On Tuesday, January 23 2007, Goldman Sachs downgraded Unisys from hold to sell. We all know that it is rare indeed for GS or any other of the big boys for that matter, to utter the word ‘sell’. What we found interesting is the timing. Unisys was due to announce earnings the following day, January 24, for Q4 2006. Did Goldman know something?
We waited for the figures and just in case they did know something, unsuccessfully attempted to open a small short position. After taking a look at the figures we figured out why Goldman is saying 'sell'. The market however is looking at the wonderful blissful suckers’ trap, pointing out that Unisys has gone from a loss to an all amazing .06 profit per share.
The bottom line is that Unisys is downsizing and in a big way. The only way to temporarily eek out a small paltry profit over the next few quarters is to continue cutting costs to a greater extent than the loss of revenue and profit margins. Don’t be fooled by the spin. The bottom line is as follows:
* Revenue is stagnant
* Operating loss increased from 2.8% in 2005 to 5.7% in 2006
* Gross profit declined from 20.2% to 17.5%
Perhaps less interesting, yet supporting the reasoning for the Goldman downgrade, is the Balance Sheet figure for “Stockholders' deficit” tripling from 32M to 96M in 2006. This is not a sign of a turnaround by any measure. You can spin a ‘downsize’ anyway you want, but eventually it catches up with you.
We were able to short on Thursday at $8.20.
Disclosure: Author is short UIS