My Stock Winners

This is not a good report for the longs despite the temporary enthusiasm shown in AH. 19 cents was where a number of analysts already were. As many of you saw on CNBC, two analysts had their numbers at 18 and 19 cents and both were tepid on the stock. The “beat” occurred on conservative guidance … big deal. It still puts them at maybe a dollar per share in earnings for 2007, or over 75 times earnings based on AH price. Ridiculous.
International growth is slowing. Electronics is capturing a larger share of sales where they will have no edge over Best Buy, Wal-Mart, Costco, or Circuit City, and where consumer spending slowdown will be felt first. Tax rate is back up to a more normal level of 30%, and applied to even the high end of their full-year operating income guidance yields $1.03 per diluted share (analysts have been at $1.01, so there is no big news here, and if they hit the low end of their guidance, they will hit only 87 cents for the full year and miss the next two quarters expectations by WIDE margins). Share count is up over 1% for the quarter even though they announced a $500 million repurchase program in last quarter’s release (they did say, last quarter, that it would be used opportunistically when they thought the shares were undervalued … guess they didn’t think it was undervalued this past quarter). Operating profit Margin was a whopping 4.0% (go look at posts from Nemesis and other longs who are dreaming of 6% and even 8% profit margins).
Shares outstanding went up by about 4 million, and if you multiply by the current market price of about $75, you get what should be an increase to the firm’s equity of $300 million, and coupled with the net income of $78 million, we should have seen an increase of close to $400 million. But, equity only went up $197 million. The close to $200 million difference shows the effect of dilution from the stock compensation program. Basically, over twice the entire net income was wiped out by dilution. (by the way, if you used a more reasonable price like $35, then the $197 million in equity increase makes sense ($78 net income plus 4 million shares times $35 totals $198 million).
I’ll post more, but feel free to respond. Remember, short term market moves can be nasty, but also dead wrong. Look at any homebuilder like PHM. Look at a one year chart and the price action at the beginning of this year and what analysts were saying about the “recovery” in the housing market. Analysts were dead wrong then, and those stocks are down 30-60% in the past 6 months. Same here. Don’t panic.