The Institute for Supply Management has issued its reading for January non-manufacturing and the data is strong.  Very strong.  At 56.8, this is the best reading in almost a year.  Dow Jones was only calling for a reading of 53.1.

The business index was 59.5 versus 55.9 in December.  Employment showed the biggest gain to 57.4 from a prior December reading of 49.8 and prices rose only to 63.5 from 62.0 in December.  Even new order picked up to 59.4 from 54.6 in December.

The news this morning, particularly after the stellar jobs numbers, is really hurting longer-dated Treasury prices and driving yields higher.  The Fed Funds Futures are signaling a much quicker rate hike scenario than just a week ago.

The iShares Barclays 20 Year Treasury (NYSE: TLT) tracks the Barclays Capital U.S. 20+ Year Treasury Bond Index and its price is down 2.3% at $116.39. The ProShares UltraShort Lehman 20+ (NYSE: TBT), which is double inverse the price action (intraday) is up a whopping 4.6% at $19.32 on the day.

JON C. OGG

Benchmark Electronics Inc. (NYSE: BHE), Celestica Inc. (NYSE: CLS), Flextronics (NASDAQ: FLEX), Jabil Circuit Inc. (NYSE: JBL), and Sanmina-SCI Corporation (NASDAQ: SANM) all hang in the balance.  Unfortunately, the consumer move to Apple Inc. (NASDAQ: AAPL) and Apple’s use of Foxconn is another wildcard (even with its suicide problems) because much of the business goes in that direction.  Still, upside remains in some of these names as most of these companies get business from multiple sectors outside of technology manufacturing.

We have looked at the current share price along with recent share performance.  Also considered is the fundamental trends behind each, as well as the consensus price target from Thomson Reuters and current and forward price/earnings analysis.

Benchmark Electronics Inc. (NYSE: BHE) trades around $15.00 and the 52-week range is $12.01 to $20.24.  With an $870 million market value, this one trades at 17-times expected earnings and 15-times expected 2012 earnings.  Thomson Reuters has a mean price target objective of $14.90, indicating implied upside is non-existent.

Celestica Inc. (NYSE: CLS) trades around $8.00 and the 52-week range is $6.79 to $12.48, it is worth about $1.7 billion market value, this one trades at under 8-times expected earnings and slightly further under 8-times expected 2012 earnings. Thomson Reuters has a mean price target objective of $9.88, indicating implied upside of about 23%.

Flextronics (NASDAQ: FLEX) trades around $6.00, its 52-week range is $5.05 to $8.50, and it has a market cap of $4.3 billion, and .  With an $870 million market value.  Flextronics trades at 7-times expected earnings and about 5.6-times expected 2012 earnings. Thomson Reuters has a mean price target of $8.00, indicating implied upside of about 33%.

Jabil Circuit Inc. (NYSE: JBL) trades around $21.40 and the 52-week range is $13.94 to $23.09, so it is the least punished of the whole EMS lot.  Jabil has a market value of about $4.4 billion.  Its fiscal year is not until August, so its expected earnings multiple today is about 8.3-times expected earnings. Thomson Reuters has a mean price target of $23.73, indicating implied upside of about 10%.

Sanmina-SCI Corporation (NASDAQ: SANM) has a price of about $9.75 and the market value is just under $800 million.  Its 52-week range is $6.01 to $17.32.  Its fiscal year ends in September and it trades at a mere 6.7-times expected earnings. Thomson Reuters has a mean price target objective of $10.88, indicating implied upside of about 11%.

The achilles heel for these companies and their valuation is that all are international today and none of the group mentioned offer dividends to reward shareholders during the economic lull. 

The good news is that these companies add and contract with the global trends. A slower India and China are not helping, but Japan has been coming back on after last year’s earthquake and tsunami wiped out the Japanese growth story.  These companies are also tending to a poor European situation right now.  Most earnings estimates for the year have already come down in recent weeks, but the question is whether or not those have come down enough.

