Archive for February, 2006

  • Home Depot Tops Earnings
    , February 21st, 2006 at 10:03 am

    The stock is up this morning on a good earnings report. The company beat the Street’s forecast by four cents a share:

    Home Depot Inc., the world’s largest home-improvement retailer, said fourth-quarter profit rose on sales of major appliances and cabinets.
    Net income climbed to $1.29 billion, or 60 cents a share, from $1.04 billion, or 47 cents, a year earlier. Sales in the period ended Jan. 29 increased to $19.5 billion from $16.8 billion, the Atlanta-based retailer said today in a statement sent by PR Newswire.
    Profit was helped as U.S. consumers spent more on refrigerators, cabinetry and faucets to remodel their kitchens and bathrooms. Chief Executive Robert Nardelli is also seeking to boost sales to professional contractors with last month’s $3.19 billion acquisition of Hughes Supply Inc.
    Home Depot is “going after the larger contactors and infrastructure-related businesses,” said Peter Jankovskis, director of research at Oakbrook Investments LLC, which has $1 billion under management, including about 760,000 Home Depot shares. “It’s given them greater exposure to large homebuilders and municipalities as well and that’s a much more steady source of income.”
    Shares of Home Depot were unchanged at $41.86 on Feb. 17 in New York Stock Exchange composite trading. They fell 5.3 percent last year, while rival Lowe Cos.’s gained 16 percent.
    Home Depot made more than a dozen acquisitions in the past year to build its supply business into a unit with $12 billion in revenue. The company, which has more than 2,000 stores, is increasing sales to professionals and expanding in Mexico, Canada and China to keep pace with the faster growth at Lowe’s.
    Forecast
    Piper Jaffray & Co. analyst Michael Cox expected Home Depot to earn 56 cents a share in the quarter, the same as the average estimate of 22 analysts surveyed by Thomson Financial. Minneapolis-based Cox is the top-ranked analyst for Home Depot by StarMine Inc. Thomson declined to disclose the parameters for the estimates in its average.
    Last month, Home Depot affirmed its fiscal 2005 earnings forecast of $2.64 to $2.67 per share. The average estimate of 21 analysts surveyed by Thomson is $2.67. The company projected an 11 percent sales gain for last year.
    Analysts are estimating Home Depot will earn $3.03 this year, one cent below Cox’s estimate.
    Nardelli, 57, said last month that he will slow the company’s retail expansion. Home Depot will open as many as 500 stores through 2010, about 75 less than in recent years.
    ‘Growth Company’
    “While the looming saturation of home-improvement retail boxes in this country is bringing a natural slowdown in the rate of new store growth, Home Depot remains a growth company,” Cox wrote in a research note on Jan. 20.
    U.S. spending on home remodeling increased 4.3 percent both in the fourth quarter and for all of 2005, according to the Harvard Joint Center for Housing Studies.
    The company said on Jan. 19 annual sales will grow as much as 17 percent over the next five years and earnings per share will rise as much as 14 percent.
    Home Depot’s sales have gained an average of 11 percent a year over the past three years. Revenue for Lowe’s, which has about 1,200 stores, increased an average of 16 percent over the same period.
    Lowe’s reports fourth-quarter earnings on Feb. 27.
    Home Depot met or exceeded analysts’ estimates in the four prior quarters. Of the 24 Home Depot analysts tracked by Bloomberg, 16 recommend buying the shares, eight suggest holding them and one has a “sell” rating.

  • Royal Philips cancels $700M Dell contract
    , February 20th, 2006 at 2:16 pm

    From Reuters:

    Royal Philips Electronics NV canceled a $700 million contract with Dell Inc.
    The contract called for Dell to provide desktops and other hardware, managed services and software packaging to Philips Electronics (NYSE: PHG) over five years. The contract was signed in December 2004.
    According to Reuters, a Philips spokesman says the companies concluded that the contract “did not sufficiently guarantee success for completion.”
    In morning trading, Dell’s stock was down 4.94 percent to $30.38 a share.
    Based in the Netherlands, Royal Philips Electronics is one of the world’s largest electronics companies. Round Rock-based Dell is one of the world’s largest computer manufacturers.

