Posts Tagged ‘afl’
AFLAC Earned $1.48 Per Share for Q4
Eddy Elfenbein, February 5th, 2013 at 7:24 pm
After the closing bell, AFLAC ($AFL) reported Q4 operating earnings of $1.48 per share which matched Wall Street’s estimate. Three months ago, the company told us to expect earnings to range between $1.46 and $1.51 per share, so they were squarely in the ballpark.
A lot of people are concerned about the impact of the weaker yen on AFLAC’s bottom line. It turns out the yen dinged their earnings by four cents per share last quarter. It hurts, but it’s not that bad. On a currency neutral basis, earnings rose by 4.8% from a year ago.
For the full-year, operating earnings came in at $6.60 per share. The full-year earnings were actually boosted by a penny per share thanks to the yen/dollar rate. Earnings for the year rose by 5.1%.
As far as this year is concerned, CEO Daniel P. Amos said:
I want to reiterate that our objective for 2013 has not changed: To increase operating earnings per diluted share 4% to 7%, or approximately $6.86 to $7.06 per share, on a currency neutral basis. Therefore, if the yen/dollar exchange rate averages 90 yen for the full year, it’s likely operating earnings per diluted share will be $6.37 to $6.57 for 2013. I would point out that 2013 earnings comparisons to 2012 will be more difficult because earnings in 2012 were significantly better than we originally anticipated.
In the after-hours market, the stock is off about 1.6%.
Here’s a look at how much the yen has plunged over the last four months.
CWS Market Review – February 1, 2013
Eddy Elfenbein, February 1st, 2013 at 7:20 am
“There are two times in a man’s life when he shouldn’t speculate:
when he can afford to and when he can’t.” – Mark Twain
Remember the panic about the Fiscal Cliff? And the Debt Ceiling? And the Sequester? And about a dozen other things the financial media told us—insisted—that we simply had to worry about?
Well, here we are a few weeks later. The Dow Jones Industrial Average just closed out its best January in 19 years. The Wilshire 5000, the broadest measure of the U.S. stock market, is just below its all-time high.
Fortunately, we stuck by our strategy and ignored the noise-making scaremongers on TV. What’s perhaps more impressive is how low the market’s volatility has been. Consider this: On Wednesday, the S&P 500 had a rather minor loss of just 0.39%, and that was its worst loss of the year! Between January 9th and January 25th, the S&P 500 rallied 12 times in 13 sessions, and the only downer was a miniscule 0.09% drop.
But I have to be frank. The rally is beginning to look a little tired. For example, the S&P 500 tried to break 1,510 a few times this week and wasn’t able to bust through. That’s not a good sign. I think it’s very possible the bears may take back control of Wall Street in February. Nothing too serious, mind you, but just enough to scare the bulls away.
This was a mixed week for our Buy List stocks. The earnings reports were quite good, but some of our stocks, like Ford Motor ($F) and Harris ($HRS), didn’t respond well. That’s frustrating, but as you know, we’re in this game for the long haul.
We also had a negative GDP report for Q4, and that spooked a lot of folks. As odd as it may sound, the negative report really wasn’t that bad. When you look past the plunging military spending, the economy is better than it looks, and we’re poised for decent growth in 2013. The other big news this past week was the Fed meeting. We learned that Bernanke & Co. are firmly committed to keeping the money spigots going for a while longer. Some folks misread the December minutes, believing that the Fed was going to pull back soon. Sorry, not a chance.
Now let’s take a look at some of our recent Buy List earnings reports.
Ford Is a Buy up to $15 per Share
In last week’s CWS Market Review, I told you to expect a big earnings beat from Ford Motor ($F). Technically, I was correct. The company earned 31 cents per share, which was 24% higher than the 25 cents per share that Wall Street was expecting.
Despite the earnings beat, Ford warned that its losses in Europe this year would be worse than it had anticipated. Traders overreacted (of course, or they wouldn’t be traders) and brought the stock back below $13 per share. Let me be clear that Ford’s business is doing very well, especially in North America. Their pre-tax earnings in North America soared 110% from Q4 of 2011.
The New York Times described Q4 as a “microcosm of Ford’s recent overall performance.” In other words, strong America, weak Europe. But Ford’s strength in North America didn’t come about quickly. It was part of a painful restructuring process that’s only now paying dividends (literally, as Ford doubled its payout three weeks ago). Ford is employing that same turnaround strategy in Europe today, and the good news is that they’re far ahead of General Motors.
Don’t worry about the pullback in Ford. If you don’t already own it, the stock is a very good deal, especially if you can get it below $13. Thanks to the higher dividend, Ford currently yields 3.1%. I rate Ford a solid buy up to $15 per share.
Lower Guidance from Moog and Harris
On Tuesday, Harris ($HRS), the communications equipment company, reported earnings of $1.25 per share for the December quarter, which is the company’s fiscal Q2. This was five cents ahead of Wall Street’s consensus. Quarterly revenue dropped from $1.31 billion to $1.29 billion.
While Harris’s results were good, the news that has me concerned is that the company lowered its full-year guidance. I find that I often tell investors not to worry about this, or don’t worry about that. But lower guidance is indeed something to worry about. (By the way, I’m very glad we ditched JoS. A Bank from this year’s Buy List. The stock got pounded for a 15% loss on Monday after it gave an ugly earnings warning.)
Previously, Harris saw full-year earnings ranging between $5.10 and $5.30 per share. The company lowered that range by 10 cents per share at both ends. Harris now sees earnings ranging between $5.00 and $5.20 per share. So really, the guidance isn’t that much lower. We have to put this in context of a stock that closed the day on Thursday at $46.20, which is about nine times earnings.
