Stock advice in actual English.
Joined Sep 2, 2009
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BAS Earnings Tonight

The moment of truth is at hand. BAS releases 3Q earnings after the bell.

As an act of good faith and offering, I have released some of my precious cash reserves, adding !% of my portfolio to BAS at the price of $3.68 a share.

It’s hard to tell what is going to happen here. On the one hand, BAS’ operation is in turmoil, along with…everyone else in the sector. But surely worse than expected earnings will send BAS screaming to Goldman’s $2 target, ending life as we know it.

But know this; BAS has short interest nearing 50% of float. You had better pray your fellow short sellers are trading on insider scoops, because if BAS even halves the loss we are expecting then you are going to watch yourself incinerate while the hollow screams of your compatriots sound all around you.

I am waiting for BAS to match the estimated loss just because I cannot stand more disappointment – surprise me.

BAS is working to fence their operations by concentrating around still profitable locations, suffocating competition there, and idling pretty much everything else. But that is a volatile process, not accomplished quickly.

They have two things working for them.

The first is that, although they will still be taking write downs on their equipment, BAS no longer has to replace it at that value. So much of their operation has been shuttered, which leaves that equipment in storage; extending the lifespan on what’s left. And when the time to replace field equipment does come, you can bet they will not be buying it new. There will be many, many carcasses to pick off of for years to come. BAS management is already positioning to eat their dead competition… washing it down with the tears of executives long out of a position.

My guess is that if we adjust depreciation to more accurately reflect this, then BAS lost ($0.70) per share last quarter, not ($1.20). And I have a feeling that number will surprise downward.

The second is that BAS cleaned up a revolving credit line in the first six months, which ate up tens of millions. But that is done now so their debt payments should decline back to the $33 million in base interest, with the next expiration coming in 2019.

That should be good for another ($0.20) per share.

If BAS’ operation was even remotely stable in the past 3 months, then we should have a loss of ($0.50) per share, from that. BUT…let’s not be crazy here. Nothing is stable right now.

I’m going to have accounts receivable and cash levels pegged. I cannot tolerate much real cash getting lost and if receivables implode much more then I’ll have to rethink my faith. Accounts receivable declined by $121 million over the first six months of the year as customers dried up.

A hard estimate of the resulting decline of revenue that accompanies such an accounts receivable decline would say we can expect revenues to fall another 20%-30% from where they stood in June. But, are accounts receivables falling entirely because business is cancelled, or is BAS understanding of their clients trouble and agreeing to release them to a pay as you go approach? That could mute the blow if it is going on.

Altogether I am nervous. But if there is any justice in the world, by this time tomorrow I will be taking a victory stride over the gristly remains of short sellers.

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