  • Ten Straight Years of Earnings Growth
    , February 19th, 2006 at 5:07 pm

    The following 34 stocks have grown their earnings for 10 straight years:
    NVR NVR
    Apollo Group-Cl A APOL
    Moog-Cl A MOGA
    Dollar Tree Stores DLTR
    Bed Bath & Beyond BBBY
    Compass Bancshares CBSS
    City National CYN
    Donaldson DCI
    Ross Stores ROST
    SEI Investments SEIC
    Expeditors Intl Wash EXPD
    Toll Brothers TOL
    Patterson Companies PDCO
    Lincare Holdings LNCR
    Home Depot HD
    Health Mgmt Assoc HMA
    Knight Trans KNX
    Harley-Davidson HDI
    Paychex PAYX
    Applebee’s Intl APPB
    Brown & Brown BRO
    O’Reilly Automotive ORLY
    Hilb Rogal & Hobbs HRH
    Heartland Express HTLD
    Capital One Financial COF
    Copart CPRT
    Walgreen WAG
    Sysco SYY
    Wal-Mart Stores WMT
    D.R. Horton DHI
    Synovus Financial SNV
    General Electric GE
    Cathay Gen Bancorp CATY
    Trustco Bank Corp/NY TRST

  • All Hail the Dollar
    , February 19th, 2006 at 4:53 pm

    From some reason, the news media seems unable to report on issues regarding international currencies. I’m not sure why this is, but once people start talking “dollars” and “euros,” everyone’s eyes start to glaze over. Otherwise fine reporters become a mixture of alarmism and incoherence. It’s as if currencies are like, say, very large hurricanes.
    Daniel Gross has an article on today’s New York Times on the growing trend of Latin American countries abandoning their sovereign currencies for the U.S. dollar. Is this a good thing, or a bad thing? I think Dr. Roubini answers the question well.

    “If you have sound economic policies in a country, you don’t need dollarization,” said Nouriel Roubini, professor of economics at New York University’s Stern School of Business. “And if you follow poor policies, I don’t think dollarization will solve your problems.”

    Currencies themselves don’t produce wealth, or the lack thereof. Currencies are only as strong as the economies they support. Disraeli said (rightly): “Our gold standard is not the cause, but the consequence of our commercial prosperity.”

  • Earnings Preview: Home Depot
    , February 19th, 2006 at 4:10 pm

    From the AP:

    Home Depot Inc. reports earnings for the fourth quarter on Tuesday, Feb. 21 before the market opens. The following is a summary of key developments and analyst opinion related to the period.
    EXPECTATIONS: The world’s biggest home improvement retailer in January forecast fiscal 2005 earnings between $2.64 and $2.67 per share, on sales of at least $81 billion.
    Wall Street expects Home Depot to post earnings of 56 cents per share, the mean estimate of 22 analysts surveyed by Thomson Financial, on $18.74 billion in sales.
    ANALYST TAKE: “We remain very positive on the home improvement sector and Home Depot’s prospects, particularly given current valuation levels,” Lehman Brothers analyst Alan Rifkin wrote in a client note. “Home Depot shares are currently trading in line with the five-year historic low forward price-to-earnings ratio, based on consensus estimates.”
    QUARTER DEVELOPMENTS: Home Depot in January said it would acquire Hughes Supply, one of the nation’s biggest sellers of construction, repair and maintenance products, for $3.19 billion, its biggest ever acquisition.
    Also in January, Home Depot said it would scale back new store openings over the next five years, as it shifts from the retail business in favor of the wholesale commercial and industrial markets. The company, which currently operates 2,043 stores in the United States, Canada and Mexico, said it will open 400 to 500 stores through 2010, down from the 941 it opened since late 2000.
    Earlier this month, the Financial Times reported Home Depot was in talks to buy up to 49 percent of Orient Home, a Chinese retail chain, for more than $200 million. The company declined to comment on the report.
    COMPETITORS: Home Depot competes with Lowe’s Cos., the nation’s No. 2 home improvement chain, which on Feb. 1 said it would bolster its current share buyback program by up to $1 billion. The company is scheduled to report its quarterly results later this month.
    STOCK PERFORMANCE: Home Depot shares are up 3 percent so far this year and trading near a 52-week high of $43.98 it hit in July 2005.

  • Turin Duct-Tape Police Target Non-Sponsors
    , February 17th, 2006 at 3:45 pm

    First they came for the logos, but my logo wasn’t for an official sponsor, so I didn’t speak out:

    Samsung can’t put its name on its popular flat-screen televisions, even in its own VIP lounge. Workers at Winter Olympic venues are taping over the Dell logos on laptops in the press boxes. The Austrians had to cover up the spiders on their Spyder jackets.
    The advertising police are out in force at the Turin Games, enforcing arcane rules with a vigor unmatched at Olympics past.
    Under International Olympic Committee rules:
    — Sponsor logos are allowed, but only in certain places;
    — Non-sponsors are out, no matter where;
    — Venues must be kept free of advertising.
    Even bottles of Coca-Cola, one of the Games’ biggest sponsors, have been ordered stashed out of view of the TV cameras.
    “We don’t want the Olympic Games becoming, let’s say, a Formula-1 event where sponsors are on cars, on banners, everywhere,” said Cecilia Gandini, the head of brand protection for the Turin organizing committee. Gandini can recite Olympic advertising regulations from memory and spends her days touring venues in search of violations.
    “We want to protect the value of the Olympic Games,” she said.

