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(Best) ARG, CITP, LXK (Worst) PFWD, N, SPR from Better Trades

February 8, 2010

Last week’s trading was overshadowed by several employment reports that proved troubling to Americans. After a positive start to the week, the remainder of the trading sessions showed immense volatility, which included a 3.1% drop in the S&P 500 on Thursday, marking its steepest decline since April 2009.

The DOW closed the week lower, falling 55.10 points, or 0.5%, to close at 10,012.23. The S&P also finished the week in the red, slipping 7.69 points, or 0.7%, ending at 1,066.18. The NASDAQ concluded the week down, declining by 6.23 points, or 0.3%, to close at 2,141.12.

Top 3 Stocks

ARG – Airgas Inc. ($42.26 to $60.96) +44.2%

Following a week that saw the markets fluctuate considerably, one of the higher percentage gainers for the week ending February 5 was Airgas Inc. (ARG), which managed to increase their market share by more than 44%.

Airgas is the largest U.S. distributor of industrial, medical, and specialty gases, and hard goods, such as welding equipment and supplies. Airgas is also the third-largest U.S. distributor of safety products, the largest U.S. producer of nitrous oxide and dry ice, the largest liquid carbon dioxide producer in the Southeast, and a leading distributor of process chemicals, refrigerants, and ammonia products.

The one factor that solely contributed to the surge in stock price came last Friday, when the company was approached by Air Products & Chemicals Inc. (APD) and offered an unsolicited cash bid of nearly $5.1B. APD later informed Airgas representatives that the company was also prepared to make a hostile bid if necessary. Including debt that would be incurred by APD, the total offering would total around $7B for the deal.

This is not the first offer from APD for Airgas. In fact, Airgas has already refused two other offers since last October that had the highest bid at $62 per share for Airgas.

John McGlade, President and CEO at Air Products, commented on their offer, "While we are disappointed that Airgas has thus far prevented its shareholders from receiving a substantial premium and immediate liquidity, we have repeatedly communicated to the Airgas Board our willingness to improve our offer to reflect any incremental value they can demonstrate."

McGlade later added, "While it remains our strong desire to reach an agreement with Airgas on a friendly basis, we are fully committed to pursuing this transaction and are prepared to take all necessary steps to complete it, including making an offer directly to Airgas shareholders."

Airgas, in response to the proposal, stated that the company’s board of directors would review the offer with financial and legal advisors and strongly advised their shareholders to not take any immediate action at this time until the offer is fully analyzed.

Following the announced takeover bid, shares of ARG jumped 38% during the February 5 trading session. With that gain, the stock managed to add more than $18 per share and established a new 52-week trading at a high of $62.82 per share.

As the new week begins, shares of Airgas slipped, falling $0.41, or 0.7%, to end Monday’s trading at $60.55 per share. With a new yearly high set last Friday, the stock has also seen frustrating days, as shares of ARG have slipped to a yearly low of $26.29 per share, established last March.

CITP – Comsys IT Partners Inc. ($12.64 to $17.47) +38.2%

Much like the aforementioned Airgas proposal, Comsys IT Partners Inc. (CITP) was also involved in its own acquisition proposal. Comsys, an IT staffing and solutions company which has enhanced its core competency of IT staffing services by creating client-centric, cost-effective information system solutions, entered into an agreement with Manpower Inc. (MAN) in a deal that would pay Comsys shareholders $17.65 per share.

With a total value of the deal, including all debt, at $431M, the announced deal would place Comsys’ services with Manpower’s business services and would create an entity with more than $2.5B in total yearly revenues. The merger would then create a team of professional consultants within Manpower that would exceed more than 25,000 workers. Manpower already has more than 4,000 offices worldwide, and the addition of Comsys would add an additional 400 offices to the mix.

Jeff Joerres, Chairman and CEO at Manpower remarked, “The acquisition of Comsys is consistent with our strategy and strengthens the continued expansion of our professional staffing services and outcome-based solutions. Both are areas where we have significantly grown organically over the past few years, driven by our strategy to provide clients with all the talent they need, particularly in the high demand skill verticals of IT, engineering, finance and accounting."

Joerres later added, “We grow our capabilities organically and acquire companies for the combination of financial gain, and strategic and cultural fit for our organization.”

Larry Enterline, Comsys’ CEO, responded to the news by saying, “This is a great opportunity for us to leverage our demonstrated expertise and strong market presence with Manpower’s global leadership in the employment services industry.”

By the end of the trading week, shares of CITP surged more than 38%, adding nearly $5 per share to its market value. However, with a new week beginning, the company’s stock reversed its upward trend to end the February 8 session down $0.02, or 0.1%, at $17.45 per share.

Over the course of a year, shares of Comsys have traded as low as $1.82 per share, while reaching a yearly high of $17.53, which was established the day the merger was announced.

