Medtronic Earns 86 Cents Per Share
Posted by Eddy Elfenbein on February 22nd, 2011 at 8:51 am

This morning, Medtronic (MDT) reported earnings of 86 cents per share for its fiscal third quarter. That matched exactly what I said I was expecting in the most recent issue of CWS Market Review. The consensus on Wall Street was for 83 cents per share. I’m not sure if that will be enough to off-set a sluggish market mood today.

Medtronic’s revenue rose 3% to nearly $4 billion. The company also said it would cut 1,500 to 2,000 jobs as part of its restructuring efforts. I’m not happy to see those folks lose their jobs but it’s a move MDT needs to make.

I decided to stick with Medtronic on this year’s Buy List even though the company had lowered its guidance twice during 2010. Normally, that would have me running from a stock but I still think Medtronic is a decent value.

I also expected MDT to narrow its full-year guidance which they did. Earlier, Medtronic had said it was expecting earnings-per-share to range between $3.38 to $3.44. Now the range is $3.38 to $3.40 per share. That implies fiscal Q4 earnings between 91 and 93 cents per share.

Here’s a look at Medtronic’s quarterly sales and EPS for the last several years:

Here’s an eye-opening look at Medtronic’s stock along with its earnings-per-share:

Morning News: February 22, 2011
Posted by Eddy Elfenbein on February 22nd, 2011 at 7:37 am

European Stocks Tumble; Libya Woes Intensify

Oil Spikes and Stocks Fall as Unrest Intensifies

India Expects More Global Bids For Oil, Gas Fields Post BP Entry

Emergency Borrowing From ECB Still at High Level

BRICs Losing for Second Time in Decade as America Takes Over

U.S. Consumer Bureau Says Credit-Card Rules Curtail Rates, Fees

Farmers Can’t Meet Demand as Corn Stocks Drop to 1974 Low

Home Depot Quarterly Profit Rises 72% on Customer Visits

Refiners Holly, Frontier Oil to Merge in $7 Billion Deal

Mining Giant BHP Billiton to Buy Chesapeake Shale Assets For $4.75 Billion

Blockbuster Gets ‘Stalking Horse’ Bid For Company From Group

Dynegy’s Top Executives to Resign in Wake of Failed Deals

Top 100 Entrepreneurs Who Made Millions Without A College Degree

Joshua Brown: You Can Disregard this Meaningless NYT “Blogging is Dead” Story

Buy List YTD
Posted by Eddy Elfenbein on February 21st, 2011 at 8:36 am

The Buy List is doing pretty well so far. Through Friday, the Buy List is up 8.20% for the year compared with 6.79% for the S&P 500.

Including dividends, the Buy List is up 8.42% compared with 7.07% for the S&P 500.

Morning News: February 21, 2011
Posted by Eddy Elfenbein on February 21st, 2011 at 8:32 am

German Business Confidence Unexpectedly Rises to Record

How the Fed prints money without any ink

Oil-Price Swings Double as Unrest Spreads Before Saudi Talks

China Decries U.S. Investment “Obstruction”

S&P Lowers Bahrain Ratings on Fear of More Protests

Strong Data Support Euro

Japan Again Upgrades Economic View

Spain’s New Capital Rules a Boon for IPO Bankers, Lawyers

National Bank of Greece Says Alpha Takeover Bid ‘Compelling’

Record U.S. Cattle, Hog Prices Seen on Shrinking Herds, China

Nasdaq and ICE Consider NYSE Euronext Bid

Renren.com Plans IPO in U.S.

BP Pays $7.2 Billion for Stakes in Reliance Blocks in India

Electrolux Chief Waiting in Wings to Buy Daewoo Electronics

Joshua Brown: The Jeffrey Gundlach Story

Be Kind to the Bears
Posted by Eddy Elfenbein on February 18th, 2011 at 3:32 pm

It’s been a tough week for them:

CWS Market Review – February 18, 2011
Posted by Eddy Elfenbein on February 18th, 2011 at 8:18 am

The Buy List has been on fire lately! We’ve rallied for seven of the last 10 trading days, and we just closed at a brand new year-to-date high (and an all-time high as well).

