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Jax Daily Record Monday, Apr. 21, 201412:00 PM EST

Intrepid Capital sells off WWE stake

by: Mark Basch Contributing Writer

For the last couple of years, Intrepid Capital Management Inc. was the second-largest shareholder of World Wrestling Entertainment Inc., behind the family of WWE founder Vince McMahon.

However, as the stock spiked during the first quarter this year, the Jacksonville Beach investment firm sold off its stake, and it looks like it got out at the right time.

The professional wrestling promoter’s stock rose in anticipation of the launch of its WWE Network, a 24/7 streaming service of live and on-demand wrestling events, but the stock plunged two weeks ago when WWE announced initial subscriber numbers that were below expectations.

Connecticut-based WWE’s proxy statement filed last month indicated that Intrepid was still the second-largest stockholder with 2.8 million shares, or 8.9 percent of the company’s Class A shares.

In an April 11 Securities and Exchange Commission filing, Intrepid indicated that it no longer held any WWE shares.

Intrepid analyst Jordan Slingo said his firm sold the shares because of its valuation as the stock was rising during the first quarter. WWE’s stock nearly doubled in price from $16.58 at the end of 2013 to $31.98 in March.

“We weren’t necessarily bearish on the business itself,” Slingo said.

However, some investors did become bearish two weeks ago when WWE, which has been forecasting 1 million subscribers in its first year, said it had only signed up 667,000 people for the network since its February launch.

“I think it’s going to be challenging to make up that other 350 by the end of the year,” Slingo said.

Intrepid was out of the stock before it fell by $4.12 to $23.90 on April 7 after the announcement. It continued to fall and traded as low as $19.63 last week.

Despite the disappointing launch of the online network, not everyone is discouraged. Four of the six analysts covering WWE rate it as a “buy,” according to Thomson Financial, and Needham & Co. analyst Laura Martin initiated coverage of the company last week with a “buy” rating and a 12-month target price of $30 for the stock.

“WWE combines the live aspects of sports (minimal DVR risk) with the passion of soap operas (long viewing times, loyal attendance),” Martin said in her research report.

Martin viewed the network launch as “successful” and thinks it will generate big value for the stock.

“Online content companies are globally scalable, rapidly growing, and have high incremental margins. They also have direct contact with their viewers (i.e., they ‘own’ their customers),” she said.

Martin said WWE also has two “visible” revenue sources: over-the-air television rights fees for wrestling events and ticket and merchandise sales at live events.

“We note that both of these visible revenue streams participate in enormous economic profit pools with long track records of growth. These predictable revenue streams should provide downside protection for investors,” she said.

CSX stock down on earnings report

CSX Corp.’s decline in first-quarter earnings was not a surprise, because the company indicated weeks ago that the harsh winter weather had a negative impact on its railroad operations.

Still, Jacksonville-based CSX’s earnings of 40 cents a share were 3 cents higher than the average analysts’ forecast, according to Thomson, so you may have expected a positive reaction to the report on Wall Street. Instead, CSX’s stock fell by 50 cents to $27.79 Wednesday after the report.

Digging below the surface of the earnings report, Stifel, Nicolaus & Co. analyst John Larkin pointed out that CSX’s earnings included a 2 cent-per-share tax benefit and a nearly 2 cent benefit from liquidated damages, which is money paid by customers to CSX for not meeting minimum contract obligations for freight shipments.

Without those two items, CSX’s earnings would have been 36 cents a share, below the average forecast, Larkin said in his report on the company’s earnings.

“Results were negative overall,” RBC Capital Markets analyst Walter Spracklin said in his report. “However, the key focus for investors is CSX’s outlook.”

The outlook may not have been clear to investors listening in to the company’s conference call with analysts.

“On the conference call, management provided detail on changes to guidance, which included both positive and negative revisions,” Spracklin said.

As CEO Michael Ward told the Daily Record after the earnings report last week, the tough winter will have a continuing impact on CSX in the second quarter. Revenue may benefit from pent-up demand for goods not shipped in the winter, but the railroad’s operating expenses may continue to be affected from the weather-related service disruptions in the winter.

CSX’s operating ratio – operating expenses divided by revenue – jumped by 5.2 percentage points in the first quarter to 75.5 percent.

CSX has set a goal of getting its long-term operating ratio down to a mid-60s percentage and was hoping to get the ratio below 70 percent in 2015, Larkin said.

“On the call, management indicated that they have not abandoned this target, but they will certainly need some help to achieve it. The goal appears now to be more of a stretch than it was before the quarter began,” he said.

Larkin has a “hold” rating on CSX’s stock. Spracklin has a “sector perform” rating, which is basically the equivalent of a “hold,” but he increased his price target on the stock from $27 to $29.

“Despite the negative share price reaction, we believe the company’s outlook had more to like than not like and we are taking our estimates and target multiple higher,” Spracklin


“Nevertheless, returns to our new target are not high enough to justify an upgrade, but we believe that following the expected downward revisions to consensus, bias may be to the upside,” he said.

Analyst upgrades FIS rating

Avondale Partners analyst Peter Heckmann last week raised his rating on Jacksonville-based Fidelity National Information Services Inc. (FIS) from “market perform” to “market outperform.”

“While not a call necessarily for better than expected near-term results, we do believe the company can drive improved revenue growth into 2015 as several large projects go live,” Heckmann said in his report.

He did say that when FIS reports earnings on May 1, “we believe the company should meet or modestly exceed the consensus forecasts with the potential for consensus forecasts to move modestly higher.”

Heckmann is projecting earnings of 67 cents a share in the quarter, up from 62 cents in the first quarter of 2013.

Analysts’ forecasts range from 65 cents to 73 cents, according to Thomson.

FIS, which provides technology services for financial institutions, last week announced the acquisition of CMSI, a Maryland-based company that provides consumer loan origination software and services.

FIS did not announce any financial details of the transaction, but Heckmann estimates that CMSI will add less than $10 million in annual revenue for FIS.

Analysts are expecting FIS’ total revenue to exceed $6 billion this year.

Vistakon sales up in first quarter

Johnson & Johnson last week reported that its Jacksonville-based contact lens subsidiary, Vistakon, increased sales in the first quarter by 2.8 percent to $761 million, despite a negative impact from foreign currency rates on its international sales.

Excluding the currency impact, Vistakon’s sales rose 6.8 percent on an operational basis, Johnson & Johnson said.

However, in the company’s conference call with analysts, Vice President of Investor Relations Louise Mehrotra cautioned that sales growth may not be as strong in the second quarter.

“Vision care sales growth is primarily due to a customer inventory build anticipated to reverse in the second quarter,” she said, without giving further details.

Overall, it was a good quarter for Johnson & Johnson. The New Jersey-based health care products giant reported total sales rose 3.5 percent to $18.1 billion and excluding the negative currency impact, operational sales rose 5.3 percent.

Adjusted earnings rose by 10 cents per share to $1.54, 7 cents higher than the average forecast of analysts surveyed by Thomson.

Johnson & Johnson slightly increased its earnings forecast for the full year to $5.80 to $5.90 a share, up from its previous forecast of $5.75 to $5.85.

Johnson & Johnson’s stock rose $2.06 to $99.20 Tuesday after the earnings report and reached a record high of $99.71 on Wednesday.

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