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Published: June 4, 2010
Among the biggest losers in Friday's early
trading are Blyth (NYSE: BTH), athenahealth (Nasdaq:
ATHN) and Banco Bilbao Vizcaya (NYSE: BBVA).
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Blyth Confesses
Until about five years ago, companies would not hesitate to
update their guidance in the middle of a quarter. Once they
received fresh intra-quarter sales data, they sought to quickly
disseminate it for fear of violating Reg FD (Regulation Full
Disclosure, which was put in place ten years ago to ensure that
all investors were dealing with the same information). Well, the
Securities and Exchange Commission (SEC) and Nasdaq never
really enforced this aspect of Reg FD, and companies eventually
chose to just wait until each quarterly earnings release to
update sales trends and guidance.
In that vein, kudos to Blyth (NYSE: BTH), a maker of
scented candles, for quickly alerting investors that sales
forecasts will not be met. The company is seeing its shares
pushed down more than -17% today, but just gained a bit of
credibility with investors. Much of the blame goes to the
decline in the Euro, and lower spending in general in Europe.
This is a factor that is not getting enough attention, either in
analysts’ reports or in the financial media. Instead, many will
wait until mid-July, when earnings reports roll in, and many
will profess surprise that the weakening Euro is crimping
profits for exporters.
Action to Take --> Act
now. Peruse the
10-K filings of your holdings and read the section that
discusses geographic sales exposure. If a stock derives 25% or
more of its sales in Europe, and analysts’ estimates have not
come down, a negative “surprise” awaits come
earnings season.
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athenahealth’s Credibility Problem
For many corporate boards, it’s viewed as essential that a
company’s management holds a great deal of credibility with key
investors. So when investors grumble that management has lost
their trust, the board often moves to replace an executive with
a fresh face. It may not be fair to scapegoat one person for a
company’s troubles, but that’s how it goes. Usually the chief
executive officer (CEO) or president gets the axe, but in the
case of athenahealth (Nasdaq: ATHN), the chief operating
officer (COO) is being asked to fall on his sword. The board is
also certainly aware that the company has lost half its value in
just six months.
A COO is tasked with being sure that spending stays in line,
letting the CEO worry about sales growth. In its most recent
quarter, athenahealth confessed that expenses were rising too
fast, faster even than revenues. In fact, quarterly results have
trailed forecasts for three of the last four quarters, largely
due to runaway expenses. News of the COO’s departure is pushing
shares down more than -8% in Friday trading, but some investors
may come to see the move as a positive.
If the company can rein in costs, investors may grow to warm to
this story. That’s because athenahealth is well-positioned to
capitalize on the changing healthcare landscape. It provides an
internet platform for doctors so they can reduce their crippling
levels of paperwork while streamlining the claims process with
insurers. An increasing number of doctors are making the move to
electronic records management, which has enabled athenahealth to
boost sales at least +33% in each of the past four years. And
sales in 2010 and 2011 are still expected to grow at a
respectable +25% clip.
Action to Take --> Those
uncontrolled expenses, though, are crimping operating profit
margins. Profits are expected to be flat this year at around
$0.50 a share. Yet if the new COO can get a grip on costs,
per-share profits could surge more than +50% in 2011. With
today’s sell-off, shares now trade for about 25 times projected
2011 profits, the lowest forward multiple the company has seen
in its three-year history as a public company. With a
still-strong growth profile, investors are likely to warm up to
this stock again in coming quarters. Shares may move back into
the $30s once athenahealth proves it can actually exceed profit
forecasts.
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An Unfriendly Reminder from Europe
European bank stocks are taking in on the chin today, reminding
U.S. investors that the Gulf Coast oil spill and tepid U.S.
employment growth are not the only major investor concerns right
now. Spain’s Banco Bilbao (NYSE: BBVA) and Banco
Santander (NYSE: STD) are both off more than -7% to new
52-week lows, while the Netherlands’ ING (NYSE: ING) is
of by a commensurate amount.
Action to Take --> U.S.
markets are unlikely to mount a fresh rally until investors
sense that the European banking sector has stabilized. To the
extent that European banks run into deeper trouble than is
currently expected, then equities around the world may get
dragged down in sympathy. Keep a close eye on this all-important
sector.
-- David Sterman
Staff Writer
StreetAuthority |
