Author Archive

• Morning News: May 10, 2013
  Eddy Elfenbein, May 10th, 2013 at 7:00 am

  Yen Falls Beyond 101 per Dollar on Bond Purchases; Franc Slides

  German Exports See Knock-On Effect Of Eurozone Crisis

  Central Banks Keep Easing After Cuts Fail to Spur Growth

  Jobless Applications Fall to Lowest Since 2008

  Fannie Mae to send $59.4 billion to Treasury

  Global Network of Hackers Steal $45 Million From ATMs

  California Sues JPMorgan Chase Over Credit Card Cases

  New York May Have To Drop Claims Against BofA Over Merrill

  Krugman: There Is No Bubble In Bonds Or Stocks

  Icahn and Southeastern Ready Rival Bid for Dell

  Amplats Reduces Job-Cut Plans to 6,000 After State Talks

  Nvidia Earnings: Profit Rises 29% With Strength in Graphics Chips

  Elizabeth Warren: Students Should Get the Same Rate as the Bankers

  Cullen Roche: Moody’s High Yield Bonds Are Mispriced

  Jeff Miller: Earnings Season and the Dog That Did Not Bark

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• NICK Earns 40 Cents Per Share for Q4
  Eddy Elfenbein, May 9th, 2013 at 4:31 pm

  Here are the latest results:

  Nicholas Financial, Inc. announced that for the three months ended March 31, 2013, net earnings decreased 20% to $4,865,000 as compared to $6,045,000 for the three months ended March 31, 2012. Per share diluted net earnings decreased 20% to $0.40 as compared to $0.50 for the three months ended March 31, 2012. Revenue increased 3% to $17,688,000 for the three months ended March 31, 2013 as compared to $17,182,000 for the three months ended March 31, 2012.

  For the year ended March 31, 2013, net earnings decreased 10% to $19,966,000 as compared to $22,230,000 for the year ended March 31, 2012. Per share diluted net earnings decreased 12% to $1.63 as compared to $1.85 for the year ended March 31, 2012. Revenue increased 4% to $70,628,000 for the year ended March 31, 2013 as compared to $68,167,000 for the year ended March 31, 2012.

  “During the three months ended March 31, 2013, our results were affected by an increase in the net charge-off rate, an increase in operating expenses and an increase in interest expense,” stated Peter L. Vosotas, Chairman and CEO. “Subject to market conditions, we intend to continue expanding our branch network during the coming year.”

  On May 7th the Board of Directors declared a cash dividend of $0.12 per share on its common stock, to be paid on June 28, 2013 to shareholders of record as of June 21, 2013. Subject to market conditions and profitability targets, the Company anticipates it will continue to declare quarterly cash dividends in the future, however no assurances can be given.

  This was another good report for NICK. They can keep churning out 40 cents per share without much difficulty. For the fiscal year, NICK earned $1.63 per share.

  All of the fundamental ratios are still very solid. The net earnings yield is over 22%. Costs are a bit on the high side but still within the historical range. Credit losses came in just over 1%. That’s down from last quarter.

  I’m most impressed by how much debt NICK has paid off since the big dividend last year. They borrowed all that money they paid out to shareholders. From the fiscal second to third quarter, NICK’s indebtedness rose by $32.1 million. But last quarter, indebtedness dropped by more than $14.3 million. That’s pretty impressive.

  The simplest way I can put it is that NICK’s business is almost like an 11% bond whose quality seems to improve every quarter. The company can easily raise their dividend another 20%.

  Here’s a spreadsheet detailing some of NICK’s performance stats.

• Tobacco Has Been on Fire Since 2000
  Eddy Elfenbein, May 9th, 2013 at 11:05 am

  The financial media tends to give disproportionate coverage to popular stocks at the expense of everything else. It would probably be a shock to most investors to learn that tobacco stocks have been a huge winner over the last 13 years. Check out this chart below.

  

  The S&P 500 looks like a flat line in comparison. The chart actually understates how well tobacco has done because their dividends are usually above the rest of the market.

  We often hear that the last 13 years have been horrible for stocks. Well, not all stocks.

  Interestingly, the tobacco rally began not long after The Tobacco Master Settlement Agreement of 1998. I wonder how many folks saw that that rally coming.

• Ross Raises Q1 Guidance
  Eddy Elfenbein, May 9th, 2013 at 9:14 am

  Business continues to improve at Ross Stores ($ROST). This morning, the company raised their Q1 guidance. Initially, Ross saw quarterly earnings ranging between $1 and $1.04 per share. Now they forecast Q1 to range between $1.06 and $1.07 per share. Since that’s such a tight range and the quarter is over, I think it’s obvious they know they made $1.07, or perhaps $1.08 per share.

