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(Best) HURN, PERY, ALGN (Worst) RST, IDCC, CTRN from Better Trades
August 28, 2009
Stocks traded erratically throughout much of last week with investors betting cautiously within the markets, as mixed economic signals continue to distort the overall feel for an economic recovery.
Following last Monday’s session, in which the major indices slipped more than 2% each, their biggest declines since a similar fall on July 2, the markets managed to post positive days for the remainder of the week.
With a high unemployment rate, weakened home prices and insurmountable debt, investors have become increasingly worried that stocks have once again become a risky investment. Nevertheless, the previous week’s economic and corporate news changed their perspective throughout the week.
Top 3 Stocks
HURN – Huron Consulting Group Inc. ($13.15 to $19.00) +44.5%
As one of the biggest percentage gainers over the past week, shares of Huron Consulting Group Inc. (HURN) benefited from the company’s quarterly earnings announcement, which showed an increase in profits during the 2Q, helped by a surge in net revenues.
Huron, an independent provider of financial and operational consulting services, employs their expertise in accounting, finance, economics and operations to a wide variety of both financially sound and distressed organizations. These operations include Fortune 500 companies, medium-sized businesses, leading academic institutions, and healthcare organizations.
Just a few short weeks ago, Huron was involved in an accounting scandal involving the long defunct Enron Corp. The scandal resulted in the top management team leaving the firm. The company affirmed that nearly half of the company’s earnings from 2006 to 2008 would be wiped out due to the misreported costs relating to acquisitions.
Subsequent to the company’s announcement, shares of HURN plunged more than 69% by the close of the August 3 trading session, losing more than $660M in market value. In efforts to rectify the company’s doings, Huron’s CEO, CFO and Chief Accounting Officer were all relieved of their duties.
Although analysts are unsure of how the scandal will affect the company’s on-going business practices, Huron did manage to show impressive improvements in market value due to their earnings release.
For the recent period, the company posted net income of $9.6M, or $0.47 per share, versus a profit of $1.1M, or $0.06 per share a year ago. Revenues, meanwhile, advanced from $143.4M to $165.8M, an increase of nearly 16% year-over-year.
Analysts, within the industry, were looking for the business consultants to post quarterly earnings of $0.45 per share on overall revenues of $165M. The company’s report was released on August 18.
With more than 700 active clients, the company’s top priority during these times is to instill damage control, as well as keeping key personnel in place.
By the close of last week’s trading, shares of HURN posted gains of more than 44%, adding nearly $6 per share. As the new trading week begins, shares of Huron continued their price recovery marginally, increasing by 0.2%, or $0.03, to end the August 24 session at $19.03 per share.
During the course of year, Huron’s shares have traded as high as $66.45 per share and as low as $11.30 per share.
PERY – Perry Ellis International Inc. ($8.85 to $12.25) +38.4%
As the economic recession continues to hamper consumer spending, retailers have taken heavy hits to their bottom-line. Included in that list is Perry Ellis International Inc. (PERY), a leading designer, distributor and licensor of a broad line of high quality men's and women's apparel, accessories, and fragrances.
Despite the hit to their bottom-line, the company’s stock increased substantially over the past five trading sessions, due in large part to a smaller than expected loss incurred during the 2Q than in the prior year.
For the 2Q, Perry Ellis announced that the company’s loss during the period narrowed to $5.3M, or $0.42 per share, compared to the same period a year ago in which the company posted a loss of $5.4M, or $0.36 per share. The slight decrease in the company’s loss was attributed to lower expenses during the quarter.
President and Chief Operating Officer Oscar Feldenkreis commented on the company’s results, “Perry Ellis International's management has acted decisively to reduce costs and respond to the challenges created by the current macroeconomic environment."
Furthermore, the company’s overall sales totals plunged during the period, falling from $193.7M to $159.2M, a decrease in revenues year-over-year of nearly 18%. Operating expenses, which helped the bottom-line, decreased from $64M to $51.1M, a reduction in costs of more than 20%.
Although investors were not impressed by the company’s recent performance report, they were intrigued by Perry Ellis’ statement that the company would post a profit in fiscal 2010. Expecting to continue with their cost-cutting measures, PERY is looking to record an annual profit between $0.70 and $0.85 per share.
