24/7 Wall St. » KSWS

Beware of the Coming Activist Bubble

Jon C. Ogg — Fri, 08 Mar 2013 11:31:36 +0000

You have heard of all sorts of bubbles in the financial world. There are instances like the housing bubble, a bond bubble, the dot-com bubble, the tech bubble, the private equity bubble, and on and on. 24/7 Wall St. wants to introduce the term “activist bubble,” where too many super-wealthy advisors get too unruly in trying to milk out gains from stocks by pressuring companies into unlocking more shareholder value. We might not be in an activist bubble yet, but the trend of activist investing is getting to the point that a prudent investor might have to wonder if we are entering a new phase called the “Activist Investor Bubble.”

Just a few years ago, the common themes were out-of-control finances and out-of-control corporate leadership with no accountability to shareholders (nor to any moral hazards). The pendulum has now swung the other way, and perhaps it is starting to swing too far. Perhaps. Now anyone with access to millions of dollars or billions of dollars can aggressively go after a company for corporate governance issues. This can be over executive compensation, how a company should be capitalized, what forms of stock it should have, what terms it should have for a merger, whether it should split the roles of CEO and chairman, anti-takeover provisions, retirement compensation and on and on.

If you begged us to guess whether activism will grow or contract, we would think that activism will continue. Does that mean that there is not a risk nor that this is a bubble that will not burst and end badly for the public? Those are complicated issues and it may be quite some time before we know the answer. What is so interesting here is that the activist world very recently has targeted what may be hundreds of billions dollars worth of companies.

There are many instances where we cannot help but wonder if an activist bubble is helping to bolster many stocks. For starters, activists can often drive up a stock and create wonderful value. Sometimes they can get out of control, and sometimes they can go out and create absolute value destruction. The saying “there is no free lunch” is one that cannot be ignored, even by activists.

One big activist dilemma is General Electric Co. (NYSE: GE). GE is so large that forcing change is hard to do, but calls have been made over and over to break up the conglomerate’s empire. The problem is that weak units during one part of the business cycle act as cover for the other units when the business cycle changes. An activist might have said that GE needed to not cut its dividend during the recession, but this freed up enough capital that it probably saved quite literally tens of thousands of jobs at GE in the recession. Others have called for new leadership other than Jeff Immelt, while Immelt’s greatest blunders may simply have been that he took over after Jack Welch, when GE was trading close to 30 times earnings, and Immelt’s first day as CEO was quite literally a few days before the September 11, 2001 terrorist attacks.

A few powerful men with many financial backers behind them have gone after some really big companies. Again, this train is moving what is nothing short of hundreds of billions of dollars worth of companies. What you have not seen is why this may be a bubble. There is a serious risk in driving shareholder value in the short-term. Anyone can go in and propose layoffs, a spin-off, a recapitalization, a change in management and the like. The problem is that this effort can gut a company or it can merely be a win during one part of the business cycle.

Many efforts can be taken to unlock shareholder value. Special dividends can be issued. Debt can be taken on to pay a dividend or to buy back shares. Companies can go out and seek strategic alternatives. Companies can make their boards easy to change or they can get rid of any barriers that might lead to takeovers. There are dozens of more things they can do. The question to ask is whether creating short-term value comes at the cost of adding too much long-term risk. These risks are potentially serious issues that investors chasing activists have to consider.

Filed under: Accounting, Activist Investor, Austerity, Banking & Finance, Buffett, Compensation, Consumer Product, Corporate Governance, Dividends & Buybacks, Economy, Editor's Picks, Insider Activity, Labor, Labor & Unions, Large Cap Stocks, Management Change, Mergers & Acquisitions, Mergers and Buy Outs, Personal Finance, Private Equity, Regulation, Stock Buybacks, Technology, Technology Companies, Turnarounds, Value Investing Tagged: AAPL, AOL, BKS, CLX, CVC, CWH, DELL, DIS, featured, FOE, GBL, GDI, GE, GNW, HES, HLF, KSWS, LGF, MSFT, MSI, NAV, NFLX, PG, ROCM, SPW, YHOO

24/7 Wall St. Closing Bell — January 17, 2013: Markets Open Higher and Continue Climbing (VVUS, YUM, ADTN, GLW, MDT, EBAY, KMP, BAC, BLK, C, PNC, UNH, AXP, COF, GE, JCI, MS, COL, SLB, STI, CBS, KSWS, LEAP)

