Monday, July 30, 2012

Stockdiagnostics: Under Armour's Special Effects

Tuesday, July 24, 2012


Renna Warning on Under Armour Mentioned on CNBC-TV (Herb Greenberg)


Under Armour's Special Effects
by Michael Markowski, Director of Research @ Stockdiagnostics
July 30,2012
Via the press release that Under Armour (NYSE:UA) issued which covered its earnings for its second quarter ended June 30, 2012, the company has done a good job of using special effects to paint a picture of financial health. Its release stated that Net Income for the second quarter of 2012 was "$7 million compared with $6 million in the prior year's period." Net Income for the quarter actually increased by $427,000, from $6,241,000 to $6,668,000. Under Armour rounded its numbers for its previous quarter down and rounded them up for its current quarter to create the special effect that it had increased its earnings by $1 million. It likely would have been very embarrassing for it to disclose in its press release that it had not even increased Net Income by at least $1 million on a revenue increase of $78 million as compared to its year earlier prior quarter.
Under Armour's Balance Sheet Highlights in its press release emphasized:
"The Company had no borrowings outstanding under its $300 million revolving credit facility at June 30, 2012 ... and that Long-term debt increased to $74 million at June 30, 2012 from $37 million at June 30, 2011, primarily driven by the acquisition of the Company's corporate headquarters in July 2011."
The "Balance Sheet Highlights" in Under Armour's press release are another use of special effects by Under Armour's management. UA's mentioning that "Long-term debt had increased to $74 million at June 30, 2012, in their press release does not add up. According to the 6/30/12 Balance Sheet that they made available on their web site on the morning of the press release the company's "Long term debt, net of current maturities" was $31,499,000. According to the same Balance Sheet on their web site the "$37 million" number that they gave for 2011 also does not add up. The actual long term debt that they disclosed at June 30, 2011 was $31,290,000.
Upon a further examination of Under Armour's Balance Sheets I believe was able to determine how they actually calculated the misleading amounts. What I think they did is that they added $42,387,000 of the "Current maturities of long term debt" which is listed in the Current Liabilities section of their Balance Sheet to their actual long term debt of $31,499,000. The total came out to be $73,886,000. It was rounded to $74 million to come up with the special effects for its press release. I believe they did the same for the year earlier number. By adding $5,567,000 of the current maturities of long term debt to their actual long term debt of $31,290 they came up with $36,857,000 and they rounded it to $37,000,000.
For its press release highlights I believe Under Armour purposely inflated its long term debt by 135%. The question is why would any company go to such trouble to fabricate or inflate the actual amount of long term debt that it had so that it could highlight the number in a press release? The only reason why any company would want to do that is to create the illusion that its Balance Sheet was stronger than it actually was. Any analyst would agree that the moving of more than $42 million from the Long Term debt to the Current Liabilities section of a Balance is a negative. By putting well crafted spin into its press release it was hoping that investors would overlook the fact that a significant portion of its long term debt had become due and payable in its quarter ended March 31, 2012 and was now a current liability.
I suspect that Under Armour created the special effects for its Balance Sheet highlights because it did not want "unsophisticated" investors and shareholders to focus on the fact that its Balance Sheet at 6/30/12 had weakened considerably as compared to prior periods. I believe it did not want investors focusing on the fact that the current portion of its long term debt that was due and payable at June 30, 2012 had skyrocketed to $42 million or by approximately 657% as compared to $5.6 million at June 30, 2011. Additionally, its Current liabilities compared to its year earlier period increased by 46%. Its ratio of current to total liabilities increased from 65% at the end of its most recent calendar year to a current 80%. The following are the key changes in liabilities and stockholder's equity for Under Armour's recently ended second quarter versus its first quarter ended March 31, 2012:
