These three companies just didn't live up to Mr. Market's expectations last week. 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 getting beaten down.
Today, we'll sandwich a troubled business between two serious buying opportunities.
3-D profits guaranteed
I'd be remiss to not open with 3-D software specialist Autodesk
Analysts are worried that operating and net margin shrinkage might be a persistent trend, as Autodesk invests in expanding its research and development and sales staff. They say it like that's a bad thing, but we all know how long you'll last in the software business by resting on your laurels. That's right: eighteen seconds. It's scientific fact. And the additional sales force is helping the company push into emerging markets like Latin America and Asia.
Long story short, Autodesk is one of the most blatant mismatches between share price and business value in the market today. The company is being punished for investing in its own future, and for growing sales in promising markets. Back up the truck.
That dish looks stale
Satellite TV service provider Dish Network
Its basic EPS of $0.39 fell far short of the Wall Street consensus of $0.45, though $2.89 billion in sales was in line with the consensus forecast. Only 85,000 net new subscribers signed up for Dish service this quarter, while archrival DirecTV
I have to wonder if the recent split between hardware and service is preparing Dish for a merger with DirecTV before too long. The cost savings of one set of satellites would be a great boon for such a two-headed beast; the twain have flirted openly before; and it seems clear that something has to be done to counter the rising threat of "triple play" packages from the cable and phone companies. The EchoStar half could then repurpose its hardware for other high-bandwidth data traffic services, or sell out to anyone who could use that sort of hardware.
All very clever, if true, but nothing has been announced. In the meantime, feel free to ignore the whole satellite sector if you like. It's rife with uncertainty, hard-pressed by competition from all quarters, and in general due for a rough time in the markets -- consumer as well as financial.
Tough as nails
Rounding out this week's trifecta is Ceradyne
The shares of this industrial ceramics expert took a 35% dive since market close the previous day, but not because of that half-hearted earnings miss. No, future projections were the culprit. The midpoints of management's guidance ranges for the 2008 fiscal year were lowered by 16% for sales and 22% for earnings per share, with 530 words of detailed explanation. It boils down to uncertain order volume from the government for ceramic body armor inserts, offset by a $18 million order for a prototype combat vehicle produced together with truck maker Oshkosh
It's another unfair punishment, if you ask me. The orders might be delayed and pushed into next year, but there's little doubt that the government will buy up serious quantities of these life-saving designs. Impatient investors, stay away; those with a long-term focus should feel free to buy in today, at two-year lows.
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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