Winners and Losers - January 15th - January 19th (MLS, RACK, CAI)

By Albert Phung | January 18, 2007 AAA

Big Winners:

Shares for the Mills Corporation (MLS) surged upwards from $17.40 to $21.56 (or a gain of 23.9%) this week. The reason behind this large move stems from a buyout offer from Brookfield Asset Management Inc. (BAM) to purchase the real estate investment trust for $21.00 a share. This buyout offer represents a sigh of relief for Mills Corporation's shareholders as the company was rumored to be on the brink of bankruptcy as it was having problems with repaying a $1 billion loan that will be due in March. Furthermore, the company was facing other problems as it also recently disclosed that some of its former employees may have been involved in improper actions, which may have led the company to its current financial situation. By acquiring Mills, Brookfield Asset Management would now be responsible for any debt repayments that Mills owes.

Big Losers:

Rackable Systems Inc. (RACK) fell victim to a decline in share price as it fell from $31.78 to $18.68 (or a decline of 41.2%). The market was definitely not very forgiving over the fact that the server manufacturing company will be missing its 4th quarter earnings by a significant margin. More specifically, earnings will be around $0.17-$0.18 per share, which a far cry from the $0.32 per share posted from the same period a year ago and the $0.27 per share that analysts had anticipated. While management cites aggressive competition, escalating costs for RAM components and lowered sales among its list of reasons for the drop in earnings, analysts are skeptical and wonder if there is something more that Rackable hasn't disclosed.

CACI International (CAI) is another company that fell out of the market's favor as a result of missing earnings estimates. In this case, the IT solutions provider saw its share price drop from $56.40 to $47.64 (or a 15.5% decline). In its previous earnings forecast, the company had predicted its annual earnings for 2007 to be $2.91–$3.15 per share, which was higher than the $2.72 per share of earnings from 2006. However, the earnings estimates were reduced to $2.45-$2.65 per share due a reduction in the number of government contracts. Previously, the company enjoyed a plentiful stream of government contracts as it worked on projects relating to homeland security and the campaigns in Iraq and Afghanistan, but these contracts are drying up as the government is now shifting more money from non-military projects towards increased funding for the military operations in war torn countries.

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