Daily Archives: March 18, 2007

Could GM Get Chrysler Cheap

DaimlerChrysler’s (DCX) unions are objecting to the company selling its US arm, Chrysler, to private equity interests. Labor representatives hold half the seats on the DCX board, and it appears to be their view that Cerberus Capital, Blackstone Group, and Centerbridge Partners, all of which are looking at Chrysler, would cut the company into parts. Such a maneuver would make financial sense. Operations such as Jeep may be worth much more alone than they would as part of the entire Chrysler operation.

All of this may play into the hands of GM (GM), the only large car company that has expressed any public interest in Chrysler. It could cut management, product development, and marketing costs and it is in a good position to negotiate with the UAW. All three of the US car companies will begin talks for their next labor contract in September of this year. The UAW understands that it may not be able to keep all of its jobs, but private equity firms have little to lose by cutting as many blue collar jobs as possible or, perhaps even closing some of the money-losing parts of Chrysler.

GM cannot afford to turn its back on the UAW because a prolonged strike could hurt its turnaround plans. And that may give it an odd advantage in getting Chrysler at a fair price.

Douglas A. McIntyre

Posted on: March 18, 2007 – 8:44 pm in Autos

Wall St. Gets Sick of Google

The Financial Times has floated the idea that Wall St. is sick of Google’s attempts to get into businesses outside of search and moving nowhere in the process. Investors holding the stock probably discovered that some time ago. Google’s shares are up about 7% over the last six months while the Nasdaq is up 5%.

The lack of appreciation in Google’s shares may cut two ways. Given that the company is still growing quickly and has close to 50% of the global share in online search, the company’s stock may be cheap. For the time being, that is probably right.

Those pessimistic about the search company’s shares can’t figure out why the firm has not had any success getting into another substantial business. Google has begun businesses that sell print and radio advertising. It has instant messaging, mail, and desktop software businesses. It has set up shopping and financial sites. A look at Google’s earnings show that none of them contribute anything to the company’s revenue.

Google’s new businesses may not go anywhere soon, but its search operations are growing so fast and are so profitable that the investment it is making in new operations hardly matters. Even if most do not pay off, they are having very little impact on Google’s numbers.

Google’s stock may be down, but the fact that it has not had a successful effort at diversification hardly matters. Selling the shares due to that makes very little sense.

Douglas A. McIntyre

Posted on: March 18, 2007 – 8:25 pm in Internet

Chinese Officials Want Boeing And Airbus Business

The move by the People’s Republic to compete with Boeing (BA) and Airbus is official. According to FT.com: "A statement on the government’s website issued late on Sunday said the state council – the cabinet – had taken an “important strategic decision” to begin research and development to enter the market."

The announcement is hardly worth making. China may be the second largest market in the world for commercial aircraft after the US, but it could take decades for the country to develop and manufacture jet aircraft on any scale. And, that assumes a number of things, particularly that the Chinese economy continues to do well and that there is not a major change in the structure of the government.

It makes a nice newspaper headline, but that is about the extent of it.

Douglas A. McIntyre

Posted on: March 18, 2007 – 8:09 pm in Transports

Omniture (OMTR): Insiders Are Bailing Out

By CrossProfit March 18, 2007

Why have insiders sold over 1.5M and divested from another 1M shares, or 9.6% of the float, over the last 18 sessions?

2006 trailing earnings and 2007 forward figures, as provided by Omniture, are as follows;

"Full Year FY 2007: Revenue for the company’s full year 2007 is expected to be in the range of $128 million to $130 million. GAAP net loss is expected to be in the range of $0.15 to $0.13 per diluted share. Excluding the effect of stock-based compensation expense, the amortization of certain intangible assets, imputed interest expense and non-recurring acquisition related expenses, non-GAAP net income for the year is expected to be in the range of $0.07 to $0.09 per diluted share. Omniture expects to record positive adjusted EBITDA in the range of $16 million to $18 million."

Note that the GAAP loss projected for 2007 by the company is $0.13 and non-Gaap, meaning excluding primarily stock option compensation expense is $0.09 profit. OMTR doesn’t expect to post a profit in 2007. Frankly, OMTR won’t post a profit in 2008 as well.

Heavy Insider Selling

From 2/20/2007 through 3/08/2007, insiders sold 1,116,282 shares between $14.96 and $17.04. We wrote about this and lo and behold insiders deviously switched tactics. Not only has the selling continued it actually increased in pace. A whopping 456,299 shares were sold by insiders between a week ago Friday and last Thursday. This brings the total dump to 1,572,581 shares in less than a month! As for tactics; insiders are not selling direct. All insider sales since 03/09/2007 have been indirect so as not to put any downward pressure on the stock price. This is a phenomenal amount of concentrated insider selling that has been noticed by the street yet the ‘ratings game’ has called for an upgrade! Makes one wonder whose back the insiders are scratching.

In addition to the above there have been non open market acquisitions and dispositions. Take Director Mark Gorenberg for example. In the past month, non open market acquisitions amounted to 574,145 shares. Non open market dispositions totaled 1,613,435 shares for a net escape of 1,039,290 shares. Put the two figures together and you get 2,611,871 shares which is 9.6% of the float, unloaded by insiders.