Paul Ausick — Thu, 17 Jan 2013 21:03:03 +0000

U.S. equity markets opened higher this morning following the report that new claims for unemployment benefits had fallen by 37,000 to a level not seen since 2008 (more coverage here). The government report on new housing starts also rose sharply in December, adding more fuel to a good start to the trading day (more coverage here). There was little data from both Europe and Asia, although Japan’s economy minister walked back his comments from yesterday regarding the yen’s value, causing the yen to fall again versus the U.S. dollar.

The U.S. dollar index fell 0.2% today, now at 79.651. The GSCI commodity index is up 0.2% at 653.31, with commodities prices mostly lower today. WTI crude oil closed up 1.3% today, at $95.49 a barrel on the strong U.S. economic data, among other things (more coverage here). Brent crude trades up 1.1% at $110.89 a barrel. Natural gas is up 1.5% today at about $3.49 per million BTUs after a sharper than expected drop in U.S. inventories (more coverage here). Gold settled up 0.5% today at $1,690.80 an ounce.

The unofficial closing bells put the DJIA up about 85 points to 13,596.09 (0.63%), the NASDAQ rose more than 18 points (0.59%) to 3,136.00, and the S&P 500 rose 0.56% or more than 8 points to 1,480.93.

There were a several analyst upgrades and downgrades today, including Vivus Inc. (NASDAQ: VVUS) cut to ‘sell’ at Brean; Yum! Brands Inc. (NYSE: YUM) cut to ‘hold’ at Argus; ADTRAN Inc. (NASDAQ: ADTN) cut to ‘sell’ at UBS and raised to ‘neutral’ at Citigroup; Corning Inc. (NYSE: GLW) cut to ‘sector perform’ at RBC; and Medtronic Inc. (NYSE: MDT) raised to ‘outperform’ with a $50 price target at Credit Suisse.

Earnings reports since markets closed last night resulted in several price moves today, including these: eBay Inc. (NASDAQ: EBAY) is up 2.6% at $54.28 after posting a new 52-week high of $54.88 earlier today (more coverage here); Kinder Morgan Energy Partners LP (NYSE: KMP) is up 0.3% at $88.18 (more coverage here); Bank of America Corp. (NYSE: BAC) is down 4.5% at $11.25 (more coverage here); BlackRock Inc. (NYSE: BLK) is up 4.5% at $232.29 after posting a new 52-week high of $234.46 earlier today; Citigroup Inc. (NYSE: C) is down 3.1% at $41.15 (more coverage here); PNC Financial Services Group Inc. (NYSE: PNC) is up 4.3% at $62.33; and UnitedHealth Group Inc. (NYSE: UNH) is up 1.3% at $54.38 (more coverage here).

Before markets open tomorrow morning we are scheduled to hear from American Express Co. (NYSE: AXP), Capital One Financial Corp. (NYSE: COF), General Electric Co. (NYSE: GE), Johnson Controls Inc. (NYSE: JCI), Morgan Stanley (NYSE: MS), Rockwell Collins Inc. (NYSE: COL), Schlumberger Ltd. (NYSE: SLB), and SunTrust Banks inc. (NYSE: STI).

Some standouts from today include the following stocks:

CBS Corp. (NYSE: CBS) is up 8.5% today at $41.18 after posting a new 52-week high of $42.55 earlier. The entertainment company will convert its outdoor advertising business to a REIT. Move coverage here.

K-Swiss Inc. (NASDAQ: KSWS) is up 47.7% at $4.71 after posting a new 52-week high of $4.73 earlier today. The athletic shoe maker is being acquired by a Korean firm for $170 million ($4.75 a share).

Leap Wireless International Inc. (NASDAQ: LEAP) is down 7.5% at $5.85. The wireless communications company was cut to ‘sell’ at Jefferies.

