$IBM Dividend Sustainable or Engineered? Trend Lines no Work Good.

IBM (NYSE:IBM) the tech stock everyone wants to like has some worrisome trends. But they just raised the dividend what could be the problem.

Top line growth over the past three years is relatively flat. For tech this is the sign of death. You are milking the legacy aspects. Eventually a disruptor comes and takes it all away. BTW there is next to no research and development. They just buy and hope o catch the wave.

Earnings are up modestly but because of decreases in shares outstanding the EPS looks great. This is financial engineering straight from a quantitative computer model. This is not a compelling product proposition. They have cut costs and squeezed operations. Eventually this gambit runs its course.

A company is only as good as its customers. IBM customers are all in the cost cutting austerity business. Not one name is turning the world on its head. No world-beating disruptor is using IBM. Think about it. No fuel for the fire.

George Gutowski writes from a caveat emptor perspective.

 

Will Microsoft Change Dividend or Share Buy Back Strategy with New CFO; $MSFT

Microsoft (Nasdaq:MSFT) is replacing their CFO. Some believe an announcement is coming within a week or so. $74.5 Billion of cash and investment balances are at stake. Regardless of who wins Windows division CFO Tami Reller or Office division CFO Amy Hood are top candidates. Online Services COO Rik van der Kooi is also said to be a candidate.

While everyone is curious to know the outcome I do not expect dividend or share buy back strategy to change much. Major shareholders are donating their shares to charity. The question becomes does the charity want to hold a dividend paying stock or will they sell into the market and stress the share buy back program beyond normal market dynamics.

Who ever wins the job will be marching as instructed.

George Gutowski writes from a caveat emptor perspective.

Proctor & Gamble Try Bastard Cash Flow Trick. Now it’s Slow Pay $PG

Proctor & Gamble (NYSE:PG) is trying the olde school trick of slow pay to eek out more cash from operations. Currently they are paying around 45 days and are looking to extend to 75-100 days. According to Morning Ledger at WSJ CFO Journal many other comparable companies are doing it. Expectations are they will free up some $2 Billion in cash.

Why there has to be a reason. The market cap is around $218 Billion. The move may generate about 1% of market cap. Big deal. But is P&G getting a case of the shorts.

Working capital is about 1:1. not outstanding.

Short term debt last report was $9.8 Billion, payables $7.2 billion. If you believe interest rates are going up and you have to figure short-term debt is floating the more you pay down the better. Long term debt clocks in at $23.6 Billion which is 10% of your market cap.

But take a look at the share re-purchase levels. In the past twelve months they have spent billions repurchasing their shares..

The stock is trading near both its 52 week high and five-year high. management wants to do something to break to the upside. The short position is about 0.78% of the float and has seen substantial short covering of late. This bullish catalyst is diminishing.

The dividend has just been increased by 7%. P&G has a 123 year uninterrupted history of dividend payment. The last 57 years have seen constant increases. Everyone who is a dividend oriented investor already owns the shares. No radical new buying demand is expected.

So they have to stick it to their suppliers. Their suppliers may offer terms for early pay which out weigh dragging payments. There is a sanctimonious comment about helping suppliers find financing. Come on if you have Proctor & Gamble on your receivables list the bank has lent you money.

But quite frankly classic financial analysis frowns heavily on companies who drag out their payables. Ultimately its a sign of financial weakness not strength.

Dividend investors are better served with improving margins, improving market shares, new product launches, product extensions, accretive acquisitions, pricing power. You know stuff like that. Sticking it to your suppliers. Meh!

George Gutowski writes from a caveat emptor perspective. I probably use some of their products like soap and don’t even know it.

Intel Ticking Interest Rate Time Bomb. Black Swan Event in about Five Years $INTC

Image via CrunchBase

Intel (Nasdaq:INTC) announced they will issue $6 Billion in bonds to rebuy their own shares. Fitch calls them one of the soundest credits in the technology space. Everyone points to their liquidity. No one can identify where the cash is and what the tax bite will be to repatriate. Of course they can just buy the bonds offshore before maturity and play some shell games.