Harris now sees 2013 revenue dropping by 2% to 4%. The previous range was flat to negative 2%. The company blamed the lower guidance on “slower government spending resulting from growing budget uncertainty.” It’s still early in the year, so I’m not giving up on Harris, but I want to see some improvement later this year. Harris remains a good buy up to $53.
Moog ($MOG-A) also joined the lower-guidance club, and like Harris, the news is disappointing but hardly dire. Last Friday, Moog lowered its full-year guidance from a range of $3.50 to $3.70 per share to $3.50 to $3.60 per share.
John Scannell, Moog’s CEO, noted that the company is off to a slow start this year, “The weakness in the major economies around the world is affecting our industrial business. On the other hand, the aircraft market is strong. We have moderated our forecast for the year slightly, but we are still projecting growth in both sales and earnings in 2013, despite the headwinds in our industrial markets.” Interestingly, Scannell’s comment reflects the same news about lower defense spending that we saw in the GDP report.
Moog’s quarterly revenues were up 3% to $621 million. Net earnings dropped 6% to $34 million. On a per-share basis, Moog made 75 cents last quarter. Since no one follows them, I can’t say if that beat or missed expectations. The stock still looks good for the long-term. Moog is a good buy up to $46 per share.
Profit Machine at Nicholas Financial Continues to Hum
On Wednesday, Nicholas Financial ($NICK), our favorite used-car loan company, reported quarterly earnings of 37 cents per share. But the results were distorted by taxes on their ginormous dividend late last year. Not including that, Nicholas earned 43.6 cents per share. Frankly, that’s a bit lower than I was expecting (around 45 cents per share), but not by much. I’m not a fan of NICK’s escalating operating costs, and I hope that doesn’t become a problem.
Our larger thesis for NICK still holds: that the company can rather easily churn out 45 cents per share every quarter. As long as rates are low and the economy is improving, NICK will do well. The math is pretty straightforward. Any company that’s pulling in, say, $1.80 per share per year should be going for at least $15, and possibly closer to $17. I think investors see NICK as a shaky subprime play. It’s not. In fact, NICK has gotten more conservative over the past few years. Like Ford, NICK pulled back below $13. Again, don’t be alarmed. NICK is a solid buy up to $15.
One more late earnings report. After the close on Thursday, CR Bard ($BCR), the medical technology firm, reported earnings of $1.70 per share, which beat consensus by three cents per share. Bard made $6.57 per share for all of 2012, which is up from $6.40 per share in 2011. I like that kind of growth. The downside is that Bard warned that 2013 will be rough, but they see extra-strong growth coming in 2014 and beyond. For now, I’m lowering my Buy Price on Bard to $102.
More Buy List Earnings Next Week
We’re now heading into the back end of earnings season, and the results have been good so far. The latest numbers show that of 237 companies in the S&P 500 that have reported, 74% have beaten earnings expectations, and 66% have beaten sales expectations.
Next week, we have four more Buy List earnings reports due: AFLAC ($AFL), Cognizant Technology Solutions ($CTSH), Fiserv ($FISV) and WEX Inc. ($WXS). I’m curious to hear what AFLAC has to say. Three months ago, they told us that Q4 earnings will range between $1.46 and $1.51 per share. That means full-year 2012 earnings between $6.58 and $6.63 per share. The problem is that AFLAC’s bottom line has probably been squeezed by the low yen. The question how is, how much? AFLAC has said to expect 2013 earnings to rise by 4% to 7%, but that’s on a currency-neutral basis. I like AFL up to $57.
Cognizant publicly said they expect earnings of 91 cents per share, and their forecast is usually very close. For this year, I think they can make $4 per share. I’m looking to see what kind of guidance they provide for 2013. CTSH remains a good buy up to $83.
Two weeks ago, Fiserv guided lower for Q4 but higher for all of 2013. I think this stock has some room to run. Fiserv is a good buy up to $88. Before I go, I wanted to highlight Microsoft ($MSFT). The shares are an especially good buy if you can get them below $28.
That’s all for now. Stay tuned for more earnings reports next week. We’ll also get important reports on factory orders and productivity. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!
CWS Market Review – December 28, 2012
Eddy Elfenbein, December 28th, 2012 at 8:44 am
“Never buy at the bottom, and always sell too soon.” – Jesse Livermore
The stock market seems to be limping towards the finish line. Thursday was the fourth-straight down day for the S&P 500. We’ve nearly given back one month’s worth of gains in the last four days. This was the worst four-day Christmas stretch in at least 60 years. Still, the market has had a good year, and the indexes are well above where they were six weeks ago.
There was some excitement late in the day on Thursday as stocks spiked after the news that House Speaker John Boehner is going to convene a Sunday session of the House of Representatives. In one hour, the U.S. equity markets gained $150 billion in market value. This appears to be one final attempt to resolve the dreaded Fiscal Cliff before the end of the year. I’ll have more to say on that in a bit (here’s a sneak preview: ignore the hype).
In this week’s CWS Market Review, we’ll take a closer look at what’s impacting the market right now. There’s a lot going on just below Wall Street’s radar. For example, the Japanese stock market is exciting for the first time in more than two decades. Implied volatility is also slowly creeping higher. I’ll also have more to say on the 2013 Buy List, which will go into effect on Wednesday. But first, let’s look at all the hot air about the Fiscal Cliff.
Don’t Buy the Fiscal Cliff Hype
I haven’t said much about the vastly over-hyped Fiscal Cliff story because I thought this was a distraction for investors. I still believe that today. The American people have just gone through a long election campaign, and I don’t believe they have much patience for a drawn-out battle over taxes.
I haven’t addressed this phony issue in detail because I think it’s much ado about nothing. Or rather, it’s a great deal of bluster and posturing about nothing. The latest ruckus merely means that we might to have to wait until January for a compromise. Big deal.
