Author Archive

• More Buy List Earnings
  Eddy Elfenbein, July 29th, 2014 at 5:18 pm

  After the closing bell, we got three more earnings reports for our Buy List.

  Fiserv ($FISV) reported Q2 earnings of 81 cents per share which beat expectations by one penny per share. The company also raised the low-end of its full-year forecast by three cents per share. Fiserv now expects full-year earnings of $3.31 to $3.37 per share.

  Express Scripts ($ESRX) reported Q2 earnings of $1.23 per share. That was also a penny higher than expectations. ESRX also slightly narrowed their full-year range. The previous range was $4.82 to $4.94 per share. Now it’s $4.84 to $4.92 per share. The shares were up 2.1% today.

  AFLAC ($AFL) had Q2 operating earnings of $1.66 per share. They had been expecting operating earnings to range between $1.54 and $1.68 per share. The yen knocked off three cents per share. Wall Street’s consensus was for $1.59 per share.

  As for guidance, CEO Dan Amos said, “If the yen averages 100 to 105 to the dollar for the third quarter, we would expect earnings in the third quarter to be approximately $1.38 to $1.47 per diluted share. Using that same exchange rate assumption for the remainder of 2014, we would expect full-year reported operating earnings to be about $6.16 to $6.30 per diluted share.”

• Morning News: July 29, 2014
  Eddy Elfenbein, July 29th, 2014 at 6:48 am

  EU Finalizes Russian Sanctions as BP Warns of Impact on Business

  UK Mortgage Approvals Turn Around, Jump 8% in June

  Medicare, Social Security Disability Fund Headed in Different Directions

  Tech Companies Reel as NSA’s Spying Tarnishes Reputations

  Deutsche Bank Revenue From Debt Trading Beats U.S. Peers

  Zillow Deal to Buy Trulia Creates Real Estate Digital Ad Juggernaut

  FAA Seeks $12 Million Fine Against Southwest

  Honda Projects Record Profit on Yen, Emerging Markets

  UBS Profit Rises 15% as It Grapples With Legal Matters

  Aetna Posts Higher Q2 Profit, Lifts Full-Year Outlook

  The Bear Case For Uber (Yes, There Is One)

  Orange Accelerates Cost Cuts to Halt Earnings Drop

  35% in US Facing Debt Collectors

  John Hempton: The Herbalife Miss

  Roger Nusbaum: Should You Invest in Farm Land?

  Be sure to follow me on Twitter.

• Light Posting this Week
  Eddy Elfenbein, July 28th, 2014 at 11:18 pm

  I’m taking a little time off this week to enjoy summer. I’ll still post but it will be lighter than normal.

  I thought Lu Wang at Bloomberg had an interesting article on the persistence of buying the dips. Here are some choice nuggets:

  Declines in the benchmark gauge for American equity are lasting an average of 1.5 days in 2014, the shortest since at least 2009, according to data compiled by Bloomberg. Starting last year, returns on days after the index fell have averaged 0.13 percent, the highest since they were 0.38 percent in 2009.

  (…)

  Losing streaks in the U.S. equity market are getting shorter. The S&P 500 has posted no declines that lasted more than three days in 2014, compared with an average of nine a year since March 2009, data compiled by Bloomberg show.

  Drops this quarter have lasted 1.2 days, down from 1.5 days in the previous three months and about half the length in 2012. The number of losses has stayed roughly the same as in the past. There have been 59 down days this year, compared with an average of 61 during the same time period since 2011.

  (…)

  About $190 billion has been added to equity mutual funds and exchange-traded funds since the start of 2013, data compiled by the Investment Company Institute and Bloomberg show. That’s a reversal from the five years through 2012, when $300 billion was withdrawn.

  (…)

  The S&P 500 has gone without a 10 percent loss for 33 months, the third-longest stretch since 1990. On average, corrections have occurred every 18 months since 1946, according to a study by Sam Stovall, chief equity strategist at S&P Capital IQ.