May the (sales)-Force Be With You

OMTR has come out with a ‘new’ ingenious way of reducing its selling expense – charge salesmen. Until now training and certifying programmers to install their software was carried out through the conventional method of company sponsored training seminars. Now OMTR wants programmers to pay OMTR for this training! WOW – an Omniture certificate that allows me to sell their software! This has been tried before by several companies that are no longer with us – may they rest in peace.

Analysts Reduce Earnings Estimates

Out of the 12 analysts covering OMTR, all have reduced 2007 EPS estimates by at least 50% over the past 3 months. Since the IPO in June 2006 at $6.50, OMTR has not reported a profit. True to say that revenue has increased handsomely yet margins are pretty much where they were six months ago. Now analysts are looking for a profit in the second half of 2008. Notice how the time frame is constantly being pushed forward.

We doubt if OMTR will ever be capable of producing earnings of a dollar per share due to its business model relying heavily on sales expenses that erode margins. Projected revenue growth over the next five years is 37% though this is a guestimate at best. Even if the revenue growth is 50% over the next 5 years the profits simply won’t be there. This is NOT a Microsoft type of software where you install and go. Constant support, updating and fine tuning is needed.

The sell and good-bye version is being developed by Google (GOOG). GOOG has already begun to test the Google analytics software. GOOG can and will give OMTR a run for its money in this area. To quell any rumors; GOOG is not interested in purchasing OMTR as it has in-house technical capabilities and patents. Google does not wish to pay patent royalties or engage in unnecessary litigation, which is the case with the OMTR technology. GOOG has enough litigation issues on its plate with YouTube.

We are not concerned with the options based compensation for Officers and Directors as this is within the norm.

Disclosure: Originally a personal opinion of CrossProfit analyst and is now the consensus at CrossProfit.com. CrossProfit will most likely short for clients on Monday 03/19/2007 but will not chase down below $12.00.

http://www.crossprofit.com

The new upgraded CrossProfit site is up and is Firefox compatible.

Posted on: March 18, 2007 – 7:59 pm in Research

Daimler Board Factions Attacks Private Equity Deal

Private equity firms have been circling Chrysler in the hopes of getting a cut-rate deal for the US arm of DaimlerChrysler (DCX). There have also been press rumors that GM (GM) is looking at the company as a merger target and that the Daimler board might take GM shares as part of a sale.

One of Chrysler’s supervisory committee board members who represents labor has come out and said that any deal that would break up Chrysler is not in the cards. Half of the members of the Daimler board represent employees, so the faction can’t be ignored.

The employee members of the board are likely concerned that a private equity firm might sell off Chrysler in pieces and that retaining jobs for union workers could be difficult. A deal with GM would at least mean that union groups like the UAW would have some leverage since they already represent the lion’s share of the largest car company’s blue collar workers.

The news media has been full of speculation that a private equity firm will emerge as the buyer of Chrysler. But, it now appears that such a move could be blocked at the board level.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: March 18, 2007 – 11:18 am in Mergers and Buy Outs

Sprint Chases The Profitable Customer

Sprint (S) has decided to try to attract the cell phone customer who keeps a handset glued to his head 24 hours a day. Perhaps it is a bigger market than Wall St. realized. The wireless service company is testing a program for unlimited voice, text, and internet access for $120 a month.

As The Wall Street Journal points out, consumers and small business customers have been used to unlimited calls for a single price over landlines for some time.

The $120 a month deal may help Sprint take customers from AT&T (T) and Verizon Wireless (VZ)(VOD), both have which have been besting Sprint in terms of adding new customers. Sprint’s shares are down over 25% over the last 52 weeks. The company is coming to market with a national WiMax network that can service as many as 100 million customers, but the launch of the platform is nearly two years off.

Sprint needs to take a few chances and differentiate itself from rivals. The stock market does not see much in the company’s shares now, and for current management to stay in place, that has to change.

Douglas A. McIntyre

Posted on: March 18, 2007 – 11:08 am in Wireless

Qualcomm Starts To Get Smart

Ever since Qualcomm (QCOM) upped its revenue estimate for the current quarter, the stock has moved back onto a positive track. The shares are up from $39.04 on March 5 to $43.68. But, the shares are still down over 12% during the last twelve months.

Investors have continued to fret about Qualcomm’s legal disputes with its largest customer, Nokia (NOK), and rival Broadcom (BRCM). Some of that is being cleared up now. Qualcomm and Broadcom dropped a number of the suits that they had pending against one another. According to The Associated Press: "The dismissed claims included allegations that Qualcomm violated six patents and Broadcom infringed on four patents, Qualcomm said. Each accused the other of misappropriating trade secrets."

Another fight between the two companies which is still pending resolution by the International Trade Commission is ongoing. But, Qualcomm appears to be more sensitive to the fact that Wall St. has been staying away from the shares during this period of protracted litigation because it left a number of issues about its revenue and intellectual properties rights open.

