3.01% results of the February auction. To date this auction has given concrete guidance to future Fed decisions regarding Fed Funds.
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Tuesday’s Links
Blog Roll, Carlos Slim, Buy Banks, Another call to buy banks..
– Not sure if you have seen this, but TheDeal.com has a nice “Blog Roll” they do, although they seem to not include actual bloggers but blogs from MSM. Maybe that will change?
– Could the world’s 2nd richest man buy Sprint?
– A call to purchase banks.
– Buy, buy, buy
Billionaire investor Wilbur Ross has disclosed his investment in Assured Guarantee (AGO) according to an SEC filing late Monday. He has acquired 12.1 million shares or 15% of the total. He had previously said he would invest up to $1 billion in the bond insurer.
Disclosure (“none” means no position):None
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Tuesday’s Upgrades and Downgrades
Upgrades
Granite Constr (GVA)- DA Davidson Neutral » Buy
Praxair (PX)- First Analysis Sec Equal-Weight » Overweight
Analogic (ALOG )- Needham & Co Hold » Buy
Art Technology (ARTG)- Roth Capital Hold » Buy
Quiksilver (ZQK B)-. Riley & Co Neutral » Buy
Town Sports Intl (CLUB)- RBC Capital Mkts Underperform » Sector Perform
MFA Mortgage (MFA)- JMP Securities Mkt Outperform » Strong Buy
Omniture (OMTR)- Friedman Billings Mkt Perform » Outperform
Dynamic Materials (BOOM)- Broadpoint Capital Neutral » Buy
99 Cents Only (NDN)- Lehman Brothers Underweight » Equal-weight
Santarus (SNTS)- UBS Neutral » Buy
Copart (CPRT)- Robert W. Baird Neutral » Outperform
AmerisourceBergen (ABC)- UBS Sell » Neutral
Crown Hldgs (CCK)- Banc of America Sec Neutral » Buy
Downgrades
Building Materials (BLG)- DA Davidson Buy » Neutral
Audiocodes (AUDC)- Piper Jaffray Buy » Neutral
CRA Intl (CRAI)- Stifel Nicolaus Buy » Hold
Keryx Biopharma (KERX)- Cowen & Co Outperform » Neutral
Kenexa (KNXA)- KeyBanc Capital Mkts Buy » Hold
PDL BioPharma (PDLI)- Susquehanna Financial Positive » Neutral
Western Digital (WDC)- BMO Capital Markets Outperform » Market Perform
Apria Healthcare (AHG)- Deutsche Securities Hold » Sell
Techtarget (TTGT)- Oppenheimer Outperform » Perform
ValueClick (VCLK)- Oppenheimer Outperform » Perform
ComScore (SCOR)- Oppenheimer Outperform » Perform
LivePerson (LPSN)- RBC Capital Mkts Outperform » Sector Perform
SumTotal SUMT (RBC)- Capital Mkts Outperform » Sector Perform
j2 Global (JCOM)- RBC Capital Mkts Outperform » Sector Perform
Shoretel (SHOR)- Piper Jaffray Buy » Neutral
Ciena (CIEN)- Piper Jaffray Buy » Neutral
Avanex (AVNX)- Piper Jaffray Buy » Neutral
Keryx Biopharma (KERX)- JP Morgan Overweight » Ne
Mannkind (MNKD)- Jefferies & Co Buy » Underperform
Lincare (LNCR)- Deutsche Securities Hold » Sell
Somanetics (SMTS)- Sun Trust Rbsn Humphrey Neutral » Reduce
Ciena (CIEN)- JMP Securities Mkt Perform » Mkt Underperform
Varian Medical (VAR)- Jefferies & Co Hold » Underperform
Thornburg Mortg (TMA)- Jefferies & Co Hold » Underperform
Tele Argentina (STET)- TEO Deutsche Securities Buy » Hold
Aeropostale (ARO)- Citigroup Hold » Sell
Keryx Biopharma (KERX)- Bear Stearns Outperform » Underperform
Keryx Biopharma (KERX)- Rodman & Renshaw Mkt Outperform » Mkt Underperform
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Six Flags Earnings Call: Potholes Ahead
Just finished the Six Flags (SIX) earnings call and something jumped out that ought to give any potential investor pause..
Currently Six Flags cash position sits at the end of Q4 with over $28 million in unrestricted cash and $5 million drawn on a $275 million credit line.
But, they have preferred stock outstanding that’s mandatory redeemable in August of 2009 for $288 million. In addition, $280 million of senior notes mature in February 2010. They intend to address these “financial obligations through one, or a combination of refinancing, exchanges and/or asset sales” said CFO Jeff speed
It is important to note that the company has yet to have a year that it finished cash flow positive and 2007 was no exception.