Stay tuned for Friday. We have noted the following event on the schedule (all times Eastern):

9:55 a.m. – University of Michigan/Thomson Reuters consumer sentiment index

Filed under: 24/7 Wall St. Wire, HI/LOW, Market Close Tagged: ADTN, AXP, BAC, BLK, C, CBS, COF, COL, EBAY, GE, GLW, JCI, KMP, KSWS, LEAP, MDT, MS, PNC, SLB, STI, UNH, VVUS, YUM

Today’s Market Winners and Losers

Samuel Weigley — Thu, 17 Jan 2013 15:46:05 +0000

The stock market is up Thursday, with the Dow Jones Industrial Average up 0.47%, the Nasdaq up 0.48% and the S&P 500 up 0.43%. Today’s winners include a shoe company getting purchased and a media conglomerate spinning off one of its divisions. Today’s only loser is a solar energy firm that announced unexpectedly it would likely post a loss for the fourth quarter.

These are Thursday’s market winners and loser.

Biggest Winners

Shares of K-Swiss Inc. (NASDAQ: KSWS) are up 48.12% to $4.72 on trading volume of 19.9 million shares. E. Land World Ltd, an apparel distributor based in South Korea, will buy the shoemaker for $4.75 a share. Before Thursday, the 52-week high was $4.59.

Shares of CBS Corp. (NYSE: CBS) are up 10.31% to $41.85 on trading volume of 11.8 million shares. The company announced it was converting its billboard advertising division into a real estate investment trust (REIT). Before Thursday, the 52-week high was $39.77.

Biggest Losers

Shares of Power-One Inc. (NASDAQ: PWER) are down 11.06% to $3.86 on trading volume of 1.7 million shares. The solar energy company predicts it will lose $12 million to $15 million in the fourth quarter, despite analysts prior predictions of a $11.2 million profit. The 52-week low is $3.51.

Follow Samuel on Twitter: SWeigley

Filed under: 24/7 Wall St. Wire, Market Roundups, Most Actives Tagged: CBS, KSWS, PWER

24/7 Wall St. Closing Bell — November 1, 2012: Markets Pick Up Some Steam Today (NFLX, TWX, JCP, RVBD, CMVT, ALL, CZR, HTZ, MUR, APA, EXC, XOM, HCA, RGLD, RATE, CHK, FLR, GDOT, LVS, PCLN, SBUX, YELP, CVX, HES, MHP, OZM, RL, KSWS, ZUMZ, RIMM)

Paul Ausick — Thu, 01 Nov 2012 20:04:41 +0000

U.S. equity markets opened higher following a spate of moderately good news on U.S. employment. The ADP report showed job gains (more coverage here), and the report on new claims for unemployment benefits came in a bit lower than expected (more coverage here). Tomorrow’s non-farm payroll report is probably the most eagerly anticipated data point in some time, given its potential impact on next week’s presidential election. In Asia, Chinese PMI ticked up for the first time in three months (more coverage here), lifting Asian markets. In Europe, the U.K.’s PMI reading was lower than expected, but Britain’s housing prices have strengthened slightly.

The U.S. dollar index rose today, now up 0.18% at 80.059. The GSCI commodity index is up less than 0.1% at 637.74, with commodities prices mixed again today. WTI crude oil is up about 1% today, at $87.09 a barrel, following a decline in U.S. crude stocks (more coverage here). Brent crude trades down 0.6% at $108.05 a barrel. Natural gas is up 0.2% today at about $3.70 per thousand cubic feet, following an inline inventory build (more coverage here). Gold closed at $1,715.50 an ounce, down about 0.2% for the day.

The unofficial closing bells put the DJIA up nearly 135 points to 13,231.39 (1.03%), the NASDAQ rose nearly 43 points (1.44%) to 3,020.06, and the S&P 500 rose 1.09% or about 15 points to 1,427.59.

There were several analyst upgrades and downgrades today, including Netflix Inc. (NASDAQ: NFLX) cut to ‘perform’ at Oppenheimer; Time Warner Inc. (NYSE: TWX) reiterated as ‘outperform’ and target price raised to $53 at Credit Suisse; J.C. Penney Co. Inc. (NYSE: JCP) maintained as ‘buy’ with a target price of $35 at Argus; Riverbed Technology Inc. (NASDAQ: RVBD) raised to ‘buy’ at Cantor Fitzgerald; and Comverse Technology Inc. (NASDAQ: CMVT) cut to ‘sector perform’ at RBC.

