Saturday, March 27, 2010

Ambac Brilliant Downgrade by Moody's

Ambac (ABK) downgraded by Moody’s to a notch above bankrupt. This unique analytical insight comes after the State of Wisconsin started to seize assets and Ambac says they may have to go bankrupt.

Wisconsin of all people. Wisconsin is not what you would call a major Wall Street or even Washington Beltway player. But they pulled the plug and did what made sense at this point.

The Wisconsin move triggers Moody’s to downgrade. If you needed any proof that Moody’s is a historical news service and not an analytical service here it is.

I wonder if this is the beginning of a new financial technique. I mean when a regulator has enough B#LLSH#T and tries to protect the public will we call it a Wisconsin

Friday, March 26, 2010

Accenture The Place To Be?

Accenture (ACN) a global consulting practice delivered a 2% drop for Q2 net revenues. Based in Dublin, Ireland but still having a tax rate of 27% to 28% the company reported a few commodity like items as if they were a fast food company. Some geographical and operating group numbers were provided. It’s just like McDonalds telling you how many Big Macs were sold in Australia. Important for McDonalds.

The intrinsic nature and value of a consultancy is the intellectual capital and the people who create and exploit the intellectual capital. The shareholder when reading the earnings release has no idea of how well the investment is doing in relation to intellectual capital.

Any market place has trends. Any market place has thought leaders and innovators. Accenture is not demonstrating to the investor that they possess any of these qualities. The numbers show a disconcerting 2% decline. (Foreign exchange helped Accenture big time this time around)

Is Accenture the place to be?

Thursday, March 25, 2010

Apple -- Succession Plans for Directors Badly Needed.

Apple (AAPL) experienced the sad loss of Jerome B York and now must find a new board member. This means time and cost to mount a search and then bring the new guy up to speed. In the mean time the board has a hole and shareholder interests are not well served.

Why not have a succession plan for directors and have one or two distinguished people sitting on the board as non voting but fully in the loop, attending meetings and experiencing the same information flow as the other directors.

Could go a long way to improve governance. Could go a long way to letting shareholders know who is coming up next. Could go a long way to stabilize boards of directors.

Just a thought.

Bank of America Profits From Moral Hazard

Bank of America (BAC) announced a mortgage forgiveness program for those customers who are so underwater that it makes sense to walk away. You have to be two months in arrears to qualify. Plus most importantly the mortgage has to be worth more than the house.

The Pandora’s box that is opening concerns all the other mortgagee’s who are eking out the payments. Why should I pay will be the immediate question. How do I scam the system will be question number two. The question Bank of America executives will face will be how many customers will start to conspire to screw them. The bridge called moral hazard has been lost.

It will be a very very long time before their numbers are believable. But hey that’s what the regulator influenced them to do.

Wednesday, March 24, 2010

Google Sergey Brin Strategic Flaw

Google (GOOG) co-founder Sergey Brin suddenly explains to Wall Street Journal that China is reminding him of Russia and the secret police visits he experienced when he was six years old. Especially now that the Olympics are over he feels that Beijing has turned the screws.

Sergey Brin you have miscalculated China from the start and are now just making up pseudo moralistic stories after you crashed the Google Ferrari against the Great Wall of China. You cannot call yourself global and stay out of China.

Watch China and others steal all your good people with more money and opportunity. Strategic misstep and you still cannot admit it to yourself.

Starbucks Dividend Culture Experiment

Starbucks (SBUX) announces a first ever ten cent @ share dividend. The CFO Troy Alstead issues the dividend signal with this comment “We are confident in the overall financial strength of our business and the strong cash flow it continues to generate”

The CEO Howard Schultz will update investors on its turnaround strategy and what's next for the jumbo brand later today. At the same time they will expand their share repurchase program. The stock is near its 52 week high and they need to boost it into a higher stratosphere.

The key statement which comes on the same day as their annual meeting is that they are targeting a payout of 35 to 40% of net income. Net income has been a roller coaster in the past.

