Wednesday, December 30, 2009

Red Hat Is It All Out There?

Red Hat (RHT) released results recently and talked extensively about their deferred revenue and how pleased all the executives seem to be. They have a market cap of around $5.9 Billion. Charlie Peters - EVP & CFO reports in the conference call that at the end of the quarter cash and investments were $959 million. This represents 16%of the market cap for a company that trades at around 42 times forward PE. The management says things are going well with the subscription model and they continue to make acquisitions to augment their offering. They just did not offer any compelling vision that would speak to the 42 times forward PE valuation. The street and the management seem to be talking past each other and unless you really understand the sub-text investors will be sheared. This one is not taking any awards for transparency.

Tuesday, December 29, 2009

Navistar Q4 Word Games

Navistar International (NAV) played some word games in their press release. The press release stated at the front end “Driven by a pickup in fourth-quarter commercial truck volume and continued military sales....” OK did you spot the continued military sales part? When you drill down to Segment Results Trucks you get this line “Decreased U.S. military sales....” They are shifting gears and stepping away from the initial inference. Most investors remember the initial comments first and have less retention as you continue to read lengthy press releases.

In all honesty if you continue reading Segment Results under Parts you will find this snippet. “Military sales increased by $519 million, which more than offset decreased demand caused by the global economic climate.” Not exactly the same context as “...continued military sales...” The military is spending money on repairs and not buying as much new stuff. The private sector is not spending money on repairs because if the economy is off, truck usage is down and trucks are not wearing out as they used to.

Monday, December 28, 2009

3Com Last Chance Complaint

3Com (COMS), which is in the process of being swallowed up whole by Hewlett Packard (HPQ), issued a very bare bones Q2 earnings release and did not hold a conference call. The official logic would be why bother, the acquisition is about to happen. But as they are about to be acquired they manage to report increased gross margins of some 60.1% up from 57.3 percent in the first quarter of fiscal year 2010, and 56.3 percent in second quarter of fiscal year 2009. These improvement are normally worthy of much applause and executive bonuses. The question shareholders need to ask is why where these improvements possible in the last minute. Did the valuation with HP take this into consideration? Watch for HP to bury the 3Com numbers into their segmentations so that vending shareholders will never know.