Thursday, July 29, 2010

7/29/10 Midevening Report: Fed warns deflation may be coming, investors run to buy protection as they don't know who deflation slept with last

Oh shit.  While most people have been spending their time worrying about the Fed printing up some inflation, Fed Bank of St. Louis President James "Jimmie B" Bullard got his academic on today and dropped some deflation all up in this bitch.

And Jimmie B aint be one of those lame ass non-voting members of the FOMC like Fed Bank of Minnesota President Narayana Kocherlakota whose last name sounds like a hella nasty venereal disease one would catch from a night with Paris Hilton (and for the record, being a Fed Bank President and yet not getting to vote as part of the FOMC is like being the fat cheerleader on the bottom of a pyramid or a bachelor party designated driver).  The point is Jimmie B knows the secret handshake, he drinks the juice, and his opinion matters so when he axes everyone if they know anything about some deflation and shit, people better start listening.

The deflationary concerns stem from a "provocative" paper Jimmie B wrote (provocative in the sense that it took a full three pages to put readers to sleep instead of the usual two, though to be fair, page one was a full picture of Katie Cleary dressed as a regression model, so whatever) in which he argued that the Fed needs to stop all of this extended period low interest rate bullshit and get their quantitative ease on by buying some debt instruments longer dated than Velveeta cheese or Betty White's vulva.  Not only that, but Jimmie B warned that if we continue this low rate poilicy, we're going to end up like Japan and be stuck in a long term no growth economy while living in constant fear of attacks from large fire breathing monsters like godzilla or Roseanne Barr.  So goodbye inflation (for now), hello deflation.  Money McBags is sure you'll both lead to hyperinflation eventually but until then, enjoy the soup. 

In other US macro news, new claims for unemployment fell by 11k to 457k, or by 7k if you use the non upwardly adjusted initial number released last week of 464k (Money McBags guessed that it would be upwardly revised to 470k, but it was only revised up 468k so good for the (No) Labor Department to only mildly be fudging the numbers).  Analyst guesses were for initital claims to come in at 459k, so in theory the data was slightly better than guesses until a week from today when initial claims are revised upward to 460k+.  The point is, the data isn't just hard to believe, but there is absolutley no way economists/analysts/The Great Gazoo can make any kind of relevant guess as to what the numbers will be since their regression models are all calibrated with data from the past 70 years or whatever, when the world wasn't as connected, volatile, and fat tailed.  All one can say is that people keep losing jobs which is more challenging for a recovery than geography is for Caitlin Upton or a high five is from Verne Troyer.

Internationally, the IMF got its panties all up in a bunch about China's trade surplus which may balloon as big as LeBron James' ego or Sheyla Hershey's shirt if China doesn't try to support domestic comsumption by letting its currency float  The report would not have been published had the IMF not removed a footnote saying how they calculated the undervaluation of China's currency and of course if the report had not been published, no one would have cared, not even the IMF's mom.

In the market, earnings were more mixed than the reviews for Kelly Brook's new movie Piranha 3-D (with reviews ranging from awful to boobalicious).  Sony had a strong quarter and swung back to a profit thanks to operational efficiencies, strength in emerging markets, and sales of flat screen TVs, Playstation 3, and a bunch of other shit which people can surprisingly still afford.  The stock was up 7% on the day as analysts had guessed Sony would report an operating loss which shows that even Japanese analysts suck at their jobs.  Other companies putting up good Qs included Radio Shack, thanks to sales of the iPhone and the four people who remembered the company was still in business, and Visa, though Visa sold off on the day as analysts were quick to cut forecasts when V's CEO warned of  new government regulation likely causing the debit market to "undergo changes" not unlike a pre-vagina'd Jamie Lee-Curtis.

That said, there were many companies that shit the proverbial bed today (and not any kind of shit, but an indian food, Jack Daniels, and Slim Jim shit).  Both Nvidia and Symantec fell ~10% after they cut guidance for Q2 citing weak consumer demand which turned their semis flaccid.  Kellogs was not great as they missed analyst guesses and cut their full year projections as apparently too many people were leggo-ing their eggos with waffle sales hurting the company's margins.  Kelloggs was also hurt by a $.10 per share charge as they had to recall a fuckton of cereal boxes last month  after customer complained of the boxes smelling too much like wax and end of the night stripper, but even exlcuding that charge, eps of $.89 still missed analyst guesses of $.94 eps.  Finally Colgate dropped nearly 7% despite beating guesses and maintaining guidance as they warned currency devaluation in Venezuela will have a bigger impact than they initially estimated.  Venezuelan currency continues to struggle after home grown Stefania Fernandez won the Miss Universe pageant and decided to leave the country to travel the world.

In small cap news, a Money McBags favorite QCOR put up a good Q and shot up 23 fucking percent on the day.  Holy fuck did that thing rise and Money McBags was expecting a lackluster quarter at best, so fuck him.  Money McBags has broken QCOR down numerous times on WGP so if you want to understand it better, put it in the search box (and if you want to understand divnity better, put it in Alice Eve's box).

As for the Q, net revenue was up12% from last year to $28.3MM and eps came in at $.14.  Money McBags' revenue estimate was pretty much right on but he had assumed $1MM higher operating costs and thus he was expecting $.13 in eps.  That said, the key driver of revenue was once again MS sales of Achtar which grew 145% y/y and 32% sequentially.  This drug is such a fucking hit with a demand curve more inelastic than the demand for Lucy Pinder's curves, that QCOR should raise the price of achtar again (and that is funny because they already raised to around 1 bazillion percent to ~$23k a vial).  The company now has ~$100MM cash which they are going to continue to deploy for buybacks and most importantly they announced they are going to double the size of their sales force to better attack the nephrology market where they have just started making headway.

