Update: it appears Carl Icahn agrees with our assessment: CARL ICAHN SAYS CHESAPEAKE'S COLLECTION OF ASSETS "ARE THE BEST PORTFOLIO OF ENERGY ASSETS IN THE COUNTRY"
Back in May 2012, when Reuters' all out aggressive campaign against Chesapeake Energy was in full swing and the stock was trading around $14 per share but before Icahn and Loeb were publicly involved, we predicted that contrary to the endless balance sheet bashing there was, in fact, much upside to CHK. We said that the argument rests on one simple fact: its asset base, which ignoring the firm's liabilities - as in a ZIRP environment, even CHK could easily refi its debt at very agreeable terms - and the CEO's lousy industry reputation implied a far higher stock price for the company. To wit: "the company has lots of good assets, as well as quite a few legacy liabilities, combined with an industry environment that is as bad as it has ever been. And sure enough, in betting that the environment might actually improve for a change, there are quite a few big firms which may be happy to onboard the assets and the liabilities, knowing they wouldn't impair the right side of their balance sheet, while acquiring some good real estate and substantial reserves on the left, at a valuation that is the cheapest in the industry. Because in finance, once central planning is (finally) stripped away, valuation is all that matters." And even before that, a far more immediate catalyst we predicted would be a simple succession event "which eventually will culminate with the long overdue termination of the company's head." Or, said simply, the sacking or resignation of the disgraced CEO would unlock material upside value. Moments ago just this happened, as the company just announced a "succession plan" the direct result of which is that the CEO is out as of April 1. The upside value in question: just about 10% as the stock is currently soaring in the after hours session.
The most cartoonish stock of all time just came out with results that can only be characterized as ugly. To wit:
- Q4 revenue of $21.27 billion missed expectations of $22.23 billion
- Q1 EPS of $0.21 missed expectations of $0.27;
- The firm guided top-line lower, seeing Q1 sales of $15-$16 billion, below the estimate of $16.5 billion
- The firm guided operating income much lower, seeing Q1 op income of ($285)-$65 Million on expectations of $261.4 MM
- The firm said the its physical books sales had the lowest growth in 17 years
- Total employees grew by 7,000 in the quarter and 32,200 Y/Y to a record 88,400
- Worldwide net sales Y/Y growth was the slowest in years at 23%, down from 30% in Q3 and 34% a year ago
- And, last and certainly least, LTM Net Income is now officially negative, or ($49) meaning as of this moment the firm with the idiotically high PE has an even more idiotic N/M PE.
... And the stock is soaring in the after hours. Thank you DE Shaw.
- U.S. Wants Criminal Charges for RBS (WSJ)
- Bernanke Seen Buying $1.14 Trillion in Assets in 2014 (BBG)
- Irish banks at mercy of international paymasters (Reuters)
- Do badly, and we will let you do even worse: Rehn Signals EU May Ease Spain Budget Goal in Austerity Retreat (BBG)
- Too Soon to Celebrate for Europe's Banks (WSJ)
- Army says political strife taking Egypt to brink (Reuters)
- Media Firms Probed on Data Release (WSJ) - No Criminal Charges Seen
- Japan’s Government Proposes First Spending Cut in 7 Years (BBG)
- Nazi Goebbels’ Step-Grandchildren Are Hidden Billionaires (BBG)
- Goldman seeks to reduce China exposure (FT)
- More than 70% of Chinese airports generate losses (People's Daily)
Updated for the summary of MSFT, SBUX and T earnings.
Amid the deafening screams of hundreds of hedge fund managers looking for any hedging port in an AAPL storm, stock indices (expect the Nasdaq) surged to new highs from the moment the US day-session began until POMO was complete and European markets closed. Volume and block size was large as we took out S&P 500 highs up to 1500 and it appeared we ran out of the short-term proverbial great fool. In general, risk-assets and stocks were well correlated though the big disconnect today was a rising VIX. HY Credit did not play along with the exuberance early on either - as it seemed relatively clear that any and every trick in the book was being used to enable more out of the AAPL boat as we ramped up to VWAP. Once Europe had closed, AAPL slid, stocks slid (with S&P 500 dropping its most of 2013 so far), and risk-assets in general slid lower. JPY weakness and EUR strength helped support risk but Treasury yields falling back and a drop in commodities overall (Gold -0.9% on the week) had the opposite effect. The typical late-day ramp failed despite the best efforts of vol compression as stocks closed almost unch, at VWAP, in line with risk-assets (ahead of tomorrow's LTRO news). AAPL at lows as ramp failed...
