Q3 2009 Earnings Call

October 29, 2009 11:00 AM ET

Spurred by a desire of home buyers to get in under the wire of the $8,000 “first time” homebuyer tax credit that expires at the end of November, the National Association of Realtors' pending sales index jumped 6.4% to a reading of 103.8 from 97.6 in July. This was the highest reading since March of 2007.

Another factor in the increase is the rise in the number of short sales (people selling the house for less than the amount of the mortgage, with the OK of the bank holding the mortgage) which involve a lot more paperwork and thus a longer time between the agreement to buy and the actual closing. Still, this is some more evidence that we have turned the corner in the housing market.

Q2 2009 Earnings Call Transcript

July 30, 2009 11:00 am ET

I obviously did an incredibly poor job of checking to see who was reporting today; First American (FAF) (title insurance), another decent-sized holding, reported this morning and put in a great number. Unfortunately this name has been so tied into mortgage rates (I think incorrectly), but you can't argue with the market. It's such a quiet stock I missed the breakout the past few days as well... hmm. Need to clone myself, right quick - not enough hours in the day.


Looks like they beat estimates by 16 cents, which makes the weakness of the stock every time it was hammered when mortgage rates jumped all the more silly. Remember the thesis behind the title insurers is homes exchange hands - 30 year rates don't need to be at 5.2% for that to happen. Each foreclosure handed off to a vulture is a new title exchange... but again, see paragraph one: the market can't be argued with.

We've been focusing a lot of time the past few days on the short side of the ledger, so I thought it would be helpful to run down the list of longs that are meaningful positions for us. Keep in mind we have 24 long positions; however many are "holding" stakes that I am waiting (hopefully) for a pullback to add to, so they are sitting as placeholders. These 10 are really the dominant names for now (remember we have a boatload of cash) I am going to go through the material positions and post their charts - we want to see stocks that held up well through the correction the previous 4 weeks to this one (preferably holding key support areas), and then rebounded strongly with the market this week. A couple of names we have are now at or very close to 52 week highs.

Group A (5 positions): Held support, never made us sweat

This is one of the few times I'd like to have ready access to analyst reports. I am completely boggled by the massive divergence among the two title insurance companies we own. While both faltered badly once interest rates started to rise (hurting mortgage applications and by transitive theory, titles), First American (FAF) has fought back to its 200 day moving average while Fidelity National Financial (FNF) has continued down at a nearly 45 degree angle, even as Treasuries have rallied here the past 5 sessions buffering the rise in mortgage rates.

Granted, the latter is more a pure play on title insurance, but this is one serious variance. There must be something going on specific to FNF and "someone" obviously knows "something" - but I definitely do not know what it is. On valuation I'd like to add here, even if its a very busted chart, but it just continued to falter almost on a daily basis and make new lows. In fact, it is lower than it was at any point in the Jan-early March 2009 selloff. I don't think almost any other stocks can make that claim.

Let me preface this by saying one of our favorite hedge fund managers Doug Kass has shorted the title insurer group as of Wednesday... mixed results thus far. He was once short Allegiant Travel (ALGT) when I owned it - and it went down hard right after his call, as I assume many people follow his trades. But as you can see by the chart, over time it surged and long term value was appreciated. So we were "both right" - he in the short run, me in the long run. But the stock market nowadays is all about the short run trade...

I believe the same here - no change to thesis, but due to his charging into them as shorts, I did cut back both positions we own... in fact both stocks were down Wednesday in a good tape so I assume he made his call pretty early in the day. I don't know what time he posted his short, but when certain people make calls, and others follow the trade - it matters. In fact it caused FNF to drop below the 50 day moving average... so due to chart alone I had to pullback. If FNF regains that key line I'll get back what I sold - his call might of just been for 24 hours or 5 weeks; who knows.

The First American Corporation (FAF)

Q1 2009 Earnings Call

I am hoping the market itself sort of calms down and stays in a relatively wide range (although Wednesday at 2 PM will provide the normal nonsense knee jerk reaction to Fed announcement) and we can perhaps get back to stock picking for the first time since summer 2008. That said, I've been saying that for the better part of a year... but it almost feels "normal" at this moment.

Fidelity National Financial (FNF) was down about 3% after hours on the first blush on earnings but obviously my blog entry turned the tide ;) [Fidelity National Financial Misses; Underlying Metrics the Real Story] It is now up 6%, I added a bit Tuesday morning and I think the earnings story here should be powerful as we move forward. When your top problem is a flood of business is coming your way, and you are having a hard time dealing with it... that's a good thing.