Through Thursday, the Buy List is up 7.38% for the year compared with 6.58% for the S&P 500. Not bad for seven weeks’ work! Although we don’t have a huge lead over the market, the year is still young and I think our lead will soon get a lot bigger.

In this week’s issue of CWS Market Review, I want to caution you to expect a more modest market in March and April. We’ve done well lately and I’m always glad to see big gains from our stocks, but even the best markets don’t rise in a straight line.

The S&P 500 has continued to reach its highest levels since the middle of 2008, and the index’s streak of trending above its 50-day moving average is one of the longest on record. If that’s not enough, the S&P 500 just doubled in the fastest time since the Great Depression. Clearly, a nice break is to be expected.

I’ve also become a little concerned that Wall Street has become overextended recently. I keep seeing good stocks that are simply going for more than they’re worth. Coca-Cola ($KO) and Costco ($COST) are perfect examples. I wouldn’t mind buying these stocks, but the prices are just too rich for me. I’m also concerned by the growing weakness in the bond market. At some point, that will catch up to stocks.

The good news is that our stocks are poised to do very well in a more defensive market. In fact, we just got a taste of that with Reynolds American ($RAI). The company announced its second dividend increase in the past four months. In October, Reynolds increased its quarterly dividend from 45 cents to 49 cents per share. Then on Wednesday, Reynolds said it was raising the dividend again, this time to 53 cents per share. That’s an 18% dividend increase in just a few months. Going by RAI’s most recent price, the dividend yield works out to 6.2%.

When investors get nervous, they seek out stable companies like Reynolds. If you recall, Reynolds fell one penny per share shy of Wall Street’s earnings estimate two weeks ago. I wasn’t at all bothered by this because the company gave us good guidance for the year. So despite upsetting Wall Street in the near-term, the stock easily shrugged off any damage. In fact, the pullback was a good buying opportunity.

Remember, high-quality stocks prove their mettle during tough times. This is precisely why I put stocks like Reynolds on the Buy List. Make no mistake, if a stock like Google ($GOOG) or Apple ($AAPL) or, heaven forfend, Netflix ($NFLX), were to miss earnings by a penny, traders would thoroughly trash these stocks.

Let’s also look at what happened to AFLAC ($AFL). This stock not only fell after missing its earnings by two cents per share, but it was also downgraded by Citigroup. As I said before, the important news was that AFLAC gave us good earnings guidance for 2011. That proved to be a bulwark against panicked sellers. On Thursday, the shares reached a new 28-month high. I said that AFLAC was going to make a run at $60 and on Thursday, the stock got within 51 cents of that target. Both AFL and RAI continue to be excellent buys.

Some other good values on the Buy List include Wright Express ($WXS), Moog ($MOG-A) and Oracle ($ORCL). I was impressed to see that Fiserv ($FISV) made another new high this week. Bargain hunters should take notice that Ford ($F) has slid below $16 per share which is a very good entry point. Ford can easily be a $20 stock.

The next Buy List earnings report will be from Medtronic ($MDT) this Tuesday. Be advised that this earnings report will be for their fiscal third quarter which ended in January. I have to confess that Medtronic has been a very frustrating stock. The earnings have been decent (not great) but the stock has been stuck in a rut and the guidance has been disappointing. Still, I think there’s an opportunity here.

In November, Medtronic said to expect earnings-per-share for FY 2011 to range between $3.38 and $3.44. Now I have to break out some math. For the first half of this fiscal year, Medtronic has already earned $1.62 per share which means the company expects earnings between $1.76 and $1.82 per share for the second half.

The fourth quarter is usually much stronger than the third quarter, so I expect earnings of 86 cents per share for the third quarter (this Tuesday’s report) and 94 cents per share for the fourth quarter. My estimate for Tuesday is two cents higher than Wall Street, but I’m more interested to hear if they can provide any guidance for Q4. I’m guessing they’ll probably narrow their full-year guidance.

Bottom line: Even if they don’t beat my earnings estimate, MDT is still very cheap. By Medronic’s own forecast, the shares are trading for less than 11 times forward earnings. The problem is that the stock just can’t seem to move. The dividend currently yields 2.2% and I expect to see a dividend increase in June. If you have the patience to wait this one out, I think MDT is a solid buy.

