• Five Gold Stars for Micros
    Posted by on October 24th, 2005 at 8:30 am

    One of my favorite blogs, Footnoted.org, gives five gold stars to Micros Systems (MCRS):

    For one, there’s the disclosure that the company doesn’t believe in perks for the top executives. That means no personal use of the corporate jet, no luxury apartments, no executive health plan, no private school tuition, etc…Instead a footnote to the proxy notes that the only perk executives receive are the same health insurance benefits that all employees get.
    But what really makes Micros stand out is that they make it very easy for individual investors to see how much the executive’s options are really worth. Because they offer no perks, the amount of money listed under “other annual compensation” in the summary comp table is the value of the options exercised in the past year. Most companies make investors work for this information by forcing them to read multiple charts and the accompanying footnotes.

    Micros reports earnings on Thursday.

  • Can Google Keep Rising?
    Posted by on October 24th, 2005 at 8:22 am

    Here’s an upbeat research report on Google from Needham & Co:

    Google (GOOG) reported Third-quarter 2005 revenue well above expectations. Given the momentum in Google’s business, and the implied 10% upside from current levels to our new price target, we are raising our rating to Buy from Hold.
    Gross revenue, which includes revenue both from Google’s owned and operating Web properties (proprietary) and from its partner sites (network), of $1.58 billion rose 96% year-over-year and 14% sequentially.
    Net revenue, which exclude traffic acquisition costs, or the revenue share with network partners, exceeded the consensus mean of $943 million by 11%.
    In all, growth was driven primarily by gains at Google’s owned and operated properties (up 20% sequentially), though Google’s network business was also solid (up 7% sequentially).
    And despite an increase in the revenue share with network partners, the overall gross margin increased 170 basis points sequentially to 59% due to the greater mix of higher margin proprietary revenue.
    Net revenue of $1.05 billion exceeded the consensus mean of $943 million by 11%. Operating earnings of $644 million exceeded the consensus mean by 8%.
    The adjusted earnings per share of $1.50 exceeded the consensus mean of $1.36. Not surprisingly, incremental operating margins (using gross revenues) declined 180 basis points to 41%.
    As usual, management did not provide guidance. Our revenue estimates increase due to the upside in the quarter and the likelihood of continued strong growth.
    Our earnings estimates also benefit from an assumed increase in mix of higher margin proprietary revenue, and from our use of a lower effective tax rate in 2006 (from 35% to 30%, which alone increases our 2006 adjusted earnings-per-share estimate by 54 cents).
    Given our new, higher forecasts and our shift to using 2007 forecasts to calculate our 12-month price target, we are raising our price target to $370 from $300.
    Google remains the leading technology company in the consumer Internet space, and arguably has one of the best platforms for expansion into new high-growth consumer Internet services.
    We continue to view Google as a core holding, and believe the company’s strong brand loyalty, the business’ substantial free cash flow and the team’s track record of innovation will lead to further gains.
    — Mark May, CFA

  • Will Harriet Miers Be Withdrawn?
    Posted by on October 22nd, 2005 at 2:01 pm

    I’ve been following the Harriet Miers futures at Tradesports. They have two contracts on Ms. Miers becoming a Supreme Court justice. One is simply whether or not she’ll be confirmed; the other is how many votes she’ll get.
    I noticed an odd discrepancy. The contract to confirm dropped far below the contract that she’ll get 50 or more votes. An arbitrage opportunity? I pointed this out to Donald Luskin at The Conspiracy to Keep You Poor and Stupid. He said that the vote total contract is only if there’s a Senate vote. Then we hit on the fact that there’s an implied withdrawl contract within these two contracts. Since the vote-to-confirm contract has fallen to 30, and the 50-or-more-votes contract is at 68, the withdrawl contract would be: 1-(.30/.68) or 55.8%.
    I’ve downloaded the historical data, and the withdrawl contract had been around 15%-20% for most of this week, but it only became Google-like in the past 24 hours.