• Morning News: July 28, 2014
  Eddy Elfenbein, July 28th, 2014 at 6:43 am

  Reckitt Helps Keep Britain’s FTSE Afloat After Solid Update

  Bank of Communications Mulls Plan to Reform Ownership Structure

  Court Orders Russia to Pay $50 Billion to Yukos Shareholders

  Lew Can Use Tax Rule to Slow Inversions, Ex-Official Says

  NYC Pension Funds Report 17.4% Gain as U.S. Stocks Soar

  Dollar Tree to Buy Family Dollar for About $8.5 BIllion

  Rumored Danone Medical Food Sale To Hospira Would End Ambition

  No Burgers at Some China McDonald’s Over Food Scare

  Nissan First-quarter Profit Rises, Exceeds Consensus as U.S. Sales Improve

  Amazon Faces Threat of Losing Investors’ Trust Amid Low Profits

  Tyson Foods to Sell Mexico and Brazilian Poultry Businesses

  Ryanair Lifts Forecast as Quarterly Profit Soars

  Can Reddit Grow Up?

  Epicurean Dealmaker: Improve Yourself

  Howard Lindzon: Zillow is Hungry and Just Ate Trulia… & The Future of Financial Tech

  Be sure to follow me on Twitter.

• Moog Earns $1.08 per Share
  Eddy Elfenbein, July 25th, 2014 at 10:42 am

  This morning, Moog ($MOG-A) reported fiscal Q3 earnings of $1.08 per share. Sales were up 2% to $684 million.

  “This was a very good quarter for our company with increased sales, record earnings and very strong cash flow,” said John Scannell, Chairman and CEO. “We are on track for fiscal ’14, which will be a great year for Moog. As we look to fiscal ’15, we should see further improvement. We’re forecasting very modest sales growth but a 16% increase in earnings per share. Company operating margins in fiscal ’15 will expand by 50 basis points, despite some margin challenges in our Aircraft segment. We also expect another year of strong cash flow. Overall, if fiscal ’15 turns out as we expect, it will be another record year for the company.”

  Moog raised its 2014 full-year guidance to $3.65 per share. Wall Street had been expecting $3.74 per share. Since they’ve already earned $2.59 per share for the first three quarters, that means they expect $1.06 per share for fiscal Q4. For 2015, Moog expects sales of $2.69 billion and EPS of $4.25. Wall Street had been expecting $4.56 per share.

• CWS Market Review – July 25, 2014
  Eddy Elfenbein, July 25th, 2014 at 7:05 am

  “People always call it luck when you’ve acted more sensibly than they have.”
  – Anne Tyler

  Like the honey badger, this stock market just doesn’t care. Was it going to be tripped up by Ukraine? Nope. Gaza? Nope. Fed tapering? Not a chance. The stock market keeps chugging higher. On Thursday, the S&P 500 finished the day at 1,987.98 for its 27th record close this year. Not that long ago, 2,000 for the S&P 500 was a distant hope. Now, it looks like we’ll hit it any day now.

  This week has been all about earnings, earnings and more earnings. So far, the earnings have been pretty good. According to the latest numbers from Bloomberg, 77% of the S&P 500 companies that have reported so far have topped Wall Street’s expectations. Also, 64% have beaten their sales expectations. The S&P 500 is currently on track to deliver Q2 earnings growth of 6.2% and sales growth of 3.3%.

  

  Our Buy List has been very busy this week; we had seven earnings reports. Thanks to good earnings, Ford Motor jumped out to a new 52-week high. Even boring CA Technologies rallied 4.5% after a strong earnings report. I’ll review all of our recent earnings in a just a moment. I’ll also highlight four Buy List earnings reports coming next week. I should mention that weekly jobless claims just dropped to an eight-year low, which bodes well for next week’s jobs report. But first, let’s take a closer look at our mass of earnings reports.

  Surveying the Earnings Parade

  We have a lot to go through, so let’s start with Tuesday’s earnings report from McDonald’s and Microsoft. Unfortunately, the McDonald’s ($MCD) news wasn’t very good. The fast-food joint earned $1.40 for Q2, which was four cents shy of Wall Street’s consensus. In the U.S., same-store sales dropped by 1.5%.

  It’s no secret that MCD has made a lot of missteps. This is particularly painful when we see the outstanding results from Chipotle ($CMG), a company MCD used to own. Simply put, McDonald’s ($MCD) is not in a good way right now. As an investor, I like when companies hit rough patches since there’s a good opportunity to find a bargain. The catch, of course, is that the company has to right itself.

  I think the folks at MCD understand the position they’re in, although I think the reforms may take a while to impact the business. For now, MCD is indeed a cheap stock. The shares got hit by a bunch of downgrades after the earnings report. Going by Thursday’s close, MCD yields 3.4%. Not many blue chips pay that well. The restaurant said that it’s planning to reform itself over the next 18 months. They’d better get cracking. I’m lowering my Buy Below on McDonald’s to $101 per share.

