Archive for 2013

• OMG! No Taper!!
  Eddy Elfenbein, September 18th, 2013 at 2:03 pm

  The Fed makes the right call and does nothing. The markets are rallying. Here’s today’s statement:

  Information received since the Federal Open Market Committee met in July suggests that economic activity has been expanding at a moderate pace. Some indicators of labor market conditions have shown further improvement in recent months, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen further and fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

  Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

  Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

  The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases.

  To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

  Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

  

• Fed Day Is Here
  Eddy Elfenbein, September 18th, 2013 at 11:13 am

  Today is Fed Day! We can expect an announcement from the central bank at 2 pm today. Despite all the anticipation, the markets are fairly quiet today. The indexes are down but not by much. Of the S&P 100 stocks, only a few are up or down by more than 1%.

  The same goes for our Buy List. One exception is Cognizant Technology Solutions ($CTSH) which is up 1.86%. Barclays raised its rating on CTSH to Overweight from Equal Weight.

  Also, Oracle ($ORCL) is set to report later today.

• 100 Years Ago Today – The Federal Reserve Act Passes the House
  Eddy Elfenbein, September 18th, 2013 at 11:02 am

  Exactly 100 years ago today, the House of Representatives passed the Federal Reserve Act by a vote of 287 to 85 with five voting present. It would take three more months for the Senate to pass it in a much tougher fight.

• Morning News: September 18, 2013
  Eddy Elfenbein, September 18th, 2013 at 6:53 am

  BOE Officials See No Case for More Stimulus

  Banks Face Fines for Benchmark Safeguard Breaches in EU Plan

  China Property Prices Surge in August

  Less Tapering Becomes Tighter Credit No Matter What Fed Says

  U.S. Poverty Rate Holds Steady Near a Generational High

  IRS Enforcement at Risk as Collections Drop 9% Amid Cuts

  S.&P. Bond Deals Are on the Rise Since It Relaxed Rating Criteria

  Jamie Dimon Outlines JP Morgan’s Path Out of Legal Limbo

  Microsoft Plans $40 Billion Buyback, Boosts Dividend

  Google is On the Way to Quietly Becoming an Electric Utility

  Redbox Sacrifices Margins to Drive DVD Rentals

  Zara Owner Inditex Says Profit Edged Higher

  Starbucks Asks U.S. Customers to Leave Guns at Home

  Cullen Roche: The Lehman Collapse 5 Years Later – Who’s Been the Worst?

  Joshua Brown: “as long as they spell your name right”

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• The Fall of the House of Rusher
  Eddy Elfenbein, September 17th, 2013 at 10:48 pm

  A quick non-financial post.

  What happened to running the ball in the NFL? Since 1978, thanks to rule changes, the passing game has become more important every year. But this year…wow! The running game has run right off a cliff.

  The season is still young so this trend may not last, but with two weeks on the books, the number of rushes-per-game is down 4.8% from last year.

  But what’s really dramatic is that average yards-per-carry is down by 10.7% (from 4.262 to 3.805).

  Combine the two effects, fewer runs going not as far, and the rushing-yards-per-game figure is down 15% from last year. That number has been fairly steady for the last 25 years.

  On the passing side, attempts are up 7.8%, completions are up 10.0% and passing yards are up 10.5%. The league-wide passer rating now stands 87.3. In 1994, that would have qualified as fourth-best in the league.

• Healthcare Inflation Perks Up
  Eddy Elfenbein, September 17th, 2013 at 3:41 pm

  Last week, I posted “the most important economic chart in the U.S. right now” which shows that healthcare inflation is coming inline with all other inflation.

  Not so fast.

  Healthcare relative inflation ticked up last month. Check out the graph:

  

  Please note that the chart above isn’t inflation — it’s the medical portion of the CPI divided by the core portion of the CPI. That’s the amount that medical inflation is exceeding core inflation.

  As always, one point doesn’t make a trend, but this is interesting to note.

• FactSet Research Systems Earns $1.20 per Share
  Eddy Elfenbein, September 17th, 2013 at 10:49 am

  This morning, FactSet Research Systems ($FDS) reported fiscal fourth-quarter earnings of $1.20 per share. The stock is down today because technically, that counts as an “earnings miss.” The Street was at $1.21 per share but that’s just traders being traders. Three months ago, FactSet gave us a range of $1.18 to $1.21 per share so the company is hitting its own targets. FactSet’s revenues rose 6% to $219.3 million, and net income was $51 million.

  The big metric for FactSet is ASV or annual subscription value. For the quarter, ASV rose by 6% to $888 million. That’s a good number and it points towards strong revenue over the next year.

  For fiscal Q1, which ends in November, FactSet expects revenues between $222 and $225 million. They also see earnings coming in between $1.21 and $1.24 per share. Wall Street had been expecting $1.23 per share. The bottom line is that business continues to go well for FactSet. The company earned $1.11 per share in last year’s Q1.

  From the earnings report, here are some financial highlights from Q4:

  ASV from U.S. operations was $606 million and $282 million was related to international operations.

  U.S. revenues were $149.9 million, up 6% from the year ago quarter.