Let’s be clear about the facts—there’s no point of no return. None at all. It’s really more of a fiscal slope than a cliff. Waiting a few days into January isn’t going to push us into a recession, a fact which ought to put to rest the silly notion of a Fiscal Cliff. And I won’t even go into those absurd countdown clocks on CNBC. I suspect that Fiscal Cliff worries are harming consumer confidence somewhat, but that’s about it. Ideally, I wish we had a better-functioning political system that avoided such theatrics, but unfortunately we don’t.
As I mentioned before, the latest news is that House Speaker John Boehner will convene the House of Representatives for a special session this Sunday. Just that announcement caused the S&P 500 to leap 15 points in a single hour late Thursday. That should tell you that the market wants this nonsense resolved. I should caution investors to expect, before this mess ends, one or two days with sharp drop-offs (but no more than 2%) as the political players try to sway the markets to their side. We all know how the market loves to be the drama queen.
Events have gotten so bizarre that the markets actually rallied when Senator Scott Brown posted on his Facebook account that the White House was proposing a last-minute offer. The markets then dropped after journalist John Harwood tweeted that the White House was denying Brown’s Facebook post. Our political system has been reduced to communicating via tweets and Facebook? This is just too silly to comprehend. I’m hardly an expert on political matters, but I think President Obama will ultimately be able to get most of what he wants. There’s too much to lose if this drama drags on.
All Eyes Are Focused on the December Jobs Report
The economic news continues to be—not so horrible. This week, we learned that new home sales rose 4.4% in November. That’s the fastest rate in two-and-a-half years, and new homes sales are up 15.3% over the last 12 months. On Wednesday, the Case-Shiller Index indicated that home values are up 4.3% from last year.
On the jobs front, initial unemployment claims continue to drop. The latest report showed 350,000. Since there tends to be a lot of “noise” in this report, economists prefer to focus on the four-week average. Well, that just hit a five-year low. This also means that the effects of Hurricane Sandy have probably passed.
We’ll learn a lot more about the jobs market next Friday, when the Labor Department releases the December jobs report. Remember that the Fed has specifically said that it expects rates to remain low until the unemployment rate hits 6.5%. We’re currently at 7.7%.
Wall Street currently forecasts that real GDP growth for Q4 will be pretty anemic. Goldman Sachs recently lowered their forecast to just 1% growth. But much of this is a short-term concern because it’s due to firms working off their inventories. In layman’s terms, companies aren’t building a lot of new stuff. Instead, they’re letting their customers buy what’s left on their shelves. This is probably due to the uncertainty coming from Washington. But at some point, companies will want to restock their shelves, so they’ll get back to building again.
We’re only a few weeks from the start of earnings season. Wall Street currently expects earnings of $25.33 for the S&P 500 (the earnings number adjusted to the index). As recently as six months ago, analysts were expecting $28. Despite the slashed estimates, the current forecast would be an increase of 6.74% over last year’s fourth quarter. It would also be the highest growth rate in three quarters and perhaps the first evidence that not only are earnings growing, but the rate of growth is increasing. For all of 2013, Wall Street’s consensus is for earnings of $112. 82. That means the S&P 500 is currently going for just over 12.5 times forward earnings. That’s not a bad deal.
The Yen’s Impact on AFLAC
In the last six weeks, the Japan Nikkei has soared nearly 20%. It’s been two decades since investors were excited about Japan. Put it this way: the index is still 73% below its all-time high from 23 years ago. That’s about the time that The Simpsons premiered in the United States. The game changer for Japan is that the new Prime Minister, Shinzo Abe, wants to force the Japanese Fed to be more aggressive in fighting deflation.
The effect of this is that the Japanese yen has lost ground against the U.S. dollar, and it will probably continue to do so. I wanted to alert investors that a weaker yen takes a bite out of AFLAC’s ($AFL) earnings since the company does most of its business there. It breaks down something like this: Every additional yen in the yen/dollar exchange rate costs AFLAC about five cents per share in annualized operating earnings. In other words, the weaker yen hurts AFLAC, but it’s not a back-breaker. I like AFLAC a lot, and it’s done well for us in 2012. I’m looking forward to another good year in 2013. AFLAC is an excellent buy up to $57 per share.
The 2013 Crossing Wall Street Buy List
With just two trading days left, our 2012 Buy List is up 14.02% for the year, while the S&P 500 is up 12.76%. Including dividends, we’re up 16.47%, while the S&P 500 is up 15.33%.
Once again, here are the 20 stocks for our 2013 Buy List:
Bed Bath & Beyond ($BBBY)
CA Technologies ($CA)
Cognizant Technology Solutions ($CTSH)
CR Bard ($BCR)
FactSet Research Systems ($FDS)
Harris Corporation ($HRS)
JPMorgan Chase ($JPM)
Nicholas Financial ($NICK)
Ross Stores ($ROST)
Wells Fargo ($WFC)
WEX Inc. ($WXS)
Please note that I had the incorrect ticker symbol for WEX Inc. in last week’s email. The correct ticker symbol is WXS.
I want to address a few points that people have asked since I announced the Buy List changes last week. For those of you who have followed for a while, the Buy List changes weren’t a big surprise, and I supposed that’s how it should be. A few of you even guessed my changes correctly ahead of time. Still, some of you were surprised that Bed Bath & Beyond ($BBBY) is on the list. I know BBBY disappointed us with their lower guidance, but I’m willing to give them the benefit of the doubt. They’ve weathered worse storms.
Some of you were surprised to see Microsoft ($MSFT) on the Buy List. This is where I should explain that oftentimes good investments look a bit banged up on the outside. After all, that’s why the price is so good. I agree with Microsoft’s critics, but at $27 and with a 3.4% dividend, the stock is worth owning.