JON C. OGG

Facebook and its $100 billion valuation, although by far the largest on our list, is just one of many IPO potentials which will be in high demand. A new stock exchange, a host of online media outfits, a giant casino, big name retail, and private equity are all trying trying to have successful IPOs in 2012. You do not have to be an approved Second Market account holder or a venture capitalist to have a stake. Investors in 2012 can invest through business development outfits like GSV Capital Corporation (NASDAQ: GSVC), which owns shares of Facebook and Twitter, and Keating Capital, Inc. (NASDAQ: KIPO). These pre-IPO funds were not available ahead of many of the top 2011 IPOs. There is even the First Trust US IPO Index (NYSE: FPX) fund for investors looking at other investment strategies around IPO investing.

But other than those listed here, there are many other potential IPO candidates waiting in the wings. Among the private equity’s past giant leveraged buyouts are Univision and Clear Channel in media and TXU in power and electricity, which could all be potential IPO candidates if and when the market will accommodate them. Also, such companies as the fashion-deal site called Gilte Groupe, the “Angry Birds” video game maker Rovio, and others are also waiting in the wings with possible IPOs.

24/7 Wall St. has compiled a detailed review of each of the expected top IPOs for 2012. We have included details on the finances, backers, related entities, financial terms, the size of the IPO, and even the underwriting groups.

1.  BATS Global Markets, which was founded in 2005, first filed to become a public company in May of 2011. The company, which started as an alternative to the NYSE for equities trading in Europe and the U.S. is now the third largest equity exchange in America and operates the second largest pan-European multilateral trading facility. As such, this IPO is is a key one for investors of exchanges and trading platforms. BATS plans to raise up to $100 million through the offering. More than 90% of the company’s revenues come from trading U.S. equities. These days it is also a primary listing venue, meaning it can conduct IPOs. The global operator of stock and options markets plans to list its shares on its own exchange rather than the NYSE under the ticker BATS. The offering will have a dual-class share structure and the bankers are listed as Morgan Stanley, Citigroup, and Credit Suisse.

2.  Caesars Entertainment Corporation filed for its IPO in late 2011. This IPO is a holdover from the private equity buyout days when the company tried to go public but later retracted the offering. No exchange was specified nor was a ticker set in the filing. As of September 30, 2011, the company owned or operated 52 casinos in a dozen U.S. states and seven countries under the brand names of Caesars, Harrah’s and Horseshoe with a total gaming space of 3 million square feet and about 42,000 hotel rooms. Caesars Entertainment is what’s left of the massive $9.3 billion buyout by Apollo Global Management, LLC (NYSE: APO) and TPG in 2005. Sales in the first nine months of 2011 were more than $6.6 billion and operating income was was over $600 million, with a net loss after items of $467 million. Private equities and casino operators are paying close attention to this IPO. If the real size of the overall company is too large, perhaps the private equity firms may consider breaking the underlying companies up into separate offerings and utilize a ‘keiretsu’ approach under a network of companies.

Read Also: DJIA 2012 Gain of 12% Projected

3.  The Carlyle Group, L.P. filed to raise up to $100 million in securities in September 2011. As one of the best known names in the world of private equity IPO be one to watch, for investors and other private equity companies. No ticker and no exchange were designated in the filing, but the company named J.P. Morgan, Citi, and Credit Suisse as the lead underwriters. With more than $150 billion in assets under management, this private equity giant is a key player in real assets, global market strategies, and now also in funds of funds after buying a 60% equity interest in AlpInvest. With several private equity companies already publicly traded, Carlyle has been an IPO candidate group for years.

An SEC filing from Tuesday shows that things have not improved on its contract negotiations.  Things have deteriorated.  The age of austerity may be at fault.  For CSC investors, the hope is that this is just austerity.

The company disclosed all the way back in May 2011 it had “substantially completed negotiation of the terms of a memorandum of understanding with NHS which set forth the key terms of a reduction in the scope and related contract value of the parties’ agreement relating to the NHS IT program.”  Between May 2011 and the end of September 2011, U.K. government reviews of the NHS IT program occurred and U.K. government officials confirmed that they would continue to work with existing suppliers to determine the best way to deliver services in a way that allows the local NHS trusts to exercise choice while delivering the best value for the expense. 

