Hanover Compressor ( HC) uncorked a grand slam of bad news Tuesday, telling Wall Street it will miss earnings estimates, restate seven quarters' of results, oust its chief financial officer and that it received an inquiry from the SEC.

Investors responded by bidding the stock up 13%.

"The good news is all the bad news is out," J.P. Morgan analyst Michael Lamotte wrote in a research note. "We are maintaining our buy rating because of underlying asset value and our conviction that management will get it right."

Houston-based Hanover, which makes pumps to transport natural gas, saw its shares rise $1.92 to $16.

Kool-Aid

Banc of America analyst Jim Wicklund, who advised investors to "back up the truck" in early January, maintained his strong buy rating on the stock, saying that most of the negative news was expected and that the valuation remains compelling.

Others were less convinced.

Mark Roberts, a research director at Off Wall Street Consulting Group, described analysts' persistent bullishness as "totally odd" and said the rise in the stock price was due purely to short covering.

"There's no other reason for it. The bottom line is they misstated earnings for the year 2000 and then made a huge public offering in March 2001; what does that tell you?"

Roberts was referring to allegations that the company inflated revenues and earnings at a time when the company raised $170 million in convertible debt and executives sold millions of shares.

Roberts, who neither shorts the stock nor owns it, said the issue now is whether or not the company can actually make money. "They have extremely negative cash flow."

In its most recent 10-Q filing, the company posted negative free cash flow of $442.5 million for the nine months ending Sept. 30, 2001.

The Litany

Hanover said early Tuesday that it is restating financial results after improperly recognizing revenue on its Hampton Roads joint venture as well as its acquisition of two compressors and its sale of three turbine engines and a compressor.

The changes are expected to reduce the firm's 2000 earnings by 11 cents to 77 cents per share and will cut earnings for the nine months ended Sept. 30 by about 2 cents per share to 84 cents.

Hanover said the Securities and Exchange Commission has requested information relating to Hampton Roads. In addition, the firm ousted Chief Financial Officer William Goldberg and replaced him with John Jackson, formerly CFO of Duke Energy Field Services in Denver.

Hanover sliced its fourth-quarter earnings forecast to between 16 cents and 21 cents a share, well below the 39-cent estimate, and cut its outlook for 2002 to between $1.40 and $1.50 a share, below estimates of $1.67 a share.

The lower-than-anticipated results reflect a number of factors, including delayed transactions, currency devaluation in Argentina and increased expenses, particularly at acquired companies, the firm said, adding that it has also lowered its capital expenditures for 2002 to $250 million.

Hanover has been plagued by a string of shareholder lawsuits since the company said in late January that it had made investments in a number of joint ventures, including a 25% stake in a partnership called Hampton Road Shipping Investors II LLC.

Complication

"I think of Hanover as a simple business," said President and CEO Michael McGhan on a conference call. "Recent events have shown we've made it unnecessarily complicated."

McGhan said the firm is experiencing "the pain of rapid growth" but said the company managed to achieve $1 billion in sales in 2001 for the first time ever and that "the future is bright."

Responding to criticism that the company should have talked to investors sooner about the recent accounting problems, McGhan said the firm preferred to be "thorough" rather than swift and "incomplete."

He added that he is comfortable with the company's accounting practices, which include booking revenue on a "percentage-complete basis." This means that if a project is 10% complete, the firm will book 10% of the revenue.

As for the firm's "special purpose entities" and synthetic leases, which have come under scrutiny at a number of companies following the collapse of Enron, Hanover said it would not change the way it accounts for off-balance sheet transactions.

Hanover's shares have fallen 36% this year on concerns about the Hampton Roads partnership and its relationship to Enron ( ENRNQ), which owned a 6.2% stake in the company as of late November.