Every week, a few companies release earnings that just don't live up to Mr. Market's expectations. Sometimes, an earnings stumble is a signal to sell, but digging in the dirt is also a good way to find turnaround candidates while they're being beaten down.
Today, we're starting with consumer finance, heading over to high-tech battery packs, and then ending up in Canada. Sounds good, eh? Let's go!
Straight from the source
Let's start with the good stuff, namely Motley Fool Income Investor pick CapitalSource (NYSE: CSE ) . The company missed Wall Street's $0.65-per-share income target by $0.15 on significantly weaker sales than expected. Naturally, the stock price gained nearly 5% the next day. Wait, what?
Adjust your market-viewing goggles a bit. Last quarter was tough even for an excellently managed financial company whose tight underwriting policies more or less kept it out of the subprime fiasco. But EPS results get less gravitas in the financial sector than elsewhere, and CapitalSource performed very well on the metrics that matter here, such as delinquency rates and liquidity measures.
It didn't hurt that management declared a $0.60 quarterly dividend per share, either. That's a breathtaking 20% run rate for that payout, and it's 22% more than the year-ago quarter's direct distribution.
Of course, we've seen stocks with massive dividend yields in the past, only to see the businesses behind them disintegrate. This time, the payer stands on solid financial footing, and retains the confidence of our Income Investor analysts. James Early and Andy Cross are quick to let us know when one of their picks no longer fits the bill, as they've done with Merck (NYSE: MRK ) and New York Times (NYSE: NYT ) .
Next up: tiny-tech expert Altair Nanotechnologies (Nasdaq: ALTI ) . The company was supposed to deliver a $0.08 loss per share, but tacked on another red penny. One key customer reportedly delayed a $3.2 million order for Altair battery packs while waiting for the federal standards wheels to grind out a battery interface specification.
A year ago, Altair reported revenues of $750,000, and over half of that came from research grants and development contracts. This time, 84% of $3.4 million came from commercial sales of various kinds. Yet despite that improved credibility, Altair keeps burning cash at an alarming rate, and operations have been financed by the occasional secondary stock offering. In 2005, Altair raised $26 million in that dilutive manner, and it added another $23.8 million in 2006.
Despite all this, the company's total asset balance is hardly higher today than it was at the end of 2005. Can you say "value destroyer"? Nanotech fans might want to look at five-star Motley Fool CAPS stocks like Chinese chemicals manipulator Shengdatech instead, or Rule Breakers pick Harris & Harris (Nasdaq: TINY ) , for a broader coverage of the nanotech market.
Meeting across the border
The final underperformer this week is networking infrastructure specialist Nortel Networks (NYSE: NT ) . Nortel undershot the analysts' earnings target for the third time in four quarters, with profit of $0.08 per share when the Street wanted $0.11. Every segment except enterprise solutions reported flat or lower sales compared to the year-ago period, and the income tax allowance more than tripled because of rate changes in Europe.
Regardless of the miss, Nortel's share price leapt up by almost 20% the next day. The report said that all SEC investigations of the company had finally run their course, and there's a new CFO on board -- with industry experience from several years at Marconi before that operation was bought by Ericsson (Nasdaq: ERIC ) . Nortel even amended its ethics policy with tighter, more precise language.
Nortel's return to consistent profitability is one good sign; another lies in a decidedly more respectable feel to the operations, a process we noticed happening about six months ago. Good job, eh? Just keep it up, you crazy Canadians -- your lone CAPS star might soon have company.
Signing out with a Foolish flourish
Some of these underperformers are victims of larger circumstances, while others might have only themselves to blame. It's up to you to decide which down-on-their-luck companies should be able to pull themselves up by the bootstraps, and which ones are stuck in the mud for real.
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