Thursday, November 8, 2007

Earnings Today - Gmarket (GMKT), Perini (PCR)

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This has felt like a tiring week; volatility will do that to you I suppose. Today the fund gave back the 1% or so it had beaten the S&P500 by yesterday, so pretty flat for the week; considering some serious carnage in some names in the portfolio I can live with that.

Tomorrow the only name of interest on the earnings front is the steller JA Solar (JASO) - speaking of teflon stocks... I am not sure where expectations catch up to these stocks; so far any earnings, any gross margins, any breath is celebrated in the sector. Outsized revenue growth seems to be the only thing anyone cares about as long as you have the word 'solar' in your name (sort of like a few weeks ago when nothing mattered other than the word 'China' in your name). Have you noticed how weak Chinese plays (ex-solar) have been the past 5 days? Much weaker than the broader market. Hence my fears with the solar stocks, despite the current euphoria.

Today we had 2 fund holdings report.

First Gmarket (GMKT) - a smaller position in the fund had a miss. Egads, they have become Americanized.... blaming 'hot weather' for a miss? I should sell them on principal alone.
  • South Korean online retailer Gmarket Inc (GMKT) posted quarterly results below analysts' expectations hurt by the timing of the annual Korean thanksgiving holiday season and hot weather, pushing shares down 9 percent.
  • The Chuseok Thanksgiving holiday, which fell in September this year and lasted three days while it was in October and lasted two days in 2006, reduced the effective number of online shopping days by about four days in the quarter, the company said.
  • For the third quarter, the company earned $6.3 million, or 13 cents a share, compared with $5.9 million, or 12 cents a share, a year ago. Revenue rose 26 percent to $56.9 million. Analysts expected earnings of 16 cents a share, on revenue of $60.5 million, according to Reuters Estimates.
  • The hot weather extended well into September, which delayed purchases of higher-margin fall clothing, the company said in a statement.
  • Gross merchandise value, which represents the total value of all items sold on Gmarket's Web site, increased by 35 percent to $848.1 million.
Honestly, to be blunt, I was not aware earnings were today (my team of fake analysts were again asleep at the wheel - it's been a long week and yesterday was hectic) and when I saw the weakness earlier today I bought a few hundred shares (not a major purchase) to push this over a 1% weight in the portfolio. Blah. This stock was pushed up in the past month to the $28s in the "anything that is Asian must be worth 100x more than it really should be" mania... as I wrote on October 11th [Gmarket Up 11% - Not Clear Why]

I don't see any specific news to account for Gmarket's (GMKT) rise today so I assume it is some combination of "it's Asian" and "pre-earnings run"

I am going to take the other side of this trade and sell into this strength. I am bringing Gmarket (GMKT) down to only a 100 share holding.

So I had sold the position down quite aggressively on the mania, but had started buying back. Which was a bad move considering I was concerned with what analysts were saying, but I just lost track of this one since its not a major position. Most of my purchases had been in the $20s, $22s, and $24s with sales in the $26s and $28s. Looks like we are headed back to the near $20s. Gmarket's theme was it could eventually push into the Japanese and/or Chinese market (which are very different from the South Korean market) but this is looking more remote by the month as they drag their feet. I am a bit disappointed that this company is not growing the top line faster than it is and is not expanding aggressively. By the time they get to the markets they are targeting other players will already be established. So I have to reconsider my position and my first though is to eliminate Gmarket. Yes, the next time Asian mania hits the market and anything Asian goes up 400% for no reason this will rally, but that's not really an investing thesis (p.s. have you noticed almost all those small cap Chinese stocks have given back 80% of their gains?) Lemmings...

On a brighter note is Perini (PCR) - which is the infrastructure stock that just cannot seem to get out of its own way. This is a just under 1% position as the stock has not performed much (+6% for the fund when most infrastructure stocks have ramped multiples of that). I bought Perini since it was a very good 'value' but the stock has been stumbling around and (lately) below its 50 day moving average the entire quarter - unlike its bretheren which have been making new highs weekly. Hence why I cut it back as a laggard in late September. It's earnings report looks quite good on first glance.
  • Construction services company Perini Corp. said Thursday third-quarter earnings more than doubled as revenue rose more than expenses. Net income jumped to $24 million, or 87 cents per share from $9.6 million, or 36 cents per share, in the year-ago period. Revenue rose 60 percent to $1.24 billion from $773.3 million.
  • Analysts expected profit of 67 cents per share on revenue of $1.11 billion, according to Thomson Financial.
  • Perini said the higher revenue and profit came from "the conversion of our substantial building segment backlog into revenues and profit." Building is the largest of the company's three segments, which also include civil and management services units.
  • Uncompleted construction backlog declined to $7.8 billion from $8.5 billion at the end of last year.
  • The company boosted its full-year profit and revenue targets. Perini now expects profit off $3.30 to $3.45 per share on revenue between $4.4 billion and $4.6 billion. The previous estimate had net income at $2.80 to $3 per share and revenue at $4.1 billion to $4.3 billion. Analysts expect earnings of $3.10 per share on revenue of $4.31 billion.
So while backlog decreased it is still well over a year and a half of revenue which is very much in line with the peer group. The guidance increases is also a very nice boost, especially considering analysts only have them in for $3.19 NEXT year (not to mention the $3.09 this year). Hopefully these results give some mojo to the stock - the 50 day moving average is just under $58, so a move above that level would be beneficial to say the least. If Perini were valued even as the next cheapest company in the sector we'd be looking at upper $60s - hence why weakness has been very confusing.

From their earnings report: "Based on the current backlog revenues and profitability and the strength of our position in the marketplace, the Company is providing initial guidance for 2008 revenues in the range of $5.0 to $5.4 billion, and diluted earnings per share ranging from $3.50 to $3.75." So this is also a large increase from the $3.19 analysts had pegged and decent year over year growth (I assume they are trying to be conservative). So overall the results look good, although next quarter you'd like to see backlog start pushing back up - Perini is more tied to the domestic market (plus some Iraqi contracts) so it doesn't have the same exposure other names have to petro dollars or Far East money. Hence less margin of safety (t0 me). I will be watching next quarter on the backlog dollars, but for now it still seems quite undervalued.

Long Gmarket, Perini in fund; no personal position




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