LXK – Lexmark International Inc. ($25.79 to $32.26) +25.1%

Without a proposed buyout or merger during the week, shares of Lexmark International Inc. (LXK) jumped more than 25% by the end of the week, primarily on news of a solid 4Q earnings report. Lexmark works primarily as a purveyor of services that makes it easier for businesses and consumers to move information between the digital and paper worlds.

As the week concluded, the upswing in trading was attributed to a 4Q report that showed a profit of $59.8M, or $0.76 per share, compared to the previous year’s 4Q earnings of $18.1M, or $0.23 per share, an increase of more than 230%. The most recent results were greatly affected by the company’s restructuring costs that reduced overall earnings per share by $0.40. Excluding these costs, Lexmark would have posted a quarterly profit of $1.16 per share.

Meanwhile, overall revenues for the company slipped on year-over-year basis, falling from $1.08B a year ago to $1.07B, a drop of 1%. On average, analysts within the industry were looking for the printing and imaging product manufacturer to post a quarterly profit of $0.63 per share based on total sales of $987.51M.

Looking further inside the report, Lexmark witnessed a 7% decline in operating expenses, which fell from $314.2M last year to $292.2M. Additionally, the company also saw a decrease in R&D costs, which declined from $105M a year ago to $93.3M, a decrease in costs of more than 11%.

"Lexmark's fourth quarter results were significantly better than anticipated, reflecting strong sequential improvements in customer demand, which were enhanced by the strength of the new products we introduced over the past year," remarked Paul Curlander, Chairman and CEO at Lexmark.

As Lexmark enters the 1Q of fiscal 2010, the company expects to post a quarterly profit between $0.64 and $0.74 per share. Lexmark is also aware of more pending restructuring costs that will eat into the company’s 1Q profits by $0.16 per share. Excluding these charges, LXK is looking to post a profit between $0.80 and $0.90 per share. Analysts are looking for Lexmark to post a 1Q profit of $0.59 per share.

After gaining nearly $7 per share throughout last week’s trading, shares of Lexmark could not continue with its upward trend. By the sound of the closing bell on February 8, shares of LXK fell $0.17, or 0.5%, to end the session at $32.09 per share.

Throughout the past year, the company’s stock has traded within a relatively broad range. The stock has managed to trade as high as $32.74 per share, which was set last Friday, while dipping to an annual low of $14.23 per share.

Worst 3 Stocks

PFWD – Phase Forward Inc. ($14.62 to $10.60) -27.5%

Much like many things in life, there always seems to be a downside to things. In this case, it was companies that did not fare as well in trading during last week’s session. One of the biggest percentage losers for the past week was Phase Forward Inc. (PFWD). Phase Forward is a provider of integrated enterprise-level software products, services, and hosted solutions for use in the clinical trial component of its customers' global research and development initiatives.

Prior to the completion of last week’s trading, Phase Forward saw its shares plunge more than $4 per share, or 27.5%, following the company’s announcement that guidance for 2010 came in below market expectations.

On February 4, PFWD stated that the company was looking to post a yearly profit between $0.26 and $0.32 per share, or from $0.54 to $0.60 per share excluding one-time charges. In the meantime, analysts had estimated an annual gain in earnings per share of $0.63.

Phase Forward also revealed its 4Q earnings performance report last week. In the report, PFWD confirmed that the company posted a quarterly loss of $68K, or $0.01 per share, compared to a profit of $2.7M, or $0.06 per share a year ago. Excluding one-time impairment charges, Phase Forward would have posted a quarterly profit of $5.9M, or $0.13 per share.

Revenues during the period advanced substantially, climbing from $49,1M last year to $59.4M, an increase in sales of nearly 21%. On average, analysts within the industry were looking for the software and service provider for the healthcare industry to post a quarterly profit of $0.13 per share.

Commenting on the company’s 4Q report was Bob Weiler, Chairman and CEO, “The fourth quarter was a strong finish to a successful year for Phase Forward and was highlighted by revenue growth and non-GAAP operating income that was at the high-end of our guidance. We also won a number of highly competitive EDC evaluations, experienced continued rapid growth with our Phase Forward IRT offering, signed the first multi-million dollar agreement related to our Clinical Development Center offering from Waban and made progress bringing our late stage/ePRO solutions to market.”

For fiscal 2009, PFWD recorded a net profit of $8M, or $0.18 per share, down 42% from the previous year’s net earnings of $13.8M, or $0.32 per share. Annual revenues for 2009 came in at $216.3M, up more than 26% from $171.2M in 2008.

