Friday, February 23, 2007

Domino Pizza Analysts Asleep

Domino’s Pizza Inc. (NYSE:DPZ) announced Q4 and year-end results. Revenues are off dramatically and the investment buzz has been negative as the company fights its way through a variety of problems. The major one being same store sales growth or lack thereof.

Analyst following has been almost minimal as investor trading volumes turned attention to other stocks. The current recap plan announced on Feb 7 has put a floor on the stock. The recap offer will be financed by borrowing.

Investors became disillusioned because of declines in revenues and same store sales while lenders who will be ultra cash flow oriented are prepared to advance well in excess of one billion dollars.

Once you get through the recap offer the lenders are telling you that the business fundamentals are more than OK. The same store sales problem can be fixed. Once debt is under control dividends may be re-instated.

Analysts have missed the boat on this one. In the conference call they will not be allowed to ask questions because of the recap offer. That will probably allow them to save face. Watch for them to start beating the drum when the stock has started to move.

Thursday, February 22, 2007

SalesForce Too Much Hype

Salesforce (NYSE:CRM) announced Q4 and year end results. The sub headlines promote extensive business successes such as large increases in net new customers and users. In the conference call (transcript available at Marc Bienoff Chairman of the Board and CEO continued to sell the sizzle. Reminding one and all that major third party forecasters are predicting that in the not too distant future significant percentages of the market place will be using software as a service. Well maybe but what about today and now.

EPS under GAAP methodology was break even. All the success of new customers and users was squandered. For some reason they started a hiring binge in Q3 and ramped up costs. There is nothing to indicate that the costs will settle down. Guidance is only in the $0.07 to $0.09 per share range. This is a shadow of previous more profitable years.

The company went so far as to promote a marketing event next week where a major customer is expanding from 6,000 to 25,000 users. This all smacks to much of hucksterism and not enough of financial fundamentals. Show me the money?

Methinks the stock is being talked up. Currently trading near its 52 week high would the stock break through into new territory? Look at the insider trading reports from Yahoo Finance. Insiders have been selling like crazy in recent weeks. The Chairman & CEO Marc Bienoff, The CFO Steve Cakebread and others have been exercising and selling on their options. If it was just once or twice we could understand a little bit. In this case the pigs were at the trough.

Salesforce wants to discontinue reporting growth of users. They state this no longer truly represents business drivers. The report will be phased out quickly. In actual fact with insider trading at this frenetic level they develop huge problems as they may be accused of trading on the basis of insider information. They would be better off just releasing monthly numbers as major retailers do and leave it at that.

So if the stock can now drop and management loads up on new options then we can drive the price up and make more money.

Its all just too pink sheet for my tastes.

Wednesday, February 21, 2007

Pre-Paid Legal Magic Trick

Pre-Paid Legal Services, Inc. (NYSE: PPD) announced results for the Q4 and year ended December 31, 2006. The press release breathlessly announced all sorts of excellent numbers. As a matter of fact the press release was a blizzard of numbers without any qualitative comments whatsoever. Everything was up and so much better; Hmmm. (I think the lawyers have a gag order on management)

The only comment that provided any real insight was in the first paragraph where they admitted that because of a 10% decrease in weighted outstanding shares they were able to trick the diluted earnings per share number up by 29%. Net income was actually only up 16%. This is clearly is not sustainable and basically is a magic trick. Maybe you should read the line

“Diluted earnings per share increased 29% to 94 cents per share from 73 cents per share for the prior year's comparable quarter due to an increase in net income of 16% and a 10% decrease in the weighted average outstanding shares.”

The press release only included financial highlights whereas most companies who are focused on disclosure actually provide the entire financial statement allowing the market place to reach informed conclusions about the state of affairs.

An interesting financial highlight showed dividends being paid in previous quarters and no dividends being paid in the past year. Dividends are one of the true and few ways to determine financial health. “In cash we trust all else is BS

Yahoo Finance reports “Pre-Paid Legal Services Inc.'s Corporate Governance Quotient (CGQ®) as of 1-Feb-07 is better than 23.1% of S&P 600 companies.” That means approximately 76.9% are better.

Last time I looked an incredible 70% plus of the float is short. Look for an interesting annual meeting.

Tuesday, February 20, 2007

Satellite Radio Experiences A Financial Gravity Event

One + One is not 2

XM Satellite Radio (Nasdaq: XMSR) and SIRIUS Satellite Radio (Nasdaq: SIRI) announced that they have entered into a definitive agreement, under which the companies will be combined in a tax-free, all-stock merger of equals with a combined enterprise value of approximately $13 billion, which includes net debt of approximately $1.6.

Following several years of hyper competition no one has been able to deliver a knock out punch. They now have determined that their best bet is to join forces and fight off all the other entertainment and communication options that are available. Much in the way of synergies is being promised. Wall Street Analysts have predicted savings in the billions.

FCC must rule on this one. Some think it will take a year before an approval comes down. Competing forces will complain and lobby for a disallowing. In the meantime the company will go through the motions of being synergistic efficient yet strategically distracted.

The merger does one very important thing. It eliminates management excuses about competition and scale. Combined you have approximately 14 million paying customers.

Watch for big write downs of impaired assets in the very immediate future. Then we need profits and positive cash flow almost immediately if not sooner, because the market is done waiting for this one.

People listen to music because they like the tune not because it beams in from outer space. Sports fans, news junkies and other genre’s are the same.

Management has not provided any forecast or guidance to speak of and is attempting to sell the move based on hype and spin. The number crunchers certainly have tumbled the numbers. My guesstimate is a continued spiral downwards as financial gravity pulls satellite radio back down to reality.