Finally, we’re seeing more positive economic news. The recent Philly Fed report was exceptionally strong. The minutes from the Federal Reserve’s January meeting showed that the central bank raised its GDP growth forecast for 2011 to a range of 3.4% to 3.9%.

Wall Street has gradually been raising its full-year earnings forecast for the S&P 500. On September 30th, the consensus expected earnings of $93.96. At the beginning of the year, the consensus had climbed to $94.80. Now it’s up to $96.18. In other words, the reasons for this rally have been sound. It’s definitely not a bubble.

That’s all for now. The market will be closed this Monday in honor of Washington’s Birthday (the NYSE is careful to note that its rules do not call the holiday President’s Day). Be sure to keep visiting the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

Morning News: February 18, 2011
Posted by Eddy Elfenbein on February 18th, 2011 at 8:04 am

China PBOC Raises Reserve Requirement Ratio By 50 BPs

Japan Says G-20 Divided On Using Forex Rate For Guidelines

G-20 Stung by Faster Inflation Amid Imbalance Dispute

China Drafts Measure to Control Food Prices

Singapore to Spend Inflation-Easing S$6.6 Billion Ahead of Vote Due in Next Year

Fed’s Hoenig Sees ‘Sustainable’ Recovery; Prices Slowly Rising

Here Comes $4 Gasoline

World’s Largest Cement Maker Lafarge to Halve Dividend as It Aims to Cut Debt

Sony Expects TV Sales in India to Grow 70%

Nordstrom to Acquire Online Retailer HauteLook for $180 Million

JPMorgan Gives Dimon a $17 Million Payday

TomTom Profits Slump By a Third

Paul Kedrosky: Apple Locks Up Flat Panel Supplies

Leigh Drogen: How Investment Advisors Should Be Using Social Media

Joshua Brown: POLL: Where Will A Correction Come From?

Greatest. Story. Ever.
Posted by Eddy Elfenbein on February 17th, 2011 at 2:09 pm

It turns out that Wells Fargo (WFC) got involved in a nasty foreclosure mess. Except there’s one detail to add — they’re the ones who got foreclosed.

It’s not clear how this story will turn out, but right now Patrick Rodgers is living a pay-back fantasy probably shared by millions of struggling U.S. homeowners.

Frustrated by a dispute with Wells Fargo Home Mortgage and by his inability to get answers to questions, the West Philadelphia homeowner took the mortgage company to court last fall.

When Wells Fargo still didn’t respond, Rodgers got a $1,000 default judgment against it for failing to answer his formal questions, as required by a federal law called the Real Estate Settlement Procedures Act.

And when the mortgage company didn’t pay – does something sound familiar? – Rodgers turned to Philadelphia’s sheriff.

AFLAC Hits Fresh 52-Week High
Posted by Eddy Elfenbein on February 17th, 2011 at 12:28 pm

Remember that Citi downgrade from last week? Me neither.

The shares have been as high as $59.47 today.

Even Core Inflation Is Starting to Pick Up
Posted by Eddy Elfenbein on February 17th, 2011 at 9:41 am

Like a lot of observers, I’m pretty skeptical of the government’s inflation numbers. I think this data is skewed to under-report the amount that prices are increasing.

As far as inflation goes, I’m a pragmatist. I’m not going to predict that hyper-inflation is just around the corner — and as far as I can see, ruinous inflation isn’t a problem that currently plagues us.

That’s why I was surprised to see that today’s inflation report showed a very modest increase in consumer prices for January. The sound bite that you’ll see on most news report is that headline inflation rose by 0.4% which was 0.1% more than expected. The “core rate,” which excludes food and energy, rose by 0.2%.

I looked at the core rate, which is the rate that many economists prefer. I then took the seasonally adjust core rate and annualized each monthly reading. The rate for January was 2.06% which is the highest since October 2009.

Overall, that’s still a low rate. However, inflation tends to be a very trend-friendly data series, meaning higher inflation often begets still higher inflation. The chart below shows that the trend for the past few years has been lower inflation. Today’s data point seems to break that trend.

Of course, this is just one data point. But even using the numbers that the Federal Reserve uses, the evidence that the deniers prefer may be telling us a change is underway.