Archive for October, 2010

  • Obama Moves Markets
    , October 28th, 2010 at 11:53 am

    Just not Barack:

    How can Mrs. Obama help sell clothes?

    By wearing them. David Yermack, a business and finance professor at New York University’s Stern School, looked at 29 clothing companies whose garments Michelle Obama wore in 189 public appearances between November 2008 and December 2009. Their stock prices typically jumped by 2 to 3 percent — and when the first lady wore J. Crew on “The Tonight Show” in October 2008, the company’s stock price climbed 25 percent in the next three days. Such increases that “cannot be attributed to normal market variations,” says Yermack.

    How much money do the companies make?

    Yermack reckons that, on average, an appearance by Michelle Obama in a company’s clothes is worth $14 million. The total boost for all of the appearances examined in the study — a whopping $2.7 billion. Designer Naeem Khan found out first hand about the first lady’s influence when she wore one of his outfits to a state dinner in February 2009. “My stuff is flying out of stores,” the designer says. “It’s the gift that doesn’t stop giving.”

    How does the effect last?

    “The stock price gains persist days after an outfit is worn and in some cases even trend slightly higher three weeks later,” says Yermack. Some clothing companies, likes Saks, appear to have experienced long-term gains. And the effect persists regardless of how President Obama is doing. “Her husband’s approval rating appears to have no effect on the returns,” says Yermack. Or, as Marni Katz puts it at NBC New York, “even when his approval ratings are down, Mrs. Obama’s style score soars.”

  • Nicholas Financial Earns 33 Cents Per Share
    , October 28th, 2010 at 10:09 am

    Earnings are out and they’re good!

    Nicholas Financial, Inc. announced that for the three months ended September 30, 2010, net earnings, excluding change in fair value of interest rate swaps, increased 70% to $3,897,000 as compared to $2,286,000 for the three months ended September 30, 2009. Per share diluted net earnings, excluding change in fair value of interest rate swaps, increased 65% to $0.33 as compared to $0.20 for the three months ended September 30, 2009. See reconciliations of the Non-GAAP measures below. Revenue increased 11% to $15,732,000 for the three months ended September 30, 2010 as compared to $14,158,000 for the three months ended September 30, 2009.

    For the six months ended September 30, 2010, net earnings, excluding change in fair value of interest rate swaps, increased 68% to $7,323,000 as compared to $4,367,000 for the six months ended September 30, 2009. Per share diluted net earnings, excluding change in fair value of interest rate swaps, increased 63% to $0.62 as compared to $0.38 for the six months ended September 30, 2009. See reconciliations of the Non-GAAP measures below. Revenue increased 10% to $30,684,000 for the six months ended September 30, 2010 as compared to $27,851,000 for the six months ended September 30, 2009.

    According to Peter L. Vosotas, Chairman and CEO, “We are pleased to report record 2nd quarter revenue and earnings. Our results were primarily impacted by an increase in revenues, a reduction in the net charge-off rate and an increase in the cost of borrowed funds. The Company continues to evaluate additional markets for future branch locations, and subject to market conditions, could open additional branch locations during the year. The Company remains open to acquisitions should an opportunity present itself,” added Vosotas.

    This is a very good report. Let’s see how close my estimates were. Here’s what I predicted:

    Receivables: $245 million
    Gross yield: 25%
    Interest Expense: 2.5%
    Provision for Credit Losses: 2.8%
    Pre-Tax Yield: 10%
    EPS: 30 cents or more

    Here are the results:

    Receivables: $249,065,668
    Gross yield: 25.25%
    Interest Expense: 2.33%
    Provision for Credit Losses: 2.75%
    Pre-Tax Yield: 10.24%
    EPS: 33 cents

    Here’s a chart that I think is a good way to see the improvement at NICK:

    The blue area is the pre-tax yield which just broke 10% for the first time since 2007. The maroon area is the provision for credit losses which has dropped by over 7% in the last two years. As you can see, the credit losses were mainly responsible for the earnings decline. When you add the two together, NICK has been fairly consistent.

    NICK has so far earned 80 cents per share this calendar year. Q4 is often on the slow side for NICK but I think the company can earn $1.25 for the whole year.