  • Today’s Market
    Posted by on October 21st, 2005 at 5:22 pm

    So ends a very weird week. It seems like there’s no middle ground anymore. The S&P Value index was up 0.41%, while the Growth Index lost -0.11%. The Small- and Mid-Cap Indexes were both up, but the S&P 100 was down.
    Today was led by telecom tech and energy, while health care and industrials lost ground. Caterpillar’s (CAT) earnings held back the Dow, but the S&P 500 and Nasdaq finished in the black. Pfizer (PFE) continued to bleed and Merck (MRK) isn’t far behind. Pfizer’s low today was lower than its high price from July 3, 1997. Merck is below where it was on January 3, 1992. The company reports on Monday.
    So what’s doing well? Google. Today the stock jumped $36 making the search engine worth close to $100 billion. The company is now worth more than Coca-Cola (KO) and Wells Fargo (WFC). According to Bloomberg, Google is currently followed by 34 analysts; 25 rate the stock a “buy,” eight say “hold,” and only one, Philip Remek of Guzman & Co., says “sell.” In other news, Philip Remek disappears from Internet.
    The best news for us was the rebound in Frontier Airlines (FRNT). After yesterday’s debacle, the stock closed up about 6%, although it was weak in the afternoon. Our Buy List was up 0.38% today, compared with the S&P 500’s 0.15%. Nineteen of our stocks were up, and six were down.
    Among the losers, Fiserv (FISV) got dinged today. The earnings were fine by me, but David Trossman at Wachovia downgraded the stock. I’m not sure how a stock can beat estimates, give an upbeat outlook and get downgraded, but there you go.
    Brown & Brown (BRO) reached another new high today. On Monday, AFLAC (AFL) will report earnings. The insurance stocks have been doing very well. The consensus estimate is for 64 cents a share.
    And lastly, Business Week interviews Simon Ramo (the R of TRW) on why meetings stink.

    Do you have any tips for chairing meetings more efficiently?
    The most important thing is to be prepared, to know the subject and purpose of the meeting, and what you hope it will achieve. If you can’t find the time to prepare for meetings then you should stop calling so many. Another is to know the people who are invited. Think ahead as to which individuals are most likely to make the greatest contribution, and anticipate others who you’ll have to, as tactfully and gently as possible, interrupt to move the discussion along. Finally, keep the objective of the meeting constantly in your mind so you’ll keep moving toward the goal. But if the goal changes during or because of the meeting, be prepared to invent Plan B.

  • Top 10 Stock Symbols
    Posted by on October 21st, 2005 at 1:20 pm

    Just so you don’t think Wall Street is full of a bunch of stuffed-shirts:
    1. (BUD) Anheuser-Busch
    2. (WOOF) VCA Antech (veterinary services)
    3. (BOOM) Dynamic Materials
    4. (FIZ) National Beverage
    5. (LVB) Steinway Musical Instruments (in honor of Ludwig Van Beethoven)
    6. (ZEUS) Olympic Steel
    7. (CHUX) O’Charley’s Inc.
    8. (TAP) Molson Coors Brewing
    9. (BID) Sotheby’s Holdings
    10. (LENS) Concord Camera

  • Jeff Potter’s Letter to Frontier Employees
    Posted by on October 21st, 2005 at 11:10 am

    From the Denver Post, this is worth posting in its entirety.