So here is the deal, the nephrology market could be bigger than both the IS and the MS market for QCOR becuase patients need 9 to 10 vials of achtar over the course of six months to treat NS.  Anyway, these are some interesting tidbits from the call:

1.  With only the equivalent of 1 rep selling to the nephrology market last Q, QCOR manged to get 4 new prescriptions.  With 9 to 10 vials needed for NS patients, that is equivalent to ~$200k in net revenue for each nephrology prescription so those 4 new cases sold by effectively one full time person, should net $800k in revenue for the company.  As they say in France, "not fucking bad at all."

2.  They are now going to go from 38 reps to 77 reps to be able to call on more nephrology doctors and to be able to increase the chances of someone getting drunk at the company holiday party and taking their shirt off.

3.  Within the next couple of quarters, several papers on the effectiveness of Achtar will be coming out in medical journals with titles like "An Achtar a day will keep the pissing of blood away," "Achtar:  Fucking focal segmental glomerulosclerosis in the ass," and simply, "Nephrotic Syndrome This!"

4.  Out of the 8k nephrologists, fewer than 400 have written prescriptions for Achtar as QCOR hasn't had the sales force or the published medical data to reach the rest of the doctors.  Both of those are coming soon.

5.  MS is now 50% of their revenue with IS at ~40%, NS ~5%, and everything else 5%.

6.  Olivia Munn is still hot.

7.  They are no longer going to waste their time trying to use their $100MM in cash on acquiring another drug and will just focus all of their time on Achtar.  Money McBags brought this up before as a curious strategy by the management team as he didn't understand why they would be fucking around trying to buy some do shit other drug if their growth opportunity was as good as they said it was.  Now he is pleasantly pleased that they have decided to forego an acquisition and instead use their cash for buybacks, building a sales force, and one hell of a night out at their local Rick's Cabaret.

8.  The PDUFA date for IS being put on label for achtar is 9/11 which if approved, will finally allow QCOR to market to IS doctors.

Anyway, the news of a doubling of the sales force caused the stock to rocket today but Money McBags guesses a bunch of that was short covering because small stocks don't move that quickly without some shorts puking out shares faster than an Olsen twin pukes out last night's dinner.  That said, how do we value this company going forward?  They said costs will be up by ~$2MM in Q3 and $3MM in Q4 as they double the sales force and Money McBags doesn't think that sales force will really be affective until Q1 of next year.  So if Money McBags leaves IS flat for the rest of the year, grows MS by 20% in each of the next 2Qs sequentially, leaves NS as nothing, and adds the extra costs, he gets another $.32 in eps for the second half of the year or $.56 eps total in 2010.

But of course, who gives a shit about 2010 because it is 2011 where this company could start seeing even stronger growth.  So if Money McBags takes 2010, grows IS by 10%  (if Money McBags interpreted the CEO correctly, that business could grow 20% to 30% if the FDA allows them to put IS on label in September, so 10% growth seems like a decent enough way to discount that happening) and then grows the non-IS business by 30% (MS has been growing by 100% + y/y, but the law of large numbers and the ramp from nothing is going to have to catch up with them soon enough and NS is still so small that we'll ignore it for now even with the ramped sales force), then he gets ~$.78 eps for next year.

Of course that completely discounts NS doing anything even with an expanded sales force which seems way too harsh as in ~6 to 8 quarters MS has gone from nothing to 1/2 of the business, but Money McBags is trying not to get too excited as they only sold 11 vials for NS 2 Qs ago and 4 this last Q.  So we'll take ~$.80 as a reasonable low end base line for 2011 and the stock is trading for ~13x that plus the ~$1.50 in cash.

That said, if NS takes off, this company easily earns more than $1 in 2012 and you can buy that kind of growth right now for 10x  plus the cash which is almost as cheap as a an autographed Dick Pole.  So look to buy on a pull back, and yes, this is the 1000x time Money McBags has said that and this stock has yet to pull back so time the trade as you please.  Just remember, Money McBags first started writing about this stock in December when it was ~$5, so hopefully you all did your work and bought in and are now enjoying the fruits of your labor.

And don't forget, When Genius Prevailed is on Facebook and Twitter and only a few hundred thousand readers short (give or take 1MM) of Money McBags' goal of 1MM readers by the end of 2010.


Anonymous said...

I'm a fan McBags... Please keep doing what you do
- PlasticBloodMoney

Anonymous said...

Great job man!

Anonymous said...

Still not sure....

I like your cynicism and skepticism of the sacred institutions, ie the FED, Wall Street Analysts, the gubmint in general.

And all the fun-bags. Fun-bags galore. I note as well all of the trollops that appear in your never ending, metaphor laden sermons have wonderful teeth. It therefore leaves me puzzled. You may have a subconscious love of good teeth that you aren't paying attention to. And it also splains why Ivana F never shows up here, as she has a rack like Mary Kate Olsen and teeth that resemble baked beans.

But alas, you catched my interest in this Questor. It might be a fun run until your president, BO, decides to let all those neprology patients just slip in to the great beyond.

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