Company representatives did state that revenues for the year would recede by low double-digits, while analysts were anticipating annual earnings to come in at $0.75 per share.
Feldenkreis further commented, "Although our top line remains challenged for next quarter as retailers had already committed to conservative fall 2009 plans, we expect to pick up momentum during the month of October and return to solid growth for the fourth quarter of this year."
Having gained more than 38% in market value during the past week, shares of PERY could not continue with an their uptrend, as the new week commenced. By the close of the August 24 session, shares of Perry Ellis slipped 6%, losing $0.74, to end the day at $11.51 per share.
Over the past year, share of PERY dropped as low as $3.31 per share, and surged as high as $20.73 per share.
ALGN – Align Technology Inc. ($10.13 to $13.31) +31.4%
Rounding out the list of top percentage gainers over the past week was Align Technology Inc. (ALGN), which designs, manufactures and markets the Invisalign System, a proprietary method for treating malocclusion. Malocclusion is the misalignment of teeth and/or the incorrect relationship between the teeth of the two dental arches.
The big news for the week came on August 18, when the company announced that they were settling a litigation suit filed by Ormco Corporation, a subsidiary of Danaher Corporation (DHR), in which Align allegedly infringed on a patent held by Danaher.
Under the settlement deal, Align will make a cash payment of roughly $13M to Ormco, while issuing 7.6 million shares of common stock to Danaher, valued at $77M, as of the August 14 closing price of $10.13 per share. The stock offering will give Danaher a 10% ownership stake in Align.
In addition to the monetary settlement, the two companies also agreed to collaborate over the next seven years to develop and put on the market orthodontic products that merge the company’s technologies.
Furthermore, each company will retain all ownership of their pre-existing intellectual property, while being granted intellectual licenses in their respective field for all future jointly developed products.
At the end of the August 21 session, shares of ALGN had advanced more than 30% in price, jumping just over $3 per share. With the start of the new trading week, shares of Align continued to inch higher, gaining $0.34, or 2.6%, to conclude the day at $13.65 per share.
Shares of Align have reached yearly lows of $4.88 per share, and annual highs of $13.85 per share. The company’s highs were achieved during the August 21 session.
Worst 3 Stocks
RST – Rosetta Stone Inc. ($28.35 to $20.87) -26.4%
Heading up the list of top percentage losers for the week ending August 21, Rosetta Stone Inc. (RST) managed to see their stock’s price dip more than 26% by the end of the week. The stock’s demise was accelerated by the company’s decision to shelf their plans for a stock offering, while cutting their 3Q outlook.
Rosetta Stone, a leading provider of technology-based language learning solutions consisting of software, online services and audio practice tools, primarily under the Rosetta Stone brand, witnessed their stock’s value plummet 27%, or $7.72 per share, following the company’s announcement on August 17.
Although the company has only been trading since April, the company raised more than $112M in their IPO, as stock prices surged more than 40% in their first day of trading, after opening at $25 per share. A few weeks later, the stock reached highs over $32 per share. Since then, the stock has traded within a range between $22 and $31 per share, prior to the company’s downfall.
In addition to cancelling the stock offering, Rosetta Stone also downwardly revised their performance outlook for the upcoming 3Q, as well as yearly results. Company officials cited the increase in marketing and product development costs for the reduction in their profit forecasts.
Brian Helman, Rosetta Stone's CFO affirmed that, “The company experimented with a significant amount of internet and television test marketing programs and we did not expeditiously terminate certain of those programs that were not yielding acceptable results."
With that, the company is now looking to post net earnings for the 3Q between $0.22 and $0.24 per share, down from their previously stated range of $0.30 to $0.32 per share. The company maintained their sales projections, with a range between $64.5M and $66.5M.
On an adjusted basis, excluding one-time charges, RST is looking to post quarterly profits between $0.25 and $0.27 per share. Analysts are anticipating quarterly earnings of $0.32 per share. For the year, RST is looking for profits to be in the range of $1.14 to $1.18 per share, and yearly sales projections coming in between $245M and $248M.
Analysts are looking for Rosetta Stone to post annual earnings of $1.14 per share based on overall sales of $246.9M.