    From: Potter, Jeff
    Sent: Thursday, October 20, 2005 11:19 AM
    To: All Frontier Employees
    Subject: Southwest Announces Service in Denver
    As you may have heard, and no doubt will hear repeatedly in the press over the next few days, Southwest Airlines announced today that they will begin service in Denver in the early part of 2006. We know that Southwest has a reputation that is sometimes larger than life so we wanted to address any potential concerns you might have about what this means to Frontier and what our strategy will be against a competitor like Southwest. While we didn’t know when, and we aren’t 100 percent positive as to where yet, it was an inevitability that Southwest would initiate service here. However, whether it’s Southwest or anyone else, we can all take solace in the fact that we have spent the past 12 years preparing to compete with any and all airlines, by building an amazing company, and offering the industry’s best product. So, in essence, it is each of you that has helped us prepare for Southwest.
    That being said, from a management standpoint, we too have been preparing ourselves for Southwest’s entry, and I think it is important to note that not everything you have heard about Southwest is necessarily true. It’s worth mentioning that we already compete with Southwest on about 75-80% of all F9 connecting markets (about 500 city pairs) and are competitive with them in pricing. While there is certainly no arguing their success, it may surprise you to know that based on the most recent DOT statistics (June quarter 2005), Southwest’s fares were actually about 12 percent higher than Frontier’s on a per-mile basis, in markets where we compete directly. Obviously, pricing power is one of Southwest’s primary competitive advantages in the markets it enters, but that won’t necessarily be the case here in Denver. In other words, we have been competing quite effectively for a long time.
    Just as the pricing “myth” is not necessarily always true, it is also important to recognize that at the end of the day, Southwest is just an airline. And, just as we would view any airline entering our home market, we will watch them closely. But we are not about to cower or back away. This is OUR home, and Southwest’s entry is just another opportunity for us to shine. It is an opportunity for us to show Southwest, as well as our passengers, what it really means to make a difference. Fact is, we have a better product with DirecTV, new A/C, more legroom AND, of course, assigned seating. But, more importantly, we have you. I have said it time and time again, our employees make the difference, and you will continue to be our competitive secret weapon. The loyalty you have helped create in this market with the level of service you provide our customers cannot be matched–by Southwest, TED or anyone.
    We are going to move forward as we always have–by running our own race. Yes, Southwest’s entry will have in impact in the markets they choose to serve from Denver, just as you would expect any additional capacity would. But, our goal is to continue to do what we all do so well–run a great airline and that requires each of you to continue doing what you have always done–keeping your focus on our customers, and not the competition. Again, they are the new kids on the block in Denver, and we should be ready to circle the wagons and protect our hub by continuing to run one of the most on-time airlines in the country; by consistently going above and beyond for all our passengers; and by never losing the intensity of our focus on offering an experience that is “a whole different animal.”
    However, I want to reiterate a statement we have made many times in the past-we MUST continue our diligent focus on CASM. Products, employees and loyalty aside, we are indeed doing battle on the cost side against all airlines, and Southwest is a staunch competitor when it comes to costs. We heard Gary Kelly, CEO of Southwest say it today on their conference call-they consider themselves the cost leader, and this industry is currently being won and lost on costs. We have done amazingly well on the cost side, particularly given that we operate out of one of the most expensive airports in the country, but there is much work to be done to remain competitive. So I urge each of you to scrutinize every financial decision you make for this company and view it in the context of cost containment.
    I personally want to thank each and every one of you for creating the best airline in the industry, and I assure you that our ability to compete with any airline, in any market, is a direct reflection of your efforts. Much as we did when TED launched, we will continue to keep everyone updated on any competitive measures taken by Southwest, or by Frontier, and if you have any questions in the meantime, please don’t hesitate to speak with your manager and as always, feel free to contact me directly.
    Jeff

    Well said.
    The Denver Post has more, including a list of possible routes Southwest (LVB) could fly to Denver International Airport. This move by Southwest is a direct response to Katrina.
    From Investor’s Business Daily, J.P. Morgan upgrades Frontier. It’s nice to see that not all analysts think alike.

    J.P. Morgan upgraded Frontier Airlines, Inc. (FRNT) to overweight from neutral and added it to its focus list. The broker told clients it believes the market has over-penalized Frontier for Southwest Airlines‘ (LUV) entry into Denver, while significantly underestimating Frontier’s earnings potential in fiscal 2007.