It was further disclosed that the parties have been engaged in further discussions relating to the MOU since mid-November 2011, including a proposed contract amendment with different scope modifications and contract value reductions than those contemplated by the MOU.  The problem is here: “CSC recently was informed that neither the MOU nor the contract amendment then under discussion would be approved by the government.”  The company said that it expects that the parties will continue discussions in January 2012.

Due to the circumstances, CSC will recognize a material impairment of its net investment in the contract in the third quarter of fiscal year 2012… the company is unable to estimate the amount of such impairment… The failure of the parties to enter into a contract amendment, a significant delay in entering into a contract amendment or the execution of a contract amendment on terms unfavorable to CSC would result in a material impairment of CSC’s net investment in the contract and could have a material adverse effect on CSC’s consolidated financial position, results of operations and cash flows.

• “However, depending on the terms of such an amendment or if no amendment is concluded, such impairment could be equal to the Company’s net investment in the contract, which, as of November 30, 2011, was approximately £943 million ($1.5 billion).”

As you might have expected, CSC has withdrawn its previously disclosed fiscal year 2012 financial guidance.  Shares are down over 7% at $24.44 and the 52-week trading range is $22.80 to $56.61. With shares under $25.00 and with Thomson Reuters having (prior) earnings estimates of $3.73 EPS in March-2012 and $3.88 EPS in March-2013, the “value stock” screen shows a blended forward 2012-2013 price/earnings ratio of about 6.5-times expected earnings.  The problem is that those figures will come down greatly now. 

Our question is whether or not the $0.20 per quarter dividend, now 5 straight quarters in, is safe.  When the first $0.20 payout was made in December 2010 the CSC share price was around $47.00.  Now that price is under $25.00 and the new dividend yield is now 3.2%.

CSC now has a market capitalization rate of only $3.8 billion.  Its net tangible assets and total equity have come down this year while its long-term debt had increased slightly in the last two quarter-end reports.

Unfortunately, this is just not good regardless of how you measure it… Unless you were selling this one short.

JON C. OGG

This morning came word that United Rentals is acquiring RSC Holdings, Inc. (NYSE: RRR), another equipment leasing outfit, for an enterprise value of $4.2 billion after the inclusion of $2.3 billion in net debt.  The cash-and-stock transaction values the company at $18.00 per share.  The boards of directors of both companies have also unanimously approved this buyout and are recommending that holders approve the proposed transaction.

If you look at the combined outfit, the claim is a more attractive business mix, with greater scale and with enhanced growth prospects. On paper, this is one of those mergers which actually seems to make sense if its cost savings and new growth segments can be executed upon.

United Rentals has a market cap of $1.6 billion before the effects of this deal and its $26.04 share price compares to a 52-week trading range of $12.81 to $34.78.  RSC Holdings, Inc. (NYSE: RRR) closed on Thursday at $11.37 and its 52-week trading range is $6.26 to $15.04 and its market capitalization was nearly $1.2 billion.  RSC briefly traded above $18.00 per share and went up to as high as $22.00 in 2007 before the recession kicked in.

JON C. OGG

The total offering was 8.8 million at $13.00 per share, at the top of the proposed $11.00 to $13.00 price range. Angie’s List is a company which many investors might take a pass on because it is easy to argue that the company does not really need to be public.  But the other side of the argument is that any company that has 1 million subscribers DOES deserve to be public.  If you just take the offering result at face value since it priced at the top-end of the range, Angie’s List passes the smell test.

So, with a gain of 46% in revenues in the first three quarters of 2011 over 2010 ($62.59 million in 2011 versus $42.93 million in 2010), why is there “A Problem”??? The problem is that the net loss widened out to $43.2 million from close to $19 million a year earlier’ first nine months.  The company has incurred net losses since inception and had an accumulated deficit of $160.6 million as of September 30, 2011. The shares being sold by the company itself (not the shares sold by insiders) are earmarked for advertising and for increasing membership.

The first of the “risk factors” is where the problem comes up after the losses above: “We have incurred net losses since inception, and we expect to continue to incur net losses as we continue to invest aggressively to grow and penetrate our markets.”  The company is also in 175 major markets now, so how many markets are there for unlimited growth even though it specifically identifies New York City and Los Angeles (and internationally) in the filing?

