Wednesday, March 24, 2010

BAGAKOAA March 24, 2010 So how do you create Shareholder Yield


March 24, 2010 So how do you create Shareholder Yield?

I mentioned the trend away from considering PE ratios as the litmus for equity picking. Are any of you watching what is going on with Starbucks. They are a text book case of what some companies are doing to woo institutional investors and their clients. They announced their first dividend, the announced a buy back of shares and they are reducing long-term and short term obligations. That is the trifecta of creating shareholder yield. I started my first time position in SBUX today.

CHU got slammed today and even its biggest pimp, Mr Cramer is now back peddling. Expectations were low and so were the results. If you were reading, I took my lumps in mid February on CHU and saved another 5% on the down side. In looking at the report, this was not an income issue. In fact income was pretty much in line with expectations. It seems to be poor management and cost management, if there is a difference. Put it in the lessons learned watch file.

I looked all over for the reporting figures for ABAT and did not see it. The stock came down 2% today but so did quite a few other stocks over the fear of Greece and Portugal defaulting. I eventually found the reason there was no reporting: Our Annual Report on Form 10-K could not be filed within the required time because there was a delay in completing the adjustments necessary to close the books for the year. It is never a good sign when you see a company tell the SEC this.

Remember me saying, “dont expect much from the Lame Duck Burger CKE, Carls Junior.” The consensus was 6 cents and I went way out there and said 8 cents. Well they hit 30 cents a share with revenues down 5% and same store sales down 6%. They must have gone really light on the beef over the last 3 months.

And in the category of a swing and miss, Pay Chex reported a lack luster 31 cents a share, which was lower than the 33 cent consensus and much lower than the 36 cents a share I suggested. There was a one time 3 cents a share charge related to a lawsuit, but all top line revenue was down. My bad.

Let see if I can make it up to you. Michael J. had me reviewing some home work from a few weeks ago and I got into a new position today. In the course of that exercise I took a second look at PNRA. Panera Bread sells for a nice value at 79.00. (Some intrinsic values have it pegged at 120-140 a share). The 700 unit bakery/sandwich house has no debt and a sexy free cash flow. If you want to see a great graphic check out this chart: The chart shows a 3 year history of free cash flow with the three components of their balance sheet, Assets, Equity, and Debt. Your gonna love it. Anyway I got into some May calls at 85 dollars for 1.30 per contract. So I won't be "in the money" till 86.30, which is a stretch, but I like this long term, as in 18 months or more.

We are coming toward the back end of reporting season here so it's hard to find interesting earning reports to guess at, but here are a couple. Coto de Caza neighbor Mr. Edmond and his company Wet Seal are reporting tomorrow. Its a small 4.00 a share retailer of clothes. A while back they reported same store sales up about 4%. Nobody in the company buys or keep their stocks or options which would make me thing its fairly valued or over valued at 4 dollars a share. WTSLA is hoping for 8 cents a share. Im thinking no, a guess would be 5 cents a share. Their free cash flow in not  (they have none) and their fundies are not attractive.

Then there is Oracle, no not the one from Omaha, the software company ORCL. They report tomorrow and they are expecting 38 cents a share in profit. I always get nervous when everybody says a stock is hot, but I can not find anyone saying anything bad about ORCL. While everyone is positive, I can't get excited about the prospects. I like the consensus of 38 cents.

Best Buy, BBY reports tomorrow. I got beat up on a March call for BBY. I call it a learning lesson. As I mentioned here before, I bought too far out of the money (over the current price when I bought the call), and did not anticipate the price war with WalMart over the holidays. I could not have learned it any better than if I went to a semester at the Harvard School of Business and it cost me about a semester there as part of the learning fee.

And there you have it. I am finishing the book by Priest about Shareholders Yield. It provides an interesting insight about the value of dividends, stock buy backs and debt reduction in determining the future value of equities. TT you would love it.

Salve Lucrum


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