SEC Investigating Taser
Posted by Eddy Elfenbein on September 27th, 2005 at 9:19 am

The SEC said it’s expanding its investigation into Taser.

The U.S. Securities and Exchange Commission has now upgraded its probe to a formal investigation, allowing it to subpoena documents. The SEC had opened an informal probe of the company over statements about the safety of its stun guns and a distribution deal struck in December 2004.
Taser also said it understands the SEC is looking into the possible unauthorized acquisition of material nonpublic information by individuals outside the company in an effort to manipulate Taser’s stock price.
Taser shares were down 8.6 percent to $6.68 Tuesday in premarket trading on the Inet electronic brokerage system.
Taser has stood by the safety of its weapons, saying the stun guns have never been named as the primary cause of death when suspects were in custody.
Taser Chief Executive Rick Smith said in a statement that he hoped the SEC probe would address “all pertinent issues,” including what he said was data indicating that “there may be a large, improper, naked short position” in the stock.

The stock is down sharply in the pre-market. The stock is down over 75% since the beginning of the year. However, Rich Smith, at the Motley Fool is still bullish on Taser.

Citi Ungrouped
Posted by Eddy Elfenbein on September 26th, 2005 at 11:50 am

Tom Brown has a “modest proposal” to increase Citigroup’s value. Break it up.

I should say up front I was never a big fan of the supermarket strategy that was behind the 1998 creation of the Citi monolith in the first place. Huge scale doesn’t count for much in financial services, for one thing. And in financial services, smaller, focused players tend to outcompete large, diversified ones. That’s why, for instance, community banks reliably take deposit market share from the large national banks. And it’s why the monoline card industry was able to drive all but a handful of players out of the card business. The idea behind Citi was flawed from the beginning—which is one reason the stock’s P/E has eroded steadily for the past seven years.
By contrast, a breakup of the company would be a great strategic move and profound gesture to shareholders and competitors. In our view, a leaner, more focused group of legacy Citi businesses would emerge and be vastly preferable to the current bureaucratic Byzantium. The units would be much more effective competitors as smaller, focused players than they are now. So management can and should admit the obvious: the company is so big that, strictly by the law of large numbers, it can no longer generate meaningful company-wide organic growth. To put matters in perspective, if the company were to grow by 9% annually, net income would have to rise by $1.6 billion in 2006, which is roughly the equivalent of creating a brand-new BB&T. Incremental acquisitions, meanwhile, would have to be huge to make a meaningful difference, and would be tough to execute well (as management has publicly conceded).

Reuters Vs. Bloomberg
Posted by Eddy Elfenbein on September 26th, 2005 at 8:52 am

The same speech on the same day is covered by different journalists.
Bloomberg:

U.S.’s Bernanke Is ‘Pretty Optimistic’ About Economy

Reuters:

Energy prices risk to US economy—Bernanke

Wall Street Art
Posted by Eddy Elfenbein on September 25th, 2005 at 5:58 pm

Four years ago, the stock exchange repealed its requirement for engravings on stock certificates. To some poeple, this is a lost art.

What Consistent Performance Can Tell Us
Posted by Eddy Elfenbein on September 23rd, 2005 at 2:03 pm

Haywood Kelly at Morningstar has an interesting article on corporate consistency. He found that companies with high sales growth rates tend to revert to the mean fairly quickly. But companies that are able to maintain high returns-on-equity tend to maintain them. This makes sense since sales growth can simply be a part of luck, but ROE is a better measure of management. A skilled management is likely to stay skilled.

Boring Insurance Stocks?
Posted by Eddy Elfenbein on September 23rd, 2005 at 12:34 pm

I often hear people say that insurance stocks are “boring.” That may be true, but it doesn’t mean that they’re not profitable. Despite the recent devastation from Hurricane Katrina, two of our insurance stocks (Brown & Brown and Progressive) are at new highs today.

Oracle’s Earnings
Posted by Eddy Elfenbein on September 23rd, 2005 at 11:54 am

After yesterday’s close, Oracle reported earnings of 14 cents a share. That was in line with expectations, although sales were slightly below forecasts. The company expects to earn 80 cents a share for the next fiscal year, which means the stock is going for about 16 times next year’s earnings. Don’t be fooled, I still think Oracle is overpriced. When you get right down to it, the company’s core business is not growing.

But the sluggish sales of Oracle’s flagship database systems, which had been a mainstay of the company’s growth, surprised analysts. Oracle reported $502 million in combined sales of its database software and “middleware,” additional software used to deliver Internet-based applications. That compared with $494 million in the year-earlier period.

