It is a holiday shortened week of trading, but there has been plenty of excitement so far. A huge rally Monday was based on hopes of a fiscal cliff resolution. Markets started to lose some of that steam on Tuesday after Chairman Bernanke's comments led most to believe that Fed intervention couldn't do much, so QE4 is off the table for now. While many might have expected a quiet holiday week, this week has been anything but. Here are five names that have moved quickly, and it is time to look at them again.
Green Mountain Coffee Roasters (GMCR):
I wasn't expecting any fireworks from this name just yet, but there is some pertinent information to discuss. Green Mountain named Coca-Cola (KO) executive Brian Kelley to be its CEO, effective December 3rd. Green Mountain shares ended up just under 2%, closing at $27.87, after nearly reaching $31 earlier in the morning. The timing of this announcement (Tuesday, November 20) may be suspicious to some when you consider the stock's nearly $3, or 11.3% rise on Monday. The stock is heavily shorted, so Monday's market rally could have spooked the shorts, but you do have to admit, the timing seems a little curious.
Green Mountain's big day is coming, and the company must answer its critics when it reports earnings next week. With the stock back above $30 Tuesday morning, it had basically doubled from its post-earnings low around $15.25 a few months ago. Getting a CEO in place was good news, but the company could easily have announced it with the earnings report next week. Investors will have to decide if there's any significance behind that. Expect this stock to remain volatile through the end of next week.
There hasn't been a ton of news on Dendreon lately, but I wanted to provide an update on the name. The stock has rallied over the last few days to $4.34, the highest close since the day the company reported earnings a few weeks ago. At that point, I stated that Dendreon just wasn't there yet. Provenge revenues had declined two quarters in a row, missing analyst expectations each time. Also, the company's balance sheet continued to worsen.
Dendreon is in the midst of a huge restructuring plan. It hopes to get the cost of goods sold under 50% when it closes its New Jersey facility by the end of this year. It expects financial benefits from its restructuring plan to start in the first half of 2013, with full benefits coming in the third quarter next year. The company has also stated it expects to generate positive cash flow from operations in the U.S. when it hits $100 million in quarterly sales.
The problem is when Dendreon will hit that $100 million mark. Analyst expectations currently stand at $79.26 million in revenues for Q4, and $83.66 million in Q1. But again, the company has missed badly the past few quarters. For the full year in 2013, analysts were expecting about $396 million going into Dendreon's Q3 results. Now, they are expecting just $369.94 million. If you subtract out the Q1 numbers, that means that analysts expect an average of $95.4 million during Q2 through Q4. Obviously, each quarter would be different, but the company could do a $100 million quarter next year. However, if Dendreon continues to miss, expectations will continue downward, and a $100 million quarter may not come until 2014 or later. By that point, the balance sheet probably will have weakened enough that it may need to raise additional capital, if conditions continue their current trend. You can view key balance sheet data for Dendreon in my article linked above.
The social media giant faced its toughest test to date as a public company last week when a huge lock-up expiration hit. Another almost 800 million shares were able to be sold by insiders, and many feared that they would bail, sending the stock lower. Well, Facebook passed the test, and quite well. Shares jumped more than 12.5% that day, and have trended higher since then. On Monday, shares traded above $24 for the first time since the day after the company reported earnings in late October.
The problem is that expectations really haven't changed over the past week. Analysts still expect the same amount of revenues ($6.38 billion) and earnings per share ($0.64) for 2013 as they did a week ago. That means the valuation has jumped, and Facebook is now trading at 36.1 times forward earnings. That's a bit pricey for many, including myself. I have stated that a more reasonable valuation is about 26 times 2013 earnings. Over the past few months, $24 has been a bit of a ceiling for Facebook shares, and I think that trend might continue for now. The next lock-up expiration will be in December, albeit a smaller one. The next big day for Facebook will probably be Q4 and full-year results report sometime in January.
HP shares were one of Tuesday's biggest losers after the company announced an $8.8 billion non-cash charge along with its results. The rather large charge was summed up in this company statement:
"HP recorded a non-cash charge for the impairment of goodwill and intangible assets within its Software segment of approximately $8.8 billion in the fourth quarter of its 2012 fiscal year. The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation plc that occurred prior to HP's acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term. The balance of the impairment charge is linked to the recent trading value of HP stock. There will be no cash impact associated with the impairment charge."
Other than the huge charge, the company did also release financial results for the quarter and year, which obviously, became the back page story. For the fourth quarter, revenues of $29.96 billion were a little light, with expectations calling for $30.43 billion. Non-GAAP earnings per share of $1.16 beat by two cents.
The company also guided to first quarter non-GAAP earnings per share of $0.68 to $0.71, which was significantly below the street estimate of $0.85. However, the full-year forecast for non-GAAP earnings of $3.40 to $3.60 was mostly in-line with expectations of $3.52. Most seem skeptical about the full-year forecast, given the first quarter guidance. We'll get a better idea of that when the company reports Q1.
HP shares plunged 12% to a new 52-week low on Tuesday, and are now down 55% in the last 12 months. You can bet that this won't be the last we hear about this potential fraud at Autonomy. I would also expect to hear some analyst downgrades coming as well. HP might be a dog of the Dow right now, but it certainly will be one of the more discussed names in the coming weeks.
Research In Motion (RIMM):
The Blackberry maker got a strong vote of confidence on Tuesday. Jefferies and Co.'s Peter Misek, one of RIMM's strongest critics, raised his rating on the stock to hold from underperform, and doubled his price target from $5 to $10. Misek now believes that BB10 has a 20% to 30% chance of success, thanks to greater carrier shelf space and marketing support. Misek also stated that while downside risk still exists, the stock could reach $43 if the BB10 bet pays off and the new operating system gets licensed by other handset makers.
On Tuesday, shares of RIMM topped the $10 mark for the first time since June 22nd, and it was the highest close since that date as well. But if Misek's $43 call turns out to be true, that would represent considerable upside from here. Obviously, the majority of the analyst community does not share this sentiment. Currently, the average price target on RIMM (among 37 analysts) is $14.39, with the median at $13.00. The range is $7 to $40. Research In Motion still has plenty of work to do, and that's why shares are down 44% in the past year. But it is a good sign that one of the biggest critics of this company has changed his viewpoint a bit. The company must be doing something right.
Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.