Archive for January, 2011

  • Ford Earns 30 Cents Per Share
    , January 28th, 2011 at 9:10 am

    Ford (F) just reported Q4 earnings of 30 cents per share which is well below Wall Street’s forecast of 48 cents per share.

    For all of 2010, Ford made $6.6 billion, the most money it has made in 11 years. Workers will actually get profit-sharing checks this year. Plus, Ford did away with 43% of its debt load in 2010.

    The quarterly earnings get a little complicated due to Ford’s debt conversion offer. The company had unadjusted profits of five cents per share. Excluding that, Ford earned $1.3 billion or 30 cents per share.

    This was the company’s sixth-straight quarter of making an operating profit. Quarterly revenues rose from $30.9 billion to $32.5 billion. Wall Street was expecting $30.4 billion.

    The stock looks to open around 6.5% lower.

  • Morning News: January 28, 2011
    , January 28th, 2011 at 8:33 am

    DAVOS: Geithner: Global Inflation No Great Concern

    Crisis Report Pins Blame on U.S. for Global Bust

    Moody’s Says Time Running Out for U.S. as S&P Cuts Japan

    Gasoline Futures Retreat as Jobless Claims, Inventories Rise

    Lockheed Martin 4Q Profit Up 19%

    Honeywell Earnings More Than Double

    LinkedIn Plans to Raise Up To $175 Million in IPO

    Amazon Sales Rise but Miss Forecast

    Walgreens to Sell Beer

    Facebook Overvalued at $50 Billion in Global Poll of Investors

    NYSE Euronex Issuer Reminder That Gambling Isn’t Allowed on the Trading Floor

    Joshua Brown: Stop Everything and Watch Egypt

    Paul Kedrosky: Energy Transitions: The Third Wave

  • CWS Market Review – January 28, 2011
    , January 28th, 2011 at 7:42 am

    This has certainly been an eventful week for the stock market and for our Buy List. Not only did we have a slew of earnings reports, the Dow breaking 12,000 for the first time in over two years and a Fed meeting, but we also had a State of the Union Address.

    Let’s start with some good earnings news. Scratch that…make it some very good earnings news. On Thursday, Nicholas Financial ($NICK) reported quarterly earnings of 38 cents per share. This is such a small stock that no Wall Street analysts follow it so we don’t know if it “beat the Street” or not.

    Since I’m probably the only one who follows it closely, I can say that I was very pleased with NICK’s earnings. If you’re not familiar with NICK, it’s a small lender for used car loans. The problem is that Wall Street believes that NICK is a regular sub-prime lender, but it’s incorrect to compare what NICK does to what happened during the housing bubble with mortgages. First, NICK doesn’t sell their loans; they hold them to maturity. Second, the company is rather conservative with its portfolio.

    The company’s fiscal year ends in March, but for the four quarters spanning the 2010 calendar year, NICK pulled in $1.18 per share in profits. Even after today’s 4.9% price jump, the stock is still going for roughly 10 times trailing earnings. I think it’s very possible for NICK to earn $1.50 to $1.60 per share in the following 12 months. That means the shares could be reasonably valued at $18 to $20 before the end of this year.

    Mind you, I’m not predicting that a surge like that will happen. We never know what stocks will do (after all, NICK was under $1.70 per share less than two years ago). But NICK is a very inexpensive stock. On top of that, the company recently informed us that “it has received an unsolicited, non-binding indication of interest from a potential third-party acquirer.” I don’t know the details, but someone else sees the value of NICK. Bottom line: NICK is a great stock to own.

    Thursday’s other good earnings report was from Deluxe ($DLX). This is a pretty quiet company—they don’t make much news but they churn out decent earnings. The major hitch with Deluxe is that their main business, check printing, is slowly dying. Don’t worry, it’s not gone yet, and DLX still makes a healthy profit.