  Ross said that sales rose 12% for the four weeks ending May 4th, and comparable store sales rose 7%. For the 13-week period, sales were up 6%, and comparable sales rose 3%.

  Michael Balmuth, Vice Chairman and Chief Executive Officer, commented, “We are pleased with the above-plan sales and margin gains we achieved for both April and the first quarter, especially considering our very strong prior year comparisons. These results were driven by our ongoing ability to deliver compelling bargains to today’s value-focused customers.”

  The company will release its earnings on May 23rd.

• Morning News: May 9, 2013
  Eddy Elfenbein, May 9th, 2013 at 7:03 am

  EU Sees Shocks Without Bank Depositor Preference Rule

  German Recovery Signs Mount as Industrial Output Rises

  China Inflation Quickens, Highlights Central Bank Policy Dilemma

  Surprise Rate Cuts Suggest Spreading Weakness

  Repsol First-Quarter Profit Gains on Brazil’s Sapinhoa, Refining

  Government Drops Big Data Bombshell on U.S. Hospital Industry

  Sony Reports First Annual Profit in Five Years

  Disney’s Second-Quarter Net Rises 32% as Park Guests Splurge

  News Corp. Beats Profit Estimates on Higher Cable Unit Growth

  Tesla Motors Posts First Quarterly Profit In Its 10-Year History

  Consumer Reports gives near-perfect score to Tesla Model S

  More Errors in Checks Meant to Aid Homeowners

  Goldman Said to Earn $500 Million Arranging Malaysia Bond

  Jeff Carter: Why People Are Running From Detroit

  Joshua Brown: If You Learn Nothing Else…

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• A Few Words on Executive Compensation
  Eddy Elfenbein, May 8th, 2013 at 3:00 pm

  The topic of executive compensation receives a lot of attention in the financial media, and I think much of it is misguided. As an investor, I’ve looked at countless companies, and I can’t remember an instance where the level of executive pay has steered me away from the stock.

  From my experience, investors are perfectly willing to put up with just about anything from a CEO as long as the stock is rising. Of course, that’s a big “as long as.”

  There seems to be a built-in cynicism with many investors, and they’re predetermined to believe that the executives are looting the company at their expense. Human nature being what it is, yes, Enrons do exist. However, I prefer to focus on high-quality companies so the management has almost certainly proven themselves to be efficient by the time I look under the hood.

  A few years ago, I was at the Wharton Economic Summit and one professor said that if we magically chopped the pay of every CEO by 25%, it would have almost no impact on market valuations. It’s simply not that big a portion of expenses.

  I’m also afraid that many companies have reformed themselves backward. Since large cash payments don’t look good for senior managers, especially for a money-losing company, we’ve moved to a world of stock options. That had the added benefit of managers having, to borrow a tired phrase, “skin in the game.” But for me, as an investor, I hate the endless watering down of shares.

  Plus, stock options aren’t the independent variables they’re made out to be. They’re great to use for companies with rising share prices. Hey, it’s free money! Here are some more grants! But when the shares start dropping, it’s not so much fun.

  Executive compensation also distorts how much management really has at stake. I’m obviously a big fan of AFLAC and the company got tons of great press for their say-on-pay measure. Sure, that’s nice, but how important is it really? The Amos family has a fortune tied to shares of AFLAC. What Dan Amos takes in each year as CEO is probably pretty small compared to what he and his family have at stake. Mind you, I’m not criticizing him. I’m just saying let’s look at the big picture. He’s already rich and if next year’s pay is $3 million or $6 million, it won’t impact his life very much.

  The problem is that any metric a board uses to base executive compensation will create problems. If they say that the CEO will get a bonus of, say, $5 million if ROE for the year hits, say, 18%, then the CEO will do whatever it takes to make the accounting work. The same for EPS or revenue growth – it doesn’t really matter. The benefit for the board is that their decision seems far more rational and dispassionate than it truly is. Well, it’s not.

  If I had my way, the board would be in complete control of executive pay and they would decide by fiat each year. No formulas or stock options. Simply, here’s how well we think you did, and that’s that. For untested companies I see the drawbacks, but for successful ones, I think it’s better for everyone, especially shareholders.

  Which brings me to another point. While I’m not so bothered by executive pay, I am bothered by the lack of independence of corporate boards. Their job is to represent shareholders, and far too many are lackeys for kingpin CEOs. It’s taken me a long time to reach this point but I don’t believe any CEO should be on the board of directors. None. Just cut the two entities entirely. CEOs should not be media celebrities.