    And from the Colorado Springs Gazette:

    Mike Boyd, an Evergreen-based airline industry consultant, said fares will drop in Denver but likely not by much.
    “Denver is no longer a highfare market,” Boyd said. “Southwest will lower them somewhat more. But the other carriers will match (Southwest’s) fares, and they already offer a better product than Southwest does, including an assigned seat and satellite TV.”

    Frontier is up about 7% today, and oil is now below $60 a barrel.

  • Fiserv’s Earnings Report
    Posted by on October 21st, 2005 at 10:18 am

    Fiserv (FISV) reported earnings of 60 cents a share for the third quarter. This is a really good little stock. The company never floors Wall Street, but it almost always delivers solid results. It’s sort of the Craig Biggio of the financial data processing industry.
    Fiserv has consistently grown its earnings-per-share by about 18% for several years now. That doesn’t get anyone’s attention in one year, but when you look at the full record, it’s pretty impressive.
    Last year, FISV netted 47 cents a share. For the fourth quarter, the comapny sees earnings of 54 to 57 cents a share. For the full year, the company projects earnings of $2.28 to $2.31 a share. The stock was downgraded by Wachovia this morning, and it’s trading lower.

  • AP: Man requests 33-year sentence to match Bird’s number
    Posted by on October 21st, 2005 at 7:22 am

    OKLAHOMA CITY — A man got a prison term longer than prosecutors and defense attorneys had agreed to — all because of Larry Bird.
    The lawyers reached a plea agreement Tuesday for a 30-year term for a man accused of shooting with an intent to kill and robbery. But Eric James Torpy wanted his prison term to match Bird’s jersey number 33.
    “He said if he was going to go down, he was going to go down in Larry Bird’s jersey,” Oklahoma County District Judge Ray Elliott said Wednesday. “We accommodated his request and he was just as happy as he could be.
    “I’ve never seen anything like this in 26 years in the courthouse. But, I know the DA is happy about it.”
    Shouldn’t he have said that he’s a fan of Robert “00” Parish?

  • The Future, if any, for General Motors
    Posted by on October 20th, 2005 at 11:03 pm

    George Will with some sobering thoughts on General Motors (GM).

    General Motors took an interesting turn on Monday. It is going back into the automobile business.
    Granted, GM has always been in that industry, but it has also become the nation’s largest private purchaser of health care. This supposedly secondary role has become primary.
    GM has been forced to allow product development, pricing and other decisions to be driven by the need to keep sufficient revenue flowing in so it can flow out in fulfillment of GM’s function as a welfare state. GM provides $5.2 billion in health care annually — more than Harley-Davidson’s revenue — to 1.1 million workers, retirees and dependents. Retirees outnumber current U.S. employees 2.5 to 1. The $4 billion that goes annually to retirees does not go into developing products people want to buy.

    For several decades, the government has outsourced social welfare programs on the backs of corporations. The problem is that corporations are far more fragile than its detractors assume. Many of the blue chip names of a generation ago no longer exist.

    Shortly before Monday’s announcement that the UAW agreed to trim GM workers’ and retirees’ benefits, Delphi, the auto parts company that GM owned until 1999, sought bankruptcy protection. Under terms of the 1999 separation, GM may be liable for up to $12 billion of Delphi’s pension and health care benefits, which would offset GM’s gains from the UAW concessions.
    The bankruptcy of Delphi is another pebble — a big pebble; Delphi has 185,000 employees worldwide, 33,000 of them unionized Americans — in an accelerating avalanche of corporate decisions dismantling “defined-benefits America.” As a result, intergenerational strife, which has long been anticipated, may at last be at hand: Delphi proposes cutting the compensation — pay and benefits — of younger workers from $65 per hour to $20 or less, so it can fulfill the promise to retirees of a fixed percentage of their salaries.
    Robert “Steve” Miller, Delphi’s chief executive, minces no words, telling the Wall Street Journal that defined-benefit programs are imprudent anachronisms: “The notion of having all your retirement eggs in one basket — your employer — is a concentration of risk that is simply inadvisable for anyone in today’s fast-moving economy.” He calculates that a competitive American industrial compensation cost is about $20 an hour. And to get to a total compensation cost of $20, including health care, retirement and workers’ compensation, “which is high in the states we are in like New York, Ohio and Michigan,” you have to have a basic hourly wage of $10. Pay at Delphi’s plants in China is roughly $3 an hour.

