CEOs Ripe For Grilling
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There must be some truth gas they pipe into the Oprah studio that gets people to come clean. After Lance Armstrong finally admitted he had used performance enhancing drugs it crossed my mind there's several CEO's I'd like Oprah to grill. Their stocks could certainly use some performance enhancement, too. Maybe they could get some from Lance in the green room.
Every Dog Has His Day on Oprah
First, a company that has a dog for a logo, Zynga (NASDAQ: ZNGA), the online gaming company. Wouldn't you love Oprah to ask CEO Marc Pincus, "What were you thinking?!" I'm not the only who thinks he should be on the hot seat. Dartmouth's Tuck School of Business professor Sydney Finkelstein agrees and listed Pincus among the worst CEOs of 2012. CNBC's Herb Greenberg and Motley Fool have also named him to worst CEOs lists.
It's not just the parasitic relationship with Facebook that turned sour, paying $180 million for a game company that only had one successful game, Words With Friends, but the worst was the vote of no confidence in his own company when he sold 16 million shares around lockup expiration. No wonder so many of their executives and best game designers are fleeing.
Another name is Aubrey McClendon of Chesapeake Energy (NYSE: CHK), the natural gas and oil producer. Wouldn't it be great to see Oprah lean in close and say, "Aubrey, what were you thinking?" McClendon must have slept through the unit in college on conflict of interest as he ran a hedge fund on the side trading oil and gas. And that's not all; there was the corporate jet he treated like his own personal limo. Don't forget, five years ago when McClendon had to sell 94% of his Chesapeake shares to cover margin calls. Finally, the board slapped him on the wrist denying him his bonus for 2012 and removing him as President.
Then there's Ron Johnson, CEO of department store chain JC Penney (NYSE: JCP), who received $53.3 million in compensation while cutting the dividend. Johnson, who was a retail genius at Apple, inexplicably finds himself over his head at a department store. And it grieves me to say it because there's something of the underdog about JC Penney. The stores look better and brighter, but no one was shopping there on a recent weeknight. I would like to see Oprah get right up in his face, "Why can't you make money?!"
While Johnson isn't in the same league of greed and hubris as Pincus and McClendon, it seems that he is just not the right man for the job. Even Penney's long Bill Ackman with his 17.82% stake has suggested if Johnson can't right the ship in three years he wasn't the right leader. It's possible no one is, save competitor Macy's CEO Terry Lundgren.
The Common Denominators
Not one of these is making money, the ultimate sin to shareholders. Zynga has -$0.89 diluted EPS, Chesapeake has -$1.20 diluted EPS, and JC Penney has -$2.39 diluted EPS. Each one has a debt burden, although Zynga's isn't as heavy a load as for the others. Chesapaeake has some $16 billion in debt to $142 million in cash.
Other things they share in common are big short interests with a 45.90% short interest in JC Penney. Yikes! Returns on equity are negative, profit margins are negative, and share prices have declined. All three have major competitors and no real moats.
The Alpha Dog
Of these three, Chesapeake is the one most likely to get up off the floor and fetch some profits. It did suffer from low natural gas prices last year, but is ramping up production of natural gas liquids, a more profitable endeavor and selling off some assets at yard sale prices to pay down debt. It still has a 1.9% yield. The company has been making concessions to shareholder’s ire like moving into more oily assets.
Chesapeake has Carl Icahn's seal of approval (for what it's worth after the CNBC thrilla in Manila between him and Bill Ackman) with his stake of 50,085,202 shares but wouldn't you prefer to be in competitor EOG Resources with its superior CEO, Mark Papa? To be fair McClendon seems more remorseful than Lance Armstrong and was once considered a fracking wunderkind.
JC Penney's shares are down 53.72% over 52 weeks and with the company reporting on February 27 CEO Johnson will have some 'splainin to do. Analysts aren't optimistic with the median price target at $18.00 and a low of $13.00. UBS downgraded Penney to a sell on January 10.
It's not like Ron Johnson has committed some of the egregious mistakes of these other CEOs. Penney's was already a moldering proposition. Their motto could have been, "At least, we're not Kmart." JC Penney has been trying the shop within a shop approach and been bringing on popular brands like Betsey Johnson, Izod, and Levi's. So far, this hasn't really resonated with shoppers but there is a growing group of industry leaders who think he's going in the right direction.
Just Plain Dog
Calling Zynga a dog is really a disservice to dogs. Long time longs may have seen up to 76.03% in losses over the last year. Online gambling is realistically a few years away. Meanwhile the return on equity is a miserable 46.72% and the operating margin is 47.90%. Can Zynga with its $1.69 in cash per share keep afloat until then or alternatively, suddenly monetize mobile?
The median price target on Zynga is $3.00 for 20% upside, maybe. Analysts project 21.00% five year EPS growth (yoy). Zynga reports on February 5 and shareholders will have to hear something about mobile and pay gambling as they keep the pitchforks and torches at the ready.
Just stay away from these. Yes, it's possible they could turn around but frankly I'd like to hear these CEOs broadcast their next earnings calls from the truth gas enclosed Harpo studios. Until then, let sleeping dogs lie.
leglamp has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!