While the main topic of conversation overnight was the Apple implosion after earnings (which was mercifully spared inbound calls from repo desk margin clerks who had all gone home by the time the stock hit $460), there was some macro data to muddle up the picture, which, like everything else in this baffle with BS new normal came in "good/bad cop" pairs. In early trading, all eyes were focused on Japan, whose trade and especially exports imploded when the country posted a record trade gap of 6.93 trillion yen ($78.27 billion) in 2012 and the seventh consecutive monthly drop in exports which showed that improved sentiment has yet to translate into hard economic data. Finance ministry data on Thursday showed that exports fell 5.8 percent in the year to December, more than economists' consensus forecast of a 4.2 percent drop. Trade with China was hit particularly hard following the ongoing island fiasco, which means that all the ongoing Yen destruction has largely been for nothing as organic growth markets simply shut off Japan. This ugly news was marginally offset by a tiny beat in the HSBC China manufacturing PMI which came slighly above consensus at 51.9 vs exp. 51.7, the highest print in 24 months, but as with everything else coming out of China one really shouldn't believe this or any other number in a country that will not allow even one corporate default to prevent the credit-driven illusion from popping.
A Quick Listing of My Tweets After Apple's Predicted (4th) Miss & Indisputable Signs of #MarginCompressionSubmitted by Reggie Middleton on 01/23/2013 19:10 -0400
I'll let the numbers and facts speak for themselves as the #FanBois grope for something to retort... It's "knowledge how", not "knowledge that"!!!
AAPL Meets EPS, Misses Revenues, Fails To Impress With In Line iPhone Sales, Total Cash Grows To $137.1 BillionSubmitted by Tyler Durden on 01/23/2013 18:05 -0400
The most anticipated earnings release of the quarter has come and it has been a dud, at least judging by the market's expectations and its response. Because while EPS beats just barely (a far cry from the epic EPS beats of Steve Jobs days) coming at $13.81 on expectations of a $13.53 print, revenue outright missed, coming at $54.5 billion on expectations of a $54.9 billion Q1 2013 result. Furthermore, fears about profit margins were proven correct, with total gross profit coming in at $21.1 billion, which alas was 38.6% of revenue, well below the vaunted 40% threshold (as a reference margin was 44.7% a year ago, and 40.0% a quarter ago). And finally, the breakdown by components in the iPhone 5 release quarter was just, well, meh.
One look at the headline numbers, and of course the short interest of Netflix, and one can see why the stock is being squeezed by nearly 30% after hours:
- Q4 Revenue: $945 MM, Exp. $934 MM
- Q4 EPS of $0.13, Exp. $(0.13)
- Q4 domestic contribution margin 18.5%, up from 16.4% in Q3 and 10.9$ in Q4 2011
- Total domestic subscribers 27.15 MM, paying subs: 25.47 MM
- Forecasts 28.5MM-29.2MM domestic subscribers in Q1
- Sees Q1 Revenues of $1.004 billion to $1.031 billion
- Domestic DVD subs dropped from 8.61 to 8.22 while generating $254MM in revenue and $128MM in profit
In fact, all is either just a little bit better or much better if one looks at the projection set... until one looks at the actual Cash generated by the Business. Behold the Free Cash Flow as reported by the company... no, not AMZN, although it may well be its small cousin.
The algos have gone nuts after hours, but here are the numbers:
- GOOGLE 4Q REV. EX TAC $11.34B, Exp. $12.36
- GOOGLE 4Q AVERAGE COST-PER-CLICK FELL 6% VS YEAR AGO
- GOOGLE 4Q EPS EX ITEMS $10.65, EST. $10.50
Fraudulent Chinese corporations are nothing new - we have been warning about them since late 2010, spurring the creation of a cottage industry focused exclusively on unmasking such public reverse merger companies (and generating trading profits along the way). One company, however, which apparently was completely unaware of the now pervasive and proven for the past two years Chinese corporate fraud, is US industrial titan Caterpillar. This was made clear when, after hours on Friday night naturally, the company revealed that it had been misled by "deliberate, multi-year, coordinated accounting misconduct" at a subsidiary of a Chinese company it acquired last summer, leading it to write off most of the value of the deal. In the process it would also take a $580 million, or $0.87 cent charge to earnings, which would wipe out more than half its expected earnings of $1.70 for the fourth quarter of 2012. One wonders, however, is there more to this story than just a case of a gentle, naive board duped by fraudulent, evil, cunning "Chinamen" which may have watched one too many episodes of Autonomy does Hewlett Packard?
