My latest column is up at RealMoney.

With the stock market flirting with “official” bear market territory, I realized I hadn’t written a bearish piece in a couple of months. Not wanting to buck the trend any longer, I decided to look through the models I follow to see which stocks might be on the pricey side. I think I found one in ACI Worldwide (ACIW) .

ACI develops, markets, installs and supports a broad line of software products and services primarily focused on facilitating electronic payments. The company’s products and services compete with offerings by Fiserv (FISV) , Fidelity National Information Systems (FIS) , S1 Corporation (SONE) , Metavante (MV) , Euronet (EEFT) , Fair Isaac (FIC) , Visa (V) and MasterCard (MA) .

About the only argument one can make in favor of a long position is that the stock has come down a lot — nearly 50% from last July’s peak. Unfortunately, at last July’s peak it had already come down a lot from the prior year’s peak. It is amazing to me that a stock performing so poorly can still be valued as highly as it is. For now, I’m not counting on a reversal in price momentum.

For those of ACI Worldwide’s peers that have earnings on which to base a P/E multiple, the average P/E is about 16. At 16 times the 58-cent current 2009 consensus estimate for ACI Worldwide, the stock would trade at just $9.28 — 46% below the current level. Even at the 21 times multiple S1 enjoys, the downside could be 30%. And those prices assume the company will actually earn what analysts believe it will. As noted earlier, that has not been a safe bet of late.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

With the end of the first fiscal quarter, we made some changes to our Large Cap Watch List (Track at Marketocracy). These included dumping First Data Corp. (FDC). That may have been a particularly poorly timed move, if this rumor turns out to be true:

KKR to bid $25.6 billion for First Data: source - Yahoo! News

Kohlberg Kravis Roberts & Co. plans to offer $25.6 billion for payment processor First Data Corp., a source familiar with the matter said, in what could become the second-largest private equity buyout.
KKR is in late stage discussions with the company about the proposal, which at $34 per share in cash represents a 26 percent premium to Friday’s closing price of $26.90 per share.

That would sting. While we realize we can’t win ‘em all, we sure hate it when we come this close and lose.

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Large Cap Watch List (Track at Marketocracy).

Though less than the Small Cap Watch List and Mid Cap Watch List (Track at Marketocracy), there was still relatively high turnover in this list. 14 of the original 33 names made the cut for the new list (which was trimmed to just 26 names.) Part of the reason for the turnover was to reduce overlap between the lists. One third of the Mid Cap Watch List (Track at Marketocracy) names appear on each of the Small Cap and Large Cap Watch List (Track at Marketocracy)s, but there is no longer any overlap between small and large.
So without further ado, the names on the chopping block from the previous list are:

3M (MMM); Continental (CTTAY.PK); Mitsui (MITSY); Anheuser-Busch (BUD); ConocoPhillips (COP); Helix Energy (HELX); IndyMac Bancorp (NDE - Annual Report); Barr Pharmaceutical (BRL - Annual Report); Quest Diagnostics (DGX); Public Storage (PSA); ITT Educational Services (ESI); Equifax (EFX); Rent-a-Center (RCII); Kroger (KR); Ricoh (RICOY); First Data Corp. (FDC); Expeditors International (EXPD); and Keyspan (KSE).

The new list is:

Large Cap Watch List (Track at Marketocracy) member First Data (FDC) has announced it will Exit Official Check and Money Order Business:

First Data Corp. (NYSE:FDC) announced today that upon completion of the strategic review of its Official Check and Money Order operation (the “Business”) the company has decided to gradually exit this line of business. Most of the Business will be terminated over a period of two to three years. The Business wind-down is expected to free up between $250-$300 million in cash for alternative uses including acquisitions, share repurchases or other corporate purposes during 2007. This cash is currently used in the operation of the Business….The company’s full year earnings per share guidance from continuing operations of $1.20-$1.26 does not include the costs and impacts of the Business wind-down. The net costs associated with the re-positioning of the portfolio and the wind-down cannot be accurately estimated primarily due to unpredictable dynamics in the municipal bond markets. The company intends to provide an update on these costs in connection with reporting its quarterly results during 2007. The wind-down will have a minimal impact on the company’s tax rate in 2007.

We believe FDC should withdraw its previous guidance altogether rather than dance around the issue of what it includes and does not include. By saying the “guidance from continuing operations… does not include the costs and impact of the Business wind-down” they are implying it should be treated as a discontinued operation. However, Financial Statement Analysis: A Global Perspective states that neither U.S. Generally Accepted Accounting Principles nor International Accounting Standards allow a “gradual or  evolutionary phasing out of a product line or class of service” to be treated as discontinued. Change such as this is simply something that happens to businesses over time.

Large Cap Watch List member First Data (FDC) recently spun off Western Union, which formerly accounted for a good chunk of the company’s business. And trust us, their recent acquisition doesn’t have the “size” to offset Western Union. As a result of the company being in transition, it is only natural that the analysts following the stock are not as accurate as they used to be.

In last week’s earnings release, the company issued the following guidance:

For the full year 2007, First Data announced that it intends to generate earnings per share from continuing operations of $1.20-$1.26 and revenue growth in the range of 8%-10%.

Additionally, the company announced that for the first quarter of 2007 it anticipates delivering earnings per share from continuing operations in the range of $0.21-$0.23. Beyond the first quarter of 2007, First Data does not anticipate providing further quarterly earnings per share guidance.

“First Data’s goal for 2007 is to deliver revenue and earnings growth that meet or exceed our stated long-term objective of 8-10%.

The full year number is more or less in line with analyst expectations of $1.24 in EPS on the back of 7.6% revenue growth. But the quarterly EPS number is far below the $0.31 consensus estimate.

Meanwhile, the company seems a bit insecure following the sell-off that accompanied their earnings report. They announced a contract signing that for all appearances looks like it should have been a lay-up:

Importantly the new five-year agreement, effective in January 2008, will allow subscribing Cuscal customers to automatically roll over existing processing and terminal driving services and gain access to new services. The renewal will bring the partnership between Cuscal and First Data to a 25-year business milestone.

“Cuscal is our foundation client in Australia with a relationship spanning two decades,” said Peter Wright, Managing Director, First Data International, Australia and New Zealand. “We are extremely proud of our capabilities in retaining and extending this business. We believe that Cuscal’s continued confidence in our partnership is a reflection of First Data’s ability to meet the evolving needs of its clients.”

Translation: a customer they have had for 20 years signed up for another five. It would have been far more newsworthy (though less likely to have resulted in a press release) had Cuscal not renewed following such a long relationship.

We asked, but no one answered. So we are taking our own counsel and breaking our Watch List into three portfolios: Small Cap, Mid Cap and Large Cap. Each will be tracked against the relevant S&P index going forward from their collective inception date of January 31 (priced at the close of market trading that day.)

For your viewing pleasure, the Large Cap Watch List (Track at Marketocracy) (to be measured against the S&P 500) follows.

Astute observers will notice less overlap between this watch list and the names in the Small Cap Watch List and Mid Cap Watch List. This was not for lack of overlap, as the smallest S&P 500 name has a market capitalization of $600 million, which would allow for complete overlap with the Mid Caps if we chose. Instead we selected an arbitrary low of $2 billion for large-cap names, which cuts off five names that are actually in the S&P 500.
In addition, we will provide a “quick and dirty” analysis of each name, with a goal of one such analysis per day. As the name implies, the quick and dirty analysis will be incomplete. We are hoping you will join in the debate and fill the gaps in our analysis.