04/29/14 - 12:31 PM EDT
When Oracle execs rang the opening bell of the New York Stock Exchange today, the banner behind them read, "Engineered for the Cloud." A few hours later the company was planning to host something it calls "The Oracle Cloud Forum."But roll back the clock to an analysts' day in October 2009 and Oracle CEO Larry Ellison, nobody's fool, wasn't waxing so philosophically about "the cloud."After being somewhat sarcastic about the brewing euphoria over the word "cloud," he said:"...As far as the Cloud, I make jokes about Cloud computing because obviously Cloud computing is something totally different really. Does it use Intel microprocessors? Those aren't new. Does it use memory from Samsung? That's not new. Does it use Cisco networking? That's not new. Does it use Linux and Solaris and Oracle and MySQL? None of those are new."READ FULL POST
04/29/14 - 06:30 AM EDT
Multi-level marketer Herbalife's decision to kill its dividend and instead use the money to buy back more shares is both brilliant and high risk.It's brilliant from the perspective that it will likely shake out marginal investors who might be quick to sell on the first sign of negative news. Instead, Herbalife will have more firepower to help squeeze earnings per share higher while supporting its stock in the face of news that normally might have shaken it.At the same time, by getting rid of the dividend, Herbalife risks getting kicked out of index and other mutual funds that only hold dividend-paying stocks.Here's where it gets tricky (and risky): Herbalife CEO Michael Johnson said in a press release that he believes the decision to increase buybacks "reflects our continued commitment to creating long-term value for our shareholders."That may be. Trouble is, there is no shortage of companies whose CEOs said the same thing, only to buy high and see their stocks go lower.READ FULL POST
04/25/14 - 09:30 AM EDT
With Relational Investors taking a 9.08% stake in Clean Harbors, it would be absurd to keep it on the Watch List, where it has been red-flagged. (Activism and takeovers are always one way to make the red flags irrelevant.)Clean Harbors would appear to be the perfect activist stock. One mistake after another, or, as I wrote in my original piece when I red-flagged Clean Harbors last November, it's a comedy of errors.The company itself recognizes the problems. From its last earnings call, CEO Alan McKim:"...We're launching a broad strategic review of our operating structure, with a focus on how to better drive organic growth and improve our return on invested capital. We also have initiated a cost reduction program and are taking $75 million in additional costs out of the business and bringing our cost structure more in line with our current revenue profile. We are targeting areas ranging from our non-billable headcount, office consolidation, maintenance and logistics, with the goal of significantly reducing our overall expenses."READ FULL POST
04/17/14 - 10:14 AM EDT
With Chipotle's CMG same-store sales up an astonishing 13.5% during some of the worst winter months in recent or even distant memory: Think twice when you see any company from this point on in this earnings cycle blame the weather.Remember: If there were to ever be an earnings cycle retailers and restaurant operators use to blame the weather, it's this one. Even Chipotle, in the risk factors in the fine print of its earnings release, says that "the potential effects of inclement weather" could impact results.Reality: If the weather's not hurting Chipotle, then why is everybody else likely to gripe about it? Because this quarter it's a free pass. And for some companies, like truckers, railroads and airlines, it's real.But truth be told, consumers and even businesses often defer, and don't cancel, their purchases.READ FULL POST
04/17/14 - 07:39 AM EDT
The analysts finally appear to have lost their patience with IBM. As my pal @firstadopter on Twitter was first to point out: "MULTIPLE questions from $IBM analysts 'I'm confused' 'I don't understand' 'Sorry to re-visit' FCF/Net income/EPS guidance MAKES NO SENSE." At first I thought he was exaggerating, but the transcript doesn't lie. Let's start with confused. Barclays analyst Ben Reitzes gives us a twofer, given that he said both "confused" and "I don't understand": "I think investors are focused on this, so I'm going to just try to clarify it on the free cash flow side. What I'm really confused about is that the charge was about $100 million lower than I thought, then we have the tax rate impact and the accelerated buyback, which is probably more than I think you guys probably modeled in January. With all that, you could have almost $1 billion taken out of the net income the Street had and still guide to $18. And I wanted to know on cash flow, you said in your 10-K that you would grow cash flow by $1 billion year over year, and we just took out almost $1 billion of the net income versus where we were in January. I actually don't understand how we get to the free cash flow numbers previously guided in that -- taking it in that light. If you could just explain it that way, that would be really great. Thanks a lot."READ FULL POST