Now, according to Speed “assuming 2008 attendance is flat to 2007 at 24.9 million and conservatively assuming roughly 1% guest spending growth, $51 million revenue target for our sponsorship and international business, the full year benefit from our investments in Dick Clark Productions and Six Flags Discovery Kingdom of $7 million and the low end of our cost savings range or $50 million. The result is $270 million of adjusted EBITDA compared to $190 million in 2007. To complete the free cash flow picture our CapEx is still projected to be $100 million and our cash interest, dividends and taxes are expected to come in at $195 million, $30 million less than the roughly $225 million we incurred in 2007.
As we will benefit from our new credit facility, the debt repurchases during 2007 and a recent three year swap that we entered into in February 2008 to lock in an all in rate of 5.34% on $600 million of our $850 million floating rate term loan. Taking all of this into account and again assuming for this purpose no attendance growth, we’d be within $25 million of positive free cash flow. To close this gap with only attendance we’d need to grow attendance a bit less than 3% to 25.6 million to be free cash flow positive for the first time in the company’s history.”
With the cost of a trip to one of its park averaging $175 for a family of four, with the economy teetering and household wealth falling, one has to think holding attendance flat may be a bit tricky this year, mush less increasing it.
That being said, we can now assume that 2008 will be another year of cash draining operations. When you couple this with mandatory redemptions in both 2009 and 2010 that will each be in excess of the company’s current available credit, one must be leery of what lay ahead.
SIX will be forced to exchange the preferred for common (diluting shareholders even further), renegotiate another preferred that, given the current credit environment will have far less advantageous terms than currently had (higher dividend) or, sell assets that will in effect lower revenues and extend losses. None of these are good.
The point here is that even of they do increase attendance 3% in 2008, which is far from a probability or even likely, the company faces larger financial hurdles ahead the next two years. If you are thinking of buying shares, currently priced at $1.63 a share, my guess is you could what a couple years until things iron out either way and still not pay much higher.
Disclosure (“none” means no position):None
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"Fast Money" for Tuesday
Tuesday’s Picks
Guy Adami likes The Shaw Group (SGR) $55.71
Karen Finerman prefers Altria (MO) $74.74
Pete Najarian recommends Burger King (BKC) $26.04
Tim Seymour thinks the iShares MSCI Emerging Markets Index (EEM) $130.99 is a buy; or he recommends shorting the UltraShort MSCI Emerging Markets ETF (EEV) $90.9
Monday’s Results
Guy Adami likes Alcoa (AA) $36.66 Close $35.64 LOSS
Karen Finerman prefers Microsoft (MSFT) $27.87 Close $28.05 GAIN
Pete Najarian recommends buying puts in the Materials SPDR (XLB) $39.59 Close $38.74 LOSS
2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 4-1
Jeff Macke= 17-13
Tim Seymore= 7-4
Guy Adami= 16-17
Pete Najarian= 15-14
Karen Finerman= 15-17-1
2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
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Six Flags Finds a New Excuse
At least Six flags (SIX) did not blame God for the results like they did in November.
Six flags reported a loss after preferred dividends of $132.4 million, or $1.39 per share, compared with a loss of $195.2 million, or $2.07 per share, a year earlier. This would lead folks to think things are getting better.
While the reported loss improved over last year, if we look strip out the loss from discontinued operations in 2006, we find the loss from continuing operations in 2007 actually increased to $130.8 million, or $1.43 per share, compared with a loss of $100.5 million, or $1.12 per share a year earlier. So it was actually worse when we take an apple to apples approach.
For the full year, loss from continuing operations rose to $244.1 million, or $2.81 per share, from a loss of $207 million, or $2.43 per share. Essentially this means that what was there in 2006 and is still there in 2007, is performing worse.
No reason to put much weight in the “discontinued operations” when we are looking at it because they are “discontinued”. Their inclusion is a accounting necessity, it has no effect on the company going forward. “Continuing operations” will tell us more about the future and it is not good.
Why?
Six Flags blamed the higher loss from continuing operations on increased charges related to the removal of some inefficient rides and attractions, as well as higher stock-based compensation costs. The amount was partially offset by improved revenue. Bull.
Six Flags’ (SIX) annual sales increased to $972.8 million, up 3% from $945.7 million. Here is the thing. If your sales increase, and your loss increases, there are only two options.
1- Your sales level is not high enough to support operations
2- You are doing a lousy job managing expenses
That is it. Ignore ever other excuse they keep spinning out at you. It is not the weather of anything else they say. Now, of the two, #2 is the preferable situation. Get in new management that can control costs, and you will see immediate improvement. If it is #1, your only real choice is to spend more cash to draw more people in, or, reduce the consumers costs to keep them coming back. Either of those will cause the bottom line to worsen before it gets better.
