Anticipating Gigamedia & Verasun's Earnings Reports

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Includes: GIGM, VSUNQ
by: Tim Plaehn

Two companies that I follow with decidedly different recent histories report earnings over the next couple of days. I will be following the result with great interest. As always I am hoping for a positive surprise, but I find it impossible to forecast what the market will do in the short term.

Tuesday, 3/11 Gigamedia Ltd. (NASDAQ:GIGM) reports 4th quarter and full year 2007 results. The online gaming company reported 17¢ per share for Q4, 2006 and 16¢ for Q3, 2007. Estimate for Q4, 2007 is again 17¢. GIGM earned 51¢ per share for full year 2006. It has earned 47¢ for the first 3 quarters of 2007.

This company has been growing revenue at close to triple digit rates, so a positive earnings surprise is a distinct possibility. The stock has done well over the last year with some significant volatility along the way. I believe GIGM has huge growth ahead of it over the next few years and I plan to hold my position for the long term, but I am always in the mood for positive surprises, especially in this market.

On Wednesday, VeraSun Energy (VSE) reports 4th quarter and year end for 2007. For Q4, 2006 the company earned 27¢ and only 9¢ per share hit the bottom line for Q3, 2007. Estimates are a loss of -2¢ for Q4, 2007. In 2006 VSE earned $1.48 for the year, but has only earned 28¢ for the first 3 quarters of 2007. The stock price made a run up to the $15 range in December, but it has been all down hill since.

VeraSun, as well as other ethanol producers, has been hit by skyrocketing corn prices, now around $5.30 a bushel, up from the $4 range in the fall. Ethanol rack prices have risen too, but not at the rate of corn. Margins are being squeezed and the market is hammering the stock.

Also, many want/believe that cellulosic ethanol will replace corn ethanol, putting companies like VeraSun out of business. From the rate that progress is being made on actually producing cellulosic ethanol, that may happen around 2025! VeraSun has continued to grow their production capacity with new plants and the purchase of U.S. Bioenergy (USBE) that should close later this year. The company’s hopes of remaining profitable in this environment depend on increased efficiencies, profitable by-products (brewer’s grains & corn oil) and expanding retail sales.

I know VeraSun management is working in all these areas, but I do not expect significant results for several quarters. As the months go by, the prospects for the 2008 corn harvest will have the most effect on corn futures and VSE’s future. Predicting grain harvests is not an exact science. I look forward to hearing what the folks from VSE have to say on Wednesday.

Earnings figures are from the nice graphic at discount brokerage, Trade King.

Note: I have long positions in GIGM and VSE.