    Here’s my spreadsheet detailing NICK’s numbers.

  • AFLAC’s Earnings Call
    , October 28th, 2010 at 10:05 am

    I’ve been reading the through Seeking Alpha‘s transcript of the AFLAC‘s (AFL) earnings call. By the way, reading through one of these is a great way to learn about a company and where it’s headed. I’m surprised how often good news is hidden in plain sight.

    Here’s the company on their outlook:

    Lastly, let me comment on the earnings outlook for 2010. As you heard, we have affirmed our objectives for 2010 of a 9% to 12% increase in operating earnings per diluted share, excluding the impact of the yen.

    As was mentioned at our Analyst Meeting in May of this year, our expectation is that we will be close to a 10% increase for the full year before currency fluctuations. That would equate to $5.34 for the full year assuming no change in currency from last year’s average.

    If operating earnings per share increased 10% this year and the yen averages 80 to 85 for the remainder of the year, we would expect operating earnings per share to be $5.52 to $5.57. Using the same foreign currency assumption, we would expect fourth quarter operating earnings to be $1.31 to $1.36 per diluted share. That compares with the First Call estimate that’s currently out there of a $1.36.

    Since AFL is off some today, perhaps the market is interpreting this lower guidance. I have no idea why. The company makes it clear that business is doing well and will continue to do well.

  • 81% of Earnings Reports Are Beating Expectations
    , October 28th, 2010 at 9:04 am

    The market seems poised to rise today after staging a nice afternoon rally yesterday. For a while there it looked like it was going to be an ugly day. Around 1:15 pm, the S&P 500 was at 1,172, but we added more than 10 points from there. In the end, the S&P 500 only lost 0.27% yesterday.

    The good news today is that the unemployment claims report came in below expectations. Normally this is among the least-important economic reports, but I think traders want to latch on to something positive. The number of jobless claims fell by 21,000 to 434,000, which is the lowest total since July. The total number of people receiving unemployment insurance dropped to a two-year low.

    The big news today will be earnings from Nicholas Financial (NICK). After that, the big event will be tomorrow’s GDP report. I’m not sure what to expect, probably something between 1.5% and 2.2%. Anything below 3% isn’t good enough. The fourth quarter, however, may be better.

    Then next Tuesday we have the election and after that, the Fed will meet and announce QE2. I think the Fed will say that it plans to buy somewhere between $300 billion and $500 billion worth of Treasuries between, say, five years and twenty years. What the Fed will say is still up in the air, but I guarantee you that whatever they say, it won’t be enough for some people.

    The Fed is reportedly asking bond dealers, “Suppose we said we’re going to buy tons of Treasuries—and we’re not saying we are—but say we said we might say we are, how might that affect yields, if that event did in fact occur?” I’m paraphrasing, but that’s the idea.

    Here’s something interesting I spotted at MarketWatch:

    In all, with roughly half of the S&P 500 reporting by Wednesday, 81% had exceeded expectations, with just 13% coming up short, according to data compiled by Thomson Reuters.

    If that percentage holds, it would be the highest level of companies beating estimates in a quarter ever — or a least since Thomson Reuters began tracking them 16 years ago. It would top even the 79% mark hit in the third quarter of 2009, when the economy came off the absolute rock bottom of late 2008.

  • Morning News: October 28, 2010
    , October 28th, 2010 at 7:32 am

    Easing Uncertainty Pushes Dollar Lower

    Shell Says Repercussions of U.S. Drilling Moratorium Could Last Into 2012

    Bank of Japan Holds Steady, Cuts Growth Outlook

    IPOs in Asia Grab Record Share of Funds as U.S. Offers Dry Up

    China Promises Action on Trade Surplus, Emissions

    Foreclosure Activity up Across Most US Metro Areas

    Banks `Want to Sit Down’ With States to Discuss Foreclosures

    Dow Chemical Tops Estimates, Net Declines

    Sanofi’s Viehbacher Rules Out $80-a-Share Offer for Genzyme

    Stores Push Black Friday Into October

    The Canadians are Bullish….The Canadians are Bullish

  • Stocks Up, Bonds Down
    , October 27th, 2010 at 3:03 pm

    Here’s an interesting chart of the past few years. This shows the S&P 500 (in black), along with two long-term T-bond funds (blue and gold):

    The key is to see when the two asset classes diverge. Two years ago, investors dumped stocks for the safety of Treasuries. Slightly after the top in the bond market in late 2008, stocks started to rebound in March 2009.