Weiler later added, “2009 was one of the most important years in the history of our company. We took major steps to evolve Phase Forward from the leading EDC vendor to the first end-to-end provider of an integrated clinical research suite (ICRS) spanning EDC, IRT, data and statistical analysis platforms, safety and ePRO/late solutions. The strength of our business model and balance sheet enabled us to execute on our strategy when we did. We are already starting to see the benefits of our expanded offering and believe our early lead in providing an end-to-end ICRS offering will become increasingly important moving forward.”

Following the weekly loss in market share, Phase Forward’s stock reversed its downtrend by closing the February 8 session up more than 4%, adding $0.46, to end the day at $11.06 per share. During the past year, the stock has managed to trade as high as $17.09 per share, while dipping to a yearly low of $9.89 per share.

N – NetSuite Inc. ($15.79 to $12.16) -23.0%

Included in the list of top percentage losers last week was NetSuite Inc. (N), which lost 23%, or more than $3 per share, by the end of last week’s trading. NetSuite is the leading provider of on-demand, integrated business management software for growing and midsize businesses.

NetSuite prides themselves on the fact that their products enable companies to manage all key business operations in a single hosted system including, customer relationship management, order fulfillment, inventory, accounting and finance, product assembly, eCommerce, Web site management and employee productivity.

The weekly plunge in price was a direct result of the company’s dismal 4Q earnings report, which came out on February 4. In the report, NetSuite confirmed that the company posted a net loss of $6.54M, or $0.10 per share, compared to a net loss of $4.46M, or $0.07 per share from a year ago. The wider quarterly loss equated to a jump of nearly 47%.

Revenues for the recent quarter came in at $42.96M, up from last year’s sales totals of $41.4M, an increase in revenues of almost 4% year-over-year. However, despite sales increasing, the cost of sales increased as well, climbing from $13.06M a year ago to $15.02M, a jump in costs of more than 15%.

Analysts, on average, were looking for the business management software services provider to post a quarterly profit of $0.02 per share based on total revenues for the quarter of $43.03M.

For the year, NetSuite posted a wider net loss during 2009 than in the previous year by losing $23.3M, or $0.38 per share, compared to a loss of $15.86M, or $0.26 per share in 2008, an increase of almost 47%.

Meanwhile, annual sales climbed from $152.47M last year to $166.54M, an increase in year-over-year revenues of more than 9%. Analysts had anticipated a yearly profit of $0.06 per share on $166.58M in sales for NetSuite.

With the February 8 session closed, shares of NetSuite were lower on the day, dropping $0.03, or 0.2%, to finish trading at $12.13 per share.

SPR – Spirit AeroSystems Holdings Inc. ($21.45 to $17.01) -20.7%

Rounding out the list of last week’s underperforming stocks was Spirit AeroSystems Holdings Inc. (SPR). Despite the fact that the company announced a huge jump in their 4Q profits, earnings estimates for 2010 came in well below expectations.

Spirit AeroSystems, which is the world's largest independent supplier of commercial airplane assemblies and components, announced late last week that the company’s earnings for the recent period came in at $50M, or $0.36 per share, in sharp contrast to last year’s 4Q profit of $20M, or $0.14 per share. Results would have been better if not for a $0.17 per share charge related to changes in the company’s contract profitability estimates.

Revenues for the period came in higher as well, climbing from $646M to $1.08B, an increase in overall revenues of more than 67%. Analysts within the industry were looking for Spirit AeroSystems to post a quarterly profit of $0.54 per share on total sales of $1.13M.

Yearly results came in below the previous year’s tally, as 2009 saw SPR post an annual profit of $192M, or $1.37 per share, compared to 2008 results of $265M, or $1.91 per share, a decrease in net earnings year-over-year of nearly 28%. Nevertheless, overall yearly sales increased, climbing from $3.77B to $4.08B, an increase of more than 8%.

As for the upcoming fiscal 2010, Spirit AeroSystems revealed their projected earnings came in well below market predictions. For the year, SPR is looking to record a yearly profit between $1.50 and $1.70 per share. The company is also looking to post annual sales figures between $4B and $4.2B.

However, the company’s outlook fell short of analysts’ expectations, as experts believe that Spirit AeroSystems should post a yearly profit of $1.87 per share on total revenues of $4.14B in 2010.

Following Spirit’s earnings guidance, shares of SPR plunged 17.7% by the close of the February 4 trading session. Unfortunately, the shares continued to slip by the end of the week, slipping a total of more than $4 per share, or 20.7%.

While the new trading week commences, shares of Spirit AeroSystems continued with its downward spiral. By the sound of the closing bell, SPR’s stock price slipped 3%, giving up $0.51 to end the day at $16.50 per share.

Over the course of a year, the stock has managed to trade within a broad range, reaching a high of $23.07 per share, while slipping to an annual low of $8.03 per share.

2010 Better Trades Article

brought to you by

BRIAN MULLIN