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Weatherford International: The Oil Industry's Bernie Madoff? PDF Print E-mail

Image Awash in $100 oil prices after the Financial Crisis of 2008, Weatherford International (WFT) spent billions on capex to help clients drill for oil. It also splurged on a string of acquisitions to expand operations. The Fed's quantitative easing ("QE") program came to an end in Q2 2014. Oil prices then diverged to the downside, taking Weatherford's business prospects with it. When principal payments came due on Weatherford's $8 billion debt load in Q1 2016, it created a strain on the company's liquidity. Bernie Madoff, Chairman and head of Madoff Investment Securities LLC ("BMIS"), faced a similar problem in December 2008.

 
Weatherford Is Insolvent By $3.1 Billion PDF Print E-mail
ImageCorporations have feasted on record low interest rates, particularly energy companies. When oil prices were above $100 Weatherford International borrowed billions to fund acquisitions and capex. Now that oil is more than 50% off its Q2 2014 peak, Weatherford is sitting on $3.2 billion of goodwill and intangibles, and $5.3 billion of PP&E that are practically worthless. Year-to-date the company has raised $630 million in equity and over $2.7 billion in debt to fund principal payments and operating losses. However, the company continues to lose money and burn through cash. Q2 revenue and EBITDA fell Y/Y by 41% and 67%, respectively. Year-to-date it has experienced free cash flow of -$400 million. Its cash burn -- even as the business contracts -- should come as no surprise. I am on record that based on liquidation value Weatherford is insolvent. At Q2 2016 it is now insolvent by over $3 billion.
 
Shaunae Miller Dives For Gold In The 400 Meters PDF Print E-mail
Allyson Felix entered the 400 meters race with a chance to become the most decorated Olympic champion in U.S. women's history. At stake was a fifth gold medal and in her way was Shaunae Miller of the Bahamas, the most consistent 400 meters sprinter this year. Miller had height (6'1") and speed to challenge Felix in the final 200 meters. That's exactly how it played out as Miller had a three step lead with 50 meters to go and then this happened:
 
PwC Faces $1B MF Global Malpractice Lawsuit. Are Weatherford's Auditors At Risk? PDF Print E-mail
ImageDespite the pain investment banks created during the financial crisis, no bankers went to jail. Pursuant to the MF Global debacle, executives too were exonerated for betting their own capital. However, PwC which audited the company, now faces a $1 billion malpractice lawsuit. I have recently questioned whether assets have been overstated at certain energy-related companies. The question remains, "If or when Weatherford International goes belly up will its auditors be at risk?"
 
Weatherford International: How Low Can It Go? PDF Print E-mail
Weatherford International (NYSE:WFT) released Q2 earnings Wednesday after-hours and the stock has been on a wild ride ever since. The company confirmed it raised $2.7 billion in debt, practically removing near term bankruptcy risk. Shorts had to cover their bets -- likely one of the catalysts that drove WFT from $5.73 on Wednesday to as high at $6.29 Thursday. The price action reminded me of the scene from Trading Places when everyone was waiting for the crop report. With no more positive catalysts in sight WFT hit a two month low of $5.19 Monday. 
 
Genesee & Wyoming: Falling Traffic, Paltry Margins Could Weigh PDF Print E-mail

Genesee & Wyoming (NYSE:GWR) reports Q2 earnings on Monday. Analysts expect revenue of $490.5 million and eps of $0.78. The revenue estimate implies a 2% increase sequentially.  Investors should focus on the following key items:

 
Will American Railcar Derail Again? PDF Print E-mail

American Railcar (NASDAQ:ARII) reports Q2 earnings Friday. Analysts expect revenue of $147.4 million and eps of $0.99. The revenue estimate implies a 16% sequential decline. The company's bread and butter is the shipment of railcars. Rail traffic is in decline, which means railroads might have less demand for railcars. For the first 28 weeks of 2016 cumulative U.S. carloads fell 12% Y/Y. Meanwhile, Q1 railcar orders for the entire industry were off 58% Y/Y.

 
General Electric: The Future Is Clear As Mud PDF Print E-mail
General Electric (NYSE:GE) reported Q2 earnings last week. If financial statements are designed to paint a clear picture for investors then GE's results were as clear as mud. The company is in the process of divesting certain business units while simultaneously growing others via acquisitions. GE reported revenue of $33.5 billion and eps $0.51. Both exceeded expectations. Below is my take on the quarter:
 
Dril-Quip's Declining Backlog Is Disconcerting PDF Print E-mail
Dril-Quip (NYSE:DRQ) reported Q2 revenue of $142.4 million and eps of $0.96. The company beat on earnings but missed on revenue by over $6 million. The stock sold off over 1% on the news. Dril-Quip's revenue is in free fall . Total revenue fell 14% Q/Q and 34% Y/Y; the company has now suffered three consecutive quarters of revenue declines. Revenue from Subsea Technology was even worse, falling 17% sequentially and 37% Y/Y. According to a Wood Mackenzie study billions in deep water projects are being delayed and there are expected to be a dearth of orders going forward.
 
Philando Castille Girlfriend: "Not One, Two, Three, Four, But Five Shots" PDF Print E-mail
Philando Castile's girlfriend, Diamond Reynolds, was visibly shaken and enraged after her boyfriend was shot and killed in front of her and her four year old daughter. Every time another African-American is shot by the cops the media and politicians attempt to change the narrative to "too many guns" and "cops sure have a dangerous job."
 
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