    Deluxe’s earnings report came in at 78 cents per share which was seven cents more than Wall Street was expecting. The stock got a nice 4% jump on Thursday. DLX sees earnings coming in this year between $2.85 and $3.10 per share which gives them a very low valuation. On top of that, DLX pays a quarterly dividend of 25 cents per share which translates to a yield of 3.9%. The stock hit a new 52-week high on Thursday and we’re sitting on an 11% gain YTD. Deluxe is a strong conservative buy.

    The major earnings disappointment came from Abbott Labs (ABT). By “disappointment,” I mean that the market wasn’t happy. I think Abbott’s earnings were just fine and the stock is as solid as ever. For Q4, ABT earned $1.30 per share which was a penny better than the Street’s consensus. More importantly, the company now forecasts EPS of $4.54 to $4.64 for this year. The stock promptly dropped 2.5%. Don’t ask me. In my opinion, ABT is an excellent buy.

    The other three earnings reports this week were from Johnson & Johnson (JNJ), Stryker (SYK) and Gilead Sciences (GILD). Both JNJ and SYK beat expectations and I expect them to do well. I was especially pleased with GILD because their recent earnings haven’t been as strong as I think they could have been. In fact, it was due to the low price that I stuck with them for this year. For last quarter, GILD earned 95 cents per share which was a penny better than expectations. The stock responded by jumping 4% on Wednesday.

    January is not yet over and the Buy List is already having a great year so far. Through Thursday, the Buy List is up by 5.52% compared to 3.33% for the S&P 500.

    The overall market picture continues to look very favorable. For this earnings season so far, 188 companies in the S&P 500 have reported earnings. A total of 135 (or nearly 72%) have beaten expectations, 16 have met expectations (8.5%) and 37 have fallen short of expectations (19.7%). It’s still early, but earnings are running about 5.4% ahead of expectations.

    Last week, I mentioned the possibility of the end of the cyclical trade. I may have spoken too soon since cyclicals have rebounded somewhat. I’m still very skeptical that cyclicals will lead the market for much longer.

    On Friday morning, the Q4 GDP report comes out. I expect it could be a very strong number—perhaps over 4%. If so, this could mean that the Federal Reserve will start raising interest rates sooner than most expect. That’s still not very soon, but some folks on Wall Street think a rate increase is at least three years away. The closer a Fed rate hike is, the more dangerous it will be to own gold and that may explain some of the weakness in gold recently. The yellow metal just hit a four-month low.

    This most recent Fed meeting was particularly noteworthy. The Fed has reiterated its pledge to QE2 which I think is a net positive for the market. I believe the Fed’s actions will generally help riskier assets at the expense of risk-averse assets. In other words, I think shares of a high-yielding stock like Reynolds American (RAI) are a much better buy than a two-year Treasury.

    Next Tuesday we’re going to get an earnings report from AFLAC (AFL). This is such a solid company. They’ve increased earnings for 18-straight years. Wall Street expects earnings of $1.35. The company has already told us to expect earnings between $1.31 and $1.36 per share. Honestly, I really don’t care if they’re off by a penny or two.

    More important to me is what kind of guidance AFLAC gives for 2011. Previously, they’ve said to expect earnings growth of 8% to 12%. That probably means earnings of $6.00 to $6.22 per share which gives the stock a forward P/E Ratio of less than 10.

    The problem is that it’s hard to give a precise forecast of where earnings will be since much depends on exchange and interest rates. As you can probably tell, I very much favor stocks that give future earnings guidance. Not all stocks do. I still like AFLAC a lot. I recently said that AFL will make a run at $60 per share and on Thursday it got as high as $58.84 so I might be vindicated very soon. AFLAC continues to be a very strong buy.

    That’s all for now. Be sure to keep visiting the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    Best – Eddy

  • Unemployment and Stock Returns
    , January 27th, 2011 at 10:21 pm

    One of the best times in stocks is when it’s a rotten time for everyone else. It’s sad, but true. When the stock market was a “screaming buy” in August 1982, the unemployment rate was close to 10%.