With the stock losing nearly $8 per share during the previous week’s trading, shares rebounded by the conclusion of the August 24 session, gaining $0.51, or 2.4%, to close out at $21.38 per share.
IDCC – InterDigital Inc. ($29.50 to $22.58) -23.5%
Losing more than 20% of their market value, InterDigital Inc. (IDCC), which develops and markets advanced digital wireless telecommunications systems using proprietary technologies for voice and data communications, saw their price plummet following an initial patent ruling, along with lowered 3Q earnings guidance.
On August 17, InterDigital received news from a U.S. International Trade Commission (ITC) judge, that the company’s patent infringement suit with Nokia was ruled against IDCC, citing that Nokia’s handsets did not compromise InterDigital’s patents.
In 2007, IDCC filed a complaint with the commission, claiming that Nokia participated in unfair trade practices by importing and selling particular 3G handsets and components within the U.S. that violated four of InterDigital’s patents.
William Merritt, InterDigital's President and CEO, commented on the ruling, "While we are disappointed with the Administrative Law Judge's determination, the patents asserted in this case represent a very small fraction of our total 3G portfolio. We currently hold and continue to receive patents covering inventions that we believe are essential to the 2G, 3G and emerging LTE standards. Other manufacturers, representing roughly half the 3G market, have recognized our intellectual property's strength and relevance and entered into licensing agreements with us. We, therefore, remain confident in our goal of licensing all manufacturers of 3G terminal units."
Compounding the company’s dismal week was a revised quarterly guidance statement that has the company’s sales projections coming in between $73.5M and $75.5M, below analysts’ forecast of $76.8M. Following the company’s guidance announcement and patent ruling, shares of IDCC plunged $6.98, or 23%, to end the August 17 session at $22.52. For the remainder of the week, the stock remained relatively unchanged.
Scott McQuilkin, CFO at InterDigital released this statement referring to the company’s upcoming 3Q, "Third quarter 2009 reflects solid 3G sales by our patent licensees. Based on the sales reports it appears that the declines in overall handset sales have stabilized in second quarter 2009 and indeed some of our key licensees have reported increases in sales."
As the August 24 session concludes, shares of IDCC slipped nearly 4%, giving up $0.77 to end the day at $21.81 per share. Over the past year, shares of InterDigital have traded as high as $33.69 per share and as low as $16.20 per share.
CTRN – Citi Trends ($29.73 to $23.46) -21.1%
Included in the list of top percentage losers is Citi Trends (CTRN), a value-priced retailer of urban fashion apparel and accessories for the entire family currently operating stores throughout the South, Southeast and Mid-Atlantic regions. Citi’s demise was a direct result of the company’s surprise earnings loss, which was reported following the closing bell on August 19.
During the 2Q, Citi Trends reported a loss of $69K, or less than a penny per share, in sharp contrast to the prior year’s profit of $2.8M, or $0.20 per share. Last year’s results were aided by the government’s stimulus checks that provided consumers with added discretionary funds.
The company witnessed quarterly revenues decrease from $115.7M to $111.6M, a decline in sales of more than 3%. Overall sales at stores opened at least a year, plummeted more than 12% year-over-year, which lead the company to markdown their inventory, which led to a lower gross margin.
On average, analysts within the industry were looking for the clothing retailer to post a quarterly profit of $0.05 per share based on overall sales of $124.7M.
Following the company’s quarterly loss, officials adjusted their annual earnings forecasts, which are now expected to come in below market projections. Citi Trends is now looking to post yearly earnings between $1.28 and $1.33 per share, with analysts anticipating $1.35 per share in profits for the year.
After the earnings report was released, shares of CTRN dropped more than 12% in after hours trading, settling at $24.75 per share. The stock had gained $0.24 to $28.23 per share, prior to the close of trading on August 19.
The remainder of the week proved difficult for the stock, falling a combined $6.27 per share, a 21% decrease in market value.
With the beginning of a new trading week, shares of Citi Trends could not shake off their negative sentiment, slipping $0.24, or 1%, to close the August 24 trading session at $23.22 per share.
CTRN, which has trended higher over the past six months, reached its yearly high of $31.47 on August 7, has also traded as low as $7.01 per share, established November 21, 2008.
2009 Better Trades Article
brought to you by
BRIAN MULLIN