Here is the Black Swan event in the making. Half the bonds mature in five years. Yes today they are priced very well. Treasuries are historically cheap. But five years from now Obama’s successor will already have one year under his belt. Government spending and QE 111 of IV or whatever will already have been tried. Interest rates will be much much higher. Then its going to bite very hard.

Right Intel is struggling as the PC market transitions to mobile devices. Intel is not leading. Five years from now Intel probably will look very different. bond holders will probably agree to refinance if Intel agrees to voluntarily refinance some of the longer tranches as well. The negotiations will be cold-blooded. You pay or you pay.

In the meantime large shareholder repurchases will financially re-engineer the EPS and hid many failings. Today the shares dividend yield some 4.54% with an 8.73 forward PE. There are reasons why this happened. Intel has a few issues to resolve. The bond deal just closes the financial curtains and puts some asleep for a little longer.

All good things come to an end. IBM and Xerox in their day were gold but fell on hard times. The money flow ratio is 0.52. So lots of people are ready to sell.

George Gutowski writes rom a caveat emptor perspective. Follow him on twitter@financialskepti

Related articles

• Aspen Technology Black Swan Event Coming Soon $AZPN (financialskeptic.wordpress.com)
• Apple Inc (AAPL): Would It Dump Intel Corporation (INTC)? (insidermonkey.com)

Starbucks Big Caffeine Clever Communications Plan. Coffee Tea or Lawyers. $SBUX $TEA

Teavana logo (Photo credit: Wikipedia)

Starbucks (Nasdaq:SBUX) has a rather clever communications plan in play. Off it’s 52 week highs set last March it may occur to some to perhaps sell and stick it to the tax man. The dividend is anemic at 1.74%. Short interest is 1.16% of float which means short covering will not drive the price in the near future.

Starbucks decides to spend $620 million to buy Teavana (NYSE:TEA) and get into the tea business. Wall street runs more on coffee so the deal logic does not seem strongly compelling. Green tea benefits aside. They let it be known that a head count reduction is in the works. So they look like they are focusing on costs.

Then the icing on the cake is a new buy back plan for some 25 million shares is announced. This tops up the 12.1 million still unexecuted share repurchases. So at 37.1 million shares at just under $50 @ share may easily hit the $2 billion mark. Which is the equivalent of three Teavana acquisitions.

So by reducing the share float and engineering a supposedly better EPS any stumbles from the Teavana acquisition will not be as transparent. Pretty clever eh? All this when the money flow ratio stands at 2.97. Would that continue and for how long to drive the price up.

Just to stir the pot a little,  law firm Levi & Korsinsky announces an investigation into Teavana. You see as recently as the end days of Feb 2012 Teavana was trading just under $24.00. So the Starbucks offer of $15.50 is not as good a deal as one would think. The shares were trading around $10 just before the offer. But breach of fiduciary obligation is being investigated. You see it’s not $24 and that’s a damn fine point.

Starbucks has to tap dance very carefully. So the communications plan is clever and nuanced. Because someone has to drink a lot of coffee

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti

 

Wal-Mart Upsets Communists $WMT Is Wal-Mart A CIA Front?

English: Walmart Home Office, the headquarters of Wal-Mart – Bentonville, Arkansas Español: Walmart Home Office, la sede de Wal-Mart – Bentonville, Arkansas (Photo credit: Wikipedia)

Wal-Mart (NYSE:WMT) is upsetting the communist party in India. While I’m not normally a fan of Wal-Mart I do like upsetting the communists. Wal-Mart has vigorously denied wrongdoing and said it had acted in compliance with all Indian laws.

M.P. Achuthan, a Kerala member of the upper house of parliament for the Communist Party of India,  wrote to India’s prime minister Manmohan Singh that Wal-Mart had “clandestinely and illegally invested”.

Most Wal-Marts are big ugly boxes so I’m not sure how the clandestine part works. Illegal well maybe you got something there. India has so many regulations you are bound to have run afoul of something.

Wal-Mart has recently run afoul in Mexico with bribes and skullduggery. Legal fight under way. Wal-Mart has bloodied its nose in Germany and Japan where they have lost money because their model did not work.