  •  Accounts Payable increased by $50 million
  •  Accrued expenses increased by $19 million
  • Total liabilities (all current) increased by $69 million
  • Stockholders Equity increased by only $15 million
The dilemma that Under Armour faces is that it only has $143 million in cash. That is not enough to pay off its Accounts Payable of $146 million and its current portion due of $42 million of its long term debt that was moved to its Current Liabilities section of its Balance Sheet in its first quarter ended March 31, 2012.
Why does Under Armour want to obscure the obvious? Its either going to have to tap its unused credit line or raise capital via the sale of equity or the issuance of long term debt. I believe that management is nervous about utilizing its credit line for two reasons. The first I believe is that they believe that the tapping of the credit line would be politically incorrect. Doing so would show or indicate weakness or put a dent in their armor. With Under Armour's shares at their all time highs they can ill afford for that to happen. This is especially because of the second reason which is the company's inability to generate consistent operating cash flow.
The key issue which Under Armour's management has had to face since its inception is that the Cash Flow that the company has been able to generate from its Operations has been inconsistent. The Company's Cash Flow From Operations (CFFO) for its Fiscal years ended December 2009, 2010 and 2011 steadily declined from $119 million to $50 million and $15 million respectively.
The 5 Year charts below which were provided by stockdiagnostics.com illustrate the differences in Operating cash flow growth rates for Under Armour and Lululemon Athletica (NASDAQ:LULU). Under Armour's 5 Year chart depicts that its CFFO  had increased for the first two of its past five years and has been in steady decline for the past three years. Lulu's 5 Year chart below depicts that its CFFO has grown steadily for each of the five years.
(click to enlarge)
UA 5 year OC chart by StockDiagnostics.com
(click to enlarge)
LULU 5 year OC chart provided by StockDiagnostics.com
The 20 quarter charts below illustrate both the inconsistency of Under Armour's CFFO and the consistency of Nike's CFFO. Under Armour's CFFO is very inconsistent. The CFFO or OC bars for a majority of its 20 quarters are negative or red. It only has one quarter, its 4th, depicted by the gold circles in the chart, which has been consistently positive.
(click to enlarge)
UA 20 quarter chart provided by StockDiagnostics.com
As shown below Nike's 20 quarter chart is altogether different than Under Armour's. Nike's CFFO or light green bars remain positive for the entire 20 quarter period which is covered.
(click to enlarge)
NKE 20 quarter chart provided by StockDiagnostics.com
Given Under Armour's CFFO inconsistencies its not likely that it will tap its credit lines to pay its current liabilities. The biggest risk to its share price is that it does a secondary offering to raise the capital to pay off its long-term debt, which only recently became due and payable.
While Under Armour's CFFO has been inconsistent its never the less an American icon and its brand is very valuable. Due to its inconsistent CFFO and it current share price to its CFFO multiple of 207 its shares are currently overvalued when compared to Nike's Price to CFFO per share multiple of 24 and Lululemon's multiple of 43. Few would disagree that its an immature company compared to Lululemon or Nike. To become recognized as a peer of both it needs to fine tune its business model so that it can generate consistent positive cash flow on a quarterly basis. If it can do that it will join the ranks of the world's most formidable companies. If it can't its shareholders will suffer from constant dilution.
*Click here to see historical Stockdiagnostics Charts of Under Armour