    The value of the Olympic Games?? Oh, dear lord.
    That reminds me of quote attributed to Churchill about the “traditions” of the British Navy: “Don’t talk to me about naval tradition. It’s nothing but rum, sodomy and the lash.”

  • Analyst Watch
    , February 17th, 2006 at 3:33 pm

    Today, Keith Bachman of Banc of America Securities lowered his rating on Dell to neutral. But he doesn’t think the stock is hopeless.

    Strategic changes that we think could help us get more interested in the stock include selling more partner programs with companies like Google….

    Yep, that’s just what they need.

  • The Small-Cap Effect
    , February 17th, 2006 at 12:32 pm

    Mark Hulbert in Barron’s on the Small-Cap Effect:

    Just how strong is the statistical and historical support for the notion that the average small-cap stock outperforms the average large cap — the much-vaunted small-cap effect?
    It certainly looks very strong: Virtually every major discussion of small caps’ supposed relative strength refers to the famous Ibbotson Associates data set, which shows that small-cap stocks have significantly outperformed large caps since the 1920s (see Electronic Q&A, “Ibbotson: Small Caps Still Have Big Bang,” Feb. 14).
    What could be stronger than that? Most of the other alleged patterns about which investors spin endless tales have just a fraction of the apparent support that the small-cap effect has.
    Yet, sacrilegious though it may be, I decided to take a closer look at the historical case for small caps’ relative strength, and it turns out that this case is surprisingly weak.
    I reached this conclusion by analyzing data provided on the Website of Dartmouth University finance professor Kenneth French. This comprehensive data set, compiled by French and University of Chicago finance professor Eugene Fama, reflects the performances of virtually all publicly traded U.S. stocks from mid-1926 to the present. It is free and publicly available; those of you who enjoy crunching numbers will find it invaluable.
    Consider first the returns of five different portfolios that Fama and French formed based on the market capitalizations of various stocks.
    The first portfolio contained the 20% or so of stocks that had the largest market caps, while the fifth portfolio had the smallest stocks; the middle three portfolios comprised the roughly 60% of stocks in the middle. Fama and French rebalanced these portfolios yearly to take into account changes in stocks’ market caps.
    At first blush, these portfolios’ returns provide incredibly strong support for the small-cap effect. The average return of the stocks in the portfolio containing the smallest-cap stocks was 17.1% on an annualized basis between mid-1926 and the end of 2005, versus 10.2% for the quintile that had the largest-capitalization stocks — for an impressive difference of 6.9 percentage points annually.
    But, as broadcaster Paul Harvey might say, here’s the rest of the story.
    It turns out that all of the small caps’ extra return comes in January.
    If we focus on all months besides January, the largest-cap quintile has produced a 9.1% annualized return since mid-1926, in contrast to 7.8% annualized for the smallest-cap portfolio. The small caps’ 6.9-percentage-point advantage over the largest caps becomes instead — without January — a 1.3-percentage-point deficit!

    The files at Kenneth French’s site also contain data for size deciles. From June 1932 to the end of 2004, the smallest decile, or 10% of stocks, gained nearly 10,875,000%. January was responsible for 26,170% of the total.
    Here are the annualized micro-cap returns by month from July 1926 to December 2004:
    January………159.82%
    February………25.10%
    March……………1.21%
    April…………….12.86%
    May……………….6.85%
    June………………6.57%
    July……………..22.64%
    August………….8.16%
    September…….-7.75%
    October……….-14.60%
    November……….7.97%
    December………-1.94%

  • Dell’s Earnings
    , February 17th, 2006 at 11:53 am

    This is from today’s Wall Street Journal:

    For the quarter ended Feb. 3, the Round Rock, Texas, company reported net income of $1.01 billion, or 43 cents a share, up from $667 million, or 26 cents a share, a year earlier. The results exceeded Wall Street’s expectations of 41 cents a share.
    Revenue rose 13% to $15.18 billion from $13.46 billion a year earlier.
    The company said sales outside the U.S. were 43% of its overall revenue for the fourth quarter, up from 40% in the year-earlier period. The company said it gained share in every region during the year. In Europe, revenue rose 18% to $3.7 billion, while Asia Pacific-Japan revenue was up 21% to $1.7 billion.
    Kevin Rollins, Dell’s chief executive, said the company’s success in countries such as China and Germany shows that its direct-sales business model is preferred by people in all regions. Overall demand is “pretty darn healthy,” he said in a conference call with reporters.

    Yet the stock is trading about 5% lower today. Wall Street’s reaction simply makes no sense. They lower expectations, and the stock falls. They beat expectations, and the stock falls.
    I’ll have more to say on this later. Meanwile, here’s Dell’s conference call from Seeking Alpa.

  • Dell Earned 43 Cents a Share
    , February 16th, 2006 at 4:09 pm

    Revenues of $15.2 billion.