GVTucker - Here's the Wall Street Journal Article on Flip Flop Tom from last August.
Enjoy the Ups-'n-DOwns of your HERO !
Paul
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© The Wall Street Journal
By Susan Pulliam Staff Reporter of The Wall Street Journal
Early this month, Merrill Lynch's semiconductor analyst, Thomas Kurlak,
reported in two notes to clients that the "best of all hoped-for scenarios" was
developing for semiconductor stocks. He forecast a 20% move up for the
group.
Wednesday, he slashed his 1998 estimates for Micron Technology in half,
downgrading the stock to "neutral/accumulate" from "accumulate/buy,"
warning that "the easy money has been made." Micron shares swooned 7
1/2, or 15%, closing at 42 5/8. Meanwhile, rumors flew that Micron will be
the first in a series of downgrades from the analyst in coming weeks.
How did the sunny outlook turn so gloomy in a little more than a week?
Explains Mr. Kurlak: "Micron can't continue to cut costs as fast as DRAM
(memory-chip) prices are falling. We've been complacent about falling
prices so far this year because their costs have fallen faster. But in the fourth
quarter, they'll run out of gas on that. So we lowered our estimates."
Mr. Kurlak is developing something of a reputation on Wall Street for
breathtaking flip-flops. Despite his mercurial nature, however, his following
in the investment community is so huge that the sudden pronouncements
often provoke huge stock moves. The Micron comments not only walloped
Micron, they also contributed to Wednesday's drop by Texas Instruments,
which closed at 119 3/8, down 2 1/2.
Before Wednesday's downgrade, Micron shot from around $48 to $60 after
Mr. Kurlak forecast sunny skies for the semiconductor industry in his Aug. 1
and Aug. 6 notes to clients.
But even rumors about a change in recommendation from Mr. Kurlak can
send a stock down. That's what happened Tuesday, when talk spread on
Wall Street that the Micron downgrade was coming. The stock fell 5 3/8 to
49 3/4 that day. Other analysts made comments Tuesday, including
PaineWebber's John Lazlo, who put out a note to clients warning that DRAM
prices are falling faster than expected. But Mr. Lazlo's note came in the
morning, and Micron didn't start tumbling until the afternoon, when the Kurlak
rumor began hitting trading desks.
Some investors, however, are getting fed up with the sudden shifts. "To me,
what Kurlak is saying isn't exactly a news flash," says Larry Marx, a portfolio
manager at Neuberger Berman whose fund holds a chunk of Micron stock. "I
admit I find it a bit puzzling. What changed so dramatically in his thinking in
the course of one week?"
This is hardly the only time Mr. Kurlak has done an about-face lately. On May
29, following Intel's "pre-announcement" of disappointing quarterly results,
Mr. Kurlak, like much of the rest of the Street, cut his 1998 earnings
estimates, in his case to $10.20 a share from $11. The next day, however,
he perplexed investors by reversing his previous day's call, raising his 1998
estimates, this time to $11.20 a share.
Many investors pay attention to Mr. Kurlak because of his reputation for bold
semiconductor recommendations. Wednesday's call on Micron represents
a big change, since Mr. Kurlak has been one of the Street's biggest
semiconductor bulls. He recommended Intel in September when it was in
the 45-range, taking into account its subsequent split. It closed Wednesday
at 96 3/8. He recommended Micron at around 17 last July.
But Mr. Kurlak's credibility now may be suffering in some quarters. "I don't
pay attention anymore because of the flip-flops. The volatility of his calls
makes his research useless to me," says Stephen Bruno, a portfolio
manager at Dalton, Greiner, Hartman, Maher & Co.
Mr. Kurlak says the complaining among investors is a classic "shoot the
messenger" response. "If you try to be early, people complain. If you wait too
long, people complain that you are late. The truth is nobody likes a
downgrade in a bull market."
Indeed, many investors have complained that too few analysts are willing
these days to make negative comments about stocks. But critics say their
problems with Mr. Kurlak go beyond that. The shifting on his Intel earnings
estimate left many investors scratching their heads. And some Wall
Streeters have long questioned Mr. Kurlak's habit of producing year-out
earnings estimates that are much higher than the consensus.
Some investors think his eye-catching year-out views give him a way of
adding leverage to his changes in recommendations. His Micron
downgrade seemed all the more dramatic Wednesday because of the deep
cut in his estimate for 1998.
"I think the guy has pretty extreme points of view. His $4.05 estimate was
probably extremely aggressive and his $2.75 estimate may be extremely
conservative. I don't believe anything has changed that justifies a cut like
that," complains Mr. Marx.
Responds Mr. Kurlak: "I look at the fundamentals. I don't like to have an
estimate that's in the middle of the pack if I don't believe it. But they are just
that -- estimates -- and they are subject to change."
Mr. Kurlak adds that the Micron comments following the earlier bullish
remarks on the semiconductor industry don't represent as big a change of
heart as it might seem. But what about his comments in the Aug. 1 note,
urging investors to "use this period to continue to accumulate positions" in
advance of a "substantial stock price increase in the fall?"
Forget all that fluffy stuff up front, explains Mr. Kurlak. Turn to the middle of
the Aug. 6 note, he says, where he warns investors should "reconsider
portfolio weightings" and be on the alert for cyclical peaks in semiconductor
stocks.
All year, DRAM prices have fallen steadily based on worries about
overcapacity. But until lately that hadn't hurt semiconductor stocks, because
industry costs have been falling as rapidly as DRAM prices.
Part of the problem now, Mr. Kurlak says, is that the cycle for the
16-megabyte chip is peaking sooner than he had anticipated, meaning that
production of the 64-megabyte chip is ramping up faster than he expected.
As a commodity producer, Micron will have trouble keeping up.
Mr. Kurlak isn't the only bull who's throwing in the towel. In addition to
PaineWebber's Mr. Lazlo, Brown Brothers Harriman downgraded Micron to
a "sell" from a "near-term hold" Wednesday. |