  Except for Nokia, Microsoft Is Looking Good

  Microsoft’s ($MSFT) earnings report was a bit confusing, but after giving it a read, traders decided they like it. After the bell on Tuesday, the software giant reported fiscal Q4 earnings of 55 cents per share. That was five cents below consensus. The shares quickly plunged in the after-hours market.

  Then more details came out, and it turned out that the results weren’t that bad at all. Microsoft’s quarterly revenue rose a healthy 18% to $23.4 billion. The company also pleased investors last week when they announced big job cuts. It’s not that the market is happy about folks losing their jobs, but they’re pleased to see that MSFT is working to streamline operations. Most of those jobs are from Nokia.

  The big problem for Microsoft is that Nokia’s handset business is a money loser. The division could turn into a winner in the long term, but the outlook is rather iffy at the moment. The good news for Microsoft is that their cloud business is going very well. Microsoft remains a good buy up to $48 per share.

  Earnings from CA Technologies and Qualcomm

  On Wednesday, two of our tech stocks reported results, CA Technologies and Qualcomm. I have to admit that I’ve become quite frustrated with CA Technologies ($CA). However, the company earned itself a temporary respite from my doghouse by reporting decent results. For their fiscal Q1, CA earned 65 cents per share, which was five cents better than estimates. Quarterly revenue dropped 2% to $1.069 billion. This was the ninth quarter in a row of falling revenue.

  But the important news was guidance. For fiscal 2015, which ends next March, CA sees revenues falling by 1% to 2%. They also said they expect to see earnings range between $2.42 and $2.49 per share. Apparently this relieved a lot of investors. The shares jumped 4.5% on Thursday to close at $29.64. Even with that rally, we’re still down nearly 12% on the year with CA. The big positive continues to be the 25-cent quarterly dividend. The stock yield now works out to 3.4%. CA remains a buy up to $31 per share.

  Technically, Qualcomm ($QCOM) reported amazing earnings for their fiscal third quarter. The company earned $1.44 per share, which crushed estimates by 22 cents per share. In April, they said they were expecting Q3 earnings to range between $1.15 and $1.25 per share. Well, I guess they beat that!

  The good news and bad news for Qualcomm is China. The country continues to be a great customer, but several companies there “are not fully complying with their contractual obligations.” As a result, the company had weak guidance for the current quarter. For fiscal Q4, Qualcomm sees earnings ranging between $1.20 and $1.35, which is below Wall Street’s consensus of $1.39 per share.

  Thanks to the blow-out earnings Q3 report, Qualcomm raised their full-year EPS range to $5.21 – $5.36, from the earlier range of $5.05 – $5.25. Note that QCOM’s earnings beat was larger than the lower guidance. Nevertheless, traders didn’t like the China news and the shares fell by more than 6% on Thursday. Qualcomm is a buy up to $83 per share.

  Ford Motor Is a Buy up to $19 per Share

  On Thursday, Ford Motor ($F) reported another strong quarter. This is their first one under their new CEO, Mark Fields. I really like what I’m seeing at Ford. Alan Mulally and his team deserve a lot of credit. The company made 40 cents per share for Q2, which beat consensus by four cents per share. This was Ford’s 20th profitable quarter in a row.

  I was also pleased to see Ford stand by its forecast for this year of $7 billion to $8 billion in pre-tax profit. The really good news is that Ford managed to eke out a teeny tiny profit in Europe of $14 million. Of course, $14 million may sound like a lot, but in ROE terms, to an outfit like Ford, it’s peanuts. Still, no one was expecting they’d be at peanuts in Europe this early. Ford is clearly moving in the right direction.

  

  This is a key moment for Ford. They’re introducing a bunch of new vehicles, and that requires a lot of up-front money. Overall, the company is holding the line on costs. One weak spot was South America, where they lost $300 million. Ford earned $2.4 billion in operating profit in North America. That’s a company record. The new Mustang and aluminum F-150 are due later this year, and that could give a nice boost to sales.

  On Thursday, the shares jumped as high as $18.12, which is a three-year high (see above). Ford is a solid buy up to $19 per share.

