The Thursday Thud:
Don't have a coronary:
Exquisite timing. That's the only way to describe
Arterial Vascular Engineering's
, or AVE's, recent sale of itself to
. Late Tuesday, Medtronic disclosed that fiscal third-quarter revs from AVE's coronary stent biz would be below expectations. You can only imagine had AVE been forced to make that announcement while it was still an independent company.
"The stock realistically could've been cut in half," says
Warburg Dillon Read analyst Matthew Dodds, a Medronic bear. Instead, AVE is now part of a company whose stock price, at 75, reflects a slide of a mere 7%.
The knock on AVE
and elsewhere had been that its U.S. stent biz was bound to slow as competition increased. Somehow, however, AVE always managed to beat the Street as the stent biz boomed.
Then came the sale to Medtronic, which was completed several weeks ago. Then came the (some would say long-awaited) disappointment.
Did AVE execs sell (in the nick-of-time) while the selling was good? Dodds thinks so, but Medtronic officials insist they bought the stent biz for the long term, and blame the miss largely on AVE's sales force being distracted by the deal. Medtronic CEO Bill George tells me he believes it will be viewed, in retrospect, "as a quarter blip on a screen." Maybe so, but AVE's sales came in below even Dodd's $106 million estimate, which had been the lowest on the Street; in fact, they're expected to be less than $90 million.
The real test, Dodds says, will come next quarter. If sales are light again, then the question will be whether we're in the "bl" the "eh" or the "puh" of the blip. (Full disclosure: plagiarizing myself; used that blip line before on
, but it's too good not to use again.)
Dinging Dell -- or for those who are not yet Delled out:
fund's Scott Schoelzel was quoted
explaining why he liked
, which then was trading at around 30. Putting his money where his mouth is, Janus Twenty became one of Dell's largest holders. What's Schoelzel saying now? Yesterday he told me: "Needless to say, Dell kind of blew this quarter (by their own admission). The situation is very, very confusing and we have lots of differing opinions, even within our own shop.
"Speaking only for myself, I am pleasantly surprised the stock is only down 8. I expected more pain. I also expect the company to be in repurchasing shares on Friday
after a 48-hour SEC blackout following earnings
and this will probably help stabilize the situation a little bit.
"As for the fundamentals, it's controversial, but I believe they signed a number of corporate accounts in November and December, and they expected/projected certain volumes to ship to those customers in January. Simultaneously, they decided to keep pricing firm at the start of the new year, believing they had a pretty good read on the quarter (which is why gross margins were higher than most expected). Then, as January progressed (third week), it was clear that they had simply misjudged the early ramp rate of some of their newer corporate customers and it was too late to go back and lower prices, thus stimulating the incremental demand necessary to make the revenue line for the quarter.
"Lot of 'ifs' and conjecture but I think this is accurate. They know they got off their game and I hope this reintensifies the effort out of Austin. I still believe the model is systemically advantaged vs. their competitors (six days of inventory vs.
56, channel included) and they still grew units in excess of 50% for something like the 11th straight quarter!
"Nevertheless, the bears will have plenty to chew on for a while. Still a good company, good management, but probably not a great stock ... for a while."
Thanks, Scott. (Wouldn't say whether he has been a buyer, a seller or neither.) Dell won't comment on a possible stock repurchase, and says the rest of Schoelzel's comments are consistent with what it's been saying.