    In March 2009, the jobless rate was 8.6% and it continued to rise to a peak of 10.1% in October 2009.

    I broke out stock market returns since 1948 and sorted them by unemployment rate. Of the 63 years, a total of 396 months or 33 years saw the unemployment rate over 5.5%. Combined, the stock market produced an average annualized return of 15.0%.

    For the remaining 360 months or 30 years, the unemployment rate was below 5.5%. The stock market produced an annualized return of 7.1%.

  • NICK and DLX Gave Us a Big Boost Today
    , January 27th, 2011 at 5:44 pm

    Today was an outstanding day for our Buy List. Thanks to great earnings from Nicholas Financial (NICK), that stock rallied for a 4.89% gain today. The shares closed at $12.22 which is NICK’s highest close in over four years.

    The other big gainer was Deluxe (DLX) which rose 3.95% on better-than-expected earnings. The stock hit a new 52-week high today. We already have a 10.95% gain in DLX for the year.

    We also saw decent gains from Ford (F) and Leucadia (LUK). Both Oracle (ORCL) and Leucadia made new 52-week highs. AFLAC (AFL) also hit a new 52-week high of $58.84 early in the day but it gave some back before the close.

    For the day, the Buy List gained 0.74% which was well ahead of the 0.22% gain for the S&P 500. For the year thus far, we’re up 5.52% compared with the S&P 500’s 3.33%.

    This is shaping up to be one of the best Januarys for Wall Street in a long time. My advice: Don’t get used to it.

  • Hawkins -17%, I Called It
    , January 27th, 2011 at 1:46 pm

    Hawkins Inc. (HWKN) is getting killed today. The stock is down about 17% due to a disappointing earnings report.

    This caught Wall Street off guard, but NOT those who have been reading this website. Six weeks ago, I wrote, Time to Sell Hawkins:

    I’ve watched Hawkins for years, so it’s odd for me to see the stock become so popular lately. The shares closed at a new all-time high of $49.20 — and I say that that is way too much. If I owned the stock (which I don’t), I’d sell it right now. It’s had a good ride, but $50 is simply too expensive.

  • Breaking Down NICK’s Earnings
    , January 27th, 2011 at 1:07 pm

    I’m looking through NICK’s earnings report and the numbers are very strong. For the calendar year, NICK earned $1.18 per share. That’s outstanding.

    Even if NICK merely maintains the 38 cents per share rate of this past quarter for all of 2011, they’ll earn $1.52. That’s not even including the company’s overall net portfolio yield of about 7%.

    I always like how the company breaks down the numbers in their reports. You can check out this spreadsheet for all the important numbers.

    The story with NICK is that their portfolio has continued to do well but the provision for credit losses took a large bite out of the bottom line.

    Here’s a look at NICK’s pre-tax earnings yield plus the credit losses. When you add them together, you can see that it’s been pretty stable.

  • Nicholas Financial Earns 38 Cents Per Share
    , January 27th, 2011 at 10:07 am

    More great earnings today, this time from Nicholas Financial (NICK): For their fiscal third quarter, NICK earned 38 cents per share which is a big jump from 25 cents per share last year.

    Nicholas Financial, Inc. (NASDAQ: NICK), announced that for for the three months ended December 31, 2010 net earnings increased 54% to $4,475,000 as compared to $2,909,000 for the three months ended December 31, 2009. Per share diluted net earnings increased 52% to $0.38 as compared to $0.25 for the three months ended December 31, 2009. Revenue increased 11% to $15,995,000 for the three months ended December 31, 2010 as compared to $14,365,000 for the three months ended December 31, 2009.

    For the nine months ended December 31, 2010, net earnings increased 58% to $12,033,000 as compared to $7,605,000 for the nine months ended December 31, 2009. Per share diluted net earnings increased 55% to $1.01 as compared to $0.65 for the nine months ended December 31, 2009. Revenue increased 11% to $46,679,000 for the nine months ended December 31, 2010 as compared to $42,216,000 for the nine months ended December 31, 2009.

