The market is up again as the service industry grew more than forecast last month thanks to more people stopping off at McDonalds on their way to the unemployment office and then washing their sorrows away by watching touching interpretative dances at their local Rick's Cabaret in order to warm the cockles of their jobless hearts. The ISM's index of non-manufacturing businesses was up to 53 from 50.5 and in theory measures 90% of the legal economy (it doesn't take the lovely Ashlee Dupre to let us know there are many illegal services performed in this country). That was higher than the 51 estimate and we are all acutely aware that a number above 50 signals growth (while a number above 36DD usually signals growth for Money McBags). Also ADP was out with a report estimating companies cut 20k jobs in February which would be the smallest drop in 2 years were that number not likely to be revised next month. Economic data gets revised more often than a politician's stance on issues (cough Harold Ford cough Mitt Romney cough), modern history, or the background of an old rich guy's wife (she was a student, she worked with kids, they were my kids and she was in high school, but....). The good news is that there is the whiff of real recovery in some of these numbers, though that could also just be the smell of Ben Bernanke's taint after an all-nighter spent trying to right this economy.
In international news, Greece has approved an economic plan which will save $5.5B through a 30% cut in holiday bonuses, a 2% increase in value added sales tax, and a promise to cut down their spending on noise pollution by simply having Nia Vardalos shut the fuck up. Money McBags is anxiously looking forward to the day Greece's fiscal problems are solved and not because it will help shore up the market but because he has fewer Greek jokes left in his arsenal than a eunuch has balls. Seriously, if Money McBags knew he was going to have to write so many one-liners about hellenic culture he would have majored in Greek history, Epic poetry, or Maria Menounos while in college. For fucksake Money McBags may have to stress his long syllable and start writing this blog in dactylic hexameter if the Greeks don't get their shit together (and if he is going to stress his long syllable, he can assure you that Alice Eve will be very involved). Of course the Greeks were less than thrilled with the cuts, including taxi drivers who apparently stayed home for a second day because according to the NY Times (so it could be totally fictional), they were "protesting tax reforms which would oblige them to issue receipts, keep account books and pay tax according to their income." While that would make Charles Rangel proud since he loves finding ways around the means of paying taxes, protesting the loss of the ability to cook one's books is as preposterous as Heidi Montag's singing career or anyone finding Jay Leno funny.
In stock news today Ethan Allen is running (though this time not from the British) as they said their orders for the first two months of 2010 were up 25% as apparently it was time to buy new furniture for Fort Ticonderoga. Dine Equity announced their quarterly results and decimated estimates thanks to increased traffic at Applebees and only a moderate downtick in IHOP business. Adjusted earnings came in at $.76 cents easily beating analyst estimates of $.15 as the company was able to create significant operating leverage, pay down debt, and somehow disguise the taste of their food to make people actually want to eat it. Money McBags is not saying that Applebees is bad, but not even chronic ageusia sufferers will go there. So it is understandable that analysts would have underestimated earnings, that said, being off by a factor of 5 is as bad as trying to forecast the length of Lindsey Vonn's celebrity and using any metric loner than days. Finally, BJ's Wholesale club reported earnings up 4.6% but guidance was below estimates sending BJs down on the day. Money McBags is a bit confused as he doesn't find anything disappointing with BJs, but should they continue to gag or see a lenghty decrease, they may be forced to change their name to Blumpkin's Wholesale Club.