  CR Bard Beats Low-Balled Expectations

  In April, CR Bard ($BCR) told us to expect Q2 earnings to range between $1.98 and $2.02 per share. Last week, I said I thought they were low-balling us, and sure enough, on Thursday, Bard reported Q2 earnings of $2.06 per share.

  I know companies like to lower the bar on earnings and then try to impress us by topping phony expectations. I don’t blame Bard for playing the game, but I’ll let you know it when I see it.

  Overall, they had a decent quarter. Quarterly sales rose 9% to $827.1 million. Bard’s chairman and CEO, Timothy M. Ring, said, “Once again we exceeded our expectations for revenue growth this quarter. We continue to believe that executing our investment plan will accelerate the sustainable growth rate of the overall portfolio and put us in a position to provide revenue growth in the mid-to-high single digits with attractive returns for shareholders.”

  Now let’s turn to guidance. For Q3, Bard expects earnings to range between $2.07 and $2.11 per share. They shouldn’t have trouble hitting that. Bard also increased their full-year range by five cents at each end. The new range is $8.25 to $8.35 per share.

  If you recall, Bard raised their quarterly dividend last month from 21 to 22 cents per share. They’ve raised their dividend every year since 1972. I rate CR Bard as a buy up to $151 per share.

  Upcoming Buy List Earnings

  We have four earnings reports coming next week. Three of our stocks, AFLAC, Express Scripts and Fiserv, report on Tuesday, July 29. Then DirecTV reports on Thursday, July 31. (Also, earnings from Moog are due out later today. Be sure to check the blog for the latest.)

  Shares of AFLAC ($AFL) have improved recently. The supplemental-insurance company has worked to diversify its investment portfolio. The yen/dollar ratio has been fairly stable since February. The company has performed well, but foreign exchange has taken a big chunk out of earnings. Three months ago, AFLAC said to expect Q2 operating earnings between $1.54 and $1.68 per share. Their full-year guidance was $6.06 to $6.40 per share. Both forecasts are based on a yen/dollar exchange rate between 100 and 105. AFLAC is a buy up to $68 per share.

  In April, Express Scripts ($ESRX) beat earnings by two cents per share, but they lowered their full-year guidance to $4.82 to $4.94. That was a decrease of six cents per share at each end. Express Scripts remains a buy up to $74 per share. That’s a high Buy Below price. I may lower it after the earnings report.

  Fiserv ($FISV) hit another 52-week high this week. This stock has climbed almost non-stop for the last three years. Wall Street expects Q2 earnings of 80 cents per share. Fiserv is a buy up to $64 per share. I may have to raise that soon.

  DirecTV ($DTV) is still our big winner on the year, with a 25% gain. There’s not much to say about DTV since the $95 buyout deal with AT&T. DTV’s volatility has nearly evaporated, and the stock is trading like a zero-coupon bond that matures at $95 at some point. The stock is now almost exactly 10% below its merger price.

  That’s all for now. More earnings to come next week. Wall Street will also have an intense 48 hours between Wednesday and Friday. On Wednesday morning, the government will release its first estimate of Q2 GDP. The Fed also meets, and later that day, the FOMC will release its latest policy statement. Friday is Jobs Day, and we’ll also get a look at the ISM report for July. 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!

  – Eddy

• Morning News: July 25, 2014
  Eddy Elfenbein, July 25th, 2014 at 6:55 am

  German Ifo Business Morale Index Falls in July

  UK Economy Back at Pre-Crisis Level

  Royal Bank of Scotland Chief Optimistic on Ulster Bank Solution

  Will Protest or Persuasion Shape Hong Kong’s Future?

  Brent Crude Back in Range Trading

  Amazon’s Ambitious Bets Pile Up, and Its Losses Swell

  BSkyB $8.3 Billion Deal to Create ‘Sky Europe’

  McDonald’s Halts Nuggets Sales in Hong Kong

  Ford’s Second-Quarter Surge May Be as Good as 2014 Gets

  Vodafone Sees European Recovery After Eight-Quarter Drop

  Zillow Seen Dominating U.S. Home Searches With Trulia

  Anglo American Profit Sees Strong Rise Despite Setbacks

  Banking Ikea Style Puts Billionaire’s Model to Test

  Cullen Roche: Does QE Finance Government Spending?

  Joshua Brown: Is the Fed Now Underestimating the Labor Market?

  Be sure to follow me on Twitter.