Two of our new stocks, Cognizant Technology Solutions ($CTSH) and FactSet Research Systems ($FDS), are former members of the Buy List. At $73, I admit that CTSH is rather pricey, but I’m not a pure value investor. There are occasions where we need to pay for strong growth, and I think this is one.
With the addition of Wells Fargo ($WFC), we now have two large banks on the Buy List (the other being JPM). Of course, if I hadn’t deleted Hudson City, we were going to get shares of M&T Bank anyway. The Buy List is slightly tilted toward financials, but I don’t believe unreasonably so. Based on next year’s earnings estimate, the financial sector is valued 10% less than the market as a whole. There are some bargains in this sector. In fact, I doubt many active investors will be able to beat the Financial Sector ETF ($XLF) next year.
I’ll have my Buy Below prices for the five new stocks in next week’s CWS Market Review. Until then, you can consider all five to be very good buys at their current prices. I’m also raising my Buy Below prices on Ford ($F) to $15, on Moog ($MOG-A) to $43, and on Harris ($HRS) to $53. On Thursday, Ford touched an eight-month high. Six weeks ago, I highlighted Moog as an outstanding buy, and the shares have rallied 18% since then.
That’s all for now. The market will be closed on Tuesday for New Year’s Day. I’ll crunch the numbers and post the complete year-end Buy List stats then. Remember, the 2013 Buy List will take effect at the open on Wednesday. We’ll also get the big jobs report on Friday. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!
Nicholas Financial = $14.12
Eddy Elfenbein, December 12th, 2012 at 9:46 am
Nicholas Financial ($NICK) is currently at $14.12 this morning. I don’t know if it will hold up, but here we are.
I also see that AFLAC ($AFL) has been as high as $54.70 this morning.
CWS Market Review – December 7, 2012
Eddy Elfenbein, December 7th, 2012 at 6:07 am
“If you can look into the seeds of time,
And say which grain will grow and which will not,
Speak then to me.”
– Macbeth, Act 1, Scene 3
And to me, too, while you’re at it. After a nice recovery since mid-November, the S&P 500 has settled into a narrow trading range. For the last seven days running, the index has closed between 1,407 and 1,417. Chart watchers generally think this is a positive sign because stocks haven’t immediately surrendered their gains and dipped to a new low. My advice for investors is to ignore this silly Fiscal Cliff alarmism and expect a strong rally ahead. I continue to be bullish on the market and think we’ll break 1,500 sometime early in 2013.
Stay Tuned for the 2013 Buy List
Before I get into today’s CWS Market Review, I want to announce that I’ll unveil next year’s Buy List two weeks from today, on Friday, December 21, 2012. As usual, the new Buy List will have 20 stocks, and as usual, I’ll take off five stocks and add five new ones. We try to keep our turnover low. I always unveil the new Buy List a few days before the end of the year so no one can claim I’m getting an unfair jump on investors.
Once the changes are made, the Buy List is locked and sealed for the next 12 months and I’m not allowed to make any changes until next December. I’ll start tracking the new list at the start of trading on January 2nd. My purpose with the Buy List is to show investors that with patience and discipline, any investor can consistently beat the stock market with a user-friendly portfolio. I’m very fortunate that we’ve had great success at Crossing Wall Street. If all goes well, 2012 will be the sixth year in a row that we’ve beaten the S&P 500.
The 2012 Buy List So Far
Through Thursday, our 2012 Buy List is up 13.21% for the year (not including dividends), which is slightly more than the S&P 500. I’ll include dividends in the final numbers. The good news is that the second half of the year has been very friendly to us. Remember that you can see exactly how our Buy List is doing at any time during the year at our Buy List page. I try to make investing as transparent as possible. I also have my Buy Below prices there so you’ll know exactly what’s a good entry point.
Let’s look at some of our recent Buy List standouts. Fiserv ($FISV) just broke $80 per share, which is an all-time high. The stock is a 36% winner for us this year. AFLAC ($AFL) finished the day on Thursday at $53.80, which is its highest close since May 17, 2011. I’m a big fan of the duck stock. Sysco ($SYY), one of the most stable stocks on our Buy List, also finished Thursday at an 18-month high. SYY currently yields 3.51%.
How about little Nicholas Financial ($NICK)? The stock dropped sharply after what some believed were poor earnings. They weren’t poor at all (perhaps mildly disappointing), and with a little patience, NICK has nearly made back all it lost. Even after the recent rally, NICK yields 3.6%. Nicholas Financial is a great buy up to $15 per share.
The Great Special Dividend Rush of 2012
Recently you’ve heard me complain about the careless media alarmism about the impending Fiscal Cliff. One starts to wonder whether CNBC now stands for “Cliff, Nothing But Cliff.” Trust me: you can ignore all that.
Wall Street has also been distracted by some turbulence in shares of Apple ($AAPL). Truthfully, the recent downturn in Apple isn’t all that surprising. Bespoke Investment Group points out that this is Apple’s 10th 20% correction in the last 10 years. As Josh Brown recently pointed out, the difference this time is that Apple’s correction begins at a very high nominal price.
One truly important effect of the impending Fiscal Cliff is that companies have been rushing to pay special dividends to shareholders before the end the year, as dividend taxes are expected to rise. This is especially the case for cash-rich companies and firms with high insider ownership. So far, U.S. companies have announced $21 billion in special dividends. Other companies, like Walmart ($WMT), have moved up their dividend-payout dates.
On our Buy List, Oracle ($ORCL) announced that they will pay out their next three quarterly dividends before the end of the year. To clear up any confusion, Oracle’s fiscal year ends in May, so they’re paying out their second-, third- and fourth-quarter dividends all at once. The quarterly dividends are six cents per share, so the total payment for this month will be 18 cents per share. That works out to a cool $200 million for CEO Larry Ellison.
