I love earnings season! I've taken some time out this morning to do some analysis and place some bets on upcoming Q3 reports for the following companies:
* Intel (INTC). Intel has been beaten down from highs of $27 per share primarily because of increased competitive pressures from AMD. But the new Intel Core Duo is rapidly gaining traction among the computer elite. I think that Apple is going to report a monster number for Q3... and that means good things will be happening for Intel on Tuesday. And it's not just a one off good quarter - Intel should raise guidance for the next year and that means that the price should be going way up. Right now Intel has a multiple of around 20 or so. The combination of the Windows Vista release, new gaming consoles and exploding Macintosh sales should be able to boost earnings and even justify a 30 multiple as well.
* Yahoo (YHOO). Yesterday after talking to my buddy who works at Yahoo, I was convinced that this stock had bottomed. An extremely negative article was publishing in the New York Times about Yahoo, which is a Cramer bottom signal. But then I started to do some analysis on the numbers and frankly, I think this stock has a tremendous amount of downside left.
Yahoo's revenue guidance is in the $1.15B range. This revenue number is considerably below the past two quarters in which they delivered $1.5B at the top line. The last time they reported numbers near this it would have been a loss if not for one time interest and investment income (sales of GOOG stock). This time around, Yahoo can't pull one of these accounting tricks to produce big numbers. On 1.1B of revenue I see approximately a $660M gross profit. Assuming that their R+D and admin costs are fixed, this actually is about a break even result. If Yahoo can produce some cost savings they will be able to eke out a small profit, maybe $100M or so. In my book that is $0.05 or $0.06 EPS. The street estimates are still $0.11 per share -- I don't understand how this is possible. Maybe I'm missing something. But I'm putting my money where my mouth is on this one and going short.
The bottom line is that I bought some October 25 puts on Yahoo because I think they will really disappoint tomorrow.
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