Earnings reports since last night resulted in some price moves today, including these as of the last half hour of trading: Allstate Corp. (NYSE: ALL) is down 3% at $38.79; Ceasars Entertainment Corp. (NASDAQ: CZR) is up 0.7% at $5.83; Hertz Global Holdings Inc. (NYSE: HTZ) is up 1.7% at $13.50; Murphy Oil Corp. (NYSE: MUR) is down less than 0.1% at $59.95; Apache Corp. (NYSE: APA) is down 1.1% at $81.82 (more coverage here); Exelon Corp. (NYSE: EXC) is down 5.9% at $33.66 (more coverage here); Exxon Mobil Corp. (NYSE: XOM) is up 0.3% at $91.41 (more coverage here); HCA Holdings Inc. (NYSE: HCA) is up 5.8% at $30.06; and Royal Gold Inc. (NYSE: RGLD) is up less than 0.1% at $88.18.

Before markets open tomorrow we are scheduled to hear from Bankrate Inc. (NYSE: RATE), Chesapeake Energy Corp. (NYSE: CHK), Fluor Corp. (NYSE: FLR), Green Dot Corp. (NYSE: GDOT), Las Vegas Sands Corp. (NYSE: LVS), Priceline.com Inc. (NASDAQ: PCLN), Starbucks Corp. (NASDAQ: SBUX), Yelp Inc. (NYSE: YELP), Chevron Corp. (NYSE: CVX), Hess Corp. (NYSE: HES), McGraw-Hill Companies Inc. (NYSE: MHP), Och-Ziff Capital Management Group LLC (NYSE: OZM), and Ralph Lauren Corp. (NYSE: RL).

Some standouts from today include the following stocks:

K-Swiss Inc. (NASDAQ: KSWS) is up 34.7% at $3.07. The footwear company beat EPS estimates this morning and raised its fourth quarter outlook for revenues.

Zumiez Inc. (NASDAQ: ZUMZ) is down 16% at $21.27. The clothing retailer posted weak earnings last night and lowered guidance. We have more coverage of October retail sales here.

Research in Motion Ltd. (NASDAQ: RIMM) is up 9.8% at $8.70. The mobile device maker has been rising for two days on what could be just short covering. More coverage here.

Stay tuned for Friday. San Francisco Fed President John Williams is giving a speech. We have noted the following events on the schedule (all times Eastern):

8:30 a.m. – Employment report
10:00 a.m. – Factory orders

Paul Ausick

Filed under: 24/7 Wall St. Wire, HI/LOW, Market Close Tagged: ALL, APA, CHK, CMVT, CVX, CZR, EXC, FLR, GDOT, HCA, HES, HTZ, JCP, KSWS, LVS, MHP, MUR, NFLX, OZM, PCLN, RATE, RGLD, RIMM, RL, RVBD, SBUX, TWX, XOM, Yelp, ZUMZ

American Companies Running Out of Cash

Douglas A. McIntyre — Wed, 14 Mar 2012 23:03:34 +0000

“Cash Burn Rate,” used to value companies with little or no revenues, was a popular term in the dot-com era. The burn rate is the amount of cash that is being used up over time. From this, analysts would calculate the period until a business would run out of cash, assuming the current operating costs continues.

Read American Companies Running Out of Cash

Running a business just with cash on hand cannot continue forever if at some point losses cannot be turned into profits. Eventually, cash must flow into a business at a greater rate than it leaves or the business will face extinction. That is even true if a company sells assets, which will eventually run out, too.

In the early stages of the Internet, revenue generation was a key problem as many websites did not have a tangible product, let alone profits, to support the multi-million or billion dollar valuations. Many of these companies indeed ended up in the graveyard when the cash ran out and the dot-com bubble burst.

Fast forward a few years and Wall Street once again faced a similar situation. The recession, which officially started in 2007, has placed financial strains on many businesses. When revenue declines are not met with the same reduction in spending, they can lead to negative cash flow. Companies can take short-term measures to handle cash flow problems until conditions improve through borrowing or equity issues. However, poor market conditions make it harder for troubled companies to borrow. Businesses, even large ones such as Eastman Kodak and American Air parent AMR, without the capital to make it through an extended stretch of weakened economic conditions, have fallen into bankruptcy.

With that in mind, we wanted to see which companies today are burning through cash at a rate that should concern shareholders.

