Throughout much of the last decade,
Hansen Natural (Nasdaq: HANS)
dominated the lists of potential buyout candidates. The beverage
maker was seeing tremendous demand for its various juices and
sodas, especially its Monster energy drink, right at a time when
the largest beverage firms such as
Coca-Cola (
KO
)
and
Pepsi (
PEP
)
were snapping up hot brands to bolster their own sales. As a
result, Hansen generally garnered massive valuations under the
notion that the big boys would pay a big premium for the company.
The rumor mill cooled in late 2007, when the potential buyers made
it clear that they weren't looking to do a deal for Hansen. Shares
eventually fell sharply enough to move valuations back in line with
peers, but they staged a nice rebound in recent quarters. But
Hansen released first quarter earnings Thursday night that should
put the buyout rumors to rest once and for all. Sales are no longer
growing, thanks in part to massive competition, along with a
rapidly maturing environment for energy drinks. First quarter sales
fell -3% while per share profits of $0.35 trailed the consensus
forecast by -24%. That has pushed the stock down -15% in Friday
trading.
Management blamed the shortfall on a decision by customers to make
large purchases in the prior quarter -- an unusual explanation
clearly not anticipated by the analyst community. However, in the
company's conference call, it became evident that the Monster
energy drinks are losing market share to rival Red Bull. Look for
analysts to aggressively ratchet down their estimates for the next
three quarters. At this point, shares are dead money, for at least
the next three months, until management can show that market share
for its Monster drink has stabilized.
|
Company Name (Ticker)
|
Intra-Day Price
|
Market Cap
|
52-Week High
|
52-Week Low
|
2010*
P/E
|
2011*
P/E
|
| Hansen Natural (Nasdaq: HANS) |
$35.71 |
$3.2B |
$44.99 |
$24.01 |
14.3 |
12.7 |
| Trico Marine (Nasdaq:
TRMA) |
$1.61 |
$32M |
$9.47 |
$1.51 |
Negative |
Negative |
| Echelon (Nasdaq:
ELON) |
$8.11 |
$335M |
$15.38 |
$6.85 |
Negative |
Negative |
| EnerNOC (Nasdaq:
ENOC) |
$27.90 |
$691M |
$37.00 |
$17.65 |
90.0 |
30.7 |
| *Based on consenus estimates
prior to recent earnings release |
------------------------------------
Technology firms tend to carry large cash balances and no debt.
These firms live in a boom-and-bust world, and cash means survival
in the bad times. Strangely, many small companies that service the
energy exploration market never learned that lesson. They often
carry very high debt loads, even though the industry enters a
periodic funk every few years.
Shares of
Trico Marine (Nasdaq: TRMA)
have shed more than a third of their value Friday morning after
announcing a larger-than-expected loss, which has led to a cash
crisis. Investors should keep an eye on the balance sheets of other
heavily-leveraged firms in this industry such as
Newpark Resources (
NR
)
and
Parker Drilling (
PKD
)
. At a minimum, these firms have to pay very high interest rates to
secure debt, which can sharply impede profit growth. Parker
Drilling, for example, recently had to pay more than 9% interest on
a newly-issued bond. As Trico Marine's plunge tells us, investors
in boom-and-bust industries should stick with the best balance
sheets.
------------------------------------
The term "smart grid" has become quite popular, as the Obama
administration has expressed plans to boost the efficiency and
intelligence of our nation's power transmission networks. But
investors should take a cautious note from Thursday night's
earnings release from
Echelon (Nasdaq: ELON)
. The company was an early entrant in the field of remote
meter-reading and industrial process monitoring software. A key
contract with Italy's largest utility gave the impression that
Echelon's technology would see far wider deployment. It never
happened and now, that major Italian contract is nearing
completion.
EnerNOC (Nasdaq: ENOC)
a younger rival just posted +53% year-over-year quarterly sales
growth, while Echelon posted a slight drop in sales. The key
difference: EnerNOC invested far more heavily to build a more
robust suite of products that are saving utilities some real dough.
While shares of Echelon are best avoided at this point, investors
still have a chance to load up on EnerNOC, as that firm produced
strong results, but its shares have barely budged. (We profiled
EnerNOC in this piece.)
-- David Sterman
Contributor
StreetAuthority
Disclosure: David Sterman does not own shares of any security
mentioned in this article.