Monday, November 7, 2011

JOBs/European Services-Contraction/Earnings: WIN TRK, CCNE, LARK, EDISON MISSION/SOLD 50 MDCI at $5.2/Sold All Winstream Bonds: Two 2019s at 101 and One 2020 at 103.5/More on Possible BAC Exchange Offer for Preferred Stock

Markit released its Eurozone Services PMI for October. The reading showed contraction at 46.4. France fell to a 31 month low. The market is ignoring this kind of data as investors focus on the latest news in the ongoing Greek Drama. The Greek two year note hit a 112% yield last Friday, which is not exactly consistent with the all is well scenario. The current market prices suggest that a 70% haircut represents the true value of those loans. (see article in  NYT)

Greece's New Democracy party has opposed most of the austerity measures demanded by the EU. Now, as part of new coalition government, it is expected that they will assist in implementing more austerity measures. It was this party that wantonly spent other people's money for years and repeatedly lied to the EU about the Greek government's financial condition.

The Labor Department reported a 80,000 increase in October nonfarm payrolls. Employment Situation Summary Government employment continued to trend down, with 24,000 jobs loss. I would anticipate continued government job losses for another year or two, as state and local governments shed jobs. The private sector added 104,000 jobs. The government also revised the August and September numbers up to show an additional 102,000 positions. The alternative measure of unemployment did decline to 16.2% in October from 16.5% in September on a seasonally adjusted basis.  Table A-15. Alternative measures of labor underutilization

Bank of America's equity preferred shares did pop on Friday after BAC indicated that it was considering an exchange offer.  BML-PL, for example, rose $1.89 last Friday to close at $16.7 on over over 2.4 million shares. Those publicly traded securities have $25 par values. It is important to keep in mind that the conversion ratio has not been set, and BAC has yet to decide to make an offer. This kind of offer does not contemplate a redemption of those securities at par value but a voluntary exchange based on a conversion ratio valuing the preferred shares at less than their par values (e.g. so many shares of BAC common for each preferred share, with the total value of those common shares being less than the preferred stock's par value).

When BAC did a similar exchange in 2009, I had just bought BMLPRG at $8.8 and that security popped over $4 on the day the conversion offer was actually made by BAC. As I recall, the floaters were selling at less than $10 at that time. Bought BMLprg at $8.8 (May 20, 2009 Post-conversion value set at $15 in May 29, 2009 offer) For anyone interested, this is a link to the conversion ratios offered back in 2009: Bank of America Corporation | Newsroom | Bank of America Announces Exchange Offer For Certain Series of Preferred Stock (May 29, 2009 Press Release). The offer was over-subscribed which led to a proration. Bank of America Announces Final Results of Exchange Offer

1. CNB FINANCIAL (CCNE)(own Regional Bank Stocks Basket Strategy): CNB reported net income of $4.1 million or 33 cents per share for the 2011 third quarter, up from 25 cents per share in the year ago quarter.  SEC Filed Press  Release As of 9/30/11, the net interest margin was 3.62% (down from 3.74% as of 9/30/10); the total risk-based capital ratio was 15.28%; the tangible equity to tangible assets ratio was at 7.8%; NPAs to total assets stood at 1.26%; and total loans increased by 11% year-over-year. 

The consensus earnings estimate is for an E.P.S. of $1.26 in 2011 and $1.41 in 2012.



2. Landmark Bancorp (LARK)(own: Regional Bank Stocks Basket Strategy): Landmark is a very small bank headquartered in Kansas.  Locations Landmark National Bank LARK reported net income of $1.5 million or 51 cents per share, up from 42 cents earned in the third quarter of 2011. SEC Filed Press Release The Board declared a 5% stock dividend and the regular quarterly dividend of 19 cents per share. This would be the 11th consecutive year that the Board declared a 5% stock dividend. As of 9/30/11, the net interest margin was 3.77%; NPLs to total loans stood at .28%; and the equity to assets ratio was at 10%. This stock is thinly traded with a large bid/ask spread.

3. Speedway Motorsports (TRK-own common): reported net income of $23.9 or 58 cents per share for the third quarter on revenues of $177 million. SEC Filed Press Release The consensus estimate was for 51 cents on $170.25 million in revenues. The company maintained its 2011 guidance of $.9 to $1.2, excluding items. Speedway's earnings have been hurt by the high unemployment rate and other economic conditions that have negatively impacted attendance at motorcar races. I own just 100 shares, with the last lot bought recently. Added 50 TRK at 11.65 (Oct. 2011 Post)

Speedway Motorsports closed at $12.98 last Friday. 

4. Sold LT Medical Action Industries (MDCI) at $5.2 Last Week (LOTTERY TICKET Strategy)(see Disclaimer): The LB is not exactly in a mood that tolerates mediocrity or unsatisfactory quarterly results.  Excluding an insurance settlement, Medical Action Industries reported an entirely unsatisfactory 1 cent per share in earnings, missing the consensus estimate of 6 cents. The CEO gave the usual excuse of volatility in commodity prices. When and if the management of this company can show an ability to turn sales into profits, I will revisit a possible purchase.  RB complained about this sale, to no avail, saying that the "Lame Brain did not give management a chance, chill out dude".

Lottery Ticket Strategy: New Gateway Post  Since the gain was less than $30, I do not include a snapshot of this trade, nor do I include it in the total profits for this strategy.

Medical Action Industries closed at $5.35 last week.

4. EDISON MISSION (OWN 3 2016 bonds: FINRA)(Junk Bond Ladder Strategy): Edison Mission reported a net income of $34 million on $595 million in revenues for the third quarter. In the year ago quarter, the company reported revenues of $691 million. As of 9/30/11, the company had $1.235 billion in cash and cash equivalents; total assets were $9.6 billion; long term debt was at $4.575 billion; and current portion of long term debt was at $51 million. Anyone investing in this bond needs to keep up with environmental rules impacting Edison's coal plants. The new EPA rules, which will have a significant financial impact, are discussed at pages 27-28 and at page 38.

6. Sold 1 Windstream 7.75% Senior Bond Maturing in 2020 at 103.5 Last Wednesday and 2 Winstream 7% Senior Bonds Maturing in 2019 at 101 Last Friday (Junk Bond Ladder Strategy(see Disclaimer): I have been paring some junk bond positions, where my current yield is relatively low and the bond pops over par value.

I bought these bonds in August 2011. Bought 1 Windstream 7.75% Senior Bond Maturing 10/15/2020 at 98 FINRA Bought 2 Windstream 7% Senior Bonds Maturing on 3/15/2019 at 96 Both bonds were bought after I sold 300 WIN common shares

Both sales are the result of a recent adjustment made in this strategy which I will discuss in tomorrow's post.

Item # 5  Realized Gains Junk Bond Ladder Strategy

FINRA Links to Bonds in Junk Bond Ladder Strategy

7. Winstream Earnings (currently no position):  Last Friday, Windstream reported slightly disappointing results for the third quarter. Excluding items, WIN reported an E.P.S. of 19 cents and the consensus estimate was 20 cents. Revenues fell 1.4% year-over-year due to  retail customer land line cancellations. SEC Filed Press Release Business service revenue rose 2% and consumer broadband revenue increased 7%, both year-over-year numbers.

I recently sold 300 shares of the common and bought 3 senior bonds. Sold 300 WIN at 12.31 (8/30/11 Post)   If the common continues to slide, I will consider adding back up to 300 shares, probably in small increments.

Windstream's common fell 68 cents or 5.43% last Friday to close at $11.85.  

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