Shuffle Master's (NASDAQ: SHFL) shares are up over 12% at the time of this writing in Monday's after-hour sessions on earnings news. Revenues for the supplier to the casino industry increased 10% to $49 million in the second quarter. Earnings per diluted share from continuing operations improved dramatically to $0.09 versus a net loss of $0.05 per diluted share. This was enough to best Wall Street analysts and their expectations game by two pennies, according to Briefing.com.
Cash flow from operations also improved, rising nearly 50% to $15.2 million. Other positive elements include a stable gross margin, a decline in operating expenses on a sequential basis, and improved contribution from the Stargames asset. Shuffle Master did seem to shine in the quarter on a relative basis.
But any investor out there thinking that this stock is a buy now needs to do a lot of due diligence. Granted, I'm intrigued by the recent price action of Shuffle Master's stock. The shares closed on Monday at $6.24, a level that indicates some momentum since the 52-week low is $4.50. And with the stock trading at $7 as I write, I do wonder about the potential for appreciation here. However, I'm not buying. Shuffle Master is still trying to turn itself around, and it isn't the growth stock it once was. My gut might feel a little more bullish over the company, but it still remembers the empathetic nausea it felt for those shareholders who watched the stock drop like a knife from over $18 to the aforementioned low of the year. Gambling will be a hot sector over time, but I see no reason to rush into Shuffle Master.
Disclosure: I don't own shares in any company mentioned; positions can change at any time.
At best it was a week that was difficult; at worst it was a very concerning sign about what is to come. We have finally seen a significant drop in the overall sentiment due to extraordinarily high oil prices mixed with an unemployment level at 5.5%. The mixture of these and other troubling economic projections has finally come to cause investors to pause and realize that this is no place to be accepting risk beyond what is absolutely necessary.
This week will show a significant amount of reservation by investors not accepting of any shortfalls on earnings or even outlooks that are not significantly rosy. The current picture and the economic outlook was the focus of The Disciplined Investor Podcast this week, with help from money manager and economist, Michael "Mish" Sheldock.
Monday, June 9
Shuffle Master Inc. (NASDAQ: SHFL) will be reporting earnings that are expected to be $.07 per share. This has continued to be a difficult market for them even as casino construction has been rising around the world and the use of many of the products of this company are beneficial to the net profits of their customers. The stock has suffered dramatically over the past 12 months and, unless there is a product shift or new technology announced, there should be no reason that we see a catalyst for growth. Look for revenues of $45.55 million.
Ashworth Inc. (NASDAQ: ASHW) is a high-brow retailer that is expected to show a significant turn toward the negative this quarter. First Call estimates are looking for a negative $.06 per share while a year ago they were earning $.03 per share. Once again, there doesn't seem to be any reason why this company should see a beneficial upside unless investors are willing to short cover at this point. Even if that is the case, that will probably end up being temporary anyway.
You think financial stocks are having a tough time? Check out what happened to Shuffle Master (NASDAQ: SHFL) yesterday. Its stock closed down over 26%. Talk about a bad gamble!
The company, which makes card shufflers and other products for the casino industry, has been doing horribly for a while now, even with its 30 cent bounce today. It was once a mighty growth stock, but it is currently relegated to, as of this writing, approximately-$5-per-share-status. The latest calamitous catalyst was an earnings report released on Monday which missed the expectations of Wall Street brass. Net sales for Shuffle Master's first quarter increased by 1% -- not exactly stellar top-line appreciation. Net income from continuing operations came in at a loss of $0.05 per diluted share; in the previous year's quarter, Shuffle Master saw a profit of $0.05 per diluted share from continuing operations. Apparently, analysts were looking for $0.08 per share in positive profit. They didn't get that, and then some. I'll say this, though -- cash from operations did more than double. There is at least some positive in that, I suppose.
If a picture is worth many words, if it does indeed tell a story, then a look at Shuffle Master's chart shows a tale that could only have been written by Stephen King -- a blood-soaked, gory, tortured-scream-inducing piece of prose that makes the reader want to vomit and pray for early death. Again, this isn't a financial stock, but it sure does seem like one. Several years ago, I made some money on Shuffle Master. But the days of making money from it are done for now. I do believe in the long-term power of the gambling industry, but I have no choice but to be bearish on Shuffle Master. It may recover over time, it could find its footing yet again, but I just don't perceive a value just yet. Plus, if you're looking for ideas in this sector, you can check out other companies such as International Game Technology (NASDAQ: IGT) and Wynn Resorts (NASDAQ: WYNN).
Disclosure: I don't own any of the companies mentioned here in any of my portfolios.
The markets saw a third day of selling today. While some may attribute it to the lower retail sales numbers, foreign interest rate worries or North Korean missile tests, I think it just may be the summer trading session. The market has been shooting up like crazy recently and it is time it takes a breather. Summer time has also been a historical rough time for the market as it makes very little in gains. Last summer is a good example of this. Just because the Dow dropped in the beginning of June last year doesn't mean it has to drop in the beginning of June this year; but it is food for thought.
