The Market Today

I’m not pleased with the market today. Two of our stocks reported earnings that were inline with expectations, but they gave modest outlooks for next quarter. So both stocks got nailed for big losses. I don’t know what to say. This market wants results right now, and anything less gets punished. This was not a fun day. Every single sector was down. Today was the peak day for earnings. Tomorrow the market will focus on the GDP report.
Our Buy List lost 1.69%, and the S&P 500 fell 1.05%. Our big loser was CACI International (CAI), which dropped $8.29 or 13.7%. If you’re not familiar with the company, it’s a major defense contractor based in Virginia. The company reported earnings that we inline with expectations, but it guided lower going forward. The company sees earnings next quarter of 69 to 72 cents a share. The Street was looking for 72 cents. That doesn’t seem so bad, but the market will hear none of it. Just so we have this right, the company’s low end is three cents below expectations, and we drop 829 cents. The market is giving these “missed profits” an earnings multiple of 275, and they’re not even missing yet! If you’ve been a long-time owner of CACI, you might have a sense of deja vu. Solid profits and the stock get slammed–that’s exactly what happened nine months ago.
With Respironics (RESP), we have almost the same story. The company makes those weird mask things that help with sleep apnea. RESP reported earnings of 28 cents a share. Again, this was inline with forecasts, but the stock took a 5.4% hit due to a tepid outlook. The company sees earnings of 35 to 36 cents a share for this quarter, while the Street was looking for 36 cents a share. The stock dropped $2.05.
One of the bright spots is Frontier Airlines (FRNT), which seems to be showing some strength lately. I think the main trends will continue. The economy is getting stronger, interest rates are going higher, and oil is going lower.
Outside our Buy List, Aladdin Knowledge Systems Ltd. (ALDN) reported earnings of 24 cents a share, one penny above expectations. I had discussed this stock two weeks ago. I was happy to see their margins continue to expand. For this quarter, Aladdin’s operating margins reached 18.6%, up from 16% last year. The company sees earnings of 24 to 26 cents a share for next quarter. The stock rose 34 cents today.

Posted by on October 27th, 2005 at 6:51 pm


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