Archive for July, 2011

  • The 7-1/2 Year TIPs Yield is Negative
    , July 29th, 2011 at 2:03 pm

    Wow! Check out the yield on the Treasury Inflation Protected security that’s due in January 2019. In February, it yielded 1%. Now the yield is slightly negative.

  • Moog Earns 73 Cents Per Share
    , July 29th, 2011 at 11:38 am

    Moog ($MOG-A) beat by three cents and they raised guidance. They see earnings coming in for this year (ending September 2011) at $2.85 per share, and at $3.25 per share for next year.

    Moog Inc.bizWatch Moog Inc. Latest from The Business Journals M&T, Moog, Try-It juiced by NYPATripathi, Zemsky to head area economic panelMoog set to work on Boeing project Follow this company reported third-quarter earnings improved 14 percent as the space and defense manufacturer upped its guidance for 2011.

    Net income climbed to $33.8 million, or 73 cents per share, compared to $29.2 million, or 64 cents per share, last year.

    Third-quarter sales rose 9 percent to $583 million from last year’s $537 million.

    Analysts had anticipated EPS of 70 cents on revenue of $569.4 million.

    East Aurora-based Moog (NYSE: MOG.A, MOG.B), which operates segments in commercial aircraft, space and defense, industrial systems, components and medical devices, adjusted its annual sales to $2.3 billion, with net earnings of $132 million and earnings per share of $2.85, up 21 percent from last year.

  • Q2 GDP Growth = 1.3%
    , July 29th, 2011 at 9:04 am

    It was another bad quarter for the economy. For the second three months of the year, the economy grew by just 1.3% in real terms. On top of that, growth for the first quarter was revised down to just 0.4%.

    The first estimate of the economy’s benchmark indicator for the second quarter showed growth was supported largely by business investment and exports.

    But consumer spending, a big engine for the U.S. economy, made a much smaller contribution to growth. Spending edged up by an annualized rate of 0.1% in April through June, the weakest it has been in two years, after a 2.1% gain in the first quarter.

    Americans have had to spend more for gasoline amid higher prices, leading them to cut purchases for other things. Sales last month by U.S. retailers excluding car and parts dealers were unchanged, with declines reported by furniture stores; electronics and appliances stores; restaurant and bars; health care stores; and sporting goods, hobby, book, and music stores.

    Also restraining consumers is a high jobless rate. Big companies have been announcing job reductions. At Delta Air Lines Inc., for instance, more than 2,000 staff have accepted voluntary redundancy job cuts. The carrier, stung by fuel prices, announced a 58% drop in second-quarter earnings.

    Here’s a look at real GDP growth during the first term of some recent presidents. Note that the line is extended back to include the election year preceding the presidential term.

    The government also revised the quarterly GDP series. Here’s what the old and new series look like side-by-side. We still haven’t surpassed the previous GDP peak.

  • CWS Market Review – July 29, 2011
    , July 29th, 2011 at 8:37 am

    As I write this on Friday morning, Wall Street is still very worried about the debt ceiling debate. The S&P 500 has dropped four days in a row and the index finished Thursday at its lowest level in a month.

    What’s especially disturbing is that the market has been routinely weak going into the closing bell. For the last seven-straight sessions, stocks have fallen in the last hour of trading. This tells me that traders are terrified of holding stocks overnight when any unexpected political news may break.

    I had hoped that Congress would have been spurred to action by constituents who have seen their retirement portfolios dwindle due to this political bickering. I still believe that this impasse is similar to the NFL lockout—there’s simply too much money at stake not to reach a deal.

    The problem is that even though this mess started out as political theater, it’s now having a real world impact. The U.S. dollar, for example, is getting a super-atomic wedgie on world markets. The greenback is near a post-war low against the Japanese yen and it’s at an all-time low against the Swiss franc. Consider that forty years ago, one Swiss franc was worth 25 U.S. cents. Ten years ago, it had climbed to 57 cents. Today, it’s worth $1.25.

