Monday, 12 July 2010

Alcoa Earnings 12th July 2010 - AMC

Alcoa Q2 2010 Earnings Release - 12th June 2010

All estimates since last quarter have been revised downward
Price of Aluminum very low over the last quarter

Market Cap is $11,170m

Current Asset - $6,619m. Total Liabilities $21,985. Net deficit $15,366.

Operating Cash flow $200m for the prior quarter Q1 2010 Prior year $1,379 - 2010.

A valuation of $11bn feels high. Historic results are probably not much to go by as we experience an exceptionally high global boom through considerable overspending.

A loss has been made in last 6 quarters except 1.

Large pension scheme deficit

Earnings estimates around $5,050m and 12c a share.

Prior quarter a loss of 19c a share.

Sales growth in the last 2 quarters, compared to same quarter of the prior year of 16% and 17% respectively. Taking prior year June 2009 quarter this would put revenue to $4,960m for the current quarter if this growth continues.

Aluminum prices have seen downward trend over the last 3 months.

USA accounts for 50% of the 2009 sales. The total sales to countries which have or will have some for of austerity measures is around 12%. This could prove detrimental for guidance.

Although China and India are growing the sales to these regions are not substantial. Construction in USA has not picked up and we will not see levels of activity achieved in 2007/2008.

There could be increases to supply in Germany and France due to increases in Car sales though this is unlikely to offset the downward aluminum prices together with the potential lower expenditure as a result of the austerity measures.

In December 2009 Alcoa had revenues of $5,433m yet obtained loss of 19c on these revenues. For March 2010 there was an improvement - revenues of $4,887m but on these revenues returned 2c underlying. So how $5,000m of revenue is going to be achieved with 12c a share as any ones guess. The option buyers though look like they are in the know.

Overall it would appear that both revenue and earnings are unlikely to be beat.

However looking at the current open interest, there is a significant number of calls to puts.

Currently (12th July 2010) there is 229,547 out of the money calls. That is for 229m shares at $10 a share would be $2,290m of value. With a market cap of only $11,170 this is a significant number of call options.

However the call options could have been placed as a result of getting buyers in with a view to close prior to results or alternatively to cover heavy short positions.

Shares as % of float have slightly increased since the last quarter but the shorts are not significant.

Recommendation :

No trade. I would like to short on fundamentals this but I believe the call options buyers are in the know !

Thursday, 8 July 2010


"Given the stock's valuation, there is greater downside risk than upside potential to," wrote Goldman Sachs analyst Sasa Zorovic. He reiterated his sell rating and $53 price target. 05/22/08

Another great quote from a great analyst.

Sales force is now $91.00

Overvalued Companies

The following companies are overvalued in my opinion most of them supported by either large shareholders or incompetent fund managers.

NILE (BLUE NILE) - PE Ratio 53 - Current Share Price 45.98
DG (DOLLAR GENERAL) - PE Ratio 23.76, massive debt , Share price 27.95
FAST (FASTNEAL) - PE Ratio -38 Share price 50.21 (A retailer with a cure for cancer)
ADSK (AUTODESK) - PE Ratio 45 Share Price 24.73 - Anyone would think they invented the iphone
COLM (COLUMBIA SPORTSWARE) - PE Ratio 23 - Share Price 45.68

S&P is currently 1060.

By contract PE ratio for Apple is 21.95.

HELEN OF TROY (HELE) - Updated 8/7/2010

Earnings came in at around 0.60c against expectation of 58c Reported earnings were 59c including the impairment charge. Stripping out the impairment charge gives 60c underlying.

Historically the May quarter has the lowest earnings.

Net Income for the quarter was $18.3m. Extrapolating this at x4 provides for $73.2m in earnings. Market capitalization is $676m. This would be a simple PE of 9.23 excluding any growth.

EBITDA is $26.8m. Say $110m for the year. Using a discount rate of say 15% would provide a valuation of $733m. There is also a further $100m of assets after paying off all liabilities not to mention the property that the company hold. This would bring the valuation between $750 - 850m. About 10% higher than the current share price at a very conservative measure.

Update : Post results the stock has risen by around 5% to 23.17 (at the time of the posting) 8/7/2010.

Wednesday, 7 July 2010



Q1 2011 - 7/7/2010

Share Price 21.71. Earnings out 8/7/2010 before markets close.

Recommendation : Buy


Range of brands. Recent purchase of Sure (large market in UK) and Pert Plus (large shampoo market in US)

Paid $69m for the acquisiton.

Approximate sales from acquisition are expected to be around $65m. If assume a gross profit margin of 35% on this acquisition then they will make around $24m per annum on this purchase.

There will be a strain on the SG&A of around say $6m as a result of increased marketing and product support costs for this acquisition. This will still provide for a revenue stream of around $18m. This pays for the acquisition in around 4 years. If there is amortisation of the acquisition costs over 20 years. This will strain earnings by around $3.5m.

Net annual earnings from the acquistion should be around $14.5m with cash flow at around $18m.

Earnings Target

Earnings target for the year is $2.56.

Revenue is expected to be $161,320m.

Q1 sales for prior year were $143m. Including a 6% increase this will bring sales of the existing product range to $151m.

The acquisition is expected to bring in sales of around $65m. Assuming even spread of revenue this should bring in a further $15m. This will bring sales in around $168m. ?? Not sure why analyst are expecting $161m but will see.

The revenue target therefore seems a little off.

Earnings analysis

On $161m of revenue earnings will be $0.58c assuming SG&A stay where it is - based on analyst expectation.

Potential amortisation strain of Pert acquisition as goodwill is amortised.

SG&A Analysis : Incentive compensation costs were $7.06 million lower in fiscal 2009. Incentive compensation is a very high proportion of overall profits. Around 10%. The prior year SG&A was impacted in the main by compensation payments and increased due to the share price increase and low ball targets. We shouldn't see this happening again.

My view is that if I take the prior quarter earnings of $16,658m which gave around 55c and add on say a further $3m from the acquisition we should get around 63-65c prior to any one-time restructuring charges.

Stock Price

The stock price has underperformed the market over the last 3 months.

Other notes

Effective tax rate is around 10%


Both price earnings and valuation look cheap. The company has some debt but enough cash to pay it off. They are acquiring smaller companies to assist with growth and paying out of current cash flow. Although this hits earnings due to the amortisation of acquisition costs, the cash flow increases.

On a valuation basis the company is around $671m in market cap. Revenue is expected to be around $750m. There is also around $100m of assets left after paying off all short and long term liabilities.

Year ended Feb-10 earnings were $71.817m. The recent acquisition should add around $14.5m to that earnings stream. This brings net earnings to around $86.3m per annum giving a PE ratio of around 7.7m.

Cash flow from operating activities should be around $90m. Assuming all paid out as dividend in the absence of growth opportunities - this provides for a yield of around 13% on current market cap.

Tuesday, 6 July 2010

Analyst Recommendations AMSC

Wunderlich Securities equity analyst Theodore O'Neill reiterated a buy rating and $50 price target on shares of American Superconductor (AMSC) on June 18 2010. Price then was $31.44. Price now on 6th July 2010 is $26.66. Excellent call Theodore.

Analyst Recommendations

Janney Montgomery Scott equity analyst Sasa Zorovic reiterated a buy rating and $40 fair value estimate on shares of Adobe Systems (ADBE) - June 18th 2010. Stock Price then was $33.12. Price as at 6 July 2010 $26.28. Well done Sasa excellent call !

About Me

I try and work a broadly market neutral strategy and based purely on fundamentals and my gut feel.