Online companies are supposed to have a significant leverage over brick and mortar outfits.  Aggressively adding personnel and adding infrastructure is the obvious culprit, but if an online subscription service of this sort is not profitable with 1 million paid members and if it expects to keep losing money while it adds members, where is the future “E” in the P/E analysis?

The audience is an attractive one: typical members are aged 35 to 64, married, owning a home, college educated, and with annual household incomes of at least $100K.  In 2010, its members averaged 11.4 unique searches per member for local service providers and 37% of its members wrote a review on at least one service provider.

The filing noted that Angie’s List had cash of $10.5 million at September 30, 2011 for working capital purposes, although its “pro forma as adjusted” figure shows $82.7 million.  After we looked at the revenues, the service provider revenues are growing faster than the membership providers and the service provider revenue versus the membership revenue was $38.5 million versus $24.08 million.  It is easy to argue that providers are far more able to ramp up in spending than 1 million members

BofA Merrill Lynch led this underwriting effort, and it has many co-managers: Allen & Company, Stifel Nicolaus Weisel, RBC Capital Markets, Janney Montgomery Scott, Oppenheimer, ThinkEquity, and CODE Advisors.

This is not meant to just be a bashing session.  Frankly, the company’s growth has been very impressive and its group has grown much more than a 40+ year old male (that’s me) would have guessed from the start.  The fully diluted share count outstanding (if the underwriting group takes the overallotment) is roughly 56.9 million shares.  That generates a market cap of close to $740 million.

Determining the value here is something that investors probably have to be looking for out to 2013.  This one just seems too highly valued for now for our own taste.  Then again, we do tend to be conservative in valuations.  Who knows, maybe every service provider out there will have to not worry about the Better Business Bureau ranking and say “We have a great ranking on Angie’s List.”  Can the IPO rise? Sure.  We’ll review this one later after the dust settles from the IPO and after we can see more about how it really progresses as a public company.

The FULL SEC FILING is here.

JON C. OGG

The company issued a one sentence press release this morning saying, “MF Global today confirmed that the New York Federal Reserve has suspended MF Global’s designation as a primary dealer.”

• UPDATE: After 10:15 AM EST reports were coming out that MF Global is filing for Chapter 11 under bankruptcy protection. 

Now there are reports that MF Global traders are not being allowed to access the CME trading floor by CME Group Inc. (NYSE: CME) and additional reports that IntercontinentalExchange, Inc. (NYSE: ICE) is only allowing close-out transactions to be made by MF Global traders.

This is unfortunately one of those situations where a company is dying on the vine.  If financial firms cannot transact business, they are out of business.

Former New Jersey governor Jon Corzine was shown over the weekend to be instrumental in the bets that have brought the firm down.  Killing a big public financial company won’t be a great thing for what was otherwise a great career.

JON C. OGG

The pact is only a month out as the plan calls for these services at Kiosks starting in December.  What will seem ironic is that H&R Block noted some 11,000 offices in its press release, so this will not even add 3% to the total locations. 

Some expansion moves make sense.  This might be a good way for H&R Block to get its name out there in more locations and to recruit new clients, but a professional and financial services firm is taking a risk by going inside Wal-Mart.  If Wal-Mart’s current labor criticisms grow then the companies doing business with Wal-Mart will start to come under fire as well.

Intuit Inc. (NASDAQ: INTU) currently sells its TurboTax, Quicken, and QuickBooks software packages at Wal-Mart.  It would be unlikely for that to end.

Hopefully Wal-Mart won’t open up kiosks for divorce and personal injury lawyers as well.

JON C. OGG

We do not want to contribute to any rumor-mongering.  It was rumor-mongering on top of serious underlying problems and on top of serious financial leverage which helped to expedite and exacerbate the situations at Bear Stearns and at Lehman Brothers ahead of and during the financial meltdown.  We also want to note on thing: it is Friday and any ‘stabilization rumors’ would probably greatly change the very negative pre-market tone we are seeing this morning.