Fidelity National Financial (FNF) missed their estimates by a relatively large margin, but with a somewhat muted reaction after hours - this is more of a multi-year play on housing recovery, so I am more interested in what they have to say than the numbers. That said, I wish it was up 30% on a massive loss while the CEO says he sees stabilization - but we don't seem to own those type of stocks.

Analysts are just guessing at the numbers as the range was -0.05 to 0.31, and they basically hit the low end of the range with a 6 cent loss. Many caveats I will lay out below since a very large integration was undertaken that slowed them down this quarter, but will be a major tailwind as we move forward. This was a digestion quarter. The stock is down 50 cents in after hours, but judging from the stock price, I was thinking this sort of thing was being telegraphed. I cut back to about a 1.9% stake as the stock was at threat of falling below its 50 day moving average after testing it just about each day for 2 weeks straight. (i.e. not participating in the rally) I'd love to see a pullback to $16s to reload up.

Of my main individual stock holdings, I am going to move First American (FAF) to the largest holding and go to a nearly 4% stake. As I've said numerous times, in a bull market or even in a not so violently moving market I am more than happy to have positions of 6-7% - we did this routinely a year ago in the commodity space. But with the bear being so tough since late summer 2008, I've rarely held many long positions with over a 3% stake.

I am adding some First American today to top off an already large position as the stock is cheap at only 10x forward earnings even after a nice move; I love the sector (title insurance) as first-time buyers flood into the low end of the market, and foreclosure sales rocket upward in the middle and upper end; and the stock bounced perfectly off the 50 day moving average a week ago (which is where we started the position) [Apr 15: Bookkeeping: Beginning First American Corp Position].

I am going to create a 2 position basket in the title insurance sector - today First American Corp (FAF) is pulling back nicely to support, and I am going to add it to our current position in First National Financial (FNF) - these are the 2 biggest players in the field. I am having a hard time chasing the "thesis" plays that are running on "hope," so instead I am going to buy things I think will actually have much better fundamentals in the year(s) ahead. Much of what is working the past week is low grade speculative junk, so for our holding periods, it doesn't really work.

Again the thesis behind title insurance was laid out in this piece [Dec 26, 2008: Ways to Play the "Housing Boom" - Title Insurers]