    During much of this year, bonds did well while stocks started to languish. Recently, however, bonds have started to swoon while stocks have continued to climb. Generally, the bond market precedes the stock market by a few months.

  • According to Intrade, It’s a GOP Landslide
    , October 27th, 2010 at 11:59 am

    Here’s the latest look at the implied House gains for the GOP in next week’s election according to Intrade. (For a complete explanation, see this earlier post.)

    The normal caveats apply — these are very illiquid markets. I based the mean and standard deviation on the 50+ gain and 60+ gain contracts.

    The last trade on the 60+ seat gain contract was 53.5. Pairing that with the latest trade on the 50+ seat gain (80) translates to the GOP gaining a mean of 61.2 seats with a standard deviation of 13.3 seats.

    (Note: I deleted the September 4 data point due to bad data.)

  • AFLAC Hits Two-Year High
    , October 27th, 2010 at 11:22 am

    The good news is that AFLAC (AFL) is doing well thanks to its strong earnings report. The stock finally took out its high from last April ($56.56) and has been as high as $56.80 this morning. AFLAC hasn’t been this high in two years.

    The bad news is that not much else is doing well. The Dow is currently down 133 points and the S&P 500 is off by 12. The 30-year T-bond ticked above 4% today, which is still pretty low, but it had been below 3.5% just a few weeks ago.

    Fiserv (FISV) is down with the rest of the market, which I find a bit of a surprise, although I know better than to be surprised by one-day moves. Still, Fiserv is only back to where it was a few days ago.

  • CommScope Bought Out for Half Off
    , October 27th, 2010 at 10:40 am

    Shares of CommScope are much higher today on the news that it’s being bought out by Carlyle Group for $3.9 billion. The price tag comes to $31.50 per share which is a 36% premium to yesterday’s close.

    CommScope is working to revive sales after the global recession hurt demand last year. Carlyle is banking on an increase in demand for fiber-optic networks as phone- and Internet-service providers update their systems to accommodate increasing amounts of video and data.

    CommScope, which sells its products worldwide, said revenue this quarter will be $730 million to $780 million, missing the $805.9 million predicted by analysts in a Bloomberg survey. The company has raised prices as its costs have increased, cutting into sales, Chief Financial Officer Jearld Leonhardt said in a separate statement. Sales a year earlier were $748.5 million.

    The buyout is the good news. The bad news is that even after a 36% premium, CommScope is still going for half its 2007 high. It’s even well below where it was in 1999 and 2000.

    Sure, many stocks are in the same boat, but I think it’s important to put a 36% premium into some context.

  • Earnings Calendar
    , October 27th, 2010 at 9:30 am

    Here’s our updated earnings calendar for the stocks on the Buy List:

    Company Ticker Symbol Earnings Date Estimated EPS Reported EPS
    Intel INTC 12-Oct $0.50 $0.52
    Gilead GILD 19-Oct $0.87 $0.90
    Johnson & Johnson JNJ 19-Oct $1.15 $1.23
    Stryker SYK 19-Oct $0.77 $0.80
    SEI Investments SEIC 20-Oct $0.26 $0.30
    Baxter BAX 21-Oct $0.97 $1.01
    Eli Lilly LLY 21-Oct $1.15 $1.21
    Reynolds American RAI 21-Oct $1.34 $1.35
    Fiserv FISV 26-Oct $1.00 $1.04
    AFLAC AFL 26-Oct $1.39 $1.45
    Nicholas Financial NICK 28-Oct $0.30
    Moog MOG-A 4-Nov $0.70
    Wright Express WXS 4-Nov $0.68
    Becton Dickinson BDX 4-Nov $1.25
    Sysco SYY 8-Nov $0.51

    Note that this only covers the stocks on the March/June/September/December reporting cycle. Also, the $0.30 cent estimate for Nicholas Financial isn’t the Street’s view, but it’s my view.