I think you have a lot of it right, but not all - particularly with respect to timing:
1. To the best of my knowledge the company gave no one any advance clue as to the revision last August, and that is as it should be...selective disclosue to nobody. Yes, the over-reaction was brutal. But then the company was making a revision to it's own previous public forecast and therefore had to make a public revision. It did it quickly and honestly. But that's a lot different from giving guidance, or taking responsibility, for a sell side analyst's forecast.
The company would like to get out of the forecasting business and said they would do so, and for obvious reasons. But they, like all other companies, are trapped by the sell-side analysts in Wall Street, who publicly publish their own forecasts and then run them by the company in advance to make sure that management is comfortable with the projections. The last thing an analyst in Wall Street wants, is to be lied to by management. Once that happens he can be very unforgiving. No company wants to have a responsible brokerage firm out there in print with an earnings projection that is too high, especially today when investors seem to make their buy-hold decisions based upon whether or not earnings meet analysts quarterly estimates. (As if that were the major criteria upon which to base the worth of a stock?)
As a result, managements' end up giving guidance to selective opinion makers who quietly go around alerting their favored accounts, with what often is quasi-officially endorsed guidance. Those who act in advance to get ahead of the crowd, often learn afterwards, to their regret, that the information had little or no long term relevancey to the ultimate price of the stock.
2. If you all recall, a few weeks ago, the stock which ran up to 17 1/2, subsequently had a decline all the way down to $12-$13. I think that may have coincided with a recognition by Checkfree management that some earnings forecasts for fiscal year 2000 at 70 cents were too aggressive. Those analysts were advised accordingly, quietly and behind the scenes, if you will. Management's intention is to keep the earnings estimates as conservative as possible, so that any surprises would be favorable. Practically all managements play that game today.
In truth, nobody really knows what the earnings will be 18 months out. Management, which has all the information available to it for it's own budgets, often has to change their own internal forecasts. When Checkfree came out and gave their first public projection for $.32 this year, they thought that number was in the bag. It wasn't three months before they had egg on their face.
3. I believe the timing of the Piper Jaffrey report was just coincidental to all this. The analyst at Piper joined that firm recently from Pacific Growth where he wrote on and recommended Checkfree. He merely picked up coverage at his new firm and issued an excellent report. His numbers for fical 2000, if I remember correctly,
were around 45 cents a share - a number that I believe management is comfortable with at this point in time. He was concerned at the time, that others in the Street were too high and they would have to bring them down, as they have now done.
4. When the stock went crazy this week, phone lines to the company must have been jammed, and those that didn't get the word before, certainly got it then. One firm, whose target for Checkfree stock a year out was $15, took their numbers down even further than the rest of the crowd, citing margin pressures etc. etc. etc. Perhaps that explains the $21 price followed by a 16 7/8 close on the same day?
5. The result, as I think you correctly point out, is a soft landing - with the stock higher to boot. Well, NOW earnings expectations have been lowered and a potentential deterrent removed from the equation. Obviously, management does not want a repetition of last August, if it can possibly avoid it. That is all for the better.
I guess those that trade the stock, have been bigger winners than those who have held it through all the volatility. Perhaps, the answer may be that you can do a little of both.
I am sure there are other pitfalls ahead, but as Senator Kennedy once said, we can cross that bridge when we get to it.
P.S. Some of you may find these conversations, which actually took place, amusing, if not informative.
Trader from a brokerage firm a couple of weeks ago,
"We have 25,000 shares of Ckfr we can offer at $15."
Analyst from that firm a couple hours later,
"I am taking my FY 2000 numbers down to 45-50 cents"
Trader from same firm two days ago,
"Checkfree is selling at $19. We are taking our estimates down for next year."
Us,
"But we heard you took them down last week?"
Trader,(Sounding slightly embarrassed)
"But now we are going out in print with them!"
(News of earnings downgrade hits First Call)
Salesman for trader's firm,
"How come we don't do more buiness with you guys?"
Should I tell him?
ROFL |
