Wright Express Earns 74 Cents Per Share
Posted by Eddy Elfenbein on February 10th, 2011 at 10:24 am

Wright Express (WXS) reports earnings of 74 cents per share, three cents more than Wall Street’s expectations. The shares are currently up 1.8% today.

Total revenue for the fourth quarter of 2010 increased 38% to $114.9 million from $83.0 million for the fourth quarter of 2009. Fourth quarter 2010 revenue included $17.4 million from Wright Express Australia, which was acquired on September 15, 2010. Net income to common shareholders on a GAAP basis was $18.5 million, or $0.47 per diluted share, compared with $12.1 million, or $0.31 per diluted share, for the fourth quarter last year.

On a non-GAAP basis, the Company’s adjusted net income for the fourth quarter of 2010 increased 32% to $28.8 million, or $0.74 per diluted share, from $22.1 million, or $0.56 per diluted share, for the year-earlier period. For the full year 2010, revenue grew 24% to $390 million from $315 million in 2009. On a GAAP basis, net income was $2.25 per share in 2010 compared to $3.55 last year per diluted share in 2009, which included a pre-tax gain of $136.5 million on the prepayment of the Company’s liability under a tax-receivable agreement. On an adjusted net income basis, earnings grew 26% to $2.75 per share versus $2.18 per share last year.

Wright Express uses fuel-price derivative instruments to mitigate financial risks associated with the variability in fuel prices in North America. For the fourth quarter of 2010, the Company’s GAAP financial results include an unrealized $10 million pre-tax, non-cash, mark-to-market loss on these instruments. See Exhibit 1 for a full reconciliation of adjusted net income.

“We ended 2010 with strong momentum driven by an unrelenting focus on execution underpinned by an improving macro-economic environment. Importantly, the strength of our results for the fourth quarter and full year were broad-based. We saw improving same-store sales, increased payment processing transactions, strong vehicle growth, exceptional growth in our MasterCard business, and Wright Express Australia met expectations. In addition, during the year we selectively invested in our business to enhance our competitive position and capitalize on compelling growth opportunities both domestically and abroad,” said Michael Dubyak, Chairman and CEO. “In 2011, we will build on this momentum and leverage the multiple avenues of growth in front of us by growing our core fleet business, expanding other payment solutions, and broadening our international footprint.”

Wright also says it expects 63 to 69 cents per share for Q1, and $3.17 to $3.37 for all of 2011.

CBOE to Begin Publishing Values for CBOE S&P 500 Skew Index
Posted by Eddy Elfenbein on February 10th, 2011 at 9:57 am

This is odd. The CBOE is going to start a “skew index” which somehow measures tail risk. Here’s part of the press release:

The Chicago Board Options Exchange (CBOE) announced today that on Wednesday, February 23, the Exchange will begin publishing values for the CBOE S&P 500 Skew Index (ticker symbol: SKEW), a benchmark measure of the perceived risk of extreme negative moves — often referred to as “tail risk” or a “black swan” event — in U.S. equity markets.

“We are excited about adding yet another valuable tool to our rapidly growing suite of volatility benchmarks,” CBOE Chairman and CEO William J. Brodsky said. “The CBOE S&P 500 Skew Index will join our highly successful CBOE Volatility Index (VIX) in measuring the market’s expectation of stock market risk based on S&P 500 options prices. It offers an important new measure for investors who are concerned about potential market moves driven by unusual, high-impact events.”

“Innovative measures of risks associated with market events, such as the VIX and now the SKEW, provide investors with powerful tools for understanding equity and derivative markets,” said Alexander Matturri, Executive Managing Director at S&P Indices. “The fact that these measures are based on the S&P 500 is recognition of the Index’s role in the U.S. equity markets.”

The SKEW(SM) and VIX indexes are different, yet complementary measures of risk. The VIX captures the market’s expectation of likely daily S&P 500 returns over a 30-day time horizon. Statisticians typically describe these “likely” moves as falling within one standard deviation around the average, or “mean” return of the S&P 500 price distribution. The SKEW describes the tail risk of the distribution, that is, S&P 500 returns that are greater than two to three standard deviations below the mean.

SKEW values, which are calculated from weighted strips of out-of-the-money S&P 500 options, rise to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence.

Hmmm. I’m not sure what to make of this. It sounds like a concept hunting for a market. My first reaction is that this sounds like a contradiction — we’re looking at how the market expects what it’s not expecting.

My other reaction is that I’m curious if volatility at the extreme is always related to volatility of the whole. In other words, if the VIX declines as it has over the past year, does it follow that expectations of extreme moves have also declined? I’m guessing the answer is yes, but I would be interested to know if there are many counter-examples.

If not, then the CBOE hasn’t really made a new product. They’ve simply ramped up older products.

(H/T: Alea)

Morning News: February 10, 2011
Posted by Eddy Elfenbein on February 10th, 2011 at 7:38 am

NYSE Euronext-Deutsche Börse Exchange Deal Presages Shake-Up

China Defends Yuan Policy After Bernanke Swipe

European Stocks Fall As Earnings Disappoint

Bank of England Keeps Asset Plan, Benchmark Rate Steady as Inflation Soars

U.S. Treasury 10-Year Yields Approach Lowest in Four Days Before Bond Auction

Bernanke Makes Sure Fed Reminds Congress Deficit Bigger Than QE2

S.E.C. Seeks to Reduce Reliance on Credit Ratings

Cisco Slides in Late Trading as Profit Margin Misses Estimates

Five Years Later, Alcatel Is Solidly Back in the Black

Credit Suisse Cuts Profitability Goal as Net Misses Estimates

PepsiCo 4Q Profit Falls

Rio Tinto Payout Tops Estimates, Unveils $5 Billion Buyback

Paul Kedrosky: The Fed is Always About to Tighten, But … You Know, Doesn’t

Joshua Brown: Hot Links: 100% Accuracy

The Dividend Cycle
Posted by Eddy Elfenbein on February 9th, 2011 at 11:45 pm

Here’s a topic I was curious about but I’m not sure how many other folks are. But it’s my blog, so I’ll post it anyway.

