How Do Telestone Technologies and Pacific Ethanol Look After Earnings?

Includes: PEIX, TSTC
by: GuruFundPicks

Telestone Technologies (NASDAQ:TSTC), a Chinese provider of wireless local-access network 2G, 3G and potentially 4G technologies and solutions, announced its December 2011 quarterly report after the market close yesterday. Non-GAAP earnings at $1.31 came in 4 cents above the street consensus estimate of $1.27 and revenue was in-line at $60.8 million versus the $59.5 million estimate. This is by far their highest-ever quarterly revenue and operating profit, and significantly above the year ago December quarter revenue and earnings of $33 million and 50c respectively.

The key driver for TSTC's growth has been increased market acceptance by local Chinese telecom carriers of the company's networking products based on their proprietary Wireless Fiber-Optic Distribution System (WFDSTM) technology. According to the company this will gain increased momentum in 2011, along with a push to increase sales to international customers as well. TSTC has a strong balance sheet, including almost $1 per share in cash and restricted cash; it is projected to earn $2.45 for fiscal year 2011, and it closed yesterday at $8.16, so it is trading at a cash-adjusted less than 3 P/E.

However, this is just another among many ‘seemingly highly under-valued’ China-based equities that is plagued by concerns about accounting. The stock is up strongly from its $5.96 low 2 weeks ago in anticipation of the quarterly report, and it is unlikely that based on the current quarterly report it will break above the $6-9 range it has set recently.

Institutions have been net buyers of the stock recently, with 33 institutions holding a total of 1 million shares or 2% of the shares outstanding, up from 0% just 3 months ago. Also, the stock is also heavily shorted with 2 million shares, or 16% of the float shorted. The company's conference call was held today at at 8am EST.

Pacific Ethanol Inc (NASDAQ:PEIX), the leading West Coast marketer and producer of low-carbon renewable fuels, announced its December 2011 quarterly report after the market close yesterday. Revenues are rising rapidly, including 53% year-over-year revenue growth to $134.3 million in the December 2010 quarter, and the company is targeting 200 million gallons of annual production at its plants in the short- to intermediate-term.

However, gross margins in the December quarter were less than 1%, worse than both the prior September 2010 quarter gross margin of over 8%, and the 2% gross margins in the year-ago December 2009 quarter. As such, although revenue growth is promising, it will be difficult for the stock to outperform unless gross margins improve significantly.

The company recently emerged from bankruptcy in June 2010, after trading as high as $44 at well over $1 billion market-capitalization pre-bankruptcy in 2006, and is still working on strengthening their balance sheet that currently includes $9 million in cash and cash equivalents and $125 million in long-term debt. Institutions have been unloading the stock recently, with 44 institutions holding a total of 6.4 million shares, or 7% of the shares outstanding, down from 8% in the prior period. The stock is also heavily shorted with 8.7 million shares or 11% of the float shorted. The company's conference call was scheduled for 11am EST today.

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using I-Metrix by Edgar Online.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TSTC over the next 72 hours. Material presented here is for informational purposes only. Before buying or selling any stock you should do your own research and reach your own conclusion.