Oracle’s fiscal Q2 earnings report is due after the close on Tuesday, December 18th. I’m expecting a good report. During the earnings call in September, Oracle said Q2 earnings should range between 59 and 63 cents per share. That’s a nice increase from the 54 cents per share they made in last year’s Q2. Wall Street’s consensus is at the dead center of the range, at 61 cents per share. Earlier this week, Oracle’s stock got as high as $32.50, which is an 11-week high. Oracle remains a strong buy any time it’s below $35 per share.
The day after Oracle reports, Bed Bath & Beyond ($BBBY) will report its fiscal Q3 earnings. An important earnings call will follow because BBBY will give their initial planning assumptions for next year. Wall Street currently expects earnings of $5.15 per share for next year, and I suspect that’s too high. Unfortunately, this will be the last we hear from BBBY for awhile. The company’s Q4 is hugely important for them: about one-third of their annual profits come during the holiday quarter. But that report won’t come out until early April. Until then, we won’t hear much of anything from BBBY. This is still a solid company. Bed Bath & Beyond is a good buy up to $62 per share.
Stryker Raises Dividend By 25%
In last week’s CWS Market Review, I said I expected Stryker ($SYK) to raise its quarterly dividend soon, and sure enough, I was right.
I had said that I expected Stryker to increase its payout from 21.25 cents per share to around 23 cents per share. It turns out, I wasn’t optimistic enough. The company just announced that the dividend will rise 25% to 26.5 cents per share. That brings the annual dividend to $1.06 per share. At Thursday’s close, Stryker now yields 1.95%.
Stryker’s board also approved a $405 million increase in the share buyback program, which brings the total to $1 billion.
“Given the considerable strength of our balance sheet and strong cash flow generation, we are well positioned to pursue a capital allocation strategy that includes highly focused M&A, an increasingly robust dividend and share buybacks,” said Kevin A. Lobo, President and Chief Executive Officer of Stryker. “We are committed to a strategy that will help drive our sales and earnings growth while simultaneously returning capital to shareholders at meaningful and consistent levels. ”
Stryker has raised its dividend every year since 1995. The stock is a buy up to $57.
Not to be outdone, Medtronic ($MDT) also announced an accelerated dividend payment. The company usually pays its fiscal third-quarter dividend in early January. On Thursday, Medtronic said that it will pay out the dividend in December in order to avoid the taxman. If you recall, in June, Medtronic raised its dividend for the 35th year in a row. The company recently had a good earnings report and reiterated full-year guidance. Medtronic is a buy up to $44 per share.
Before I go, I want to highlight the good sales report from Ford ($F). For November, vehicle sales were up 6%, and sales of the F-series trucks were up 18%. This was the best November for trucks in seven years. Ford also set a record for hybrid sales, but that’s a very small part of their overall business. I was pleased to see the company plans to build 750,000 vehicles in North America for Q1. That’s an 11% increase over last year.
I think it’s possible we may even see a dividend increase from Ford. The company currently pays a nickel per share, which comes to an annual yield of 1.8%. Ford is on track to earn about $1.35 per share this year, so they can easily afford an increase. Ford is a good buy up to $13 per share.
That’s all for now. Next week, we’ll get important reports on industrial production and retail sales. Also, the Fed meets on Tuesday and Wednesday. Following the meeting, Bernanke will hold a press conference. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!
CWS Market Review – November 30, 2012
Eddy Elfenbein, November 30th, 2012 at 8:43 am
Time is your friend, impulse is your enemy. – Jack Bogle
After a short downturn following the election, the bulls have once again taken control. This is exactly what I expected would happen, and I continue to believe we’re in the midst of a nice year-end rally.
On Thursday, the S&P 500 touched a three-week high, and the NASDAQ Composite broke 3,000. The bulls were helped this week by a spate of positive economic news. For example, we learned that consumer confidence is now at a four-and-a-half-year high, and pending home sales are at a five-year high. And, as hard as it may be to believe, there was even good news out of Greece.
This is more evidence that the Double Dip crowd once again got way ahead of themselves. For the time being, there’s no immediate threat of a recession. Since November 15th, the S&P 500 has rallied 4.6%. The index is now only 0.5% away from breaking its 50-day moving average, and we’re only 3.5% away from our highest close since 2007.
Of course, you probably wouldn’t know this by watching much of the financial media. The gloom-and-doomers have gotten far more attention than they deserve. Consider that 14 months ago, Intrade believed there was a 65% chance that the U.S. would enter a recession in 2012. Today that figure stands at 1%.
In this week’s CWS Market Review, we’ll take a closer look at why the Fiscal Cliff is nothing but hype. The media is largely inventing new worries for us. We’ll also discuss the terrible, rotten earnings report from JoS. A Bank Clothiers ($JOSB). Here’s a sneak preview: I’m not pleased with JOSB. More on that later.
Despite some unpleasantness, our Buy List continues to thrive. Our strategy of discipline and patience is working out very well. AFLAC ($AFL), for example, is at an 18-month high. Only a few months ago, it was below $40 (see chart below). Plus, stocks like Ford ($F) and Oracle ($ORCL) have been particularly strong lately. Ford finished the day on Thursday at its highest close in seven months. But first, I want to tell you why you should ignore the ridiculous hype surrounding the Fiscal Cliff.
Don’t Fall for the Fiscal Cliff Hype
Wall Street’s fortunes seem to be beholden to the Fiscal Cliff (a registered trademark of CNBC). Late in the day on Tuesday, some rather casual remarks by Senator Harry Reid were enough to knock a few points off the S&P 500. The same thing happened again on Thursday, but this time, the remarks came from House Speaker John Boehner. Then, as word of progress leaked out, well…the market started to gain traction.
