Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As we do every week, let's take a look at five dumb financial events this week that may make your head spin.
1. It's the other 70% that counts
Whitney Tilson has successfully shorted a lot of overpriced stocks through the years, and now he's setting his sights on 3D Systems (DDD 0.57%).
His original bearish missive offers up an anecdote that may not be fair to the poster child of 3-D printing. Tilson tells of a friend who was told by 3D Systems' CEO that his company was "50% technology, 20% innovation, and 30% awesomeness."
There's naturally more to Tilson's argument than a CEO offering up an awesomeness ratio, but I know that I wouldn't mind buying into a company where the CEO is passionate enough to see things that way.
Betting against a stock is all about timing, and Tilson had the misfortune of publicly talking down a stock a day before three different analysts jacked up their price targets: Maxim Group (taking its target from $68 to $90), Credit Suisse (from $65 to $76), and Canaccord Genuity (from $65 to $85).
That's three rounds of awesomeness right there.
2. EA isn't in the game
Maybe it's time for Electronic Arts (EA 0.02%) to start whipping out some cheat codes.
The video game developer slipped after gaming enthusiast website IGN reported that it was halting projects at the studio behind last month's poorly received Battlefield 4 until it can get back on track. This led a pair of analysts to take opposing views on the matter and what it means for the combat game franchise.
Pacific Crest issued a bearish note, saying it expects EA to earn just $1.10 per share this new fiscal year due to the prospect of Battlefield 5 not being released, whereas the consensus target is $1.50 per share. Piper Jaffray countered with the hope that a new annual installment would still come out.
If that wasn't bad enough, an analyst at Wedbush chimed in with his own cautious tone. He points out not only the technical problems that Battlefield 4 is experiencing, but also the brutal reports that NBA Live 14 has been garnering. Review aggregator Metacritic shows that 83 of the 111 critiques of the basketball game have been negative.
3. Getting over the underwriters
Three weeks after Twitter's (TWTR) popular IPO, its five lead underwriters chimed in by initiating coverage on the social-media darling. It was a mixed bag.
| Underwriter | Rating | Price |
|---|---|---|
| Goldman Sachs | Buy | $46 |
| Deutsche Bank | Buy | $50 |
| Morgan Stanley | Equal Weight | n/a |
| JPMorgan | Neutral | $40 |
| Merrill Lynch | Underperform | $36 |
Source: The Wall Street Journal.
Kudos to Merrill Lynch and, to a lesser extent, Morgan Stanley and JPMorgan for their cautious views. They took Twitter public at $26 last month. The last thing they would want to do is come off as bullish with the stock north of $40, making it seem as if Twitter left money on the table by allowing its offering to be priced so low.
Well, that leaves Goldman Sachs and Deutsche Bank to receive some head-shaking. Their bullish calls and lofty price targets may be shows of loyalty, but it still leads Twitter to wonder why they only were able to talk people into paying $26 a share for the IPO.
4. The only blowout here is in the salon
Ulta Salon (ULTA 0.31%) posted quarterly results after Thursday's market close.
On the surface, it was a great report, with sales and adjusted earnings per share rising 22% to $618.8 million and $0.72 a share, respectively. Analysts were holding out for a profit of $0.74 a share on $622 million in net sales.
It gets worse once you look away from the stylist's mirror to see what lies ahead. Ulta's guidance calls for earnings of no more than $1.10 a share on $853 million to $867 million in net sales in the holiday quarter. That's more than just "a little off the top" from the $1.24 a share in earnings on $894.8 million in net sales that Wall Street was forecasting.
Investors are being treated to a big haircut on Friday.
5. Penney-pincher
The market was initially wowed by J.C. Penney (JCPN.Q) posting a 10.1% increase in comps for November, but then that turned into disappointment when the results were pitted against last year's brutal holiday performance, where comps fell nearly 32% for the quarter. Since the struggling department store chain also began the quarter with far more merchandise inventory than it had a year earlier, there will also be concerns that margin-squeezing discounts are what's helping drum up sales.
Things then got even worse when the SEC sent a letter of inquiry about Penney's liquidity and other finances. J.C. Penney still has a long way to go before the market will be convinced that it's here to stay.
