Questar (STR)
Posted by Eddy Elfenbein on June 17th, 2008 at 1:02 pm

I’ll never understand why a company with a cool name like Mountain Fuel Supply Company would want to change its name to the horribly ugly sounding Questar (STR), but change it they did.
Perhaps they knew what they were doing. The stock has been an amazing performer for years. Over the last 20 years, the shares’ total return (including dividends) is up about 60-fold, which is over 22% a year. The stock hit another new high today.

FactSet’s Earnings
Posted by Eddy Elfenbein on June 17th, 2008 at 10:37 am

Very strong earnings report today from FactSet Research Systems (FDS). Sales and net income both rose 22%. Earnings-per-share came in at 65 cents, two cents a head of the Street. For the same quarter one year ago, FactSet made 56 cents which included a four cent tax benefit.
Here are some highlights from the company:

Other Financial Highlights
* U.S. revenues were $102 million, up 18% from the year ago quarter.
* Revenues from non-U.S. operations increased 30% to $45.7 million.
On a constant currency basis the increase was 29%.
* Operating margins were 32.5%, consistent with the previous and
year ago quarters.
* Other income declined 60% to $0.9 million from a reduction in U.S.
interest rates during the last nine months.
* Free cash flows generated during the quarter was a record
$45.8 million, exceeding the average of the previous four quarters
by $17 million.
Operational Highlights — Third Quarter of Fiscal 2009
* Users rose to 39,600 at quarter end, up 500 professionals over the
past three months.
* Client count was 2,044 at May 31, a net increase of 23 clients.
* PA 2.0 subscribers totaled 5,487 users from 607 clients at the end
of the quarter.
* Employee count at May 31, 2008 was 1,826. Headcount did not change
during the third quarter. The number of employees is up 18% over
the last year.
* FactSet already has accepted offers from 80 new employees for the
upcoming fourth quarter, the majority of which will expand the
sales and consulting and engineering departments.
* Capital expenditures were $12.3 million, net of landlord
contributions for construction. Expenditures for computer equipment
were $7.6 million and the remainder covered office space expansion.
* Client retention rate remained above 95%.
* On May 8, the Company’s Board of Directors approved a 50% increase
in the regular quarterly dividend from $0.12 per share to $0.18 per
share. The cash dividend of $0.18 per share will be paid on
June 17, 2008 to holders of record of FactSet’s common stock on
May 29, 2008.
* Common shares outstanding at May 31, 2008 were 48.0 million.

Here’s a look at the company’s stock (blue, left scale) and earnings-per-share (gold, right scale). The two lines are scaled at 30-to-1. FactSet’s P/E ratio plunged from 37 in October to 19 in mid-March.

Hedge Fund Manager Still Alive, Fund Not So Much
Posted by Eddy Elfenbein on June 17th, 2008 at 10:12 am

The U.S. Marshals say that Samuel Israel III did NOT leap to his death after writing “suicide is painless” on the hood of his car.
Well done, Marshals, even though I could have told them that. The hood thing had all the earmarks of the first clue on any Law & Order. Please, no one is ever guilty at the 18th minute mark.

“Suicide has been ruled out,” William Dundon, a spokesman for the U.S. Marshals Service, said in an e-mail to Reuters.
Another law enforcement official who is familiar with the investigation, but not authorized to speak publicly on the matter said “the investigation is solely a fugitive investigation now.”
Israel, 48, had been due to begin serving a 20-year prison term in Ayer, Massachusetts a week ago.
Officials would not say how authorities had learned that Israel, who suffers back and heart problems, was alive. But after no body washed up on the Hudson’s shores for days, police became skeptical he was dead.
In April, Israel was sentenced for fabricating investment returns, making up an accounting firm to sign off on documents and ultimately stealing $450 million from investors, including Indiana’s DePauw University.
He was out on bail to allow time for prison officials to prepare his medication, court documents show.
In an ironic twist, Israel’s disappearance may be especially awkward for his lawyers.
Lawyers at Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, P.C. defended Israel plus another fugitive, Jacob “Kobi” Alexander, the former chief executive of Comverse Technology Inc, who is wanted in the U.S. on stock-options backdating charges. Alexander escaped U.S. authorities in 2006 and has been living in Namibia since then.

This is a good day for people who shorted the suicide contract. I wonder what the odds are that they’ll find Israel in Israel.

Little Bank, Big Profits
Posted by Eddy Elfenbein on June 16th, 2008 at 1:34 pm

I love finding tiny companies that no one knows about, but are great investments. This is especially true with small banks. There are roughly a bazilion little banks that are publicly traded, and yet many aren’t followed by a single Wall Street analyst.
Here’s a good name to consider, Smithtown Bancorp (SMTB). The funny thing is that this bank is based in Wall Street’s backyard yet only two analysts follow it. The company has a market cap of roughly $200 million, which is barely a peep compared with the big boys (Citigroup’s market cap is more than 500 times larger).
Like a lot of banks, Smithtown is going through a rough patch, but the company still earned $1.47 a share last year. That was its 13th straight record year. Not a lot of companies can boast of that.
The shares are down about 15% in the past year.

Say It Ain’t So, Lenny
Posted by Eddy Elfenbein on June 16th, 2008 at 1:19 pm

Forbes recently suggested that Lenny Dykstra isn’t making his own stock picks, but relying on Richard Suttmeier (note both Lenny, Suttmeier and I are columnists at RealMoney.com).
Peter Kafka prints Suttmeier’s response (you can read it here) and I think they have a good case. First, they’re not doing anything secretive or improper. Secondly, Dykstra is merely using Suttmeier’s research as a primary screening tool.Sheesh! What’s the big deal about that?