There have been loose reports that Jon Corzine had sought a deal with Barclays PLC (NYSE: BCS).  Frankly, the odds seem very low considering that U.K., European, and American regulators are not keen on banks and brokerage firms getting larger.  Bloomberg also reported that MF Global has drawn down on its credit lines this week as its credit ratings were cut to “junk” by both Moody’s and Fitch.

Dick Bove of Rochdale went on record this week saying that Goldman Sachs Group Inc. (NYSE: GS) may be interested in buying the company, but he clarified that this might not be an equity purchase.  He noted that it could be a reorganization purchase, which implies nothing for existing shareholders.

We also cannot expect that Jamie Dimon from J.P. Morgan Chase & Co. (NYSE: JPM) nor that Brian Moynihan of Bank of America Corporation (NYSE: BAC) will be willing at all to step in as they did during the financial crisis.  After all, these banks are being “encouraged” to limit their risk-taking activities.  Both banks, along with Citigroup, Inc. (NYSE: C), are said to be lenders in that prior Bloomberg report.

We have seen analyst downgrades this week from Keefe Bruyette & Woods as well as from Raymond James.

MF Global’s most recent earnings were no harbinger of great things.  Revenues were down by a double-digit percentage drop, compensation ratios were higher on lower revenues, charges hit the GAAP results, and even the adjusted earnings showed a loss. The company noted, “As of September 30, 2011, MF Global maintained a net long position of $6.3 billion in a short-duration European sovereign portfolio financed to maturity (repo-to-maturity), including Belgium, Italy, Spain, Portugal and Ireland. The laddered portfolio has an average weighted maturity of October 2012 and an end date maturity of December 2012, well in advance of the expiration of the European Financial Stability Facility in June 2013.”

As of yesterday’s close, MF Global had a market cap of almost $236 million.  It does need to be noted that Evercore Partners Inc. is advising the company on options for MF Global’s brokerage operations and for other options.

On Monday this was a $3.55 stock.  Shares fell to under $2.00 after earnings to close at $1.86 on Tuesday after the report.  Shares have slid each day: $1.70 on Wednesday and $1.43 on Thursday.  There are over two hours until the market opens this Friday morning and shares are indicated down close to 12% at $1.26.  Shares were down as much as 15% earlier this morning.

JON C. OGG

Infosys and competitor Wipro Ltd. (NYSE: WIT) are two of India’s largest business outsources. The two companies compete with IBM Corp. (NYSE: IBM), Computer Sciences Corp. (NYSE: CSC), Cognizant Technology Solutions Corp. (NASDAQ: CTSH), and Accenture plc (NYSE: ACN).

Business and government spending in the US and elsewhere is expected to grow as companies invest in new equipment and outsourcing for their IT needs. Even Europe is expected to grow if very slowly.

Those estimates, though, may seem to fly in the face of reality. But Infosys, Wipro, Cognizant, and India’s largest outsourcer, privately-held Tata Consultancy Services, could reduce a company’s IT costs significantly by replacing highly paid fired workers with lower paid, outsourced workers.

Goldman Sachs Group Inc. (NYSE: GS), an Infosys client, plans to fire more than thousand employees to meet its cost reduction goals of $1.45 billion. That’s bad news for the terminated employees, but might offer some good news for Infosys — and Goldman for that matter.

Of course, the big question for the India-based outsourcers is how much of growth they can expect to see between now and the end of the year. Infosys got 6.2% quarterly growth in the Americas during the quarter and expects growth to continue. The other issue they face is whether or not they can control costs. Infosys expects wages to eat away about 1% of the company’s operating margin this year.

Growth that depends on a depreciating currency in a weak economic climate is tenuous at best. There are a lot of things that can go wrong and put a serious crimp in growth forecasts.

But all is well today. Just past noon today, Infosys shares are up more than 8%, at $56.88, in a 52-week range of $46.12-$77.92. Wipro shares are up about 3.5%, at $9.77, in a 52-week range of $8.63-$16.81. Cognizant shares are up nearly 6.5%, at $71.82, in a 52-week range of $53.54-$83.48.

Paul Ausick