Skip to main content

Kudos for Kumar, and the Bizarre Story of Pediatrix

Also, Family Golf gets caught in a sand trap.

The Wednesday Wallop:

Analyst antics: Lampooning analysts is one of this column's favorite pastimes. The exception is when they stick their necks on the line with the kind of negative call that can break -- as well as make -- a career. As readers of this column are no doubt sick of hearing, that's just what Piper Jaffray's Ashok Kumar did several weeks ago with Dell . Kumar came out and warned about possible top-line growth problems at Dell. But when he made that call he was lampooned as someone whom investors always bet against to make money. Not this time. Late yesterday, Dell reported profits in line with expectations, but revenue growth was not as strong as hoped. The stock plunged in after-hours trading. For some reason much of the credit for dinging Dell is going to Dan Niles, of Robertson Stephens, whose timing of last Friday's call couldn't have been better. (Nice call, Dan.) But Kumar wins in this column's books for being first to break from the herd. (Interesting how eerily quiet my email was last night. As of 6 p.m. EST, not a single message about Dell.)

No Rx for Pediatrix?: Hate to rehash old news, but this one's too good to pass up. And besides, chances are you've never heard of it. It has to do with Pediatrix Medical , a Fort Lauderdale, Fla.-based rollup of neonatal and perinatal clinics that is a fave of the momentum crowd. Short-sellers have been griping for months about accounting irregularities -- nope, you never read about it here or anywhere -- but the company drowned out their warnings until last week. That's where we pick up this bizarre story: Last Wednesday, Pediatrix issued a press release saying that it expects to report fourth-quarter earnings that will beat analyst estimates. Oh, by the way, it added, the audit committee of its board had hired KPMG to do a concurrent audit of last year's financials because the SEC had discovered that a tax associate at PriceWaterhouse -- its auditor of record -- owned 165 Pediatrix shares. That's a direct violation of independent auditor rules. End of story, until Friday, when the company issued another press release. This time the company said that its new auditors, from KPMG, had taken a look at the books and requested additional information regarding Pediatrix's accounts receivables. Oh, and by the way, KPMG said, Pediatrix's accounting of certain acquisition-related costs wouldn't pass the SEC's smell test. In fact, the company added in its release, KPMG told the company that Pediatrix may be required to restate prior earnings. As a result, it concluded, investors might want to ignore what the company said only two days earlier about beating analyst estimates. In fact, it says it doesn't know when KPMG will be done with its audit. Must be why, even after the stock's slide, shortsellers claim they're in for the long haul, even after the stock has lost more than half its value. They're not convinced any medicine can cure what ails this company.

Speaking of rollup routs: One problem with rollups is that there are only so many good companies in any industry that can be acquired. Family Golf , the topic of a questioning item here two weeks ago proved the point Tuesday when it disclosed its fourth-quarter earnings would be below expectations. Seems revenue "was less than anticipated at many of the sites acquired in 1998," the company said. That was obviously a surprise to investors, whose efforts to unload Family Golf's stock caused the stock to plunge 5 5/16, or 44%, to 7 1/2. And don't look for a fast turnaround. "While we remain optimistic that most of the underperforming sites will, in the future, perform at levels comparable to our core golf centers," CEO Dominic Chang said, "it is clear that more than likely they will continue to underperform in the near-term." What's more, Chang said the pace of acquisitions -- the backbone of its story -- will slow this year. Without acquisitions, the company can expect a paltry 5% sales growth. (As with Pediatrix, haven't heard of many shorts covering -- not even down here.) Fore!

Herb Greenberg writes daily for In keeping with the editorial policy of TSC, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnerships. He welcomes your feedback at Greenberg writes a monthly column for Fortune and provides daily commentary for CNBC.