    Daniel Gross at the Slate.com thinks that the UAW deal doesn’t go nearly far enough. As he sees it, GM is corned with no way out.

    GM has a pathological need to produce and sell cars—even at a loss—because it needs the revenues. For decades, GM has fought a vicious—and losing—battle against domestic and foreign competitors to maintain its once (and still) leading market share in the all-important North American market. In recent years, GM’s leadership has repeated the mantra that if GM could only retain market share in the short-term, many of its long-term problems will go away.
    A company that has high structural costs, pays a healthy dividend, and has made large investments in infrastructure needs to have all its factories running to the fullest extent at all times. A strike, even for a week or two, would prove devastating. It would halt production and screw up the just-in-time delivery system. Some dealers would have fewer cars to sell, or lose out on expected sales. Rivals would rush to capitalize on GM’s woes by offering incentives. And as the last few decades have shown, once GM’s customers go elsewhere, they tend not to return. GM wants a 28 percent market share in North America, but it’s down to 26.1 percent so far this year. A strike would drop that number even lower.

    The Federal Reserve is often described as the lender of last resort. I have a feeling that in the near future, the federal government will be the car marker of last resort.

  • Today’s Market
    Posted by on October 20th, 2005 at 5:54 pm

    I’m officially declaring that today never happened. Frontier Airlines (FRNT) plunged 28.6% on the news that Southwest Airlines (LUV) is moving into Frontier’s Denver hub. Merrill Lynch quickly downgraded the stock. That’s an awful downgrade. Did it never occur to the analyst that Southwest would or could do this? Obviously, I think today’s sell-off is waaayy overdone. The fact is Frontier has been competing against Southwest for along time. Southwest will probably get two gates at Denver’s airport, and they’re going to have about 40 employees there. That’s hardly worth chopping 28.6% off the stock.
    We’ll know all the details later, but we’re probably looking at maybe a dozen or so daily flights. I think this will hurt Frontier’s flights to Vegas and L.A., but it won’t harm their lucrative Mexico business. Frontier is a healthy company with a growing business. Earlier, Southwest moved into to Philadelphia and clobbered everyone. Frontier will not be such a pushover. I’m still holing on to my Frontier stock.
    eBay (EBAY) fell after its earnings yesterday. The online auctioneer earned 20 cents a share, which was inline with expectations. But due to the Skype merger, the company expects 20 cents a share for this quarter, which was one penny below expectations. Sales grew by 37%. The company forecast earnings for next year of 81 to 86 cents a share.
    Our Buy List dropped -2.85% today while the S&P 500 lost -1.50%. Ironically, the S&P 500 was up 1.50% yesterday. This was just an ugly day, although we’re still ahead of the market for the month. The good news is that oil prices continued to fall. Oil is now down to $61 a barrel. That should help Frontier tomorrow.
    Google (GOOG) just reported earnings of $1.51 a share which was far ahead of Wall Street’s estimates of $1.36. That topped that highest estimate on Wall Street of $1.46 a share. The stock is soaring in the after-hours market. Google’s bottom line increased from $52 million last year, to over $380 million this year. The company is now up to nearly 5,000 employees and has a market cap of roughly $90 billion. That’s $18 million per each employee. General Motors (GM), by contrast, is worth about $50,000 per each worker.
    Lastly, here’s a chart of how the energy sector has been doing over the past month. It’s not looking good, and I don’t think it will get better.
    enegy.bmp