The NYSE had volume of 2.5 billion shares with a paltry 279 shares advancing while 3058 declined for a loss of 174.07 points to close at 9,720.94. On the NASDAQ, 1.4 billion shares traded, 669 advanced and 2,372 declined for a loss of 45.8 to 2,541.38.
Shuffle Master Inc (NASDAQ: SHFL) was downgraded to Sell from Neutral at Goldman based on valuation and near-term challenges.
RBC cut KLA-Tencor Corp (NASDAQ: KLAC) to Sector Perform from Outperform citing valuation, concerns related to June order expectations, a slowdown in operating expense reduction and long-term concerns related to process control spending.
JP Morgan downgraded shares of Hershey Foods Co (NYSE: HSY) to Underweight from Neutral on valuation and concerns about the company's restructuring plan.
OTHER DOWNGRADES:
Keefe Bruyette downgraded Ameriprise Financial, Inc (NYSE: AMP) to Market Perform from Outperform, citing valuation.
Merriman cut ValueClick, Inc's (NASDAQ: VCLK) rating to Neutral from Buy as the firm believes Google's (GOOG) acquisition of DoubleClick clouds VCLK's long-term prospects.
UBS downgraded Supervalu Inc (NYSE: SVU) to Reduce from Neutral based on deteriorated sales trends.
Morgan Stanley downgraded Southern Copper Corp (NYSE: PCU) to Underweight from Equal Weight based on valuation and a potential miss to Q1 expectations.
MOST NOTEWORTHY: United Rentals, Inc (URI), Nintendo Co (NTDOY), Shuffle Master, Inc (SHFL), CheckFree Corp (CKFR) and The Kroger Co (KR) were some of today's noteworthy downgrades:
JP Morgan cut United Rentals Inc (NYSE: URI) to Underweight from Neutral believing the company's strategic alternatives and valuation upside are limited given slowing end markets and lack of sources to unlock value.
Prudential downgraded Shuffle Master Inc (NASDAQ: SHFL) to Neutral from Outperform following a field trip to Macau, as they are incrementally more negative given competition in electronic table games and continued market share erosion in slots.
JMP Securities cut CheckFree Corp (NASDAQ: CKFR) to Market Outperform from Strong buy and has a greater degree of certainty that Bank of America (BAC) is planning on moving its payment warehouse portion of online bill pay in-house over an unspecified period. The firm believes earnings can be impacted by 25c-30c annually.
HSBC downgraded shares of The Kroger Co (NYSE: KR) to Neutral from Overweight.
OTHER DOWNGRADES:
ThinkEquity downgraded KLA-Tencor Corp (NASDAQ: KLAC) to Accumulate from Buy.
Cowen downgraded Salesforce.com, Inc (NYSE: CRM) to Neutral from Outperform and removed the company from its Focus List citing reduced visibility, lack of near-term catalysts and potential increased competition from Oracle Corp (ORCL) and Microsoft (MSFT).
JP Morgan cut Dr. Reddy's Laboratories Ltd (NYSE: RDY) to Underweight from Overweight to reflect the increased risk of changing market conditions in Germany.
Matrix USA downgraded Coinstar, Inc (NASDAQ: CSTR) to Sell from Hold on valuation.
MOST NOTEWORTHY: Some of today's more notable downgrades include Accredited Home Lenders Holding Co (LEND), RadioShack Corp (RSH) and Shuffle Master, Inc (SHFL):
Keefe Bruyette cut Accredited Home Lenders Holding Co (NASDAQ: LEND) to Underperform from Market Perform, saying the downturn in the subprime market raised liquidity concerns on the stock.
RBC downgraded RadioShack Corp (NYSE: RSH) to Underperform from Sector Perform, explaining that cost cutting measures are largely complete and margin expansion estimates are too aggressive.
Shuffle Master Inc (NASDAQ: SHFL) was downgraded to Hold from Buy at Jefferies, citing the lack of visibility into the company's placements and potential IP protection risk in Macau. Shuffle Master was also cut to Underperform from Peer Perform at Bear Stearns following the company's announcement that it will have to restate prior financial results.
OTHER DOWNGRADES:
UBS downgraded shares of Marvell Technology Group (NASDAQ: MRVL) to Reduce from Buy, citing risks to HDD demand given upcoming launches by Apple (NASDAQ: AAPL) of NAND-based Video iPods. The analyst expects HDD weakness to phase in and not collapse, but sees limited growth in the HDD segment.
Roth Capital cut WPT Enterprises, Inc (NASDAQ: WPTE) to Sell from Hold, citing valuation, reduced earnings expectations and execution risk related to bringing the online gaming business in house.
China Eastern Airlines Corp (NYSE: CEA) was downgraded to Underweight from Equal Weight at Morgan Stanley.
China GrenTech Corp (NASDAQ: GRRF) was downgraded to Neutral from Positive at Susquehanna.
RBC cut Nova Chemicals Corp (NYSE: NCX) to Sector Perform from Outperform.
Sandler downgraded shares of OceanFirst Financial (NASDAQ: OCFC) to Hold from Buy.
Citigroup downgraded Dollar General Corp (NYSE: DG) to Hold from Buy.