Sunday, July 29, 2012

Authen Tec Acquired By Apple

originally posted this weekend at Equities Research

7/28/2012Authen Tec, Inc. (NASDAQ: AUTH) announced yesterday they will be acquired @ $8.42 by Apple Computer. Stockdiagnostics upgraded AUTH @ $3.02 on November 16,2011 after the company reported 3rd quarter financials for the period ending September 30,2011. Since the upgrade 8 months ago shares are up 179%.
<click to AUTH Stockdiagnostics OPS chart
<click to AUTH Stockdiagnostics FCF chart



Netsuite, Inc (NYSE: N) closed the week @ $56.95. Stockdiagnostics upgraded N @ $14.59 on March 22,2010 after the company reported FY2009 4th quarter financials for the period ending December 31,2009. Since the upgrade 28 months ago the shares have gained 290%.
<click to N Stockdiagnostics OPs chart 4 quarter
<click to N Stockdiagnostics OPS chart 20 quarter
<click to N Stockdiagnostics OPS chart 5 year
<click to N Stockdiagnostics FCF chart 20 quarter
<click to N Stockdiagnostics FCF chart 5 year
<click to N Stockdiagnostics OPS chart
<click to N GFNN news story




and other great charts

7/29/2012

Abbott Laboratories  $66.39

<click to ABT Stockdiagnostics FCF chart 20 quarter




Automatic Data Processing, Inc  $57.60

<click to ADP Stockdiagnostics FCF chart 20 quarter



Amgen Inc.  $83.92

<click to AMGN Stockdiagnostics FCF chart 20 quarter



Berkshire Hathaway Inc   $127,735.00

<click to BRK-A Stockdiagnostics FCF chart 20 quarter



The Cheesecake Factory Incorporated   $33.89

<click to CAKE Stockdiagnostics FCF 20 quarter



Crown Castle International Corp    $61.69

<click to CCI Stockdiagnostics FCF chart 20 quarter



eBay Inc    $45.22

click to EBAY Stockdiagnostics FCF chart 20 quarter



General Electric Company   $20.92

<click to GE Stockdiagnostics FCF chart 20 quarter



Gap Inc.     $29.91

click to GPS Stockdiagnostics FCF chart 20 quarter


The Home Depot, Inc    $53.71

<click to HD Stockdiagnostics FCF chart 20 quarter



NetScout Systems, Inc   $23.70

<click to NTCT Stockdiagnostics FCF chart 20 quarter


Quest Software Inc   $27.96

<click to QSFT Stockdiagnostics FCF chart 20 quarter


Sprint Nextel Corp.   $4.31

click to S Stockdiagnostics FCF chart 20 quarter

Friday, July 27, 2012

Equities Research Morning Posts

7/27/2012
Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) traded at an all time yesterday before closing @ $106.14. Stockdiagnositcs upgraded ALXN @ $16.85 (split adjusted) on May 13,2009 after the company reported 1st quarter financials for the period ending March 31,2009. Since the upgrade, shares are up 530% in 3 years.
<click to ALXN Stockdiagnostics FCF 5 year chart
<click to ALXN Stockdiagnostics FCF 20 q chart



7/27/2012
The Medicines Company (NASDAQ: MDCO) traded at a 52 week high yesterday before closing @ $25.29. Stockdiagnostics upgraded MDCO @ $13.33 on November 22,2010 after the company reported 3rd quarter financials for the period ending September 30,2010. In 20 months since the upgrade shares have gained 90%.
<click to MDCO Stockdiagnostics OPS chart 20 q
<click to MDCO Stockdiagnostics FCF 5 year
<click to MDCO Stockdiagnostics OPS chart



7/27/2012

Kimberly-Clark Corporation $85.72

<click to KMB Stockdiagnostics FCF chart 20 quarter

7/27/2012

Mellanox Technologies,LTD (NASDAQ: MLNX) traded at an all time high yesterday before closing  @ $101.83. Stockdiagnsotics upgraded MLNX @ $19.25 on May 14,2007 after the company reported 1st quarter financials for the period ending March 31,2007. Shares are up 429% in 5 years since the upgrade.
<click to MLNX Stockdiagnostics FCF 5 year chart
<click to MLNX Stockdiangostics FCF 20q chart
<click to MLNX Stockdiagnostics OS chart
<click to MLNX GFNN news story


7/27/2012

Lumber Liquidators Holding, Inc (NYSE:LL) traded at an all time high yesterday before closing @ $42.55. Stockdiagnostics upgraded LL @ $14.73 on November 1,2011 after the company reported 3rd quarter financials for the period ending September 30,2011. Since the upgrade shares are up 189% in 9 months.
<click to LL Stockdiagnostics OPS 4 quarter chart
<c
lick to LL Stockdiagnostics OPS 5 year chart<click to LL Stockdiagnostics FCF 5 year chart
<click to LL Stockdiagnostics OPS chart