In small stock news, LOV received a take out offer for $3.10 per share and "other possible business combination transactions" from big shareholder Great Hill Partners. The stock has shot up to $3.30 so those "other possible business combination transactions" either mean "another $.20" or merger-arb traders are betting the company put themselves on buyashittycompany.com and are expecting a counter offer. Money McBags broke LOV down last week and came up with a $2 valuation so either Great Hill Partners has more of a Jewish fetish than anyone who has dated Barbara Streisand (because why else would anyone want to date that?) and thus needs to own JDate or "Great Hills" is yiddish for "Sucker." Yesterday Money McBags briefly mentioned QCOR but he finally had time to go over their Q last night and he loves what he sees. Money McBags has followed this stock for almost a year and a half and has watched the issues they have had with their FDA filing for IS marketing approval, their asstastic sales into the IS market last Q, their sales force ramp up in MS, and their out of nowhere medicade reimbursement and reserving issues from last quarter. Honestly, their last Q finally got Money McBags out of the stock as it wasn't clear what was going on with their sales as a potential competitor had emerged and the reserving issue they reported was more confusing than a post-op lesbian tranny (I mean if you like chicks, why cut the thing off?). Money McBags still liked the company though as their management team had generally done a good job on strategy (with their execution being a bit concerning because how many times does it really take to file a fucking sNDA? One? Maybe two? But having to refile more than twice creates more red flags than a Beijing pennant maker.). That said, this quarter easily beat Money McBags' top line estimates and their phone call was chock full of goodness. Money McBags had an estimate of $23MM in net sales for QCOR based on IS sales remaining flat (it was down big last Q in what looks like an anomaly) and 15% Q/Q growth in MS sales. Well IS sales rebounded to the mean of their historical range and MS sales grew 50% Q/Q. While the reimbursement rate was about 1.5% higher than Money McBags estimated, their net sales still came in about $2.5MM above his estimates. Sales were strong enough to give shareholders spasmodic seizures (which of course should be good for QCOR since that what their drug aims to stop). Anyway, there were many other positives such as the potential emergence of a market for Achtar (the drug QCOR sells) into the nephrotic market. QCOR sold 14 vials to this market and estimates that there are 50k people their drug could treat and those people on average would use 2x the doses of an IS patient and 4x to 5x the doses of a MS patient. The company estimates this as a potential $1B market for them and will start allocating a bit of their sales force's time to contacting nephrologists. Now look, it is way too early to get too excited about this as the data is very sparse but it does mimic the MS market for them just two years ago so there is some real potential here. Additionally QCOR has straightened out their Tricare reimbursement issue which may now contribute to 10% growth and said the FDA will get back to them on their ability to market to IS doctors by June 11, 2010. Oh yeah, the CEO addressed the potential competitive drug Sibril and said in the six months it has been on the market, they have not seen it make a dent in their sales. The only way this quarter could have been bette for QCOR was if they found out Achtar also acts as a pheremone for Brooklyn Decker's mouth. In terms of forecasting a baseline, just assume they get nothing from the nephrotic market, IS remains at its historical mean (so flat from here), and MS grows 20% per Q (which is aggressive, but whatever). Additionally assume a modest uptick in operating costs, no more reimbursement issues (they claim they are fully reserved for past medicare claims), and a 500k per q share buyback (they bought back 2MM shares last Q and have 5MM left on their buyback so it could be more), and you get to around $.76 eps for 2010. So on those baseline earnings, the company is still trading at less than 10x earnings even after being up almost 30% in two days. Plus they are only trading at 2.5x or so EV/sales and companies like this trade at 3x to 4x. Of course that $.76 eps number could be too low if the nephrotic market can get traction, the FDA approves them to market IS to doctors, and MS continues to run. The concerns still remain that the drug is hella expensive and the quarters can be lumpier than Alexis Texas' backside, especially as they have little control on IS sales, so there is a reason for it to trade at a bit of a discount. Also, QCOR's hiring of a Chief Medical Officer to investigate buying other assets with all of their cash is a bit worrisome because a company with their supposed growth opportunities in MS and NS shouldn't need to be wasting time on non-core products. That said, there could still be a ton of value here. Plus with borrowing rates only to go up, M&A is getting hotter than Olivia Munn on the planet Mercury, so this could be a nice little take out candidate. Money McBags will likely buy on a pull back and is kicking himself for not having owned this, but their last Q was so bad it made it Lady Gaga look fuckable.
Oh yeah, Money McBags picked up some KITD yesterday at around $10.
Wednesday, March 3, 2010
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