Oil at $140
Posted by Eddy Elfenbein on June 16th, 2008 at 11:03 am

The price for oil is at another new record near $140 a barrel. A gas station in Egnland, however, is selling gas for just £1.99 pounds a litre.
Wait a sec, that’s $17.69 a gallon.
According to GasBuddy.com, Hume Lake Gas in Hume, CA is selling gas for $4.99 a gallon.

“The US economy is Out of the Woods”
Posted by Eddy Elfenbein on June 16th, 2008 at 10:33 am

Anatole Kaletsky at the Times argues that the U.S. economy is not in a recession:

American consumers, far from cutting back to bare essentials as was expected by bearish commentators after the credit crunch, are actually increasing their spending. The evidence of this, contained in the strong retail sales figures for May published last Thursday, was by far the most important economic news of the past few weeks. Yet these figures received almost no media coverage and little market attention.
Yet May’s retail sales figures revealed a picture completely at odds with conventional wisdom about the US economy. Despite the jump in energy prices and the related collapse in measures of consumer confidence, retail sales rose by 1.1 per cent on the month, the strongest gain since last November. Sales adjusted for inflation and excluding food and energy also showed gains much stronger than expected. Also April’s sales, initially thought to have fallen, were revised upwards to show a significant gain – and the two-month average of these volatile figures suggested that growth in the US consumer economy is now similar to the rate a year ago, before the sub-prime crisis and credit crunch.
This conclusion is not based on one set of good retail sales statistics, but includes stronger-than-expected recent figures on industry sales, stocks, imports, exports, purchasing managers’ surveys and even home sales. But in saying this, am I not forgetting about the dreadful employment figures published last Friday, which triggered the collapse of the dollar I mentioned at the start? Not at all. Despite the shock-horror headlines about a terrifying leap in unemployment from 5 to 5.5 per cent, employment figures for May were quite strong and fully consistent with the message of economic acceleration. Rates of unemployment are irrelevant in timing the economic cycle, since they are a lagging indicator, turning some six to nine months after the economy as a whole. Meanwhile, the job creation figures, which do reflect current economic conditions, showed a modest decline of 49,000 in payroll employment, exactly in line with expectations and consistent with the economy growing at about 1.5 per cent, just slightly below the 2 per cent trend rate of productivity growth.
Of course May’s strong retail sales were due in part to the tax rebates of $600 to $2,000 per household from the US Treasury from last month. Many analysts, therefore, dismissed the gains as misleading. But this was the wrong response. The role of tax cuts in boosting consumer spending is a reason for optimism, not scepticism, about the economic outlook. The tax rebates were designed to boost consumer spending and that is why we have always expected (in line with the Fed and the US Treasury) to see economic recovery from this summer. Retail sales figures have now shown that the US tax cuts are working as planned. They will temporarily boost consumption – and by the time that this temporary tax boost runs out around Christmas, the US economy will be starting to enjoy the benefits of lower interest rates, operating with a lag of 12 to 18 months.

Lehman’s Earning, Or Lack Thereof
Posted by Eddy Elfenbein on June 16th, 2008 at 9:26 am

Lehman Brothers (LEH) told us to expect the worst and they were right. The company lost an astonishing $2.8 billion last quarter. Revenues came in at negative $688 million. It’s hard to make a profit when your revenue is in the red. The company got rid of $147 billion in assets last quarter.

Lehman’s leverage ratio — how many times assets exceed a firm’s equity — fell to 24.3 from 31.7 at the end of the first quarter and 28.7 last year. A week ago, Lehman predicted the ratio would slide to 25. The higher the number, the more debt the firm has taken on to fund those assets.
Lehman’s capital-markets business posted negative net revenue of $2.4 billion as fixed-income revenue fell to negative $3 billion. Both were in line with projections.
Equities revenue dropped 65% from a year earlier and 57% from the fiscal first quarter to $600 million, amid $300 million in losses on private equity and investments in which the bank was a principal.
The investment-banking business saw net revenue slump 25%. But investment-management revenue was flat at $800 million, worse than the company’s projection last week for a 13% rise to $900 million.
The brokerage said it has a liquidity pool of $45 billion, up 32% from the prior quarter.
Lehman said it reduced its exposure to residential mortgages, commercial mortgages and real estate investments by about 20% in each asset class during the quarter.

From the end of 1996 to the end of 2006, shares of LEH climbed from $7.69 (adjusted for two 2-for-1 splits) to $78.12. That’s a 10-fold gain in 10 year, and it doesn’t include the modest amount from Lehman’s dividend.
The company just made a high-profile change in the executive suites but I really don’t think that’s what needed right now. Moody’s, for their part, recently downgraded the company. Naturally, this comes after the stock has plunged 75%. I doubt Lehman will able to continue as a separate entity.

S&P 500 Value Index Divided By the S&P 500 Growth Index
Posted by Eddy Elfenbein on June 13th, 2008 at 11:48 am

Growth has recently been outperforming Value which is unusual for a bear market. The difference is that many financial stocks fall into the Value category, and that’s where the most pain has been.

Portfolio Called It
Posted by Eddy Elfenbein on June 12th, 2008 at 2:11 pm

From the April issue of Portfolio on Erin Callan:
Wall Street’s Most Powerful Woman
And why she might not rise higher than Lehman’s C.F.O.