Q4 2008 Earnings Call

February 26, 2009 11:00 AM ET

• AIG carve up? Sources say AIG (AIG) is in advanced talks with U.S. officials about a radical restructuring plan that would split the troubled insurer into at least three government-controlled divisions. Described by one insider as a 'controlled break-up,' the move could end AIG's 90-year history of independence and serve as a model for carving up other troubled institutions. Under the plan, the government would swap its 80% stake in the insurer for large stakes in three units - AIG’s Asian operations, its international life insurance business and the US personal lines business. In return, officials would relax the terms of AIG's loans or even cancel a large portion of them. AIG would remain as a holding company but could disappear if the government decides to recoup taxpayer money by selling or listing the three divisions separately. The overhaul could be announced Monday.
• Citi deal imminent. Citigroup (C) is very close to an agreement to boost the government's stake in the ailing company to 40%, and an announcement could come as soon as today. Executives have been rushing to identify potential problems from an increased government stake, including local laws in certain countries that would require Citigroup to apply for new charters or, in the case of Mexico, to potentially give up some or all of ownership in Grupo Financiero Banamex, the No. 2 bank in Mexico by assets, if the government takes more than a 10% stake in Citigroup.
• The unstoppable budget deficit. The White House is projecting a $1.75T deficit for the current fiscal year, including a new $250B slush fund in case banks need more money. Officials say Obama has no plans to use the $250B, but wanted to include an 'overly conservative' placeholder just in case. The 134-page budget outlines health, tax and energy priorities, and includes a 10-year $634B reserve fund to help pay for Obama's proposed healthcare reforms and $537B for the U.S. military. The White House will also propose $634B in new taxes on upper-income Americans. The budget is due at 11:00 ET.
• UBS shakes up top job. In the latest shake-up of its top management, UBS (UBS) announced the surprise departure of CEO Marcel Rohner. The position will be filled by Oswald Grubel, the former CEO at rival Credit Suisse (CS). In a statement, UBS said Rohner had told the board last month that he planned to retire as CEO after the conclusion of the "ongoing investment bank repositioning and wealth management restructuring phase," but is now leaving immediately. Rohner's sudden departure comes after UBS agreed to a $780M settlement with the Justice Department and amid an ongoing civil inquiry into tax evasion. Shares +10.0% premarket (7:00 ET).
• Record loss at RBS. Royal Bank of Scotland (RBS) posted a full year loss of £24.1B ($34.3B), the biggest loss in British history. The record loss reflected a £16.2B write down against acquisitions and another £7.9B in operating losses. Reacting to the losses, RBS will put £325B of investments into a state insurance program. In return, the bank will pay a fee of £6.5B over seven years in the form of preference shares. RBS will also shift £540B of toxic assets to a new unit, including derivatives and mortgage-backed securities, and will increase lending by £50B over the next two years while aiming to reduce expenses by £2.5B. Shares +20.2% premarket (7:00 ET).
• Exelon gains ground in NRG bid. Exelon (EXC) said its $6B tender offer for NRG Energy (NRG) won more than 51% of the outstanding shares, giving it strong leverage in its hostile pursuit of NRG. NRG has already rejected Exelon's offer twice, saying the price 'manifestly undervalues' NRG and expressing doubt whether Exelon would be able to finance the transaction. Winning the tender gives Exelon the right to acquire NRG, assuming Exelon shareholders agree to the deal and it receives regulatory approval. However, Exelon has good reason to try for a friendly acquisition since it will make the regulatory approval easier and will allow Exelon access to NRG's books.
• BoA considers private bank sale. Bank of America (BAC) is reportedly looking to sell a private bank it inherited from Merrill Lynch. Merrill bought the bank in question, First Republic Bank, for $1.8B in September 2007. At the time, First Republic had $10B of deposits. Possible buyers include Goldman Sachs (GS) and Morgan Stanley (MS), both of which are trying to expand their deposit-gathering businesses.
• Another fraud bites the dust. The most recent financial fraud to come to light revolves around two money managers who have been accused of misappropriating at least $533M to fund their own lavish lifestyles. The two men, Paul Greenwood and Stephen Walsh, were arrested by the FBI and face criminal charges of conspiracy, securities fraud and wire fraud. They are accused of running a fraudulent investment-advisory scheme since 1996 in which the men raised $668M from institutional clients and pocketed most of the money. Alleged victims include Carnegie Mellon University, the University of Pittsburgh and the Iowa Public Employees Retirement System.
• Home sales fall. Existing Home Sales fell 5.3% to 4.49M/year in January, and are down 8.6% from a year ago. NAR's Lawrence Yun blamed the drop on would-be buyers waiting for more clarity on the nature of a government housing stimulus. Median prices -14.8% from a year ago.