Let me be clear: The threat from the Fiscal Cliff is greatly, hugely and fantastically exaggerated. It’s almost reached comical levels. The behavior at CNBC in particular has been reprehensible. The network is simultaneously over-hyping the threat while presenting themselves as the saviors. Folks, there’s nothing to worry about.
Of course, if we really were to go over the cliff, that would be bad news—and that’s precisely why it won’t happen. In the meantime, both sides need to prove to their respective bases that they’re not backing down. It’s for show, like you see in a nature program about silver-backed gorillas fighting for dominance.
But let’s get some facts. For one, the threat is easily avoidable. The White House and Congress have too much to lose by not reaching a deal. In fact, a recent article at Politico suggests that, despite the rhetoric we hear in public, the framework of a deal is starting to take shape. Neither side will get everything it wants, but they’ll both get enough to walk away with some pride. Also, remember that this deal is being made with the lame-duck Congress. That means there are a few folks who won’t even be members of Congress in a few weeks. In fact, a deal may even be reached some time in the new year. In a few months, no one will be talking about this.
The market has resigned itself to the fact that taxes will go up. That’s no surprise. In response, dozens of companies like Costco ($COST) and Las Vegas Sands ($LVS) have announced special dividends. Other companies like Walmart ($WMT) have moved up their dividend dates in order to avoid the taxman. An analyst at Deutsche Bank suggested that Bed, Bath & Beyond ($BBBY), one of our Buy List stocks, could pay a special dividend. I’m a doubter, but I will note that the home-furnishings company is sitting on $4 per share in cash.
One good way of putting the Fiscal Cliff threat into perspective is by looking at how well defense and aerospace stocks are doing. Needless to say, any sequester would be very bad news for these companies. The Defense Sector ETF ($ITA) badly lagged the market for most of this year. Its relative performance reached a low point in late September, but then, except for a brief period in mid-November, the ITA has been leading the market ever since. This tells me that that no one has the motive for a prolonged fight. Furthermore, the Volatility Index ($VIX) has remained subdued, and the stock market has largely avoided wild daily swings in the past few weeks. There’s only been one daily swing of more than 2% in the last two months, and that was the big sell-off on the day after the election. This has been a calm market.
The Math Still Favors Stocks
Due to market leadership from the Industrials and Consumer Discretionary sectors, I suspected that the sell-off would be short-lived. That’s not the script that sell-offs usually follow. Since June 5th, the Consumer Discretionary ETF ($XLY) is up by 12.2%. In simpler terms, the homebuilders and shoppers are waking up from their slumber. Even some crummy tech names have been doing well. Thanks to a jump in shares of Facebook ($FB), Mark Zuckerberg has made a cool $4 billion in the last three weeks.
The good news about pending home sales, combined with a positive report on home prices, suggests that the housing recovery (such as it is) is propping up consumers. Mind you, there are still weak spots out there. Tiffany ($TIF), for example, just lowered guidance. But these are special cases rather than general rules.
Probably the best news for investors this week was largely ignored. Charles Evans of the Federal Reserve said that the Fed needs to extend its bond-buying programs until the economy can consistently add 200,000 jobs per month. Until now, the Fed has been reticent in giving a specific economic target as to when they need to take their foot off the gas. I don’t know if Evans will get his way, but we now know there are some voices inside the Fed willing to pursue these policies.
The bottom line is that there’s no possible solution to the Fiscal Cliff that alters the value spread between stocks and bonds. With the Fed gobbling Treasuries like Santa eating cookies, yields are low and will likely remain so. In fact, the austerity that would result from a Fiscal Cliff deal would add even more pressure.
Let’s look at some numbers. Analysts now expect 2012 earnings for the S&P 500 of $99.76, and $113.40 for 2013. In June 2011, analysts expected the S&P 500 to earn $111.82 for 2012. So that’s a big change in outlook, yet the market rallied. The reason we rallied is that the market had dramatically overreacted to fears from Europe. Over the last 14 months, earnings estimates for Q4 have come down, on average, about 1% per month. Yet even these lowered numbers represent an acceleration of earnings growth. Prudent investors are in excellent shape right now. The indexes are up, and dividends are having a banner year. I think the S&P 500 can hit 1,500 by March.
JoS. A Bank Clothiers Bombs
One aspect of being a good investor is being upfront about our mistakes. After all, that’s how we learn. One big mistake we made this year was having JoS. A Bank Clothiers ($JOSB) on our Buy List. For the second time this year, Joey B badly missed earnings. I understand it happening once, but two times tells me there are some serious problems.
On Wednesday, JOSB reported fiscal Q3 earnings of 47 cents per share, which was nine cents below estimates. Sales actually did pretty well, both total and comparable-store. But profits tanked. This tells us that JOSB is probably overstocked, and they’re dumping inventory at any price—hence all the buy-one-suit-get-78-free commercials.
What’s even worse is that JOSB warned that comparable-store sales were down in November, and the company is “cautious” about Q4. That’s not good. Let’s just say that JOSB probably won’t be on next year’s Buy List.
Oracle Is a Buy Up to $35
We have earnings reports due soon from Oracle ($ORCL) and Bed Bath & Beyond ($BBBY). In our last issue, I highlighted Oracle as a good buy, and the shares rose to a two-month high. Oracle looks ready to break out with a new 52-week high. The company is due to release its next earnings report in about two weeks. I’m expecting another strong report. Oracle remains a strong buy any time it’s below $35 per share.
One quick word about Stryker ($SYK). I expect SYK will soon raise its quarterly dividend. The company currently pays out 21.25 cents per quarter. I think they’ll bump it to around 23 cents per share in the next week or so. This is a solid company. They’ve raised their dividend every year since 1995. Stryker is a good buy up to $57.