The other day I looked at the return to dividends of the market since 1980. After a few years, that really adds up. As a rule of thumb, I’d say that the dividend rate basically tracks inflation.

I was curious as to what the yearly cycle of dividends is. After breaking down the numbers, dividends seem to follow a quarterly cycle which makes obvious sense.

Since 1980, the average return to dividends for the first quarter of the year is 0.925%. For the second quarter, it’s 0.949%. For the third quarter, it’s 0.915%. And for Q4, it’s 0.961%. That’s not a whole lot of deviation.

Here’s what it looks like by month. In each quarter, the middle month is the highest return to dividends followed by the third month followed by the final month.

January 0.183%
February 0.431%
March 0.309%
April 0.180%
May 0.485%
June 0.281%
July 0.203%
August 0.439%
September 0.270%
October 0.222%
November 0.442%
December 0.295%

Now let’s see what the average quarterly cycle looks like. There seems to be a bump up around the 15th of each month and near the end of each month.

The return to dividends for each quarter seems to start slow. It then picks up near the end of the first month, then starts to slow down around the middle of the third month.

Bernanke’s Opening Statement
Posted by Eddy Elfenbein on February 9th, 2011 at 10:10 pm

Here’s the text.

AOL Sheds $315 Million
Posted by Eddy Elfenbein on February 9th, 2011 at 10:08 pm

Here’s an interesting judgment from the market. AOL bought the Huffington Post for $315 million. Then AOL’s market value dropped by exactly…$315 million.

Since Feb. 1, the price of AOL shares has dropped from $23.85 to $20.89 at yesterday’s close.

With 106.7 million shares outstanding, that means AOL has shed $315 million in value over the last five trading days — which happens to be exactly the same price AOL agreed to pay to acquire HuffPo.

Stocks to Watch
Posted by Eddy Elfenbein on February 9th, 2011 at 2:38 pm

Here are some stocks that I like to keep an eye on. All of these are very strong companies and all are former members of the Buy List. The only thing I have against them is that they’re not cheaper.

I’ve listed each stock’s name, symbol, price as of earlier today, earnings estimate for 2011 and 2012, the 5-year projected earnings growth rate and the P/E Ratio based on 2012’s earnings. For VAR, DCI and FDS, I extrapolated what earnings would be for the calendar year to make the numbers consistent.

Coke Earns 72 Cents Per Share
Posted by Eddy Elfenbein on February 9th, 2011 at 11:59 am

Coca-Cola (KO) reported Q4 earnings today of 72 cents per share which matched expectations. I like Coke a lot and the stock has had a very nice run since last summer. Still, I think the shares are a bit rich.

The P/E Ratio went from being 37% less than the market in mid-2009 to more than 25% over the market today. I’m staying away from shares of KO.

Updated CWS Buy List Earnings Calendar
Posted by Eddy Elfenbein on February 9th, 2011 at 11:06 am

Bernanke To Tell Congress Budget Needs Balancing
Posted by Eddy Elfenbein on February 9th, 2011 at 10:52 am

Today will be a day for sound bites. Ben Bernanke will be testifying before Congress on the budget. This will be the first time he goes before the new GOP-led Congress and he’s not terribly popular among many Republicans.

Of course, I don’t know exactly what Bernanke has to tell Congress about the budget that a simple calculator couldn’t tell. We’re spending a great deal more than what we take in. When we do that, the debt goes up. When we stop doing that, the debt also stops growing. Magic!

There’s been a lot of media coverage of the lawsuit brought by the Madoff trustees against JPMorgan Chase (JPM) for being complicit in the Ponzi scheme. I haven’t commented on it yet for two reasons. One is that the media coverage has been all one-way, focusing on the trustees’ complaint. The second is that this strongly sounds like a case of shifting the blame.

Trustees are people whom you trust. With Madoff, they failed miserably. I don’t see how that’s JPM’s fault. I’m not a lawyer so I don’t know exactly what fiduciary responsibilities a bank has, but Madoff’s aim was to mislead people. I don’t see how it’s JPM’s duty to sleuth him out.

The second-largest U.S. bank said court-appointed trustee Irving Picard is exceeding his power by suing in bankruptcy court, where a judge rather than a jury would decide the case.

“The trustee’s massive damages action against JPMorgan bears no resemblance to a typical lawsuit commenced by a bankruptcy trustee,” JPMorgan’s lawyers said in a court filing late Tuesday.

“In substance,” the bank said, “the trustee is trying to pursue an enormous back-door class action.”

A spokesman for Picard did not immediately respond to a request for a comment.

JPMorgan asked U.S. Bankruptcy Judge Burton Lifland, who oversees the Madoff proceedings, to move Picard’s lawsuit to federal district court, where it can demand a jury trial.

In court papers unsealed on February 3, Picard accused JPMorgan of having significant doubts about Madoff but silently acquiescing in his fraud, hoping to preserve its own investments and a more than 20-year business relationship.

JPMorgan has said it did not know about or assist in the estimated $65 billion Ponzi scheme.

The yield on the 10-year bond has risen in six of the last seven trading sessions. During that time, the yield has climbed from 3.33% on January 28 to 3.72% yesterday. Mirroring that move, the S&P 500 has rallied for six of the last seven days. The only decline was a slight one on February 2nd.

The trend continues to be out of bonds and into stocks.