Earnings: Thursday Before Open

• American Tower (AMT): Q4 EPS of $0.21 beats by $0.07. Revenue of $408M (+8%) vs. $407M. (PR)
• Boyd Gaming (BYD): Q4 EPS of $0.13 in-line. Revenue of $422.6M (-11.7%) vs. $423.4M. (PR)
• Cablevision (CVC): Q4 EPS of -$1.11 misses by $1.44. Revenue of $2.05B (+11.4%) vs. $2.06B. (PR)
• Continental Resources (CLR): Q4 EPS of $0.00 misses by $0.19. Revenue of $136M (-14.6%) vs. $160M. (PR)
• Digital Realty Trust (DLR): Q4 EPS of $0.20 beats by $0.06. Revenue of $147M (+3.6%) vs. $144M. (PR)
• Dynegy (DYN): Q4 EPS of -$0.01 beats by $0.01. Revenue of $795M (+9.8%) vs. $769M. (PR)
• El Paso (EP): Q4 EPS of $0.21 in-line. Revenue of $1.3B (+6.4%) vs. $1.2B. (PR)
• EMCOR Group (EME): Q4 EPS of $0.90 beats by $0.16. Revenue of $1.7B (-4.9%) vs. $1.8B. (PR)
• ENSCO International (ESV): Q4 EPS of $2.14 beats by $0.08. Revenue of $622M (+20.2%) vs. $616M. (PR)
• First American (FAF): Q4 EPS of $0.10 beats by $0.03. Revenue of $1.35B (-28%) vs. $1.43B. (PR)
• Frontier Oil (FTO): Q4 EPS of $0.32 misses by $0.09. Revenue of $1.35B (+2.2%) vs. $1.61B. (PR)
• Frontline (FRO): Q4 EPS of $1.03 misses by $0.08. Revenue of $452M (+36.2%) vs. $328M. (PR)
• GM (GM): Q4 EPS of -$9.65 misses by $2.25 (-that's a $9.6B loss). Revenue of $30.8B vs. $35.13B. GM burned through another $6.2B in cash. 2008 sales of 8.35M vehicles, down 11%. (PR)
• Global Industries (GLBL): Q4 EPS of -$0.24 misses by $0.17. Revenue of $250M (-4.8%) vs. $242M. (PR)
• HRPT Properties Trust (HRP): Q4 EPS of $0.05 in-line. Revenue of $218M (+9.7%) vs. $211M. (PR)
• Huntsman (HUN): Q4 EPS of -$0.38 misses by $0.33. Revenue of $2.05B (-18.2%) vs. $2.44B. (PR)
• Iron Mountain (IRM): Q4 EPS of $0.01 misses by $0.16. Revenue of $753M (+3.6%) in-line. (PR)
• King Pharmaceuticals (KG): Q4 EPS of $0.24 beats by $0.01. Revenue of $348M (-34.8%) vs. $345M. (PR)
• Lamar Advertising Company (LAMR): Q4 EPS of -$0.08 misses by $0.01. Revenue of $279M (-8.4%) vs. $285M. (PR)
• Limited Brands (LTD): Q4 EPS of $0.68 beats by $0.04. Revenue of $3.0B (-8.7%) in-line. (PR)
• Linn Energy LLC (LINE): Q4 EPS of $0.00 misses by $0.32. Revenue of $155M (+2.7%) vs. $163M. Shares -2.6% premarket. (PR)
• LKQ (LKQX): Q4 EPS of $0.10 misses by $0.04. Revenue of $470M (+13.4%) vs. $490M. (PR)
• MetroPCS Communications (PCS): Q4 EPS of $0.04 misses by $0.03. Revenue of $724M (+22.4%) vs. $765M. (PR)
• Nasdaq (NDAQ): Q4 EPS of $0.53 beats by $0.02. Revenue of $403M (-3.9%) vs. $414M. (PR)
• NII Holdings (NIHD): Q4 EPS of $0.05 misses by $0.38. Revenue of $989.5M (+5.3%) vs. $1.0B. (PR)
• Omnicare (OCR): Q4 EPS of $0.66 beats by $0.03. Revenue of $1.6B (+2.7%) in-line. (PR)
• RAIT Financial Trust (RAS): Q4 EPS of $0.33 misses by $0.05. Revenue of $57.4M (-1.7%) vs. $54.9M. (PR)
• Rowan Companies (RDC): Q4 EPS of $1.28 beats by $0.19. Revenue of $613M (-1.7%) vs. $615M. (PR)
• Safeway (SWY): Q4 EPS of $0.80 misses by $0.01. Revenue of $13.82B (+3.4%) vs. $14.29B. (beats by $0.26. Revenue of $13.3B (-11.9%) vs. $14.0B. (PR)
• Sonus Networks (SONS): Q4 EPS of -$0.37 misses by $0.35. Revenue of $89.5M (-7.8%) vs. $64.1M. (PR)
• Southern Union Company (SUG): Q4 EPS of $0.47 beats by $0.03. Revenue of $727M (+75.3%) vs. $692M. (PR)
• Warnaco Group (WRC): Q4 EPS of $0.29 beats by $0.14. Revenue of $446M (-4.4%) vs. $451M. (PR)