  Jamie Dimon at JPMorgan Chase is a perfect example, and I say this as someone who has JPM on their Buy List. Mr. Dimon should be CEO or on the board, but not both. My preference is to see him leave the CEO suite.

• Cognizant Beats and Guides Higher
  Eddy Elfenbein, May 8th, 2013 at 10:02 am

  The S&P 500 has now risen for 11 of the last 13 days. We had more good news this morning as Cognizant Technology Solutions ($CTSH) reported impressive results. For Q1, CTSH earned $1.02 per share which was eight cents better than estimates. Going into the earnings report, I think some traders were expecting a big miss after seeing what happened to CTSH’s competitors. Revenues rose 18.1% to $2.02 billion which was just ahead of estimates.

  Cognizant’s guidance was also good. For Q2, they see earnings at $1.06 per share which is seven cents above Wall Street, and they expect quarterly revenues of $2.13 billion which is $20 million above consensus.

  For all of 2013, CTSH expects earnings of $4.31 per share which is well above consensus of $4.05 per share. For revenue, they expect $8.60 billion which just below the Street’s forecast of $8.63 billion. The company is also expanding its stock buyback program.

  The stock gapped up to $68 right after the opening, then pulled back, and is climbing again. CTSH is currently up 3.8% today.

• Warren Buffett in 1962
  Eddy Elfenbein, May 8th, 2013 at 9:18 am

• Morning News: May 8, 2013
  Eddy Elfenbein, May 8th, 2013 at 7:19 am

  China Reports Stronger April Trade Growth

  European Telco Revenues Drop As Price Wars Heat Up

  PBOC Signals Resumption of Bill Sales as Capital Inflows Rise

  ING Will Accelerate Sale of European Insurer as Profit Rises

  U.S. Brings Charges In First Criminal Case For Consumer Agency

  Hedge Funds Rush Into Debt Trading With $108 Billion

  Toyota Full-year Net Profit Triples to $9.7 Billion

  Deutsche Telekom Earnings Top Estimates on German Wireless

  Stanchart Sees Q1 Profit Decline On Increased Costs

  Whole Foods 2nd-Quarter Profit Rises; Raises Outlook, Announces Stock Split

  Yahoo CEO Mayer Said to Seek Ways to End Microsoft Search Deal

  Symantec Forecasts Weak Results As Yen Depreciates

  Solid Sales, and Criticism, for Latest Version of Windows

  Phil Pearlman: Reflexivity and the Employment Numbers

  Howard Lindzon: The ‘Eclectic Opportunist’…and My Tesla Investment/Trade

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• Strong Earnings at CA Technologies
  Eddy Elfenbein, May 7th, 2013 at 10:44 pm

  For the first time ever, the Dow closed above 15,000. This was the 17th-straight Tuesday rally for the index. The Dow closed today at 15,056.20. The S&P 500 rose 0.52% to close at 1,625.96. This was also another all-time high close.

  The cyclicals once again led today’s rally. Interestingly, the tech-heavy Nasdaq was only up 0.11% today while the Nasdaq 100 was slightly negative.

  Our Buy List did well today thanks largely to DirecTV ($DTV). The good earnings report propelled the shares to a 6.9% gain today. Bed Bath & Beyond ($BBBY) finally broke through $70 per share today. That hasn’t happened since September.

  After the bell, CA Technologies ($CA) reported fiscal fourth-quarter earnings of 68 cents per share. This was well above Wall Street’s forecast of 55 cents per share.

  “While we were able to achieve GAAP and non-GAAP diluted earnings growth for the year, we know we can do better to drive new sales and revenue performance,” said Mike Gregoire, CA Technologies chief executive officer. “When I look at the significant assets at CA Technologies, I believe there is an opportunity for us to improve our performance by stronger focus on product innovation, leveraging customer relationships and better execution in new customer adoption.

  “The traditional ways we’ve looked at systems, data, applications and security are being challenged by disruptive technologies like Mobility, Cloud, SaaS and Big Data. Businesses have higher expectations from IT, demanding far greater speed and agility and anytime, anywhere secure connectivity. These are areas where CA has expertise and can help,” he continued. “To better meet this customer demand, today we announced a plan and corresponding charge of approximately $150 million for fiscal year 2014 that will enable us to rebalance our resources to drive greater innovation and collaboration in product development and greater efficiency and better sales execution.”

  For 2014, the company expects to earn between $2.35 and $2.43 per share. Wall Street had been expecting $2.53 per share, and the stock is down after-hours. However, I’m not sure if CA’s forecast includes the $150 million charge mentioned above. By my calculation, that’s 33 cents per share pre-tax.