victor, vocco, gnu222, I thought I was responding to Andreas' comment, but if you'd like me to clarify the points for your benefit, I will elaborate.
First, if you'd like to use Latin for expressing that my conclusion does not follow from the facts stated (non sequitur) that's fine; using another idiom is no problem especially when my first language is based on Latin, not to mention the other 3 languages I speak as well.
Second, the stock price on the day before earnings (yesterday) -- CPQ down to 26.25 on relatively low volume, while the Nasdaq was down almost 10% intraday. That is not an ordinary event, and the stock was down 7/8 on about the first million shares or so yesterday. Having said that, the data suggests that the price level was set by the initial sell off. There weren't many more sellers, or many more buyers thereafter, until the close when daytraders closed their positions as the Nasdaq recovered half its earlier loss, bringing the CPQ price up 3/4 point from the 25.5 level. Yesterday's movement was a non-event, as well as in most others according to posts on this board yesterday. Total volume was below average and trade data consistently shows accumulation in large blocks and sales in smaller transactions.
Third, "I'm glad you are so confident about CPQ results based on the theory that the CFO will not allow results to be bad!" I am not sure how you could have interpreted my commentary to come to this conclusion, but that is neither what I stated nor my theory, although it may suit your agenda. Results will be in line because of strong performances in some areas, and because of cost reductions. Assume just for a second that 2000 folks were laid off and that the average annual employee cost is $150,000, including benefits, taxes, outplacement expenses, and severance packages (I think this same number was used by the Firm late last year, although I am not sure right now). Those 2000 employees translate to an annual savings of $300 million, or $75 million per quarter, or 4.4 cents per quarter, assuming 1.7 billion shares outstanding. That alone would make CPQ's number achievable. And by the way, that is neither a hypothesis or a theory, but mathematics. If they layoff another 2000 employees this quarter, then there is another 4.4 cents on top of the previous savings for 8.8 cents. That excludes any benefit that may be derived from higher gross margins, change in sales mix, new products, and synergies from shifts into direct sales, to mention a few.
Fourth, "Does that mean we have an Earl Mason back in our midst willing to jerrymander numbers so he can buy and sell his options at a profit?" Well, I have to say that to no surprise, you are typically very cynical with your commentary. Maybe I am biased because I have only purchased the equity in September, but as you know very well, the search was long and hard for a distinguished, well regarded, qualified individual with proven abilities. I won't even mention the fact that although his financial incentive is probably great, he has more than enough wealth accumulated to act properly, not to mention his impeccable reputation at stake that he certainly would not trash over a quarterly announcement. As to your comment regarding MC, the price sank to $18 from the $22-$23 range on mutual fund year-end tax loss selling, most of which having fiscal year ending October. The earnings were $0.07 versus and expected $0.05, and not bad for a CEO who took over an ongoing operation in disarray after having blindly stated in July his target of a nickel for the quarter. Just as quickly as the price dropped, it rose. What changed? Not much aside from wash rules expiring 30 days later and a new fiscal year, along with expectations of higher profits. Since then there have been $2.4 billion dollars that have flowed into the stock (money flow check Bloomberg for yourself, since you put zero weight on my arguments -- you have that in GB, right?). Also, a few other things changed. Dell warned about earthquake disruptions, about a shortfall in earnings due to missing Intel chips, Gateway did the same, and yes, Compaq did not. Oh, I forgot, Dell also reduced its revenue growth rates, and lastly, described its "uptick" in expenses necessary to get into higher margin businesses that CPQ already participates in altogether. I would say that those events prevented, in part, the rise of the stock beyond the low 30's a few times, along with the interest of weaker longs to sell into rallies. (BTW, I made a small fortune by buying calls and leaps when the stock dipped to $18 and change), and by trading a portion of my holdings during the swings. I was tempted to sell that portion of my portfolio before earnings if we got a run up, but since we did not, I am holding because IMO, the upside is far greater than the downside. As far as options go, the premiums are too rich in this volatile market and I have not played them yet this year. |