Dividend oriented investors are not interested in roller coasters.

Starbucks will need to manage itself very differently to satisfy dividend oriented investors.

Tuesday, March 23, 2010

Walgreens Acquisitions or Dividends or Both

Walgreens (WAG) printed some great numbers and seems to be on a roll. They are the premier drugstore brand in the USA, with a big footprint in the urban landscape. Some 65% of revenues come from pharmaceutical prescriptions.

Yet they were negatively impacted by a milder than expected cold and flu season. When you become so large you are influenced by demographic demands that are beyond management’s control. So one of the ways to assess this stock is to follow public health information which is not readily available to the investing public.

Management traditionally does not speak to this data. Are the blind leading the blind?

A big cash position has been generated. Inventories have been squeezed down and some fixed assets disposed of. The question becomes what are they going to do with some $3 Billion in cash and near cash. That is approximately 10% of their market cap and they will need to put the money to good use. They have been on the acquisition trail and they have been upgrading their stores.

What is next? Foreign acquisitions may be on the horizon? Given their purchasing power with the pharmaceutical industry they may wish to consolidate the power in other markets and keep the squeeze on.

But first they have to issue the dividend signal. The size of the dividend increase will tell more than the fact the dividend is increasing.

Feinberg Pay Czar Implements Rear View Mirror Socialism

Kenneth Feinberg plans to review executive pay at firms that took bailout funds to determine if any compensation paid during a short window should be returned. So says the Wall Street Journal.

The whole pay thing is too stupid. You want to review contractual arrangements. This is tantamount to rear view mirror socialism. If we want to regulate financial institutions so as to protect the public from excesses on Wall Street review how the pay packages work and what you have to do to earn the big bucks.

Big bucks are warranted in many cases. It's when the executive is incented to take huge risks by way of his/her bonus structure thats when the regulator needs to get in and protect the public.

Kenneth Feinberg may be trying to create a bully bureaucracy and try to intimidate Wall St. I can just see the next crisis. A bank president calls the Fed and says we're in trouble I need $200 billion right now. But no Feinberg or we let the joint burn down and to hell with it.

Monday, March 22, 2010

Williams Sonoma No Debt? Really? Look at Balance Sheet. Amended 03/25/10

Williams Sonoma (WSM) excited the shareholders by announcing a dividend increase of some 8.3%. Substantial and well in excess of inflation. Shareholders rewarded themselves and boosted the stock upwards. It trades near it’s 52 week high and needs something to breakout.

The company seems to be doing well. They sourced lots of cash, closed down poor locations. They also let their payables and accrued employee compensation increase somewhat which only added to the cash position.

So what do we believe in? The dividend signal is powerful. Management and the board have told the market that prosperous times are about to unfold. They still carry substantial debt when you include the deferred rents and leaseholds. The consumer can survive by not shopping at Williams Sonoma. So if you are concerned about a double dip recession this one is vulnerable.

Speaking of the danger of a double dip management comments in the press release were non existant about the economy and how their offerings were faring. The only comment from Howard Lester, Chairman and CEO was a slight double speak comment about Q4 economic fragility but we expect good things in 2010. Read this snippet and see if you can spot the psyche game:

While our fourth quarter results were substantially better than we expected given the continuing fragility of the economy, in 2010 we will continue to garner the benefits of the strategic and tactical initiatives that drove our success in the fourth quarter.”

Howard Lester also went on the say that the cash position went up with no debt. Hey dude you mean no new debt you still have a lot of long term debt around which you have to service. Here is the offending quote;

Our fourth quarter non-GAAP diluted earnings per share grew from $0.31 to $0.86 and we ended the year with over $500 million in cash and virtually no debt.”

Too much window dressing on the cash no debt comment. Good luck with the dividend signal strategy.

This posted was amended regarding the overall indebtedness of the company. The main point of the post still stands. There are huge deferred rents and lease incentives which need to be serviced. This is a back door way of borrowing from mortgage lenders through your landlord.