Probability of 2014
Bankruptcy for Titan Increases After it Files Quarterly Report
By Michael Markowski
The probability of Titan Machinery (NASDAQ:TITN:$15.00)
having to file for bankruptcy by the end of or sooner than the end of 2014 has
increased significantly based on its 3rd quarter 10/31/13 financials
that it filed yesterday. In a report “Tractor
Pull for Titan Machinery May be Over by Tomorrow” which was published on
December 4, 2013, I had predicted that Titan would file for bankruptcy by the
end of 2014.
Titan’s Income Statement, Balance Sheet and Cash Flow
Statement data deteriorated over the 90 day period. Titan’s revenue for
its 3rd quarter increased by less than 1% from $582.1 million in the
year ago quarter to $588.0 million. It also reported that its inventory
increased by 10% to $1.2 billion from its quarter ended July 31, 2013.
Finally, Titan operating cash flow for the quarter was a negative $59.8
million. Titan has generated negative
quarterly operating cash flow in nine of its last 10 quarters.
Titan is following a similar script that I have seen played
out by numerous companies that StockDiagnostics.com has diagnosed as having
“The EPS Syndrome”. Notable companies
who were previously diagnosed with this negative operating cash flow anomaly include
Bear Stearns, Merrill Lynch and Lehman Brothers. Here is the typical
script:
1.
Company utilizes archaic SEC accrual accounting
standards to report growing cashless earnings.
2.
Wall Street analysts recommend shares based on
earnings growth.
3.
Wall Street investment bankers who are
affiliated with analysts raise capital for company to generate commissions.
4.
Commercial banks and suppliers provide loans and
credit lines based on the increased equity.
5.
After the company maximizes its ability to raise
additional debt and equity capital revenue growth flattens.
6.
Company sells inventory at losses and creates
declining revenue and EPS losses.
7.
Company loses option to sell or issue equity to
raise capital due to both fundamentals and share price momentum turning
negative. Also loses ability to increase borrowings.
8.
Company’s fundamentals and share price continue
in downward spiral as it liquidates inventory at declining prices to raise
cash.
9.
Company has no choice but to file for bankruptcy
since it has debt and can not raise cash.
Titan was first diagnosed as having The EPS Syndrome on
September 8, 2011 at a price of $26.41.
Its among several institutionally held public companies who have Wall
Street analyst Buy Ratings that StockDiagnostics.com
has diagnosed with extreme or severe cases of The EPS Syndrome or cashless
earnings.
There have been 93 companies diagnosed with The EPS Syndrome
during 2013 and more than 2,500 since 2002.
The share prices of approximately 70% of the companies diagnosed are
below their diagnosis price. Share
prices have fallen by at least 50% for half of those companies that have been
diagnosed as having the EPS Syndrome. A
four minute video that explains The
EPS Syndrome is available.
