As we brace ourselves for what could be a wild earnings season, several companies need a much closer look, especially those in the tech sector. We've already seen fallout from Google, when earnings guidance and a hybrid stock split took center stage on Friday, so how will the others fair in this choppy market based on recent news? Better than Google, I'd hope.
Google, Inc. (GOOG) - In most cases, shareholders welcome stock splits with open arms. In the case of Google, they clearly haven't, and the discussion over shareholder rights got ugly. Through the hybrid split, investors have lost even more shareholder rights then they've previously had. They should understand that this isn't a traditional split by definition, and the 2-for-1 ratio won't cut the share price by 50% when trading of the new shares commence. Each current shareholder will receive one share of the new class of stock (Class C), for each share they currently hold (either of Class A or Class B). The Class C shares will carry no voting power, and absolutely no voting rights.
The issuance of the newer class of stock allows founders Sergey Brin, Larry Page, and Eric Schmidt to retain two-thirds of the rights over the voting structure currently in place at Google. This means, no matter what shareholders say, and unless approved or suggested by the likes of Brin, Page or Schmidt, shareholder rights will continue to dwindle. That being said, GOOG's numbers were pretty decent and beating the street is always good, but this news of a hybrid split and a continued reduction in shareholder rights is certainly for the birds. I'd stay on the sidelines for a while until this split is sorted out and the share price experiences a 15% - 20% correction.
Leap Wireless (LEAP) - Leap is planning to add Arizona and Texas to its ever expanding broadband spectrum, while T-Mobile (DTEGY.PK), through a mutual license-exchange will expand reach in Alabama, Illinois, Missouri, Minnesota, and Montana. The addition of broadband spectrum reach into the regions of those seven states will allow both Leap and T-Mobile a better canvas to implement their 4G networks.
The expansion and deployment of a 4G network led by Leap and T-Mobile creates a sense of urgency for Verizon Wireless (VZ) and AT&T (T). Both competitors already have some the fastest 4G LTE networks in the US, even though customers may be more attracted to some of the lower priced cell phones and tablets T-Mobile has to offer.
Analysts are calling for a quarterly loss of -$0.98/share, however a narrower-than-expected loss of between -$0.77/share and -$0.90/share would demonstrate Leap's capability of getting back on track, especially in the 4G arena. Investors should find the expansion of Leap's network a positive for the company and increased market share could very well make it an affordable take-over target considering its current market cap is $675 million.
LDK Solar (LDK) - LDK announced that they need more time to announce its fourth quarter earnings as write-downs and inventories need to be restated. If they take a paragraph from the page of Groupon's (GRPN) book they'll notice that this isn't the smartest of moves from an investor standpoint. When a company needs to restate something like inventory write-downs it means that they have a surplus of product that just wasn't sold and therefore needed to be written off as a depreciating asset.
The play here is pretty simple, start buying June $2 puts. If the earnings report is as dismal I predict it will be these puts should certainly be near the strike price by the June expiration. Even though options' trading isn't for most investors, the novice to advanced traders may very well agree with this strategy.
Microsoft (MSFT) - The skies are cloudy for software behemoth Microsoft, who scored a major deal this past week with its Live@EDU brand. The online education portal powered by MSFT was selected by the All India Council for Technical Education to be deployed and implemented at over 10,000 technical colleges and universities throughout India. If cloudy skies mean sunnier days for Microsoft investors, then by all means they can keep deals of this magnitude coming.
If we were base things just on the Live@EDU news, MSFT is certainly a long term play, and I'd be acquiring positions in both shares and options. That being said, Microsoft announces earnings on April 19th and I believe analysts' expectations will once again be surpassed. The street is calling for MSFT to earn $0.58/share on $17.18 billion in revenue, which would no doubt be a stellar quarter.
I believe MSFT will earn somewhere in the neighborhood of $0.60/share on revenue of $17.55 billion or higher. If we were to follow up the Live@EDU news with the stellar quarter MSFT should post, I'd be acquiring a larger options position that consisted of June $33 calls and July $35 calls.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.