    Even our Buy List companies are starting to make noises. Alan Mulally said that the debt ceiling fight will impact Ford’s ($F) business. AFLAC’s ($AFL) CFO said on the company’s conference call, “We gotta get the stupid debt deal done in the U.S., for one thing.” I couldn’t agree more. Companies should be focused on making money, not worrying about Congressional votes. As crazy as this sounds, even Dunkin’ Doughnuts ($DNKN) referenced the debt ceiling debate when it discussed its IPO pricing. This is getting out of hand.

    Investors around the world are clearly concerned. Bloomberg notes that credit-default swaps that insure one-year U.S. Treasuries have risen from 23 basis points at the beginning of the year to 46 basis points last week and to 80 basis points today. On top of that, gold hit an all-time record high of $1,631.20 on Wednesday. So far this year, the Gold ETF ($GLD) is up 13.4% which is four times the S&P 500.

    The $VIX, the Volatility Index, closed Thursday at 23.74. That’s the highest level since mid-March during the most intense period of the Libyan Uprising. Just three weeks ago, the $VIX was under 16. This is clear evidence of investors’ growing uncertainty.

    What’s especially frustrating is that corporate earnings continue to be very good. Sixty percent of the companies in the S&P 500 have now reported second-quarter results. So far, 71.3% of the reports have beaten estimates, 10.9% have reported inline and just 17.8% have missed estimates. These are impressive numbers. The S&P 500 is on track to report earnings of $24.78 for the second quarter which will be an all-time record. Full-year earnings of $100 looks very possible, and that means the S&P 500 is going for 13 times this year’s earnings. Those are strong factors in favor of equities.

    However, the most important phenomenon impacting the market lately has been the wide divergence between winners and losers. Simply put: A rising tide is not lifting all boats. In fact, not only is the tide drifting out to sea but it’s capsizing a lot of boats along the way and only a select few are doing well.

    Over a recent 20-day stretch, barely more than one-third of stocks were beating the overall market. This is the anti-Wobegon market—most stocks are below average. The only gains are concentrated in just a few areas. Cyclicals and financials have been getting slapped silly but tech stocks have been doing very well. Since June 20, Apple ($AAPL) and Google ($GOOG) are both up 25%. My take is that this widening gap between winners and losers reflects Wall Street’s impatience with the market. I share this impatience but I refuse to abandon my game plan of sticking with high-quality stocks.

    Now let’s take a look at some of the recent earnings reports from the stocks on our Buy List. AFLAC ($AFL) reported second-quarter earnings of $1.56 per share which was less than I was expecting but it was more than Wall Street’s consensus and it was within the company’s range. Best of all, the market liked what it saw. At one point, shares of AFLAC were up over 7% on Thursday.

    Despite all the worries that the market had about AFLAC (European debt, Japanese earthquake) the company came through with another strong quarter. This really shouldn’t be a surprise because it’s exactly what they told us to expect. AFLAC should have little trouble hitting its full-year earnings forecast of $6.09 to $6.34 per share.

    AFLAC also raised its growth target for next year from 0% – 5% to 2% – 5%. That’s not a lot but the low end is still more growth than you’d get from a five-year Treasury. I can’t say when this stock will rally but the facts are that their business is doing well and the stock is cheap. AFLAC is an excellent buy up to $50 per share.

    I’ve often said that Nicholas Financial ($NICK) is one of my favorite stocks on the Buy List. As far as I know, I’m the only one who follows it. The company once again had a very good earnings report. For the second quarter (the first of their fiscal year), NICK earned 44 cents per share. All the numbers look good here. I think NICK can easily earn $1.70 for this calendar year which means the stock is going for less than eight times earnings. The company has said that it’s open to an acquisition but I wouldn’t support any buyout less than $17 per share. NICK is a truly excellent value.

    In last week’s issue of CWS Market Review, I said that Wall Street’s earnings forecast for Reynolds American ($RAI) was probably too high. I was right; the company reported earnings of 67 cents per share which was four cents shy of forecasts. But I didn’t expect the stock to get dinged like it did. Well…the silver lining is that the dividend (which is very safe) now yields 6%. Despite the earnings miss, Reynolds bumped up the low-end of its full-year earnings forecast. This is a very good stock for investors looking for income.