7/27/2012

Healthstream, Inc. (NASDAQ:HSTM) traded yesterday at an all time high before closing @ $27.84. Stockdiagnostics upgraded HSTM @ $4.25 on November 29,2009 after the company reported 3rd quarter financials for the period ending September 30,2009. Since the upgrade 34 months ago shares have gained 555%.
<click to HSTM Stockdiagnostics FCF chart 5 yr
<click to HSTM Stockdiagnostics OPS chart 20 q
<click to HSTM Stockdiagnostics OPS chart
<click to HSTM GFNN news story


7/27/2012

GenCorp Inc. (NYSE: GY) closed yesterday $8.13. Stockdiagnostics upgraded GY @ $5.20 on February 9,2011 after the company reported FY2010 4th quarter financials for the period ending November 30,2010. Since the upgrade 17 months ago shares are up 56%.
<click to GY Stockdiangostics OPS chart
<click to GY GFNN news story


7/27/2012

The Spectranetics Corporation (NASDAQ: SPNC) closed yesterday at a 3 year high @ $11.98. Stockdiagnostics upgraded SPNC @ $4.44 on March 25,2011 after the company reported 4th quarter financials for the period ending December 31,2010. Since the upgrade 16 ago shares have appreciated 170%.
<click to SPNC Stockdiagnostics FCF chart 20 q
<Click to SPNC Stockdiagnostics OPS chart<



7/27/2012

Cabela's Inc. (NYSE:CAB) traded at an all time (8 year) high yesterday before closing @ $44.91. Stockdiagnostics upgraded CAB @ $25.10 on November 2,2011 after the company reported 3rd quarter financials for the period ending September 30,2011. In 8 months since the upgrade shares are up 79%.
<click to CAB Stockdiagnostics FCF chart 20q
<click to CAB Stockdiagnostics OPS chart

7/27/2012

The Goodrich Corporation (NYSE: GR) closed at an all time (27 year) high  @ $127.48. Stockdiagnostics upgraded GR @ $59.56 (dividend adjusted) on August 2,2007 after the company reported 2nd quarter financials for the period ending June 30,2007. In less than 5 years since the upgrade, shares have gained 114%.
<click to GR Stockdiagnostics FCF chart
<20 q
<click to GR Stockdiagnostics OPS chart
<click to GR GFNN news story 2
<click to GR GFNN news story 1<


7/27/2012

Consolidated Edison (NYSE: ED) traded at an all time (42 year) high yesterday before closing @ $64.42. Stockdiagnostics upgraded ED @ $36.43 (dividend adjusted) on November 6,2009 after the company reported 3rd quarter financials for the period ending September 30,2009. Since the upgrade 32 months ago, this income stock has gained 77%, or 24% annually.
<click to ED Stockdiagnostics OPS chart 20 q
<click to ED Stockdiangostics FCF chart 5 yr


7/27/2012

Brown Shoe Company, Inc. (NYSE: BWS) traded at a 52 week high yesterday before closing @ $13.63. Stockdiagnostics upgrade BWS @ $7.14 on September 27,2011 after the company reported FY2012 2ns quarter financials for the period ending July 31,2011. Since the upgrade 10 months ago shares have gained 91%.
<click to BWS Stockdiagnostics OPS chart 5 yr
<click to BWS Stockdiagnostics OPS chart

7/27/2012

Colgate-Palmolive Co. $106.38

<click to CL Stockdiagnostics FCF chart 20 quarter

7/27/2012

3M Co   $90.59

<click to MMM Stockdiagnostics FCF chart 20 quarter

7/27/2012

Pepsico, Inc.   $71.22

<click to PEP Stockdiagnostics FCF chart 20 quarter

7/27/2012

AT&T, Inc    $36.30

<click to T Stockdiagnostics FCF chart 20 quarter

7/27/2012

Wal-Mart Stores Inc   $73.67

<click to WMT Stockdiagnostics FCF chart 20 quarter

7/27/2012

Exxon Mobil Corporation    $86.52

<click to XOM Stockdiagnostics FCF chart 20 quarter

7/27/2012

Verizon Communications Inc    $44.46

<click to VZ Stockdiagnostics FCF 20 quarter

Thursday, July 26, 2012

Performance of Stockdiagnostic Downgrades

Today's posts were originally published at Equities Research

Closing prices as of yesterday.