  Non-U.S. revenues rose 5% to $69.4 million as compared to the same period in fiscal 2012. Excluding the impact from foreign currency, the international growth rate was 6%.

  GAAP operating margin was 32.2%. Adjusted operating margin was 33.4%, compared to 34.0% a year ago.

  The effective tax rate for the fourth quarter was 28.1%, down from 31.7% a year ago. Excluding income tax benefits recorded during the second quarter of fiscal 2013 primarily from the reenactment of the U.S. Federal R&D credit, the annual effective tax rate was 28.9%.

  Quarterly free cash flow was $71 million, up 38% over the year ago quarter. For the full fiscal 2013 year, FactSet generated $251 million in free cash flow which is 20% higher than a year ago.

  Here are their expectations for Q1:

  Revenues are expected to range between $222 million and $225 million.

  Operating margin is expected to range between 33.0% and 34.0%, which includes a 30 basis point reduction from Revere.

  The annual effective tax rate is expected to range between 28.5% and 29.5% and assumes the U.S. Federal R&D tax credit will be re-enacted by the end of the first quarter of fiscal 2014.

  GAAP diluted EPS should range between $1.21 and $1.24, the midpoint of the range represents 10% growth over last year’s first quarter. GAAP diluted EPS assumes the U.S. Federal R&D tax credit will be re-enacted. If the U.S. Federal R&D tax credit is not re-enacted, first quarter’s GAAP diluted EPS will be reduced by $0.03.

  Yesterday, the shares hit an all-time high of $113.05. Today they’re down to $108-$109.

  

• Microsoft Ups Dividend by 22%
  Eddy Elfenbein, September 17th, 2013 at 10:10 am

  The stock market has rallied for nine of the ten days in September thus far, and we’re on track for another up day today. All eyes are on the Fed which begins its important two-day “tapering” meeting in Washington.

  The best news this morning is that Microsoft ($MSFT) just announced a big dividend increase. I had projected that MSFT would raise their quarterly dividend by three cents — rising from 23 cents to 26 cents per share. I wasn’t optimistic enough. The software giant just raised their quarterly dividend by five cents per share to 28 cents. That’s a 22% increase. MSFT also announced a $40 billion buyback program.

  The new repurchase program, which has no expiration date, replaces another $40 billion buyback plan that was due to lapse at the end of this month, Redmond, Washington-based Microsoft said today in a statement. The company’s quarterly dividend will rise 22 percent to 28 cents a share, payable to shareholders on Dec. 12.

  “These actions reflect a continued commitment to returning cash to our shareholders,” Chief Financial Officer Amy Hood said in the statement.

  For the year, the company will pay out $1.12 per share. Based on yesterday’s close, that translates to a yield of 3.41%.

• Morning News: September 17, 2013
  Eddy Elfenbein, September 17th, 2013 at 6:21 am

  The Landesbanken: Inside Germany’s Trillion Euro banking Blind Spot

  U.K. Inflation Slows to 2.7% on Transport, Clothing Prices

  Europe August Car Sales Drop as Demand Lowest on Record

  Poland Proves Best in Years Since Lehman: Riskless Return

  A Bitter ‘Fertilzer War’ Gripping Belarus and Russia is Helping U.S. Farmers

  Manufacturing Rebound Led by Autos Supports Growth

  Two-Name Race Drops to One, but Guessing Continues

  In Budget Faceoff, Obama Warns of ‘Economic Chaos’

  Less Tapering Becomes Tightening Credit No Matter What Fed Says

  Wall Street Exploits Ethanol Credits, and Prices Spike

  Regulators to Charge JPMorgan Chase $750 Million in London Whale Cases

  Anglo American Drops Alaska Investment

  Packaging Corp. to Buy Boise for $1.28 Billion

  Jeff Carter: Why Going Public Is Good For Twitter

  Roger Nusbaum: A Doozy of Quote

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• Looking at Starbucks
  Eddy Elfenbein, September 16th, 2013 at 2:57 pm

  I don’t have much that is profound to say with this graph, but I spent some time making it and didn’t want it to go to waste. This is the share price of Starbucks ($SBUX) along with its earnings-per-share.

  

  The share price is in black and it follows the left scale. The earnings are in yellow and follow the right scale. The red line is Wall Street’s consensus. The two lines are scaled at a ratio of 25 to 1 so whenever the lines cross, SBUX’s P/E Ratio is exactly 25.

  The point I wanted to get across is how rapidly SBUX’s valuation has grown over the last year. It’s also interesting to see, despite some wild stock moves, how stable SBUX’s earnings growth appears to be.

  I can’t say if 25 is the right P/E Ratio for Starbucks. I used 25 simply because I think it makes the chart look best. In 2006, SBUX traded at more than 56 times earnings.

  I want to make it clear that looking at a stock’s P/E Ratio is just one way to analyze a stock. To get a full picture, there are many other metrics you must look at. I was struck by how dramatic the recent run-up is. The company is also benefiting from a steep drop in coffee prices. Personally, I don’t think Starbucks would be a bargain unless it dropped to $60 per share.