That’s all for now. On Monday, we’ll get the ISM report for November. All eyes on Wall Street will be focused on Friday’s big employment report. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!
CWS Market Review – November 2, 2012
Eddy Elfenbein, November 2nd, 2012 at 8:28 am
“Success or failure in business is caused more by the mental attitude even than by mental capacities.” – Walter Scott
In last week’s CWS Market Review, I mentioned how I saw the market heading for “rough waters.” Of course, I meant that as a metaphor but it came literally true this week as Hurricane Sandy pounded the New York area. For the first time in more than 120 years, the New York Stock Exchange closed for two days in a row due to weather. I hope everyone survived the storm intact.
Despite the abbreviated trading this week, our Buy List continues to do well. I told you in last week’s issue to “look for an earnings beat” from Ford ($F), and that’s exactly what we got. The automaker smashed Wall Street’s expectations by 33%. Once trading resumed on Wednesday, the stock gapped up nearly 8%, and it pushed even higher on Thursday to reach its highest close in six months. Also on Thursday, shares of AFLAC ($AFL) closed at their highest level since May 17, 2011.
However, not all of our earnings reports have been great. Nicholas Financial ($NICK) had a mildly disappointing report, and WEX Inc. ($WXS), the new name for Wright Express, fell six cents shy of estimates. I still want investors to position themselves defensively. We’re not out of the woods just yet, but we are getting close.
In this week’s issue, I’ll survey our recent Buy List earnings reports; plus I’ll discuss the final batch of earnings reports due next week. But first, let’s look at the remarkable turnaround at Ford Motor.
Ford Is a Strong Buy Up to $13
I have to admit that I had been baffled by the steady erosion in Ford’s ($F) share price since the beginning of last year. The company was clearly doing well and all of the problems negatively affecting their business were out of their control. Sure, their European sales were going down the drain, but they’ve been working to cut back production there.
On Tuesday, we got the results and they were very good. For the third quarter, Ford earned 40 cents per share which was 10 cents more than Wall Street’s consensus. This was despite a 4% drop in overall revenues. I’ve looked over Ford’s numbers and what’s most impressive is that they got their profit margins in North America up to 12%. That’s outstanding.
The success of this earnings report was laid a few years ago when the company dramatically restructured itself. Ford worked to cut costs and change its operations. That’s basically what Ford is planning to do in Europe today. Looking at the numbers, we can see that Europe was clearly Ford’s weak spot. The company lost $468 million in Europe.
Ford is doing amazingly well in North America and that drove the strong results. On Wednesday, Ford jumped 7.7% to $11.16. On Thursday, the stock rose another nine cents to $11.25. The last time the stock was this high was on April 30th. Despite the rally, shares of Ford are still attractively priced. I think Ford can earn as much as $1.62 per share next year which means the stock is going for less than seven times next year’s earnings. I’m raising my Buy-Below on Ford to $13 per share.
Nicholas Financial Earns 42 Cents Per Share
I had been eagerly waiting for Nicholas Financials’ ($NICK) earnings report but the results were a slight disappointment. For the third quarter, the used-car financier made 42 cents per share. Their results were hurt by higher operational costs and for their interest rate swaps. I don’t want to overstate my disappointment. The company is still doing very well and my long-term view of the company hasn’t changed. With short-term interest rates poised to remain low for the next few years, plus a slowly recovering economy, the future looks bright for NICK. I think the company can continue to earn about 45 cents per share (give or take) for the next several quarters. Don’t let any short-term bumps rattle you, NICK is doing well. The stock continues to be a strong buy up to $15.
Fiserv ($FISV) has been a great stock for this year (+28.35% YTD). Except for a dip in May, the stock has climbed nearly every month this year. On Tuesday, the company reported third-quarter earnings of $1.27 per share which was inline with Wall Street’s consensus. Fiserv also reiterated its full-year forecast of earnings growth of 11% to 14% which comes to $5.05 to $5.20 per share. Earnings for the first three quarters were up 13% to $3.75 per share so Fiserv should have little trouble hitting their full-year target. In fact, I think they have a shot of slightly beating that. Fiserv remains a very good buy. I’m raising my Buy-Below price to $80 per share.
For such a quiet stock, Harris ($HRS) has been very volatile recently. The shares got knocked down by 8% over two days in mid-October due to a downgrade. On Monday, the company reported quarterly earnings of $1.14 per share which was two cents more than expectations. The most important news is that Harris is sticking by its full-year guidance of $5.10 to $5.30 per share. If the next three quarters are like the first, Harris will hit that target easily. When trading resumed on Wednesday, the stock dropped, which I found puzzling. Sure enough, the shares rallied back strongly on Thursday to reach a three-week high. Harris remains a good buy up to $50.
WEX Inc. ($WXS), which used to be known as Wright Express, reported third-quarter earnings of $1.08 per share which was six cents below estimates. Revenues rose 6% to $161 million. WXS sees Q4 earnings ranging between $1.01 and $1.08 per share. The Street had been expecting $1.10 per share. Despite the earnings miss and poor guidance, the shares are holding up well. WXS is a good buy anytime the shares are below $75.
The Last Batch of Q3 Earnings Reports
We have three more Buy List earnings reports coming up. Moog ($MOG-A) reports on Friday, November 2. The results are probably out by the time you’re reading this. Unfortunately, Moog’s stock has been a dud this year. It’s the single worst-performing stock on our Buy List.
The problem is that Moog makes flight control systems for commercial and military aircraft. That whole sector has been…well, a no-fly zone this year. Wall Street expects earnings of 89 cents per share (this will be for Moog’s fiscal Q4). I’ll be curious to see if Moog reiterates their guidance for FY 2013 (which we just started). Earlier Moog had said it expects fiscal year earnings of $3.50 to $3.70 per share. The good news is that the stock’s lagging performance has made it an attractive buy. I rate Moog a strong buy up to $45 per share.
