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تحت قائمةaymutlaq قال:
Bargain Hunting
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ذكرو سهم شركة Gateway
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Gateway (GTW 4.46)
Allow me to begin this week's column with the disclosure that I own Gateway stock. Thus, I have enjoyed the feeling of seeing GTW rise nearly 50% between the time I profiled the stock as a Bargain Hunting idea on Sept. 30, 2004, and its interim high of $6.92 on Dec. 1, 2004. By the same token, I can also say that I have felt the pain of seeing the stock give back the entirety of that gain and swing to a negative return position relative to the price it was trading at on Sept. 30 (i.e. $4.62). To be sure, I'm disappointed by the pullback, but I can't say I'm entirely surprised by it either knowing that GTW's appeal was more contrarian than fundamental.
The latter point was highlighted in the September profile, along with the view that the stock's contrarian nature made it suitable for the risk-tolerant, patient-minded investor. Separately, it was also noted that the company's fundamentals didn't warrant an aggressive commitment to the stock. The erratic nature of the stock's performance and some disappointing guidance from Gateway in the interim have substantiated both of those views. Even so, I'm not giving up on GTW. The contrarian argument remains intact, supplemented by a belief Gateway's fundamental position will improve as the year progresses.
The Good, the Bad, and the Ugly
The Good - after our September profile, GTW started an impressive run to its Dec. 1 high.... The factors feeding that advance included (a) better than expected Q3 results with the company posting a non-GAAP profit for the first time in 11 quarters (b) improved investor sentiment following the presidential election that favored high beta stocks (c) positive chatter from analysts on GTW's turnaround prospects and (d) a favorable profile in Barron's.
The Bad - GTW began to retreat in early-December on the belief it had gotten short-term overbought, but the company let a good deal of air out of the rally in mid-December by (a) announcing plans for a $250 convertible senior note offering and (b) indicating that Q1 revenues were likely to be down 15% or more sequentially versus a historical decline in the range of 10-15%. The larger sequential decline was attributed to the impact of increased sales through the retail channel, which are seasonally higher in Q4.
The Ugly - GTW's pullback accelerated when (a) the stock failed to hold support at its 50-day moving average (b) the market started 2005 on a bad note with high beta stocks, and last year's big winners, hit hard by profit taking and (c) the company provided Q1 guidance that was worse than consensus estimates. Specifically, GTW guided Q1 revenues to a range of $810-850 mln and EPS to a loss of $0.03 to breakeven versus the Reuters Estimates consensus of $888 mln and $0.01, respectively. We would add that the disappointment drove the stock below its 200-day moving average and that the revenue guidance implied a 17-21% sequential decline from Q4 levels.
Adding insult to injury, it was announced today that Chairman and founder, Ted Waitt, has adopted a 10b5-1 plan that allows for the sale of up to 21 million shares over a period of approximately one year. Although the plan was adopted as a means of diversifying his financial interests and Waitt will remain the company's largest shareholder, with a 22% ownership stake if all 21 mln shares are sold, the timing of the announcement doesn't help investor confidence as it follows a material sell-off in the stock that has GTW closer to its 52-wk low than its 52-wk high.
The (Continued) Appeal
In essence, when it comes to GTW, we're pretty much back to where we started in September - on both price and perspective.
We still see the stock as a contrarian play, and the Q1 guidance notwithstanding, still remain confident in the company's management, which is succeeding in driving increased operating leverage with its attention to cost-cutting. To that end, while Q4 gross margins were squeezed by the company's increased exposure to the retail channel, operating margins improved 40 basis points to 0.6% as the company made great strides in cutting SG&A costs. That is a small operating margin indeed, but a big step toward gaining the credibility that eluded prior management, which failed to execute on several different plans heralded as the answer to delivering long-term, sustainable profitability.
Cost control will need to remain a priority since selling through third party retail channels will ensure price competition remains intense. The increased presence at retail, though, will generate increased brand recognition and could afford Gateway the potential to achieve market share gains that, in turn, could allow for better negotiating strength. The increased leverage with retailers and/or suppliers isn't likely to be just around the corner since Gateway is still in a position of needing them more than the retailers need Gateway (or so it would seem), but nonetheless, CEO Wayne Inouye's restructuring plan has garnered a sense of credibility with the increasing number of channel partners and two consecutive quarters of non-GAAP profitability.
With the latter in mind, one has reason to construe GTW's guidance for non-GAAP EPS of breakeven to a loss of $0.03 as taking a step back, but we would note the company maintained its full-year outlook for GAAP EPS of $0.15-0.17 and non-GAAP EPS of $0.17-0.19. Recognizing the need to win credibility with the market, and knowing the company is a turnaround story, it isn't far-fetched to think Gateway is prone to be conservative with its guidance.
In down markets, or in times of uncertainty, it stands to reason that GTW would underperform its peers, because it has the weakest fundamentals of the bunch. By the same token, one could argue that it also has the most room for improvement. That consideration, along with new management, a renewed focus on the core objective of selling PCs, and arguably, its standing as a potential takeover target in a consolidating industry, continue to underpin the stock's contrarian appeal for the patient-minded investor.