Capital IQ provided 24/7 Wall St. with a list of 38 non-financial companies that had a negative burn rate. That is, cash from operations in the latest 12 months was negative at these companies. Capital IQ calculated the monthly burn rate by dividing this annual number by 12. Next, the number of months before cash runs out was calculated by dividing the cash, cash equivalents and short-term investments by the monthly burn rate. We took a closer look at each company to find out if the numbers were misleading or if the company could indeed be facing serious liquidity problems.

Here are the seven companies that would run out of cash during the next 18 months based on their last 12-month burn rate.

Filed under: Analyst Calls, Research, Special Report Tagged: AIO, AKS, HZO, KBH, KSWS, SPF

24/7 Wall St. Closing Bell (FCX, CECO, CLX, COL, BSX, MDT, FICO, LAMR, OWW, KSWS, RIG, MDVN, SNSTA, SONO, DNDN, ANF, CLWR)

Paul Ausick — Thu, 03 Nov 2011 20:05:46 +0000

Stock markets. Equity markets opened sharply higher this morning before falling into negative territory before the ISM and factory order reports were released. The ISM index came in lower than expected, but factory orders grew by 0.3%, slightly better than expected. New pressure on Greece to forgo its referendum on the EU bailout package helped push share prices up, as did strength in tech stocks. Crude oil is up nearly 1.5% and gold is up nearly 2%, while the dollar is down against both the euro and the British pound.

Closing bell. The unofficial closing bells put the DJIA up more than 207 points to 12,043.19 (1.75%), the NASDAQ rose nearly 58 points (2.2%) to 2,697.97, and the S&P 500 rose 1.87% or more than 23 points to 1,261.10.

Analyst upgrades and downgrades. There were several analyst upgrades and downgrades today, including Freeport-McMoran Copper & Gold Inc. (NYSE: FCX) started at ‘overweight’ at Barclays. Career Education Corp. (NASDAQ: CECO), Clorox Corp. (NYSE: CLX), and Rockwell Collins Inc. (NYSE: COL) were cut to ‘underperform’ at BofA/Merrill Lynch; and Boston Scientific Corp. (NYSE: BSX) and Medtronic Inc. (NYSE: MDT) were started as ‘outperform’ at Credit Suisse.

Market reacts to earnings. Here are today’s big post-earnings news reactions with prices during the last half-hour of trading: Fair Isaac Corp. (NYSE: FICO) is up about 25%, at $33.95; Lamar Advertising Co. (NASDAQ: LAMR) is up nearly 25%, at $26.18; Orbitz Worldwide, Inc. (NYSE: OWW) is up 40%, at $2.66; K-Swiss Inc. (NASDAQ: KSWS) is down more than -33%, at $3.09; and Transocean Ltd. (NYSE: RIG) is down about -13%, at $48.73.

Several other standouts from today are as follows…

Medivation Inc. (NASDAQ: MDVN) is up 140%, at $39.74 after posting a new 52-week high of $40.15 earlier today. The company reported that an experimental prostate cancer drug reduced death risk by 37%.

Sonesta International Hotels Corp. (NASDAQ: SNSTA) is up nearly 41%, at $30.65 after posting a new 52-week high of $31.06. The company has agreed to be acquired for $31/share by an affiliate of Hospitality Properties Trust (NYSE: HPT).

SonoSite, Inc. (NASDAQ: SONO) is up about 29%, at 39.62 after posting a new 52-week high of $40 earlier today. Sonosite is reported to have hired Morgan Stanley to find a buyer for the company and talks are already in progress with potential buyers, including Samsung Electronics.

Dendreon Corp. (NASDAQ: DNDN) is down more than -37%, at $6.53 after setting a new 52-week low of $6.52 earlier today. The company today reiterated its forecast for only modest sales of its Provenge anti-cancer drug.

Abercrombie & Fitch Co. (NYSE: ANF) is down nearly -20%, at $59.51. The company reported slowing sales in Europe, a region where the company had pinned its hopes for growth.

Clearwire Corp. (NASDAQ: CLWR) is down about -14%, at $1.75. The company is seeking additional financing and has been unable to get its largest customer and majority shareholder Sprint Nextel Corp. (NYSE: S) to commit to the financing.