    According to Peter L. Vosotas, Chairman and CEO, “We are pleased to report record 3rd quarter revenue and earnings. Our results were favorably impacted by an increase in revenues and a reduction in the net charge-off rate. In the third quarter the Company entered the Illinois and Missouri markets, where we have signed leases for new branch locations in Chicago and St. Louis. We expect these new locations to be fully operational by the end of the fourth quarter. The Company will then operate in fourteen states with a total of 56 branch locations.

    Nicholas Financial, Inc. is one of the largest publicly traded specialty consumer finance companies based in the Southeastern states. The Company presently operates 54 branch locations in both the Southeastern and the Midwestern states. The Company has approximately 11,800,000 shares of common stock outstanding. For an index of Nicholas Financial, Inc.’s news releases or to obtain a specific release, visit our web site at www.nicholasfinancial.com.

  • Deluxe Earned 78 Cents Per Share
    , January 27th, 2011 at 9:29 am

    Deluxe (DLX) just reported adjusted earnings of 78 cents per share which was seven cents more than expectations. They also gave EPS guidance of $2.85 to $3.10 for this year which makes the forward P/E Ratio somewhere around eight.

    Here’s the press release:

    Deluxe Corporation (NYSE:DLX – News) reported fourth quarter revenue of $351.5 million, up 3% compared to the prior year, and adjusted diluted earnings per share (EPS) of $0.78 compared to $0.70 in the prior year. Adjusted diluted EPS for both periods excludes restructuring costs related to our cost reduction initiatives. Adjusted diluted EPS for 2009 also excludes the impact of transaction-related costs associated with acquisitions. Earnings were better than the previous outlook for the current period due primarily to favorable product mix, cost reduction and spending controls and a lower effective tax rate.

    Reported diluted EPS was $0.68 on net income of $34.8 million in the fourth quarter of 2010 and was $0.59 on net income of $30.5 million in the comparable quarter of 2009. Results for 2010 include restructuring-related costs of $7.8 million, or $0.10 per diluted share, associated with infrastructure consolidations, operational improvements in sales, marketing and fulfillment, and other cost reduction initiatives. Results for 2009 included restructuring and transaction-related costs of $8.7 million, or $0.11 per diluted share.

    “We are pleased to finish the year by delivering another solid quarter,” said Lee Schram, CEO of Deluxe. “With strong performance in all three segments, we reported revenue near the high end of our expectations. Business services revenue grew 17 percent over last year, while checks and forms performed well against our expectations. All this, combined with continued strong execution against our cost reduction program and spending controls drove higher than expected earnings per share.”

    Fourth Quarter Performance

    Revenue for the quarter was $351.5 million compared to $340.3 million during the fourth quarter of 2009. Small Business Services segment revenue of $204.2 million was $1.8 million lower than the comparable 2009 quarter as growth in business services, the Safeguard distributor channel and the Canadian businesses nearly off-set the decline in check and form usage. Financial Services revenue was $6.9 million lower than the fourth quarter of 2009 driven by lower order volume. Direct Checks revenue increased $19.9 million due to $21.5 million of revenue from the April 2010 acquisition of Custom Direct, Inc. Excluding the effect of Custom Direct products, Direct Checks would have been down only 4 percent due to strong customer re-order performance.

    Gross margin was 64.0 percent of revenue compared to 62.8 percent in 2009. The favorable impact of the Company’s cost reduction initiatives was partially offset by increased material costs and delivery rates.

    Selling, general and administrative (SG&A) expense increased $5.5 million in the quarter compared to 2009. Increased SG&A expense associated with the Custom Direct acquisition and our brand awareness and direct response advertising campaigns were partially offset by benefits from the continued execution of our cost reduction initiatives.

