Filing Season Finds: Thursday, February 23

Yesterday, our analysts parsed 92 filings and collected 13,987 data points. In total, they made 2,451 adjustments with a dollar value of $1.6 trillion. Analyst Hunter Gray found an unusual item in Advanced Micro Devices’ (AMD) 10-K.

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The Real Earnings Season Starts Now


Corporate earnings season may be winding down, but the real earnings season—annual 10-K filing season—starts today.

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The Real Earnings Season Doesn’t Start Until February


Monday marked the unofficial start of “earnings season.” Then, once all the craziness has died down, the real earnings season—10-K filing season—will begin.

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Netflix: Look Past the Headline “Beat”


In the wake of 3Q16, Netflix (NFLX) is up nearly 20%. Is this price reaction justified? Have investors gotten too caught up in the “membership beat” or recently lowered expectations?

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What’s The Problem With Non-GAAP Earnings?


Non-GAAP earnings are back in the crosshairs. 15 years after the Enron scandal first prompted the SEC to create rules for non-GAAP metrics, the proliferation of these pro forma results have led to renewed scrutiny.

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LUV Earnings: Market Overreaction Creates Buying Opportunity


After announcing 2Q16 earnings, LUV fell nearly 12%, as investors seemed to care more about Southwest’s ability to hit analyst expectations, which have inherent flaws, and less about the company’s record profits.

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The SEC Is Starting To Worry About Non-GAAP Earnings


We’ve been sounding the alarm on non-GAAP earnings for several years now. Companies exploited the wide leeway granted by the SEC to present their business in a more favorable light.

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Why PE Ratios Are Not A Good Measure Of Value


We’ve pointed out the flaws in the price to earnings (PE) ratio many times before. Chief among these flaws is the fact that the accounting earnings used in the ratio are unreliable for many reasons:

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The Dangers of Non-GAAP Earnings Webinar


To learn the dangers of non-GAAP earnings and how to overcome them, join CEO David Trainer, a Wall Street veteran, in this week’s free webinar “The Dangers of Non-GAAP Earnings.” David will discuss what goes into non-GAAP earnings, why they create a problem in investing and analysis, and where you should focus when analyzing companies who report non-GAAP results.

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Angie’s List Is In Trouble


Angie’s List (ANGI) reported a larger than expected loss on Wednesday, and its revenues grew slower than expected.

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Update: Intel Earnings


In my most recent article, I said that modest growth over the next 15 years makes Intel worth ~$41 share today, and this earnings report strengthens my belief in that fair value estimate.

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JDS Uniphase Cp (JDSU) — free report for Ask Matt, Dangerous Rating

RED FLAG: Our analy­sis of the Finan­cial Foot­notes reveals: the com­pany has writ­ten off over $60bn in assets over the last twelve years. That is a big num­ber com­pared to the company’s mar­ket cap of roughly $2.2bn and its net assets of about $1.3bn. This results in economic earnings of -$5,346mm compared to Net Income of -$866mm during the last fiscal year. For details on what causes the dif­fer­ence between Eco­nomic Ver­sus Account­ing Prof­its, see Appen­dix 3 on page 10 of our free report on JDSU.

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Stock Pick of the Week: Sell/Short FedEx Corp (FDX)

RED FLAG: The main driver of the difference between Economic and Accounting earnings is FDX’s $11.9bn of off-balance sheet debt, a big number compared to $19.7bn in Net Assets and $25.6bn of market value.

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Stock Pick of the Week: Buy International Business Machines (IBM)

HIDDEN GEM: Our detailed valuation model shows that IBM grew its “economic” profits more than it accounting profits during its last fiscal year. Economic profits rose by $1.15bn while accounting profits rose by $1.09bn.

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Economic Versus Accounting Earnings


Accounting data was not designed for equity investors, but for debt investors. “Earnings, earnings per share and earnings growth are misleading measures of corporate performance.”(from page 66 in The Quest For Value by Bennett Stewart, Harper Collins 1991.)

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Stock Pick of the Week: Sell/Short Yahoo (YHOO)

Overall, the Risk/Reward of investing in Yahoo’s stock looks Very Dangerous to me. There is lots of downside risk given the Misleading Earnings and there is little upside reward given the already-rich expectations embedded in the stock price.

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Stock Pick of the Week: Sell/Short Whole Foods Market (WFMI)

One of the Most Dangerous Stocks for July, Whole Foods has misleading earnings and a sky-high valuation, in our opinion. The same is true for all of our Most Dangerous Stocks.

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GAP is Stock Pick of the Week – Hidden Gem

Hidden Gem – GPS: economic earnings are rising faster than reported accounting earnings b/c the company lowered the capital employed to run the business. GAAP earnings do not capture increase capital efficiency of the business.

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Sirius Satellite – A Dangerous Stock recently published three articles quoting me on SIRI. Andrea Tse called and, after reviewing our models on SIRI, I told her that the stock was Dangerous because:

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NYSE – Why it’s on the Most Dangerous List

There are two primary reasons a stock gets on our Most Dangerous List:

1. Misleading earnings: reported GAAP earnings are positive and rising while economic earnings are negative and declining
2. Expensive valuation: future cash flow expectations embedded in the current price are unusually high especially compared to historical performance.

Free copy of our report on NYX is in the Free Archive on Or just click here: NYX Company Valuation Report.

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