    By the way, I always pay close attention to the direction of full-year forecasts. Bear in mind that companies aren’t required to do this. Bespoke Investment Group points out that the number of companies who refuse to provide any sort of guidance has grown dramatically this quarter. Again, I think this reflects companies’ lack of visibility for the next few quarters.

    Deluxe Corp. ($DLX), one of our quieter stocks, had an especially good earnings report on Thursday. The company topped its own forecast, plus it raised its full-year guidance. Unfortunately, DLX has been one of the many stocks left behind recently. Even after surging 3.5% on Thursday, shares of DLX still yield 4.2%. Deluxe is a good value below $25.

    Fiserv ($FISV) reported earnings of $1.13 per share which was five cents more than Wall Street’s consensus. The company also reiterated its full-year forecast of $4.42 to $4.54 per share. This is a solid stock. Fiserv is a good buy up to $62 per share.

    Gilead Sciences ($GILD) was one of the stocks I had become most concerned about. The company missed earnings by 10 cents per share three months ago. This time around, Gilead reported earnings of $1 per share which was one penny more than estimates. The company reiterated its full-year sales goal of $7.9 billion to $8.1 billion. I’m happy to see that shares of Gilead have rebounded lately but I don’t think this one is worth chasing. GILD isn’t worth buying unless it falls below $38 per share.

    I was anticipating a big quarter from Ford ($F). The company earned 65 cents per share which was five cents more than where the Street was. Still, I thought it could have been as high as 70 cents per share. Ford is continuing to improve and I like that it’s paying down debt. This is one of the few purely cyclical stocks that I like. Unfortunately, Ford is swimming against a strong anti-cyclical tide. At this price, however, Ford is a good buy.

    That’s all for now. The big GDP report is due out later today. Plus, earnings reports from Wright Express ($WXS) and Becton, Dickinson ($BDX) are due out next week. 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

  • Morning News: July 29, 2011
    , July 29th, 2011 at 8:33 am

    Greece to Get September Bailout From Bilateral Loans

    Spain Placed on Downgrade Review by Moody’s

    Bunds Up as Euro Zone Crisis Focus Shifts to Spain

    Euro Zone Inflation Falls, May Help Pause Rate Hikes

    Gold Slips

    U.S. House Bids to Salvage Boehner Debt Bill

    Debt Ceiling Impasse Rattles Short-Term Credit Markets

    Treasuries Advance as Political Budget Deadlock Spurs Demand for Refuge

    U.S. Balance Now Less Than Apple Cash

    BSkyB Plans Share Buyback and Higher Dividend

    Exxon 2Q Earnings Rise 41%

    Merck 2Q Profit Surges On Tax Benefit, To Cut More Positions

    Starbucks Posts 34% Profit Jump

    Total Hit by Weaker Production

    Stone Street: The Best Laid Plans of Mice & Men: YOKU Summary Thesis Update

    Todd Sullivan: A $10 Billion “Disappointment”

    Be sure to follow me on Twitter.

  • Q2 Earnings Season at the Midway Point
    , July 28th, 2011 at 11:12 am

    Bloomberg has a summary of earnings season. Of the 500 companies in the S&P 500, 252 have reported so far.

    Breaking it down, 72.6% have beaten expectations, 11.1% came inline and 16.3% missed earnings. Earnings are tracking for $24.93 which is a 15.79% increase over the $21.53 the S&P 500 earned in the second quarter of 2010.

  • AFLAC Up 6.3%
    , July 28th, 2011 at 11:00 am

    As it turns out, what AFLAC ($AFL) had been telling us (repeatedly) for the past few months was indeed correct — the company isn’t going under. The earthquake in Japan failed to have a major impact on their business. Also, the company has gradually separated itself from the problems in Europe.

    The shares are currently up 6.3% today. I don’t see why this stock is going for less than $50. Of course, markets have been known to be irrational.

