Archive for February, 2017

  • The Streak Ends
    , February 28th, 2017 at 5:05 pm

    After rising 12 days in a row, the Dow finally falls.

  • HEICO Beats and Guides Higher
    , February 28th, 2017 at 4:41 pm

    Also after the bell, HEICO (HEI) reported fiscal Q1 earnings of 59 cents per share. That’s five cents higher than expectations. Net sales grew 12% to $343.4 million.

    Laurans A. Mendelson, HEICO’s Chairman and CEO, commented on the Company’s first quarter results stating, “We are pleased to report exceptional first quarter year-over-year increases in net sales and operating income within both our Flight Support Group and Electronic Technologies Group. These results principally reflect strong organic growth of 8% within both of our operating segments as well as the excellent performance of our well managed and profitable fiscal 2016 acquisitions.

    Cash flow provided by operating activities was strong, increasing 24% to $56.0 million in the first quarter of fiscal 2017, representing 137% of net income, as compared to $45.2 million in the first quarter of fiscal 2016.

    Our total debt to shareholders’ equity ratio was 38.3% as of January 31, 2017. Our net debt to shareholders’ equity ratio was 34.1% as of January 31, 2017, with net debt (total debt less cash and cash equivalents) of $371.4 million principally incurred to fund acquisitions in fiscal 2016 and 2015. We have no significant debt maturities until fiscal 2019 and plan to utilize our financial flexibility to aggressively pursue high quality acquisition opportunities to accelerate growth and maximize shareholder returns.

    He also said the company is considering a stock split. The best news is that HEICO is raising its outlook for this year. Previously, the company expected sales growth of 5% to 7%, and net income growth of 7% to 10%. Now they see sales growth of 6% to 8%, and net income growth of 9% to 11%.

  • Ross Stores Beats and Raises Dividend
    , February 28th, 2017 at 4:16 pm

    After the closing bell, Ross Stores (ROST) reported fiscal Q4 earnings (ending January 28) of 77 cents per share. The deep discounter had said to expect Q4 earnings between 72 and 75 cents per share. Wall Street pegged Q4 at 75 cents per share.

    Quarterly sales rose 8% to $3.5 billion, and comparable store sales were up 4%. For all of 2016, Ross made $2.83 per share. That’s up 13% over last year. Full-year sales rose 8% to $12.9 billion. Comp store sales were up 4%.

    Barbara Rentler, Chief Executive Officer, commented, “We are very pleased with our better-than-expected sales and earnings results for the fourth quarter and fiscal year, especially given our strong multi-year comparisons and the highly competitive and promotional holiday season. Our results continued to benefit from our ability to offer customers great values on a wide assortment of gifts and fashions for the family and the home.”

    Ms. Rentler continued, “Fourth quarter operating margin grew 90 basis points to 13.6% up from 12.7% in the prior year. This improvement was mainly driven by our above-plan sales along with a favorable comparison of packaway-related costs versus last year’s fourth quarter. For the 2016 fiscal year, operating margin increased 40 basis points to a new record of 14.0%.”

    Those are some solid numbers. Ross also approved a new two-year $1.75 billion share buyback program. At the current price, that’s about 6% of their outstanding shares.

    Ross also bumped up their quarterly dividend from 13.5 to 16 cents per share. That’s an increase of 19%. The new dividend is payable on March 31 to stockholders of record as of March 10.

    Now for guidance. Bear in mind that Ross tends to be very conservative with their forecasts. Ross projects full-year 2017 earnings between $3.02 and $3.15 per share. That’s up 7% to 11% over 2016. However, the current fiscal year is 53 weeks long. The company estimates that the extra week adds eight cents per share. Ross sees same-store growth this year of 1% to 2%.

    For Q1, Ross forecasts earnings of 76 to 79 cents per share and comp store sales growth of 1% to 2%. The strikes me as very conservative.

    The CEO said, “There continues to be uncertainty in the political, macro-economic, and retail climates, and we also face our own challenging sales and earnings comparisons. Thus, while we hope to do better, we believe it is prudent to remain somewhat cautious in planning our business for the 2017 fiscal year.”

  • A March Rate Hike May Be in Play
    , February 28th, 2017 at 12:58 pm

    Wall Street has changed its mind about an upcoming rate hike. The futures market is starting to think that a rate hike could come as soon as next month.

    The latest prices put the odds of a Fed rate increase for March at 35.4%. For May, that rises to 53.4%. For June, it’s 70.6%. I’m leaning towards May, but the expectations have certainly shifted.

    I’ve been watching the six-month Treasury. The yield got up to 0.72% today, which is an eight-year high. I realize that 0.72% doesn’t sound like much, and it’s not. But remember that the six-month yielded 0.02% a few years ago.

  • Notes on Today’s Market
    , February 28th, 2017 at 12:36 pm

    The Dow is looking to extend its winning streak to 13 days in a row. Right now, the Dow is down but just by a tiny bit.

    This morning, the government said that the economy grew by 1.9% in real terms in Q4, which is the same as the initial report. This is down from 3.5% growth in Q3.

    We also learned that consumer confidence rose to its highest point in 16 years. For February, Consumer Confidence rose to 114.8. The number for January was revised up to 111.6.

    After today’s close, Ross Stores and HEICO are due to report. This morning, shares of Target got slammed after they announced an earnings miss. Target said they’re adopting a new strategy to become more Walmart-y. In other words, they’ll try to be more competitive for lower end consumers. Target said they’re expecting to make between $3.80 and $4.20 per share this year. Wall Street had been expecting $5.37 per share. The stock is down 12%.