04/16/14 - 03:23 PM EDT
The saga continues: No stranger to readers of this blog or my Reality Check newsletter, where it has long been red-flagged, Ulta Salon's stock is one of the most confounding among retail stories.Its shares have remained remarkably resilient, even in the recent rout, as CEO Mary Dillon made the rounds with New York analysts this week to discuss the company's makeover. It's not that the company, in the midst of a strategic review, is broadcasting that it is making widespread changes.But in his report earlier this week reiterating his "outperform" on Ulta, after hosting investor meetings with Dillon, analyst Gary Balter said he was impressed with her plans to "reinvest in infrastructure, brand positioning, marketing and customer relationships..."In other words, a costly makeover that even Balter concedes "is on improving results over the next five years, not on the quarter."READ FULL POST
04/10/14 - 03:45 PM EDT
I've read and watched and listened to countless market pundits (me included) pontificate about what this market decline is all about and how it will end.I have no idea how it will end. Bulletin: Neither does anybody else. But as we watch momentum-in-reverse, as I like to call it, there's something else at work here: There don't appear to be natural buyers for many of these stocks. In fact, if I look at my screen (which I included in this tweet) some of those that have been squeezed up the most are among those hitting hardest.Topping the list: Education Management, off 67%.READ FULL POST
04/09/14 - 10:34 AM EDT
With earnings "season" officially under way, so is "blame the weather."In many cases, including retail, restaurants and construction, it's justified. The Northeast got blasted and that, on occasion, kept people from getting where they were going.One of the most legitimate weather-related claims was Alcoa, whose CEO Klaus Kleinfeld said:"Let me also address one other thing that has been discussed quite a bit. And we also saw it in our order intake in the first quarter here in the US, where it slowed down. It slowed down -- the order intake there slowed down -- and this has pretty much single-handedly been driven by the extremely cold weather.So what do we see now? We're seeing on those sites now, as the sites got delayed, the concrete couldn't get poured, people are now trying to catch up, and trying to make the dates that they had projected for their projects. So, we continue to be optimistic in the recovery of that market and don't believe that there's any substantial change in this. It was really weather that hit there."Of course, that merely means deferred or delayed revenue, not cancelled revenue.Which brings us to Intuitive Surgical.READ FULL POST
04/07/14 - 09:43 AM EDT
Whenever you see a deal like Mallinckrodt buying Questcor, you have to ask: Is this a case of smart seller, dumb buyer? I've done zero work on Questcor, but over the past few years I've talked to a few very serious short-sellers who have. When I saw the news this morning, the first thing that crossed my mind: Mattel buying The Learning Company....Hewlett Packard buying Autonomy...Medtronic buying Arterial Vascular Engineering. All three of the targets were the focus of short-sellers, and all three famously blew up, or otherwise caused havoc, once inside the new parent -- for the very reason the short-sellers had been short. Mattel was perhaps the most wounded, and almost taken down by what it found once it owned The Learning Company. No idea if that will happen here, but a quick peek at Mallinckrodt's history sure is a twisted tale....READ FULL POST
04/04/14 - 09:00 AM EDT
Nobody's always right when it comes to stocks.I've learned that the hard way more than a few times in decades of reporting, researching and writing about companies. Even the smartest -- yes, that includes Warren Buffett -- sometimes get it wrong.In the end, when I mess up, I fess up -- and I always do a personal post-mortem. It's humbling, but it helps and often comes in handy as a reference point, and hopefully a lesson learned.If there's any theme, it's this: The worst mistakes often come from being too smart for your own good, especially when putting too much trust in your experience, perspective and instincts. It's important to trust your instincts, and I think mine are very good when supported by what I believe to be solid research -- and often just common sense. But every now and then, they steer me wrong. (Moral: Trust, but verify -- and verify, again!)These are a few of my biggest blunders, which also turned into big stocks.READ FULL POST
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