• Surprise! Uncle Sam’s Debt Has Stabilized. For Now
  Eddy Elfenbein, July 24th, 2014 at 5:31 pm

  On Thursday, the government will release its first report on Q2 GDP. The economy didn’t do very well in Q1, but if this report is a good one, then there’s a very good chance that this will signal that Uncle Sam finally has his debt under control—at least in the near-term.

  I don’t want to overstate what’s happening, so let’s look at the facts. In April, the CBO said that this year’s budget deficit is projected to be “only” $492 billion. Of course, that’s a huge deficit, but it’s a vast improvement over the red ink we’ve seen in previous years.

  In fact, according to CBO, this year’s deficit is projected to be 2.8% of GDP. Assuming nominal GDP growth exceeds that—and we’ll find out a little bit on Wednesday—that means that our debt situation has stabilized.

  Specifically, the metric I’m referring to is total federal debt held by the public as a percent of GDP. It’s likely that this number will stay around 75%, give or take, for the next few years. This is quite a different story from the claims of our out-of-control debt.

  Make no mistake. We still have a debt problem, but that’s on the long-term. Just this week, the CBO released a scare report. But for the short-term, our debt isn’t growing.

  Let’s refer to my world-famous rule on government deficits. Take the unemployment rate, multiply it by two, then subtract 10. That’s gives us a good indication as to the deficit as a percent of GDP figure. The current unemployment rate is 6.1% which translates to a deficit of 2.2% of GDP, so the CBO is pretty close to our projection.

  Here’s the debt and GDP data for some recent quarters.

  Date	Debt	NGDP	Debt/GDP
  Jan-12	$10.88	$16.04	67.80%
  Apr-12	$11.05	$16.16	68.37%
  Jul-12	$11.27	$16.36	68.93%
  Oct-12	$11.59	$16.42	70.56%
  Jan-13	$11.92	$16.54	72.10%
  Apr-13	$11.91	$16.66	71.46%
  Jul-13	$11.98	$16.91	70.84%
  Oct-13	$12.36	$17.09	72.30%
  Jan-14	$12.62	$17.02	74.16%
  Apr-14	$12.57	$17.18*	73.17%

  * estimate

  The debt figure is debt held by the public in trillions of dollars. If you want to check the data at FRED, it’s under FYGFDPUN. The nominal GDP number is under GDP. The percent number is under FYGFGDQ188S.

  For the Q2 number, I pulled the debt held by the public figure from the Treasury’s “Debt to the Penny” report. Technically, FRED pulls the number from the Treasury Bulletin report. The next one is due out in September. For Q2 nominal GDP, I estimated growth of 3.9% which is rather conservative.

• Facebook Soars to $75
  Eddy Elfenbein, July 24th, 2014 at 4:36 pm

  Shares of Facebook ($FB) had a very good day thanks to a strong earnings report. The social networking site didn’t just beat earnings, they got German soccer on them. FB closed at $74.98 today which gives them a market value of $192 billion.

  It was just a little over two years ago that everyone laughed at Facebook’s IPO. The underwriting price was $38 per share which was considered greedy. The stock soon dropped below $18 per share.

  I guess you can say it’s recovered.

  So is Facebook a good buy?

  I’ve said no, and I still say no. Yes, I realize the market has gone against me, but I don’t care. If I can’t rationalize a good price, then I’ll leave it be.

  Facebook still seems wildly overvalued to me. Don’t confuse that with a prediction that FB will crash. It just means I’m steering clear.

  

• Ford Motor Earned 40 Cents per Share
  Eddy Elfenbein, July 24th, 2014 at 12:31 pm

  Ford Motor ($F) had a good second quarter. The automaker continues to get back on track. Ford earned 40 cents per share which was four cents more than estimates.

  Despite lagging sales and revenue, the Dearborn, Mich.-based automaker’s cost savings in the second quarter powered it to a record quarterly profit in North America and strong showings in other markets around the world — including its first quarterly profit in Europe in three years. The exception was South America, where the company reported a loss of about $300 million.

  The automaker said Thursday its net income rose to $1.3 billion, a 6 percent gain from the period a year ago. Operating earnings for the quarter exceeded Wall Street’s prediction of 36 cents a share, as Ford earned 40 cents a share — a profit of $2.6 billion — excluding one-time charges.

  The stock has been as high as $18.12 today, but has since pulled back.