Spansion Inc Common Stock Class (NYSE:CODE)

We took a short-term trading position in Spansion on October 27, 2010 @ 18.90.

• Crushed third quarter analyst EPS estimates
• Issues fourth quarter EPS guidance of $0.53 to $0.77 compared to analyst estimates of $0.45.
• Recently emerged from chapter 11 bankruptcy

The stock has pulled back since our trade alert was announced. As luck would have it, one day later, the company announced a secondary offering of up to 7,762,500 shares.

We think the fall in the price is an over reaction to the news of the offering:

• This is old news from September 17, 2010. 
• The pricing of the offering was strong at virtually no discount to the market price.  
• Leads to about 13% dilution, but EPS guidance has already been issued.
• Selling at a P/E of only 10.29 on EPS 2011 estimates of $1.70.

We will hold this position a little longer, but weak 2011 analyst estimates, calling for negative EPS growth, may force us to exit this position sooner, rather than later. We need to keep in mind that the company has been exceeding estimates. We have also had great success investing in companies that emerged from chapter 11 bankruptcy.