Broadcom’s (BRCM) stock is also down over the last year, by over 20%. It may need a break from time spent in the legal system just as much as its rival does.

Douglas A. McIntyre

Posted on: March 18, 2007 – 10:58 am in Wireless

Barron’s Digest March 19, 2007 Issue

Barron’s writes that efforts by Clear Channel (CCU) to complete its IPO may not be successful as some of its institutional holders dig in for a better price.

Textron’s (TXT) stock has doubled over five years to $90. Its position in field like helicopters and small jets may allow the stock to double again over the next five.

Saks (SKS) now trades at $19.40. Its plan to return to 8% operating margins over the next three years could help the stock move into the mid-$20s.

Ryder Systems (R), the truck leasing company, trades at $48, or about 10 times 2008 estimates. Earnings forecasts are conservative, and it the company beats them, the stock could move to $60.

ST Microelectronics (STM) is one of the world’s top five semiconductor companies. But, it has an earnings multiple that is double that of rival Texas Instruments (TXN). And, its cost controls can only push margins up so far.

At least one analyst is questioning the Cisco (CSCO) purchase of Webex (WEBX). The question is whether Cisco can really be a successful  on-demand software provider. However, there may be counterbids from IBM (IBM), Oracle (ORCL), of SAP (SAP).

The Neuberger Partners Fund likes shares that it thinks are beaten down. Its top holdings are Terex (TEX), D.R. Horton (DHI), NVR (NVR), KB Homes (KBH), Berkshire Hathaway (BRK-B), Goldman Sachs (GS), Joy Global (JOYG), American International (AIG), Centex (CTX) and UnitedHealth Group (UNH).

The AIM Energy fund thinks that gas and oil markets will tighten up in 2008 and 2009 as the market has "underestimated demand and overestimated supply". The fund’s picks are Bill Barrett (BBG), Southwestern Energy (SWN), Exxon (XOM), Petroleo Brasileiro (PBR), National Oilwell Varco (NOV), Grand Prideco (GPR), Schlumberger (SLB), Cheniere Energy (LNG), NRG Energy (NRG), and Chicago Bridge and Iron (CBI).

Weyerhauser (WY) insiders are unloading big holdings. Over the last 30 days, 18 executives have sold 787,000 shares.

Douglas A. McIntyre

Posted on: March 18, 2007 – 9:15 am in Press Digest

This Week on StockHouse March 12 to 16

By the StockHouse Editorial Team

The troubled U.S. subprime lending sector gave investors pause this week, making markets volatile amid worries that a slowing housing market could spread to other sectors of the economy.

Oil prices languished, but Micro-cap Monday columnist Danny Deadlock identified a small oil and gas exploration company (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19436 ) with a low cash-flow multiple that is expected to boost production in 2007.

Resourcex Reports profiled a gold and silver company that expects to begin production at its Dynasty Gold Project in Ecuador (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19437 ) later this year, or soon after.

The IPO market was soft after last week’s broken Clearwire (NASDAQ: CLWR) offering (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19438 ), said Jon Ogg. However, the IPO Digest columnist also noted that the market enthusiasm for BigBand Networks’ (NASDAQ: BBND) IPO could be a predictor of better stability (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19455 ) for new listings.

This week’s StockHouse Top Five (http://www.stockhouse.ca/shfn/article.asp?edtID=19442 ) featured BullBoards poster franknstein for the second consecutive week, as the uranium junkie continued to flood the Boards with opinion about his favourite metal.

An update from the writers at Institutional Research Partners focused on recent good news developments at a financial content provider (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19443 ).

If market ups and downs from the past two weeks stoked worries about the equities market, there’s always art investing. The Weekly Wizard, Anders Petterson, explained how even novices can invest part of their portfolio in Old Masters and Emerging Artists (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19445 ).

And metals investing is likely going to continue to be hot. Steven Saville looked at historical trends, and wrote that gold (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19447 ) is likely to carry less risk going forward than silver investments.

The Securities Sleuth, Mark McNair, trained his sights on one of the most battered subprime lenders (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19449 ).

A news study showed that there may be risks to being too thin, said Leon Hamerling and J. Paul in the Bio Check (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19450 ). But that’s not likely to mean that drug companies will re-channel efforts to create weight loss medications.

Pure Metals columnist Luke Burgess went to Mexico to see Pediment Resources’ (TSX: V.PEZ) mining prospects (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19453 ) firsthand. Like all travelers, he brought back photos and maps and word of the people he met along the way.

The past two weeks showed investors that ETFs that mirror major indices can change as rapidly and unexpectedly as individual equities. Columnist Don Vialoux introduced a tool (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19454 ) for investors to determine entry and exit points for their ETFs.

With tax time fast approaching for U.S. workers, Nancy Zambell wrote her weekly Financially Fit column about the many advantages of IRAs. (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19459 )

And, John J. De Goey proposed a shift in the client-advisor strategy that could bring another full percentage of earnings to investors in STANDUP Advice. (http://www.stockhouse.ca/shfn/editorial.asp?edtID=19458 )

Posted on: March 18, 2007 – 8:35 am in Research