Which one is it? Who knows. It is hard to tell because you really cannot trust much of what they tell you. Because of that, any investment in shares is a shear gamble.
It may pay off, but the odds are against it.
Disclosure (“none” means no position):None
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Groundhog Day
Remember the movie “Groundhog Day”? Bill Murray keeps waking up and it is the same day over and over? This has become what reading McDonalds’ (MCD) monthly sales figure has become.
For February:
* Same-store sales in the U.S. rose 8.3% during the month, led by breakfast and coffee offerings.
* European same-store sales grew by an impressive 15.4% on strong results in the U.K., France, Germany and Russia.
* Asia Pacific region, Middle East and Africa rose 10.9% for the month, mostly on strength in Australia, China and Japan.
* Systemwide sales, which include restaurants owned by franchisees and affiliates operating under joint-venture agreements rose 13.2% in February.
It is all about the two C’s. Coffee and convenience. I have been saying the same thing since Feb. of last year and nothing that has happened since then could lead anyone to think that things are due to change anytime soon. Id McDonald’s going to become less convenient anytime soon? No. What are they going to do? Expand the coffee offerings. That can only lead to more interested people choosing to get their fix from Ronald & Crew at convenient locations at value prices.
Compare this to Starbucks (SBUX) that has maintained the coffee, increased prices and diminished the convenience factor with the addition of sandwiches and micro locations that force you to wait in line outside. Any wonder the stock has cratered in the past year, down well over 50% since my first post on the subject?
Disclosure (“none” means no position):Long MCD, none
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Monday’s Links
Icahn, Prices, Blog Piracy, Sell your jewelry
– This really too bad, I would have loved to read this.
– The placebo effect and the price of medicine. This is fascinating..
– I have noticed this also…
– Gold at $1000 an ounce
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Monday’s Upgrades and Downgrades
Upgrades
Quicksilver Resrcs (KWK )- CapitalOne southcoast Neutral » Add
USG Corp (USG)- Longbow Sell » Neutral
Edwards Lifesci (EW)- Caris & Company Average » Above Average
American Community Bancshares (ACBA)- Sandler O’Neill Hold » Buy
Strayer Education (STRA)- Stifel Nicolaus Hold » Buy
Alliance Resource (ARLP)- Stifel Nicolaus Hold » Buy
American Public Education (APEI)- Stifel Nicolaus Hold » Buy
Alliance Holdings (AHGP)- Stifel Nicolaus Hold » Buy
Marketaxess (MKTX)- Credit Suisse Underperform » Neutral
Maguire Properties (MPG)- Deutsche Securities Sell » Hold
Hurray Holding (HRAY)- Piper Jaffray Neutral » Buy
Ultimate Software (ULTI)- Broadpoint Capital Neutral » Buy
Intergroup Corp. (INTG)- Citigroup Hold » Buy
Southwest Gas (SWX)- Citigroup Hold » Buy
Repsol SA (REP)- Deutsche Securities Hold » Buy
SandRidge Energy (SD)- Bear Stearns Peer Perform » Outperform
First Place Finl (FPFC)- Keefe Bruyette Mkt Perform » Outperform
Global Industries (GLBL)- Jefferies & Co Hold » Buy
Rock-Tenn (RKT)- JP Morgan Neutral » Overweight
Arch Capital (ACGL)- JP Morgan Neutral » Overweight
Downgrades
TravelCenters of America (TA)- Ferris Baker Watts Buy » Neutral
AngioDynamics (ANGO)- Canaccord Adams Buy » Hold
ISTA Pharm (ISTA)- Lazard Capital Hold » Sell
ISTA Pharm (ISTA)- Punk, Ziegel & Co Buy » Mkt Perform
Noble Intl (NOBL)- Sterne Agee Buy » Sell
RAE Systems (RAE)- Morgan Keegan Outperform » Mkt Perform
Infosys (INFY)- Kaufman Bros Buy » Hold
American Eagle (AEO)- Needham & Co Hold » Underperform
Northstar Neuroscience (NSTR)- Stanford Research Buy » Hold
PPG Industries (PPG)- Deutsche Securities Buy » Hold
Rohm and Haas (ROH)- Deutsche Securities Buy » Hold
Reddy Ice (FRZ)- Wachovia Outperform » Mkt Perform
Heidrick & Struggles (HSII)- Sun Trust Rbsn Humphrey Neutral » Reduce
Lexicon Pharma (LXRX)- Piper Jaffray Buy » Neutral
PeopleSupport (PSPT)- RBC Capital Mkts Outperform » Sector Perform
PeopleSupport (PSPT)- Piper Jaffray Buy » Neutral
AspenBio Pharma (APPY)- Oppenheimer Outperform » Perform
DealerTrack (TRAK)- JMP Securities Strong Buy » Mkt Perform
H.B. Fuller (FUL)- Deutsche Securities Buy » Hold
Airgas (ARG)- Deutsche Securities Buy » Hold
Valspar (VAL)- Deutsche Securities Buy » Hold
US Auto Parts (PRTS)- Piper Jaffray Buy » Neutral
Credicorp LTD (BAP)- Citigroup Buy » Hold
Horsehead Holding (ZINC)- Friedman Billings Outperform » Mkt Perform
Alcoa (AA)- Friedman Billings Outperform » Mkt Perform
Freeport-McMoRan (FCX)- Friedman Billings Outperform » Mkt Perform
Sunstone Hotel (SHO)- Keefe Bruyette Outperform » Mkt Perform
Dr. Reddy’s (RDY)- Citigroup Buy » Hold
Disclosure (“none” means no position):
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Berkshire Hathaway A "Value"?
