Investors ‘Like’ Facebook
Facebook’s IPO could put the value of the company above $100 billion, reports CNBC. Market research firm eMarketer projects Facebook could achieve revenues of $4 billion in 2011. This gives the company a 25 forward price-sales ratio, a valuation that can only be justified by a robust long-term growth rate. However, data released by Inside Facebook indicates Facebook’s growth decelerated significantly from May to June, with declines in the U.S., Canada and the U.K. The bullish argument for Facebook’s valuation could be supported by an esoteric factor: low-float, or an IPO in which a company only makes a limited number of shares available to the public. The result is a supply of emerging Internet company shares that is insufficient relative to robust investor demand. In other words, a share of Facebook could be like the hot Christmas toy that disappears from store shelves only to reappear later on eBay for a multiple of its suggested retail price.
JC Penney Poaches Apple’s Ron Johnson
When news broke Tuesday that Ron Johnson was to be JC Penney’s (JCP) next CEO, the company’s shares soared 17 percent. Johnson, the retail guru behind the Apple store and its Genius Bar, had been courted for months by hedge fund manager Bill Ackman. It paid off. Ackman’s Pershing Square Capital, which is the largest shareholder of JCP, now has a $475 million profit on its position. However, not everyone is optimistic about the one-time Target executive. “At Apple, he has been at the best brand in the world. Highly innovative product. No competition. A customer with no price boundaries. And an unlimited SG&A budget,” said Brian McGough of Hedgeye Risk during a CNBC interview. “At JC Penney you’ve got the exact opposite.” Such a dramatic career change invokes the memory of Michael Jordan, who left the NBA at his prime to bat 0.202 for the Birmingham Barons.
Best Buy Not Bad
Best Buy’s fiscal first-quarter net income declined a penny year over year, to 35 cents per share. Sales fell 1.7 percent at stores open for over a year. However, sales of mobile phones jumped 28 percent and online sales grew 12 percent. Analysts were expecting worse on the tail of weak national retail sales and labor market data. Shares of Best Buy gained 4.5 percent on Tuesday. Perhaps the most encouraging news was that management reiterated its full-year earnings guidance, which was issued on March 24, despite the slew of disappointing economic indicators released by the government since that time. Best Buy is either an outlier in a weak economy or the economy is not as weak as we think.
Smithfield Stock Is High on the Hog
Smithfield Foods, the maker of its namesake hams, announced quarterly earnings of 85 cents per share, beating expectations by 3 cents. This was good news for investors who feared the soaring price of corn, the primary feed for hogs, would eat into the world’s largest hog producer’s profit margins. “Hog production segment earnings improved significantly, as lower hog inventories boosted live hog market prices and favorable grain hedges yielded rising costs," said Larry Pope, the CEO of Smithfield. This means that Smithfield was able to insure its margins by trading derivatives that shifted the risk of rising feed costs to speculators. In a conference call with analysts, Pope add, “We’ve got something resembling a 50 percent hedge against our grain for the year at prices well below current market.” Pope reminded us that derivatives aren’t all bad and speculators aren’t all worthless.
Missing Sino-Forest For the Trees
At least that’s what management argues. Sino-Forest also has the support of its largest shareholder, hedge fund titan John Paulson. The forest plantation operator, headquartered in Hong Kong and Canada, saw its shares collapse earlier this month after Muddy Waters Research published a research report accusing the company of fraud. On Tuesday, shares fell as Sino-Forest failed to restore confidence when it announced its quarterly earnings and hosted a conference call with analysts. "At this time, given that our business is primarily based in China, it is anticipated that the examination will take considerable time to complete,” said William Ardell, chairman of the independent committee investigating the matter. Even the value of Paulson’s support may be in doubt; The Wall Street Journal reports that Paulson’s flagship fund is down 19.65 percent since the start of the year.