Stay tuned for Friday. The G-20 summit opened today and will continue meeting tomorrow and over the weekend. Monster Worldwide Inc. (NYSE: MWW) releases its October report on US online job demand. We have noted the following event (all times Eastern):

8:30 a.m. – Non-farm payroll data for October

Paul Ausick

Filed under: Active Trader, Market Close Tagged: ANF, BSX, CECO, CLWR, CLX, COL, DNDN, FCX, FICO, KSWS, LAMR, MDT, MDVN, OWW, RIG, SNSTA, SONO

Goldman Sachs Drops Specialty Apparel Names (COLM, NKE, UA, LULU, FL, GCO, FINL, KSWS)

Douglas A. McIntyre — Tue, 20 May 2008 06:49:48 +0000

Goldman Sachs has noted that an analyst named Brad Cragin has left the firm, and his former targets and ratings in specialty apparel names are no longer in effect. These are some of the specialty apparel names that have been dropped from coverage:

Columbia Sportswear Co. (NASDAQ: COLM),
Nike Inc. (NYSE: NKE),
Under Armour (NYSE: UA),
lululemon athletica inc. (NASDAQ: LULU),

There were also many names in footwear and shoe retailing that were dropped:

Foot Locker (NYSE: FL)
Genesco (NYSE: GCO)
Finish Line (NASDAQ: FINL)
K-Swiss Inc. (NASDAQ: KSWS).

As a reminder, these are not true downgrades. This coverage was dropped as the analyst has left the firm and it appears to be in a rapid enough manner that Goldman Sachs was not able to transition coverage away to another analyst.

Jon C. Ogg
May 20, 2008

Jon Ogg produces and edits the "10 Stocks Under $10" weekly newsletter and he does not own securities in the companies he covers.

Pre-Market Stock News (November 6, 2007)

Douglas A. McIntyre — Tue, 06 Nov 2007 08:25:40 +0000

Archer-Daniels Midland (ADM) $0.71 vs. $0.59 est.
Asset Acceptance Corp. (AACC) -$0.05 EPS vs -$0.05 est.
Beazer (BZH) cutting 1/4 workers and suspends dividend; sees new order down 50%.
Church & Dwight (CHD) $0.69 EPS vs. $0.589 est.; sees 2007 EPS $2.42-2.44 vs. $2.36 consensus.
Cooper Tire (CTB) $0.28 EPS vs $0.30 est.
El Paso (EP) $0.22 EPS vs $0.23 est.
Emerson (EMR) $0.78 EPS vs $0.75 est.
Environmental Tectonics’ (ETC) Aeromedical division won two new contract awards in Middle-East worth a total of $20 million.
Fuel-Tech (FTEK) $0.04 EPS vs. $0.06 est.; sees 2007 revenues $76-79 million vs. $79.7 million est.
Gerdau AmeriSteel (GNA) $0.40 EPS vs $0.42 est.
Google (GOOG) up $25 on analyst Sanford Bernstein raised target to $850.
International Securities Exchange (ISE) $0.62 EPS vs $0.53 est.
Kellwood (KWD) sets 2008 targets of $1.55 billion revenue from operations and sees $1.50 EPS.
K-Swiss (KSWS) $0.36 EPS vs $0.34 est.
Momenta Pharma (MNTA) announced FDA letter received says its M-Enoxaparin ANDA is NOT Approvable in current form.
Nortel Networks (NT) $0.05 EPS after charges vs. $0.11 est.; Revenues $2.71 Billion vs. $2.77 Billion est.
PetroQuest (PQ) $0.16 EPS vs. $0.14 est.
PowerSecure $0.15 EPS vs. $0.17 est.
QLogic (QLGC) announced a $200 million share buyback plan.
Sun Micro (JAVA) up 1.5% after earnings, despite lackluster report.
TheStreet.com (TSCM) $0.13 EPS vs $0.12 est.; Revenues $16.1 million vs. $16.3M est.
Urban Outfitters (URBN) sees revenues for Q3 at $379.3 million versus $374.5 million est.; s-s-s +8% for the quarter.
Valero (VLO) $1.40 EPS vs $1.35 est., but had lowered preliminary numbers.
Watson Pharma (WPI) $0.33 EPs vs $0.30 est.

Jon C. Ogg
November 6, 2007