    Operating income in 2010 was $60.9 million compared to $55.8 million in the fourth quarter of 2009. Operating income was 17.3 percent of revenue compared to 16.4 percent in the prior year driven primarily by benefits from our cost reduction initiatives.

    Reported diluted EPS increased $0.09 from the prior year driven by the higher operating income and a lower effective tax rate.

    Fourth Quarter Performance by Business Segment

    Small Business Services revenue was $204.2 million versus $206.0 million in 2009. Revenue was lower in the quarter as growth in business services, the Safeguard distribution channel and the Canadian businesses did not fully offset volume declines in checks and forms. Operating income in 2010 increased to $32.7 million from $23.6 million in 2009. Restructuring and transaction-related costs were $4.2 million lower than in 2009.

    Financial Services revenue was $88.0 million compared to $94.9 million in 2009. The decrease was primarily due to lower order volumes caused by check usage declines, partly offset by growth from non-check services. Operating income in 2010 decreased to $13.0 million from $17.8 million in 2009. Restructuring-related costs were $2.7 million higher than in 2009.

    Direct Checks revenue was $59.3 million compared to $39.4 million in 2009. The Custom Direct acquisition in April contributed $21.5 million in the quarter which was partly offset by lower order volume resulting from the continued decline in check usage. Operating income in 2010 was $15.2 million, compared to $14.4 million in 2009. Restructuring-related costs were $0.6 million higher than in 2009.

    Cash Flow Performance

    Cash provided by operating activities for 2010 totaled $212.6 million, an increase of $6.2 million compared to 2009. The increase was due primarily to improved earnings and a contract settlement received during the third quarter, partially offset by higher performance-based compensation payments in the first quarter and higher income tax payments.

    Business Outlook

    The Company stated that for the first quarter of 2011, revenue is expected to be between $342 and $350 million. Diluted EPS is expected to be between $0.68 and $0.73. For the full year, revenue is expected to be between $1.375 and $1.415 billion, and diluted EPS is expected to be between $2.85 and $3.10, which includes benefits from an incremental $65 million in cost reductions, net of investment. The Company also stated that it expects operating cash flow to be between $205 million and $225 million in 2011. Capital expenditures are expected to be approximately $35 million.

    “We have made tremendous progress in transforming Deluxe and still have many opportunities ahead of us in 2011,” Schram stated. “We believe we are entering the new year well positioned to grow revenue through clear alignment on our strategic direction, focus on our customers, diversity in our channels, and the extensive depth and breadth of our product and services offerings. If the economy improves, we should have further upward opportunity in our Small Business Services revenue.”

    Quarterly Dividend

    The Board of Directors of Deluxe Corporation declared a regular quarterly dividend of $0.25 per share on all outstanding shares of the Company. The dividend will be payable on March 7, 2011 to shareholders of record at the close of business on February 21, 2011. The Company had 51,360,017 shares outstanding as of January 24, 2011.

    The stock has been as high as $25.33 today which is a 3.1% gain.

  • Morning News: January 27, 2011
    , January 27th, 2011 at 7:33 am

    ECB’s Bini Smaghi: Economic Recovery Uncertainty, Inflation Risks Increase

    Japan’s Credit Rating Cut to AA- by S&P on Debt Load

    Davos Seeks `Shared Norms’ as Reality Turns Grim on West

    Gold Declines as Investor Demand for Wealth Protection Wanes

    U.S. Stock Futures Edge Up Before Earnings Deluge, Data

    U.S. Treasury Notes Rise Before Fed Prepares to Buy Notes After Japan Downgrade

    United Continental, US Airways Surge as Profits Top Estimates Amid Demand

    Nokia Sags on Weak Outlook, 16% Profit Drop

    ConocoPhillips Profit Climbs on Refining, Oil Prices

    Lilly Fourth-Quarter Profit Increases More Than Analysts Estimated

    Nielsen, Demand Media IPOs Soar in Debuts

    Leigh Drogen: Group Buying Is A Revolution, Not a Bubble

    Greatest Ad Placement Ever