The Week That Was: Cigna, AOL and Constant Contact
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Another crazy earnings week means opportunity and a couple of stocks investors would be wise to avoid.
As noted in last week’s article Cigna’s (NYSE: CI) results were lagging in several areas. Not only did they miss the all-important analyst estimates, but quarter-to-quarter and year-over-year numbers did not inspire confidence. Why then did CEO David Cordani sound so darn chipper? Because once the special items and charges were removed, providing an accurate comparison of operating results, there were several things to like. And just as important there were several areas that weren’t nearly as bad as they first appeared.
Net income for the year was essentially flat, even with a $135 million charge because of investment returns. One of the true measures of how a company is doing relative to their core business lines -- income from Operations – increased 12% in 2011 vs. 2010, which is significant to say the least. Throw in what appears to be a great acquisition in HealthSpring and Cigna looks poised for a solid year. But the stock is down over 6%! Yep, exactly. Buy for mid-term investors.
Another earnings season enigma was AOL (NYSE: AOL). They “beat” estimates with Q4 earnings of $0.23 a share vs. the expected $0.16. Bad news is that $0.23 a share represents about a third of what the company did in Q4 of 2010. As mentioned last week the jump in share price as a result of beating expectations moved AOL into the stratosphere in terms of price.
As of today the stock is trading at nearly 130 times earnings and that’s after giving up some of the gains from last week. That’s ridiculously expensive and even forward earnings don’t offer investors that much hope. Though an improvement, about 35 times expected 2012 earnings doesn’t make AOL much of a value. Don’t buy in now, and take profits if you’re able.
The $923 million email marketing machine that is Constant Contact (NASDAQ: CTCT) seems to be cultivating a cult-like following. How else do you explain the rapid ascent since the company announced earnings last week? Yes, CTCT nailed it in a big way as we discussed last week, but the reaction seems overstated. The stock is up nearly 20% since the close last Thursday and is trading over 40 times earnings. Now, proponents will (accurately) point out this is an internet growth stock so c’mon! Point taken, and it certainly isn’t 130 times earnings like AOL.
What’s disconcerting is CTCT is fairly expensive using projected earnings too, and trading based on 2013 results doesn’t make sense for anyone. And the idea that the new social media foray makes it all worthwhile seems to ignore the soon-to-be-public Facebook and Google if that's possible. Nah, enjoy the run and take your profits. Haven’t bought in? Don’t.
The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article.