The Unusual Suspects (BEAT, CIT, CIT-PZ, GNW, GFIG, HGSI, GSK, MCO, BRK-A, RVSN, CSCO)

Earnings season is seeming to wind down here, but that won’t stop the unusual suspects of key equity events and issues to watch this coming week.  We are looking into key issues for the coming week in the stocks of CardioNet, Inc. (NASDAQ:BEAT), CIT Group, Inc. (NYSE: CIT), Genworth Financial Inc. (NYSE:  class=GNW), GFI Group Inc. (NASDAQ: GFIG), Human Genome Sciences Inc. (NASDAQ: HGSI), GlaxoSmithKline Plc (NYSE: GSK), Moody’s Corp. (NYSE: MCO), Berkshire Hathaway Inc. (NYSE: BRK-A), RADVISION Ltd. (NASDAQ: RVSN) and Cisco Systems Inc. (NASDAQ: CSCO).

CardioNet, Inc. (NASDAQ:BEAT) took a hit on Friday night.  The company disclosed that the Centers for Medicare and Medicaid Services has not established a national pricing reimbursement rate for mobile cardiovascular telemetry in the Medicare final rule for the physician fee schedule for calendar year 2010. Reimbursement will continue to be carrier priced by Highmark Medicare Services CEO expressed “extreme disappointment” on this issue since the company and other industry providers have now serviced nearly 400,000 patients nationally with a significant portion being Medicare patients.  Much may already be priced in since that mammoth drop in the summer and its 52-week trading range is $5.60 to $35.89.  Shares closed at $5.91 Friday, yet the after-hours closing out pice showed a price drop of almost 7% to $5.50 on just under 17,000 shares.

The fate of CIT Group, Inc. (NYSE: CIT) is unknown, at least for the common equity holders.  As of Sunday morning there is still no official word of its pre-packaged bankruptcy filing.  This is after it secured $1 billion from Carl Icahn, received another $4.5 billion in high-rate loans, and amended a Goldman facility all late in the week.  CNBC’s David Faber hinted at a pre-packaged bankruptcy filing possibly over the weekend or Monday morning.  CIT only had one positive day last week and the stock lost about 36% of its value.  If CIT does go bankrupt, common shareholders might want to consider what almost happens to the value of common stock.  CIT does have an equity and debt issue which trades under the CIT-PZ ticker, and it rose on Friday.

Genworth Financial Inc. (NYSE: GNW) is a financial stock we want to highlight from last week.  It is not just that it posted a surprise earnings gain rather than an expected loss.  The company completed a capital raise back in September with a sale of 55.2 million shares of common stock to raise $622 million.  This was dilutive and it is always difficult in today’s world to trust financial balance sheets, but what stood out the most is the book value comments. “Book value per share grew 10 percent sequentially to $25.42 per share from $23.01 per share as of June 30, 2009, reflecting improvement in the investment environment and the additional equity capital partially offset by an increased number of shares. Book value per share, excluding accumulated other comprehensive income (loss), decreased sequentially to $25.37 per share from $27.33 per share as of June 30, 2009.” We would not believe for a second that this means the company could just go sell itself off for that price.  But with earnings starting to normalize and with the closing bell price of $10.62, book values of $25.42 and $25.37 start to make the stock picture more clear here.

GFI Group Inc. (NASDAQ: GFIG) had an awful trading response after the inter-dealer broker’s earnings report missed estimates and as it saw a decline in its equity trading volumes in both Europe and the U.S.  The metrics were not pretty on the declines of 21% in revenue to $192.2 million and net income outside of items was $0.06 EPS vs. $0.09 EPS from Thomson Reuters.  The 22.6% drop on Friday to $5.15 now takes it back into the lower-half of its 52-week trading range of $2.09 to $12.25.  One issue we have always highlighted as a boom-bust for GFI Group is the OTC derivatives trading.  While it is riskless for GFI itself, the market is becoming much more regulated and all the risk management and governmental oversight (and criticism) makes the chances that GFI won’t get to make anywhere what it did back at the peak.

Human Genome Sciences Inc. (NASDAQ: HGSI) is likely to have its most important day on Monday with the release of new data on the second of the company’s late-stage drug trials of its lupus drug Benlysta.  Our friend over at OptionsHawk.com pointed out huge activity in the options trading on Thursday and as we suspected the volume was through the roof again on Friday.  This also has an influence on its partner GlaxoSmithKline Plc (NYSE: GSK) as they will split the profits 50/50.  As lupus has had no real advancements in years, this drug has the potential for an instant blockbuster status of over $1 billion in annual sales.  That would put a Q1 FDA new drug application as likely.  This traded over 100,000 call options alone on Friday and depending on how you calculate this, the options traders are braced for a move of 22% to 29% in either direction.  Shares are likely to be halted early Monday until the news release.

Moody’s Corp. (NYSE: MCO) may be under fire all over again after an SEC filing from after 7:00 PM on Friday showed that Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) dumped another $28.7 million worth of stock in Moody’s over concerns of its core ratings business and what regulation and criticism is coming down the pike. Frankly, the old guy should have been dumping this one last year and the year before when he probably realized that trouble was headed this way.  This is one of his largest percentage holdings that Buffett has, and we’d also note that it seems Berkshire may report earnings this coming Friday.

RADVISION Ltd. (NASDAQ: RVSN) and Cisco Systems Inc. (NASDAQ: CSCO) are both going to be interesting to watch in this week.  For starter’s, Cisco is one the top ten earnings on deck this coming week.  But there were reports on Friday that Cisco may walk away from the $3.1 billion acquisition of Tandberg because of minority shareholders wanting more.  RADVISION only traded around its earnings and two very light upgrades in the stock.  But when Cisco announced the deal to buy Tandberg, RADVISION stock fell from over $9.00 to roughly $6.00 because Cisco happens to be its largest client.  If Cisco won’t be changing its RADVISION down the road, then there is huge upside here if the Tandberg deal is called off.  We would not give it 100% of its lost ground back on an old recovery model, but we would target 30% and then 50% of the ground lost.  If that occurs, then $7 or $7.50 seems very plausible as a first stop.  We had an options take on this possibility.

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JON C. OGG
NOVEMBER 1, 2009