Tuesday, December 04, 2007

Most Interesting Analyst Comment Today


Cutting through the normal cacophony of the pom-pom waving crowd of Wall Street’s Finest—including a certain analyst’s reduction of his E-Trade price target from $19 a share to $8 (last trade $4.11), which I am not making up—comes the clarion sound of an actual interesting, forward-looking statement by Susan Chen of Merrill Lynch, following last night’s earnings call with BearingPoint, the troubled consultant to other companies:

“Revenue from Financial services declined 31.6% y/y. Besides the winding down of a large contract and continued senior staff defections, BE reported some early terminations by large banking clients in response to the recent asset/CDO write-downs in the industry.
This is alarming as BE is the only company so far that has reported some meltdown/IT budget cuts in this vertical. We may see some weakness during 4Q earnings by other firms in the next few weeks.” [Emphasis added]

Yes, we may indeed.



Jeff Matthews
I Am Not Making This Up


© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

2 comments:

Aaron said...

I wonder what that analyst comment could mean for ACN and its financial services group?

Jason said...

I think this should have been the "Least Helpful Analyst Comment Today". While I can provide other anecdotes of pending spending cuts in the financial services industry, BE is not a credible example.

BE is a consulting company in need of a consulting company. Harry You is (was) a weak executive, they couldn't file financials on time, they have credit line difficulties, and the MD&A reads like a litanty of fiascos.

It looks like Susan Chen started coverage of BE on September 19, 2007. I guess she didn't notice the Q2 (Jun) financials (released October 22!). On p. 30 of the 10Q, BE financial services fell 37% YoY in the Jun quarter with the credit crunch barely a gleam in Jim Grant's eye.

Here is the "why" from the June quarter, and note that they filed this in October, so they could have blamed it on pending cutback in in financial services.

...due to significant revenue declines across all business sectors. Revenue decreases were attributable to several factors, including the winding down of a large client engagement during 2007, the loss of senior staff...difficulty in securing long term client commitments, due in part to client concerns and perceptions regarding our financial position.

Oh...and the March 10Q uses the same excuses verbatim to explain the 35% financial services revenue drop that quarter.

Crappy companies love to blame macro or "environmental" factors for crappy performance, and lazy analysts parrot them - bullish or bearish. Yes, like sailors throwing ballast overboard when the ship is taking on water, financial services companies are throwing out the consultants and IT salesmen until the holes are fixed. BE's revenue decline in financials revenue provides zero evidence, anectdotal or otherwise, of the follow on effects of the credit crunch.

So...I respectfully disagree with JMINMTU. Susan Chen belongs in the least helpful column.