Same overnight pattern, different day. After a late day ramp in the US market, followed by a selloff in the futures after hours, taking the ES to trading session lows, we get the European trading crew which day after day sends the EURUSD soaring as Europe opens, pushing futures to unchanged or even green and easily negating the key news event of the day, in this case the full grounding of the entire global Boeing fleet which will once again weigh on the stock and DJIA. In the meantime, the big rotation behind the scenes in FX land continues, with the ongoing and very sudden pounding of the Swiss Franc taking the EURCHF to 1.2450, or the highest, since 2011. Same with the USDJPY which after another attempt to fall, rallies on more of the same regurgitated rumors. Not to mention the EURUSD of course, which as mentioned above has surged some 100 pips since the European open. In other words the overnight beating of the USD is enough to push the US stock market high enough in nominal terms, avoiding that there is no incremental cash flow. Then again, who needs cash flow when you have "multiple expansion."
As reported previously, when Bloomberg broke the news two days ago, it now appears that the official appointment of Jack Lew as the new SecTres will take place tomorrow. From Bloomberg: "President Obama will announce tomorrow that White House Chief of Staff Jack Lew is his pick for Treasury secretary, person familiar with the matter tells Bloomberg’s Han Nichols." In other words - goodbye Timmah: best of luck writing your new book, which in the tradition of every ex-public servant who departs the government where they kept their mouths firmly shut, we assume will be all about bashing Tim Geithner.
Bloomberg is out after hours with news that was expected by many, but which was yet to be formalized, until now: namely that following today's flurry of contntious nomination by Obama, the latest and greatest is about to be unveiled - Jack Lew, Obama's current chief of staff, is likely days away from being announced as Tim Geithner's replacement as the new Treasury Secretary of the United States. In other words, Jack will be the point person whom the people who truly run the Treasury, the Treasury Borrowing Advisory Committee, chaired by JPM's Matt Zames (who just happens to also now run the notorious JPM Chief Investment Office which uses excess deposits to gamble - yes, you really can't make this up) and Goldman's Ashok Varadhan, global head of dollar-rate products and FX trading for North America (recently buying a $16 million pad at 15 CPW) will demand action from.
FX markets and precious metals are continuing to trade weaker after hours along with Treasury yields (in some very gappy and unhappy ways) - but the S&P 500 futures are flatlining for now (as NKY futures push higher - merely playing catch up to ES since New Year's Eve). Odder and odderer...
Update 2: MLNX down 22%. Earnings, and cash flows, matter. And now, time to ramp some other stock only to see it implode when it announces earnings or guides down.
Update: MLNX, a $2.6 billion market cap company, was up 3% today before being halted after hours and crushing guidance by preannouncing horrible revenues. Expect many other S&P 500 companies to be forced to do the same now that their market value, driven almost exclusively by "someone's" ceaseless selling of VIX futures and by correlation engines which assume every company has to rise (and sometimes even fall) by the same amount as the biggest synthetic indicator, the E-Mini, is so disconnected from any cash-flow reality, that only the Fed can possibly assume there is fair value for the stock market at current levels.
The drop in VIX in the last two days is the biggest percentage drop on record (based on Bloomberg's data) as the S&P 500 futures (ES) have managed a 70-point rally. The exuberance at today's open ebbed through the middle of the day but then resurged into the close as the day-session range was actually quite narrow (sub-10pts). High-yield credit surged (leading the way) coupled with VXX (huge odd volume spike) as pain trades were everywhere. FX markets were decidedly unimpressed even as Treasuries tracked along with stocks for most of the day (though lagged the late-day surge as 10Y yields stalled out at the 12/187 highs). Commodities held on to gains even as the USD turned positive on the week. On the bright side, all those who have been invested in the S&P since March 2000 can exit at (nominal) breakeven and all it took was a 400% increase in the size of the Fed's balance sheet. This feels very delicate and all anchored on a massive protection unwind (as volumes and blocks were dumped into the late-day ripfest).