Earnings: Wednesday After Close

• Aruba Networks (ARUN): FQ2 EPS of $0.02 beats by $0.02. Revenue of $47.7M (+17.5%) vs. $45.5M. Shares +11.6% AH. (PR, earnings call transcript)
• Assured Guaranty (AGO): Q4 EPS of $0.04 beats by $0.03. Revenue of $123.3M (+22.1%) vs. $135.6M. (PR)
• Avis Budget Group (CAR): Q4 EPS of -$1.08 misses by $0.61. Revenue of $1.26B (-9%) in-line. Shares -2% AH. (PR)
• Express Scripts (ESRX): Q4 EPS of $0.83 in-line. Revenue of $5.51B (-0.9%) vs. $5.45B. Shares -1.6% AH. (PR)
• El Paso (EP): Sees 2009 EPS of $0.85-1.05 vs. $1.11 consensus. Shares -2.65% AH. (PR)
• Flowserve (FLS): Q4 EPS of $20.3 beats by $0.14. Revenue of $1.17B (+5.4%) vs. $1.26B. Shares +7.3% AH. (PR)
• Fluor (FLR): Q4 EPS of $1.04 beats by $0.12. Revenue of $6.07B (+28.9%) vs. $5.81B. Sees 2009 EPS of $3.90-4.20 vs. $3.76. Shares +12.3% AH. (PR, earnings call transcript)
• Genco Shipping (GNK): Q4 EPS of $1.55 misses by $0.01. Revenue of $101.6M (+54.6%) vs. $100.2M. Shares +1.5% AH. (PR)
• Goodrich Petroleum (GDP): Q4 EPS of -$0.01 beats by $0.06. Revenue of $44.1M (+35.7%) vs. $49.9M. (PR)
• Medicis Pharmaceutical (MRX): Q4 EPS of $0.42 beats by $0.11. Revenue of $136M (+1.4%) vs. $127M. Sees Q1 EPS of $0.15-0.18 vs. $0.30 and revenue of $125-130M vs. $129.5M. (PR)
• Netease.com (NTES): Q4 EPS of $0.65 beats by $0.21. Revenue of $117.5M (-0.6%) in-line. Shares +5.3% AH. (PR)
• Plains Exploration & Production Company (PXP): Q4 EPS of -$0.31 misses by $0.73. Revenue of $-33.5M vs. $328M. Shares -6.9% AH. (PR)
• Salesforce.com (CRM): Q4 EPS of $0.11 beats by $0.04. Revenue of $290M vs. $285M. Sees full-year EPS of $0.54-0.55 vs. $0.51. "Salesforce.com is proud to be the first billion dollar cloud computing company." Shares +5.3% AH. (PR, earnings call transcript)
• Savient Pharmaceuticals (SVNT): Q4 EPS of -$0.45 misses by $0.12. (PR)
• Service International (SCI): Q4 EPS of $0.09 beats by $0.01. Revenue of $517M vs. $510M. Sees 2009 EPS of $0.26-0.36 vs. $0.38. Shares -0.3% AH. (PR)
• Tenaris (TS): Q4 EPS of $1.01 beats by $0.02. Revenue of $3.23B vs. $3.01B. Shares -5.4% premarket. (PR)
• True Religion Apparel (TRLG): Q4 EPS of $0.53 beats by $0.06. Revenue of $73M (+38.5%) vs. $68.7M. Shares flat AH. (PR)
• USEC (USU): Q4 EPS of $0.16 in-line. Revenue of $432M vs. $440M. Sees 2009 revenue of $2.2-2.25B vs. $2.01B consensus. Shares -0.6% AH. (PR)

Today's Markets

• Asia stocks end Thursday mostly lower, with China pacing losses on a late-day selloff. Nikkei -0.04% to 7,458. Hang Seng -0.85% to 12,895. Shanghai -3.87% to 2,121. BSE +0.59% to 8,955.
• Europe markets have moved off their highs but remain up at midday, with banks leading the way after details of the U.K. asset protection scheme seem to be less onerous than originally feared. London +1.5%. Paris +1.5%. Frankfurt +1.8%.
• U.S. stock futures are higher in a volatile premarket session as traders await a slate of data including Jan. durable-goods, new home sales and weekly jobless claims. Dow +1.05% to 7304. S&P +1.2% at 771. Nasdaq +1%. Crude +1.8% to $43.30. Gold -1.9% at $947.70.

Thursday's Economic Calendar

• 8:30 Durable Goods Orders
  8:30 Jobless Claims
  10:00 New Home Sales
  10:30 EIA Natural Gas Report
  4:30 PM Money Supply
• Notable earnings before Thursday's open: ALO, AMT, BYD, CLR, CVC, DLR, DYN, EME, EP, ESV, FAF, FRO, FTO, GLBL, GM, HRP, HUN, IRM, KG, LAMR, LINE, LKQX, LTD, NDAQ, NIHD, OCR, PCS, RAS, RDC, SHLD, SONS, SUG, SWY, WRC
• Notable earnings after Thursday's close: ADSK, BEE, BID, BVN, CTV, CVA, DELL, FCH, GPS, HANS, HGSI, IO, KSS, LEAP, ME, NOVL, PSA, RSG, SBAC, SD, SGMS, SNH, SWN

Seeking Alpha editor Eli Hoffmann contributed to this post.

I've been looking at ways to play the "impending" housing recovery without touching housing-related retailers or home builders. One such name is Ocwen Financial (OCN) which we discussed yesterday [Feb 3: Freddie Mac to Outsource Delinquent Collections -Ocwen Financial Chosen to Start]. I also mentioned the title insurer stocks in late December [Dec 26: Ways to Play the Housing Boom - Title Insurers].

This is the Third Quarter 2008 edition of our ongoing hedge fund tracking series. Before reading this update, make sure you check out the preface to the series we're doing on Hedge Fund 13F's here.

The other funds we've already covered include:

Q3 FY08 Earnings Call

October 30, 2008, 11:00 AM ET

Depression Part 2