MOST NOTEWORTHY: Take-Two Interactive Software Inc (TTWO), Circuit City Stores Inc (CC) and Exxon Mobil Corp (XOM) are today's more notable downgrades:
Both Soleil and Citigroup downgraded Take-Two Interactive Software Inc (NASDAQ: TTWO) to Sell from Hold following the company's earnings shortfall and reduced guidance.
Piper Jaffray downgraded Circuit City Stores Inc (NYSE: CC) to Market Perform from Outperform and a $20 target, based on checks that indicate weak sales trends following Christmas.
AG Edwards removed Exxon Mobil Corp (NYSE: XOM) from its Focus Portfolio, believing the company offers less upside potential than other companies in the energy sector...
OTHER DOWNGRADES:
Harrah's Entertainment Inc (NYSE: HET) was cut to Neutral from Buy at Buckingham Research.
Sasol Limited ADR (NYSE: SSL) was downgraded to Hold from Buy at Citigroup based on the persistent regulator risk.
ThinkEquity cut Syniverse Holdings Inc (NYSE: SVR) to Source of Funds from Accumulate citing expectations for increased competition and price pressures.
Citigroup downgraded Barr Pharmaceuticals Inc (NYSE: BRL) to Hold from buy.
First Albany cut Shuffle Master Inc (NASDAQ: SHFL) to Neutral from Buy.
Jefferies downgraded Omnicare Inc (NYSE: OCR) to Hold from Buy with a $44 target.
MOST NOTEWORTHY: Lockheed Martin Corp (LMT), Harrah's Entertainment Inc (HET) and Avaya Inc (AV) were some of today's most notable downgrades:
JP Morgan downgraded Lockheed Martin Corp (NYSE: LMT) to Underweight from Neutral, citing Lockheed's outperformance as well as expectations for a more challenging environment for defense stocks.
Harrah's Entertainment (NYSE: HET) was downgraded to Neutral from Add at Calyon based on the expected buyout.
Thomas Weisel downgraded Avaya Inc (NYSE: AV) to Underweight from Market Weight based on increased concerns that shares are not sufficiently discounting transition risks associated with AV's strategic shift from telephony hardware to software and applications, driven by the shift towards VoIP from TDM technology.
OTHER DOWNGRADES:
JP Morgan removed Dover Corp (NYSE: DOV) from its Focus List.
Baird downgraded PRA International (NASDAQ: PRAI) to Underperform from Neutral following a disappointing Q4 report.
Syniverse Holdings Inc (NYSE: SVR) was downgraded to Market Perform from Outperform at Raymond James and Avondale Partners; Kaufman Bros cut Syniverse to Hold from Buy, while Bear Stearns downgraded Syniverse to Underperform from Peer Perform.
Roth Capital downgraded Shuffle Master (NASDAQ: SHFL) to Hold from Buy.
Lazard cut Overseas Shipholding Group (NYSE: OSG) to Hold from Buy.
MOST NOTEWORTHY: The Gaming sector and CBS Corp (CBS) were the most notable companies on today's initiation list.
Prudential initiated the Gaming sector with a Favorable rating,
They initiated Boyd Gaming Corp (NYSE: BYD), Town Sports International Holdings (NASDAQ: CLUB), Penn National Gaming (NASDAQ: PENN), Shuffle Master Inc (NASDAQ: SHFL), Steiner Leisure Ltd (NASDAQ: STNR) and Great Wolf Resorts Inc (NASDAQ: WOLF) with Outperform ratings.
Ameristar Casinos Inc (NASDAQ: ASCA), MGM Mirage (NYSE: MGM) and WMS Industries Inc (NYSE: WMS) were initiated with Neutral ratings.
Underweight ratings were given to International Game Tech (NYSE: IGT), Isle of Capri Casinos Inc (NASDAQ: ISLE), Life Time Fitness Inc (NYSE: LTM), Pinnacle Entertainment Inc (NYSE: PNK) and Trump Entertainment Resorts Inc (NASDAQ: TRMP).
UBS initiated CBS Corp (NYSE: CBS) with a Buy rating and $38 target, citing valuation, dividends and buybacks.
OTHER INITIATIONS:
Nollenberger believes International Rectifier Corp (NYSE: IRF) is the way to play the trend for energy efficiency, initiating the company with a Buy rating and $60 target.
Goldman Sachs resumed coverage of AT&T Inc (NYSE: T) with a Buy rating and Level 3 Communications inc (NASDAQ: LVLT) with a Neutral rating.
Stanford started EDO Corp (NYSE: EDO) with a Hold rating and $25 target; the firm believes EDO can be a turnaround story in 2007, but they recommend investors to stay on the sidelines until after Q4 earnings given their concerns over the quarter and guidance.
The markets saw a third day of selling today. While some may attribute it to the lower retail sales numbers, foreign interest rate worries or North Korean missile tests, I think it just may be the summer trading session. The market has been shooting up like crazy recently and it is time it takes a breather. Summer time has also been a historical rough time for the market as it makes very little in gains. Last summer is a good example of this. Just because the Dow dropped in the beginning of June last year doesn't mean it has to drop in the beginning of June this year; but it is food for thought.
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