Since the release of Berkshire Hathaway’s (BRK.A) annual letter, posts have been flying out there as to Berkshire’s actual value vs. today’s current $133,000 a share price.
Before we get started and Buffett folks assume some things, let me say this:
– Buffett is the greatest investor of all time
– Berkshire is a one of a kind company
According to Buffett”
“Finally, our insurance business – the cornerstone of Berkshire – had an excellent year. Part of the reason is that we have the best collection of insurance managers in the business – more about them later. But we also were very lucky in 2007, the second year in a row free of major insured catastrophes.
That party is over. It’s a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008. Prices are down, and exposures inexorably rise. Even if the U.S. has its third consecutive catastrophe-light year, industry profit margins will probably shrink by four percentage points or so. If the winds roar or the earth trembles, results could be far worse. So be prepared for lower insurance earnings during the next few years.”
For all the contributions of the near 70 businesses Berkshire owns, it is in its essence an insurance company. The unit produced a $3.3 billion (down from $3.8 in 2006) of the company’s $13 billion in earnings in 2007. Further, $37 billion of the company’s reported $44 billion in cash and cash equivalents belong to insurance.
Let’s just forget about Berkshire for a minute and say it is company “A”. Company A’s main business had operated under perfect conditions for the past two year and its stock has reacted accordingly with it reaching an all time high just 4 months ago and despite the current market environment, sits only 16% below that. Here is the odd thing about company A’s business, when it is perfect, the prices it can charge for its services falls. It’s margins actually begin to shrink. Then, invariably, there is a shock that causes a large disruption to the business and earnings fall, at times dramatically. Thus is the insurance business……
Berkshire, currently trading at 15 times earnings (down from over 18 at its high) seems to reflect some of this expected insurance deterioration. We may get a hurricane (or a series of them) in 2008, or not. Either way, insurance results will deteriorate and in concert so should Berkshire’s as a whole. If they do not fall, one would expect them to stagnate.
If you were going to buy shares in any company, would you expect to find true value when its principle business line has operated under perfect conditions? Of course not. One would argue that a conservative valuation of the company would under those conditions would be a “fair valuation” not “value”.
I would argue that Berkshire is fairly valued for its current business environment. The last time Berkshire represented “value” was exactly 8 years ago in March 2000 at the height of the dot.com bubble. Since then its share price has risen 256% even after the current drop.
Does this mean today Berkshire buyers will not make money? No. They assuredly will. It does mean that the out-sized gains investors in 2000 have seen will escape them.
Disclosure (“none” means no position):None
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"Fast Money" for Monday
Monday’s Picks
Guy Adami likes Alcoa (AA) $36.66
Karen Finerman prefers Microsoft (MSFT) $27.87
Pete Najarian recommends buying puts in the Materials SPDR (XLB) $39.59
Friday’s Results
Karen Finerman recommends Reynolds (RAI) $61.89 Close $62.26 GAIN
Guy Adami prefers XTO Energy (XTO) $60.83 Close $60.17 LOSS
Pete Najarian thinks InterDigital (IDCC) $16.56 is a buy. Close $18.09 GAIN
Jeff Macke says his pick is Campbell’s Soup Company (CPB) $31.72 Close $31.58 LOSS
2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 4-1
Jeff Macke= 17-13
Tim Seymore= 7-4
Guy Adami= 16-16
Pete Najarian= 15-13
Karen Finerman= 14-17-1
2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%
Disclosure (“none” means no position):