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Who stole my lipstick!?!


And so it goes. Transact Technologies (TACT), to which I gave the benefit of the doubt as it was sliding toward the chart's precipice, kicked the quarter seven-ways-to-Sunday, and it's getting taken apart. Not even Daisy can find enough lipstick for the Q4 results: everything was much lower than I had envisioned, and the guidance for '05 did not give me the warm and fuzzies either, especially since it is based on the dreaded "backload".

The CEO did not hide that the casino business hit the wall in December, did not recover in January, and any pick-up in February and March won't make up for the difference. He did not deny having been very optimistic on the prior quarterly call.

I mention this because I am trying to decide how credible it is that the second half of the year will be strong enough to carry the lowered estimates. The Int'l Game Techn. (IGT) business; the Wynn Resorts (WYNN) deal; some bank POS projects (as in Point-Of-Sale, not the other acronym for those as happy as I am); Europe's biz (most likely tied to the closing of the Caesars Ent. (CZR) buy-out by Harrah's (HET); and a number of other opportunities are all supposed to ramp in the 2nd half of the year; that was the timing even before last night's debacle; in other words, these are not push-outs. Will they materialize?

The $13 prints on the stock (as I write this Thursday evening), IMHO are not an overraction. Ex net cash of about $1/sh - the company does expect to be free cash flow positive every quarter this year - TACT now trades at 20x '05 lowered guidance, on 20% Y/Y expected growth. The old fashioned 1 PEG valuation. If I looked at TACT tomorrow for the first time, I'd probably think it is a fairly valued stock, with nice growth prospects, relatively little competition in the casino business, but with a chart that shows a whole lot of seriously unahppy shareholders.

"Morning After" additional thoughts: things are even harsher right now than last night. With Mandalay reporting pretty lousy numbers, and the insiders selling in several casino names noted earlier by Collins, I am leaning toward believing that TACT got blindsided by its customers, as opposed to having internal issues.

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Position in TACT
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