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Electronic Arts Not Scoring on the Bottom Line


And Wall Street's not going to warm to it if it doesn't start.

The word on the street is that more of the white stuff is on its way tonight. Just what we need! My arms and back are still sore from all the snow shoveling I did this past weekend.

Asian stocks ended mixed. The Hang Seng closed up 1.22%, but the Nikkei finished down 0.19%. However, European stocks were in positive territory early this morning. And here in the US, we're currently trading higher.

Here's what I'm focused on this morning:

Electronic Arts (ERTS):
The well-known game publisher was out with its third-quarter numbers after the bell last night.

The good news is that the company put $0.33 on the scoreboard excluding items, which was $0.02 better than expectations. But unfortunately, the story doesn't end there. For the fourth quarter, it's looking for approximately $0.02 to $0.06 adjusted, which is a bit of a bummer because analysts had been looking for $0.13. To boot, for fiscal 2011 it's looking for approximately $0.50 to $0.70 adjusted -- not so great because the Street is at $0.74.

Some thoughts:

1. To be sure, this news isn't the worst thing that could have happened. However, it's bound to leave the natives a bit restless, so by extension, I'm expecting the shares to take a bit of a thumping in today's session.

2. The guidance management offered up may be a bit on the conservative side. We shall see.

3. I've been arguing that the valuation hasn't been all that compelling (see Three Reasons Not to Play Electronic Arts) and nothing's changed on that front. For my ears to perk up, I'd probably want to see the stock in the low teens.

4. Overall, it's not game-over for the company, but I think the management team has to seriously start delivering on the bottom line before Wall Street warms to this story in earnest once again.

Fossil (FOSL):
Justin Sharon points out that Barclays slapped an Equal-Weight rating on the company.

At about 14.7 times the 2010 estimate, I admit it's not terribly pricey and I'm definitely impressed with its recent pummeling of estimates. But as I suggested in an article back in early January, where are we headed from here? I don't see any big catalyst on the near-term horizon, or anything that tells me I need to belly up at this level. If I were to see a print in the $20s, or I began to get the feeling it may put something like $2.40 or $2.50 a share on the board in 2010, that may be a different story. For now, I'll take a pass.

McDonald's (MCD):
Did you happen to get a look at Ronald & Co.'s January comps? They were up a respectable 2.6%.

This company continues to amaze me. Despite some lousy weather and stiff competition, not to mention a tough comparison from last year, it put up a good number. I think this is the best place to be in the fast-food business right now, and I'd definitely prefer to belly up here than dabble in some of the full-service chains given the near-term economic outlook. I think the shares head higher today on this news.

Time Warner (TWX):
Needham started the company at a Hold and I wanted to weigh in.

1. Even though the New York-based media giant has beaten expectations the last two quarters, has a great name, and has what should be a very promising future, I have no intention of saddling up for a ride at this point in time. I see no immediate catalyst here that leads me to believe this is an opportune time to buy. I suspect the shares will probably bob and weave and trade in a range of maybe $24 to $30.

2. I'd also note that insiders haven't been tuning in with new money lately.

Have a great day!
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No positions in stocks mentioned.

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