  • Deluxe Earns 75 Cents Per Share
    , July 28th, 2011 at 8:48 am

    The earnings reports are still coming in. Deluxe ($DLX) just reported adjusted quarterly earnings of 75 cents per share. Quarterly revenue dropped 0.5% to $346.3 million which was slightly better than Wall Street’s forecast. The company hed been expecting EPS to range between 66 cents and 71 cents per share. Wall Street was expecting 71 cents per share.

    For the third quarter, Deluxe expects adjusted earnings of 71 cents to 77 cents per share on revenue of $353 million to $361 million.

    Deluxe also raised their full-year outlook from $2.90 – $3.10 per share to $3.00 – $3.15 per share. Currently, Wall Street’s full-year forecast is at $3.03 per share.

    Here are some second-quarter highlights from the earnings report:

    Revenue for the quarter was $346.3 million compared to $348.0 million during the second quarter of 2010 with growth in Small Business Services partially offsetting declines in Financial Services.

    Gross margin was 65.1 percent of revenue compared to 65.0 percent in 2010. Favorable impacts from price increases and the Company’s continued cost reduction initiatives were offset by increased material costs and delivery rates.

    Selling, general and administrative (SG&A) expense decreased $3.2 million in the quarter compared to 2010. Increased SG&A expense associated with acquisitions, brand awareness campaigns, and investments in revenue generating initiatives were more than offset by benefits from continuing to execute against cost reduction initiatives.

    Operating income in 2011 was $64.0 million compared to $63.2 million in the second quarter of 2010. Restructuring and transaction-related costs were $5.0 million in 2011 versus $2.7 million in 2010. The 2011 costs were primarily attributable to the Company’s on-going cost reduction initiatives and the April Banker’s Dashboard acquisition. Operating income was 18.5 percent of revenue compared to 18.2 percent in the prior year.

    Reported diluted EPS increased $0.03 from the prior year driven by improved operating performance and a lower effective tax rate primarily from lower state taxes in 2011.

    This is a very good earnings report. The stock is going for less than eight times earnings and the current dividend yield is 4.33%.

  • Morning News: July 28, 2011
    , July 28th, 2011 at 8:07 am

    Gold Steadies as Dollar Firms, U.S. Debt Talks Eyed

    Stocks, Treasuries Slide on U.S. Debt Concern; Dollar Rallies

    House Debt-Limit Vote Sets Stage for Showdown

    Treasury to Weigh Which Bills to Pay

    Investors, Worried About Debt Talks, Look for Havens

    Japan’s Tech Firms Face Weak TV Demand, Keep Forecasts

    Sony Slashes Annual Profit Forecast After Posting Quarterly Loss

    DuPont Raises Forecast as Profit Beats Estimates

    Visa Beats Estimates as Spending Increases

    Time Warner Cable Profit Jumps 23%

    C.Suisse Sees Robust CoCo Market Despite FSB Snub

    Thomson Reuters Markets Revenue Inches Up in Q2

    Alcatel-Lucent Shares Fall On Mixed Results

    Starwood 2Q Net Climbs 15% As Revenue Measure Rises; Raises Year Forecast

    Conoco’s Empire Builder Rips It Apart

    Phil Pearlman: Juniper Networks and Cisco Systems In the Same Boat After All

    James Altucher: Mouse in the Salad

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  • AFLAC Earns $1.56 Per Share of Operating Earnings
    , July 27th, 2011 at 4:26 pm

    AFLAC ($AFL) just reported second-quarter operating earnings of $1.56 per share which is two cents more than Wall Street’s consensus. That’s a 15.6% increase over last year’s second quarter. For the first half of 2011, AFLAC has earned $3.19 per share in operating profits.

    AFLAC reiterated its full-year EPS guidance of $6.09 to $6.34. The company also gave third-quarter guidance of $1.54 to $1.60 per share.

    The best news however, is that the company expects earnings next year to rise by 2% to 5%. If you recall, in May AFLAC had said that it expected earnings to grow between 0% and 5% in 2012. It’s not a big increase but it is in the right direction.