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Welcome Back! In our newest edition we will be looking at Harris interactive, a market research company known for their credibility and repeat business from fortune 500 companies that utilize their research for new product development, communications, and branding.
When reviewing companies in this industry focus was on management, a recent/poised turnaround from negative to positive net income, as well as the potential for surprise earnings announcements. Harris Interactive fulfilled all three of these requirements and has even a couple more aces up its sleeve!
I hope you enjoy this edition of SMID/ J’s Journal as we provide you a thorough analysis of why HPOL should be in your deck of cards!
HPOL: 6 Foundations for Long-term Results
- Rebound in earnings; coupled with increasing operating margins.
- Solid insider ownership and continued recent insider share purchases; coupled with: non-executed, In-the-money stock options owned by management warrant insider positive long term outlook.
- 6/1/2013 final liability payment. We foresee no debt load going into in the near future; will revisit if the opportunity presents itself.
- United States and Germany operations are becoming increasingly profitable for Harris Interactive.
- Earnings are cyclical with largest revenues seen in Q2 & Q4 [Q2: Oct.-Dec (reported in next year ~Feb)] [Q4: Apr-Jun (reported ~Aug)].
- Majority of stock growth takes place after new product acceptance (expected: 2014-15) and consistent net revenue growth when comparing prior year earnings.
Risk/Reward Profile & Report Card
Al Angrisani – The Turnaround Mastermind
Current CEO of Harris Interactive, Al Angrisani, is a specialist when it comes to corporate turnarounds. He has a proven track record serving as CEO of HPOL from 2002 to 2004. [also CEO of TOTL from 1999 to 2002] and [SRVY from 2005 to 2008]. SMID investing has included a breakdown of the Angrisani Hierarchy of Value Creation Model ™ which in phase three highlights core and new business products that are most recognizable and exciting when looking at revenue growth prospects.
Not much has been discussed about the Google/Harris Interactive joint venture due to it being in the developmental stage. However, Al Angrisani has mentioned the ease of use and similarity to that of Google ad words. This product opens up Harris Interactive to small business owners and gives them the ability to purchase content rich market research that is applicable to improving their business products and services all the while staying inside the small business owner budget.
Backing up a little bit here, the pyramid was developed by Al Angrisani as a model to show a step by step game-plan on the methodology in leading a corporate turnaround. The arrow on the left indicates current and anticipated progress for HPOL which is currently in step three [Launch New Products / Growth of Core Business].
Al Angrisani – Heirachy of Value Creation Model
HPOL: The X-Factor
The recent Harris Interactive earnings call and the stock price behavior 2 days post & prior is the qualitative analysis X-Factor that is a positive long-term shareholder signal. Prior to the earnings call an immense positive gain in price takes place, after the call an immediate price retraction and resettle occurs within 2 days.
This is due to a modest earnings call sentiment and focus on an “around the corner” 2-5% decline in Q1 earnings (as compared the prior year). A move made by management on purpose, and also happens to benefit us; the long term shareholders. You will also find this non-concerning as we increase our trade position in the company as: Q2 and Q4 represent peak earning periods coupled with mid-September insider share purchases occurring 3 weeks after the earnings call.
I will let you be the judge of this X-Factor but I think you’ll agree with me that the share price pattern is indicative of a pulsing heart on a CT monitor. A sign of life for the health care centric Harris Interactive!
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Copyright © 2013 Fat Pitch Investments. All Rights reserved. This material is for your information only and is not a solicitation, or an offer, to buy or sell securities mentioned in articles past, present or future. Fat Pitch Investments is a firm involved with equity research and valuations. The information contained herein has been obtained from sources that we believe are reliable but in no way is guaranteed by us. Furthermore, this report contains forward looking statements and projections that are based on certain assumptions and expectations that are generated by our proprietary research process. Accordingly, actual results may differ considerably from those reflected in this report due to such factors as those which are listed in the Company’s SEC filings. Any non-factual information in the report is our opinion and is subject to change without notice.