Now the communists in India are complaining. Wal-Mart is culturally tone-deaf. If I were a communist I would let them in and let them roll the dice in the huge Indian market. Wal-Mart is leveraging up with billions of dollars of cheap debt. They are investing in Indian rupees. The entire expansion is one big unhedged foreign exchange exposure. But then again the communists don’t see it that way.

If I was an investor I would be concerned about Wal-Mart getting in and then blowing their brains out all the while borrowing huge gobs of US dollar capital.

 

Cyberonics Red Flag Issues Black Swans Hatching $CYBX

Cyberonics (Nasdaq:CYBX) posted fancy numbers year ending July 31 and the stock traded up. Here are a few issues investors should concern themselves with:

1. While reporting just over $8 million in profits for Q4 they wrote off $2.5 million on an epilepsy treatment technology. Management claims ever-increasing revenues on other products.
2. Cuts of 15% of their head count are supposed to generate a $12 million savings.
3. Share repurchase of one million shares approved. They execute 640,000 shares between November 2011 and July 27, 2012. In the past six months insiders sold (dumped) just over 422 thousand shares. A whopping 52% of their holdings.
4. Perhaps most importantly the company’s cost of goods sold were 9% as of their april numbers. Industry median is 41%.  Whatz up with that?

A few red flags need some attention.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter @financialskepti

Boston Scientific Still Taking Drugs $BSX

Boston Scientific (Photo credit: Wikipedia)

Boston Scientific (NYSE:BSX) is fighting against an atrocious economy, product recalls and everyone’s all time favourite high debt levels. The economy well what can you say. Product recalls – isn’t that normal in this industry? Why wasn’t it budgeted for. High debt levels are usually dealt with in one spectacular manner. Divestitures of assets and or lines of businesses. What can we sell quickly to some unsuspecting schmuk and pull a lot of cash out of it.

Oh lets not forget that ever popular strategy “cost cutting” BSX has cut costs which usually means whacking people. Total operating expenses dropped from around 40% to 26% which is huge. However some point out that managers can now include more in cost of goods sold which allows you to hide hide hide.

Then there is the ever treacherous good will valuations. Now understandably this is not a real estate company with bricks and mortar. Drugs are intellectual property which always has a certain level of goodwill attached.  On July 26, CEO Hank Kucheman revised goodwill estimates downward by over $3 Billion.

Some say these are non cash accounting tricks. Others say this is destruction of shareholder wealth. You buys your ticket and takes your chances.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter @financialskepti

 

Marsh McLennan Aggressive Accounting $MMC

MMC (Photo credit: Wikipedia)

Marsh McLennan (NYSE:MMC) has announced that  J. Michael Bischoff,  is now CFO of the insurance brokerage effective Sep 4. CEO Brian Duperreault said in a press release . “His extensive experience and demonstrated ability to create shareholder value are important assets,”. One would expect that in executives of publicly traded companies.

GMI Ratings governance awarded an AGR score of 27 as of August, indicating that it has higher accounting and governance risk than 73% of companies. In 2011 they eliminated hundreds of positions and entered into a stock buy back which of course is designed to make EPS look much better.

MMC has been on an acquisitions kick and has racked up lots of estimated value but not tangible values. This opens Pandora’s box to potential write downs and write-offs which will destroy shareholder wealth not create it.

Iceberg straight ahead.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter @financialskepti.

Zuckerberg Held Prisoner by Stock Market Yikes $FB

Mark Zuckerberg, founder and CEO of Facebook (Photo credit: Wikipedia)

Facebook (Nasdaq:FB) and Mark Zuckerberg have been taken prisoner by investor perceptions. Facing a humiliating $50 billion loss of shareholder wealth Facebook will start buying back some of its own shares which might reduce the float some and help engineer the illusion of EPS growth.

More importantly Mark Zuckerberg promises not to sell any personal holdings for the next year. Because Mark knows if he sells it will be the largest unfriend action in the history of capitalism. In the mean time he continues to have a mortgage on his mansion. Truly wealthy people do not have mortgages. They have walls erected around them.

By the way markets are conversations. Stock markets are an original form of social media.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter @financialskepti

Related articles

• Zuck: I Won’t Sell Facebook Shares for a Year (mashable.com)
• Zuckerberg says no plans to sell his Facebook shares (mercurynews.com)