Companytickerdate Downgrade$ CloseTime% Return
NeurogesX, inc.NGSX11/24/2010$5.88 $0.22 20m96%
SuperValu, IncSVU1/19/2010$13.32 $1.73 30m87%
Amtech SystemsASYS2/16/2011$24.43 $4.30 17m82%
STR Holdings, IncSTRI5/10/2011$16.35 $3.34 14m80%
Ivanhoe Mines LtdIVN4/4/2011$27.60 $8.02 15m71%
Century AluminumCENX5/16/2011$16.05 $5.63 14m65%
Echelon CorporationELON3/21/2011$8.64 $3.14 16m63%
Sony CorporationSNE8/24/2010$28.07 $11.26 23m60%
Office Depot, Inc.ODP4/29/2011$4.31 $1.79 15m58%
SkyWest, Inc.SKYW5/16/2011$15.17 $6.81 14m55%
Schnitzer Steel Ind.SCHN7/5/2011$56.99 $26.04 1yr54%
Panasonic Corp.PC8/15/2011$10.63 $6.19 11m41%
Duckwall-Alco StoreDUCK4/21/2011$12.61 $7.46 15m41%
Weatherford Int'lWFT5/16/2011$19.32 $11.67 14m39%
Tellabs, inc.TLAB5/12/2011$4.68 $2.96 14m37%
Xerox CorporationXRX5/6/2011$9.99 $6.38 14m36%
Ford Motor Co.F2/24/2012$12.18 $8.97 5m26%

Wednesday, July 18, 2012

Chanos Sees Cash Flow Declining at HPQ

Today Jim Chanos came out on CNBC TV and highlighted to the world the declining Cash Flow at Hewlett-Packard.

Below are two charts of HPQ's quarterly operating cash flow statistics showing their recent declines.
click to HPQ Stockdiagnostics 20 quarter OPS chart
click to HPQ Stockdiagnostics 20 quarter FCF chart
click to HPQ Stockdiagnostics Long Term OPS & FCF Growth Tables


Chanos from CNBC transcript in video link:
"those acquisitions have enabled them to maintain a revenue base and see a declining cash flow base. those are maintenance capital expenditures or maintenance r & d hidden as acquisitions. and when you value the company, when you begin to look at the fact that this company has purchased its r & d, capitalized it, if you will, r & d is normally expensed, you begin to see a totally different picture. look at the middle of the left table which shows you that the free cash flow four buybacks and dividends, but after cap and acquisitions a much different animal and has turned negative. in addition, the balance sheet has been destroyed here. all right"


A look at today's morning posts at Equities Research with recent Stockdiagnostics Downgrades.


company
ticker
date
 Downgrade
$ Close
Time
% Return
HUSA
5/23/2011
$17.25
$1.06
14m
94%
FSLR
5/10/2011
$128.51
$14.46
14m
89%
TSTC
12/2/2010
$11.10
$1.71
18m
85%
SVU
1/192009
$13.32
$2.28
30m
83%
NOK
8/25/2011
$8.17
$1.69
15m
79%
SPWR
5/18/2011
$21.10
$4.42
14m
79%
STRI
5/10/2011
$16.35
$4.15
14m
75%
AIXG
3/7/2011
$42.31
$12.91
17m
70%
RIMM
9/26/2011
$21.68
$6.92
10m
68%
SCIL
3/16/2011
$3.00
$1.05
16m
65%
SNMX
5/16/2011
$5.92
$2.18
14m
63%
GrafTech International,Inc.
GTI
5/2/2011
$22.57
$8.88
4m
61%
ISNS
4/4/2011
$13.50
$5.25
16M
61%
SNE
8/24/2010
$28.07
$12.30
23m
56%
PMFG
5/24/2011
$18.00
$8.00
14m
56%
MT
5/16/2011
$31.92
$15.06
14m
53%
AA
4/25/2011
$16.67
$8.28
17m
50%
TIE
5/13/2011
$18.86
$11.09
14m
41%