That translates to a growth rate of 1.6%. What does Larry have to say?

Oracle Chief Executive Larry Ellison said he didn’t think “flattish” database results were “indicative of anything,” and primarily were the result of a tough comparison with last year’s results, when database sales grew 20%. “It’s going to be very, very difficult for us to sustain that the following year,” he said.

I’m not sure if the earnings isn’t “indicative of anything.” It may not be indicative of future “flattish” growth. But it’s absolutely not indicative of future strong earnings growth.

I’m also concerned about Oracle’s massive buying spree. The company is going to Seibel, plus it also bought PeopleSoft recently. Oracle has also bought Retek, ProfitLogic and I-Flex, plus several smaller firms. That’s a lot for a company to manage, and I’m generally not a big fan of mergers anyway (Morgan Stanly for more). I would stay away from Oracle until the company shows that it can grow its core business again.

Aloca’s Cuts Its Profit Outlook
Posted by Eddy Elfenbein on September 23rd, 2005 at 11:27 am

The third-quarter earnings season will begin in a few weeks. Alcoa is usually one of the first, is not the first Dow component to report. As such, it becomes the “New Hampshire Primary” of earnings season. And like the Granite State, Alcoa is not a very good representation of the entire market.

In July, Alcoa reported strong earnings and that was a positive—and accurate—indicator for the rest of the earnings season. Also, Alcoa’s seconcd-quarter earnings report came at a very good time, one day after the terrorist attack in London. The market clearly wanted to see some good news.

But I remember being struck by Morgan Stanley’s comments. The firm was nearly alone in being unimpressed with Alcoa’s earnings, and it reiterated it “equal-weighting” rating. Now it seems they were on to something. Today, Alcoa cut its profit outlook for the third quarter.

Alcoa said it expects earnings from continuing operations to be between 27 cents and 31 cents a share for the third quarter, well below the current Thomson First Call average estimate of 43 cents a share. A year earlier, the company earned 34 cents a share from continuing operations.
Aluminum prices have rebounded 10% on the London Metal Exchange during the third quarter to about $1,858 a metric ton of aluminum, up from less than $1,700 a ton in early July. However, Lloyd O’Carroll, chief economist and metals analyst at BB&T Capital Markets in Richmond, Va., says part of the problem for Alcoa is the lag between when contracts were signed in the second quarter—when aluminum prices were lower—and when the sales were finalized in the third period.
Indeed, the company said that while aluminum prices have strengthened recently, those improvements won’t fully be felt until the fourth quarter.
The company said demand was weaker in Europe and also in the North American automotive market, which has seen auto production slow in recent months amid higher gas prices. Alcoa also said that its results could be affected by the recent hurricanes. The company has temporarily closed its alumina refinery in Point Comfort, Texas, as well as its anode plant in Lake Charles, La. “You would think one of them would get hit,” Mr. O’Carroll said. “They are at risk. How much damage and how big a deal this is, it’s too early to know.”

That’s a pretty hefty cut in earnings. Again, I wouldn’t say that Alcoa is a good indicator for the rest of the economy, but it does tell me that there are some soft spots out there.

WorldCom Investors to Get $6 billion and Bernie’s House
Posted by Eddy Elfenbein on September 22nd, 2005 at 5:25 pm

This is good. A judge has just approved a legal settlement for World Com investors.

Under the settlement, Ebbers will give up many of his personal assets, including a multimillion-dollar home in Mississippi and his interests in a lumber company, a marina, a golf course, a hotel and several thousand acres of timberland. The Wall Street Journal estimated that the sale of Ebbers’s assets could generate up to $28m for the investors.

Update: Ebbers couldn’t be reached for comment.

Katrita
Posted by Eddy Elfenbein on September 22nd, 2005 at 1:36 pm

I think CNBC is slowly becoming the Weather Channel. Now we get updates on stocks, bond, futures and the latest movements of Hurricane Rita. The storm is now a Category 5 monster with 170 mile-per-hour winds. Thankfully, the local government officials seem to be on top of things this time. Houston has been evacuated, and many of these poor folks are already evacuees from New Orleans.
According to the latest estimates, Rita will hit land somewhere in Texas sometime late Friday. The bad news for Wall Street is that it will have to wait over the weekend to access how bad the damage is. The good news is that Wall Street will have to wait over the weekend to access how bad the damage is.

Update: CNBC’s noted meteorologist Bill Griffeth just said that Rita is now a Category 4 storm.