  • Morning News: February 28, 2017
    , February 28th, 2017 at 6:03 am

    Bill Gates Says It’s Too Early For Basic Income, But Over Time ‘Countries Will Be Rich Enough’

    Warren Buffett Thinks Only These Two Newspapers Are Certain to Survive

    Big Business Giants From Microsoft to J.P. Morgan Are Getting Behind Ethereum

    Snap IPO: Why It May Be The Next Facebook

    How Walmart Is Improving Its Pharmacy Service

    Fidelity Slashes Commissions in the Latest Salvo in the Fee Wars

    Priceline Revenue Up 17.4% on Higher Hotel Bookings

    Starbucks to Make Italian Debut With Upscale Roastery Cafe

    JPMorgan Software Does in Seconds What Took Lawyers 360,000 Hours

    Takata Pleads Guilty In Air Bag Scheme, Will Pay $1 Billion In Penalties

    Samsung Group Dismantles Nerve Centre as Chief Faces Bribery Charge Amid Scandal

    Uber Executive, Linked to an Old Harassment Claim, Resigns

    Oscars Mistake Casts Unwanted Spotlight on PwC

    Howard Lindzon: The Pusher of Omaha

    Cullen Roche: The Biggest Myths in Investing, Part 6 – Gold is a Good Portfolio Hedge

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  • The Financial Crisis 10 Years On
    , February 27th, 2017 at 1:29 pm

    You can quibble with an exact starting point for the Financial Crisis, but I’d go with February 27, 2007 — ten years ago today.

    The thing about the Financial Crisis is that it didn’t suddenly begin as one turned on the lights. Rather, several events came together that got worse and worse until…boom!

    Stocks tumbled across the board Tuesday, after declining markets in China and Europe and a steep drop in durable goods orders triggered a massive selloff on Wall Street.

    The Dow Jones industrial average (down 416.02 to 12,216.24) tumbled 416.02 points, its biggest one-day point loss since the day the stock market reopened after the Sept. 11th attacks. On that day, the Dow lost 684.81 points.

    On a percentage basis, the Dow lost about 3.3 percent. The blue-chip barometer has now fallen for five sessions straight.

    The broader S&P 500 (down 50.33 to 1,399.04) index fell 3.5 percent and saw its biggest one-day percentage loss in nearly four years. The S&P 500 also slumped for the previous four sessions.

    The Nasdaq (down 96.66 to 2,407.86, Charts) composite tumbled about 3.9 percent and saw its biggest one-day percentage loss since Dec. 9, 2002, according to early tallies.

    The Russell 2000 (down 31.03 to 792.66) small-cap index lost almost 4 percent.

    Trying to limit the declines, the New York Stock Exchange said it imposed trading curbs as of 1:03 p.m. ET, around the time the Dow slipped 200 points, CNN confirmed.

    Treasury bonds rallied as investors sought a safe place to park their money while the dollar fell. Oil prices inched higher and gold prices fell.

    On the final day of trading in 2012, the S&P 500 was still below its close from February 26, 2007.

  • Barron’s Highlights Axalta
    , February 27th, 2017 at 10:23 am

    In this weekend’s Barron’s, David Englander highlights the smallest stock on our Buy List, Axalta Coating Systems (AXTA). He lays out the case for a 20% rally from here:

    Axalta has a high-quality franchise, with No. 1 or No. 2 positions in various automotive-coating sectors. Notably, it’s the leader in refinishing, a less cyclical business than selling coatings for vehicles that are being assembled. Sales depend on collisions and miles driven, not on production rates.

    Refinishing, which accounts for about 40% of revenue, is expected to grow in the next year, a beneficiary of the more than 1.2 billion vehicles on the road, globally. Axalta draws another 40% of its revenue from coatings for new vehicles.

    On the basis of enterprise value to estimated Ebitda (earnings before interest, taxes, depreciation, and amortization), Axalta trades at a 10 times multiple, which looks inexpensive compared with coating peers. PPG Industries (PPG), for example, fetches 11 times.

    One bull on the stock, analyst Mike Sisson at KeyBanc Capital Markets, thinks a 12 multiple is reasonable. He values Axalta shares at $35. Using the same multiple on 2018 estimates, the stock could be worth more than $38.

  • The Treasury Is Considering 50-Year Bonds
    , February 27th, 2017 at 9:14 am

    Treasury Secretary Steven Mnuchin recently said that the Treasury is considering floating 50-year Treasury bonds. I think this would be a good idea.

    Generally speaking, the larger your debt is, the longer you want to roll it out. Now that Uncle Sam’s debt is at $20 trillion, we should think about longer durations. Also, interest rates are still historically low. This would be a good opportunity to lock in low yields.

    Having a liquid market is valuable, but the market is telling other bond issuers that it wants lots more long-term debt. The Treasury should sell more 30-year bonds, and even 50-year or 100-year bonds to meet that demand.

    Ireland, Belgium and Mexico have recently sold 100-year bonds. Ford, Disney and Coca-Cola have sold 100-year bonds as well. The Canadian Pacific Corp. sold a 1,000-year bond.

    And many governments, such as the U.K., have issued bonds that have no maturity date at all: Called perpetuals or consols, these bonds continue paying a coupon year-after-year until the principal is redeemed. The U.K. recently redeemed the consols that had financed its earlier wars against Napoleon and the kaiser.

    Who buys these long bonds? Mostly pension funds and insurance companies that want to match the maturities of their assets and their liabilities. The U.S. government should also think about issuing more long-term bonds to match the timing of future Social Security and Medicare payments.

    Kudos to Mnuchin and Trump for thinking of the taxpayer first.

    From a data perspective, I’d be curious to see if there’s any significant difference in the yield of a 30-year and 50-year bond.

  • The Dow Makes It 11 in a Row
    , February 27th, 2017 at 9:01 am

    Late in the day on Friday, the Dow staged a great comeback to close higher for the 11th day in a row.