On Monday, November 5th, Sysco ($SYY) is due to report earnings, and DirecTV ($DTV) follows on Tuesday, November 6th, which is also Election Day. Sysco is expected to earn 50 cents per share which sounds about right. The stock currently yields 3.42% which is a very good deal. Here’s the thing: Sysco has raised its dividend for the last 42 years in a row. Even though their earnings were about the same as last year’s, I think they’ll want to keep the dividend streak alive, so look for a penny-per-share increase in the quarterly dividend very soon. Sysco is a good buy up to $32.
That’s all for now. Obviously the big news next week will be the election. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!
AFLAC’s Q4 Guidance
Eddy Elfenbein, October 24th, 2012 at 3:42 pm
Here are some key bits from AFLAC’s earnings call this morning:
I was very pleased that the Board of Directors approved the 6.1% increase in the quarterly cash dividend effective with the fourth quarter payment. This marks the 30th consecutive year we’ve increased cash dividend to the shareholders. We continue to believe that we are well-positioned to achieve our stated earnings objectives of 3% to 6% increase in operating earnings per diluted share, excluding the impact of foreign currency.
In the second quarter, we have guided toward the low end of the range. However, reflecting the lower annual effective tax rate, we now expect operating earnings for 2012 to be better. If the yen average is JPY 80 to the $1 for the last 3 months of the year, we expect reported operating earnings for the fourth quarter to be in the range of $1.46 to $1.51 per diluted share.
Under the same exchange rate assumptions, we expect the full year operating earnings to be $6.58 to $6.63 per diluted share, which would be roughly a 4% to 5% increase on a currency-neutral basis. We believe this is reasonable and achievable. Importantly, we continue to believe that 2013’s operating earnings per share will increase 4% to 7% on a currency-neutral basis.
In addition to operating earnings growth, we also focused on producing industry-leading return on equities. On an operating basis, the third quarter ROE was 25.2%. For 2012 and 2013, we continue to believe it’s reasonable to see operating ROE in the area of 22% to 26%. We remain focused on our vision of being the leading provider of voluntary insurance in the United States and the #1 provider of supplemental insurance in Japan. In both segments, I am confident in our brand, the fundamental needs of our products, and more importantly, the success of Aflac. Overall, I believe we had the best quarter since 2008.
I think traders wanted a bigger dividend increase, but don’t let that fool you; AFLAC is doing very well.
AFLAC Beats, Guides Higher and Raises Its Dividend for the 30th Year in a Row
Eddy Elfenbein, October 23rd, 2012 at 5:21 pm
AFLAC’s ($AFL) earnings are out and they were very good. The company is raising full-year guidance and implying an increase to next year as well. If that isn’t enough, AFLAC raised its dividend for the 30th year in a row.
Now let’s look at some numbers.
Revenues rose 14.4% to $6.8 billion. Operating earnings, which is what we want to watch for with insurance companies, rose to $831 million which is $1.77 per share. Wall Street had been expecting $1.66 per share, so this was an impressive beat. Interestingly, the yen/dollar rate had no impact on operating earnings. Three months ago, AFLAC told us to expect earnings to be between $1.64 and $1.69 per share, so Q3 was much better than expectations.
The quarter was helped by two items:
In the quarter, the company revised its estimate of the full-year effective tax rate, which increased operating earnings by $17.5 million, or $.04 per diluted share. In addition, the company recognized an income tax benefit of $29.5 million, or $.06 per diluted share, primarily resulting from the favorable outcome of a routine tax exam for the years 2008 and 2009. Together, the impact from these items benefited operating earnings by $47 million, or $.10 per diluted share.
For the first three quarters of this year, revenues were up 17.3% to $19.0 billion, and operating earnings were $2.4 billion or $5.12 per share.
AFLAC is also raising its quarterly dividend by two cents per share or 6.1%. The dividend will rise from 33 cents to 35 cents per share. This is the 30th year in a row the company has increased its dividend. Going by today’s close, AFL yields 2.82%.
AFLAC expects Q4 operating earnings (assuming no impact from currency) to range between $1.46 and $1.51 per share. That means the full-year number will range between $6.58 and $6.63 per share. The previous full-year guidance was for $6.45 to $6.52 per share.
The company also revised higher its full-year sales forecast for AFLAC Japan to a growth rate of 30% to 35%.
AFLAC expects operating earnings for 2013 to rise by 4% to 7% (on a currency neutral basis). Working off the higher base for 2012, that implies $6.84 to $7.09 for next year. Wall Street currently expects 2013 EPS of $6.88.
The S&P 500’s First 1% Drop in Two Months
Eddy Elfenbein, September 26th, 2012 at 9:27 am
For the first time in two months, the S&P 500 lost more than 1% yesterday. The market didn’t start out so poor yesterday but traders got nervous after Charles Plosser, the head of the Philadelphia Fed, said that QE3 won’t work. Specifically, Plosser said that by pinning so much on the policy, the Fed is risking its credibility. My initial reaction is that I’m afraid that happened a long time ago.
The market slowly moved down towards yesterday’s closing bell. Financial stocks were particularly hard hit. Members of our Buy List like AFLAC ($AFL), JPMorgan Chase ($JPM) and Nicholas Financial ($NICK) were surprising losers.
The market is still nervous about events in Europe. The austerity policies have led to more riots in Greece. There are also protests in Spain and bond yields there are back over 6%. The government there is prepared to ask for a bailout. In China, the Shanghai Composite has fallen to a 3.5-year low.
The key metric that’s on everyone’s mind is the bond market in Europe. The authorities there have made it clear that they intend to defend the euro. That would lead me to believe that yield spreads would tighten. That had been happening but now the yields are moving in the other direction.
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