AFLAC Earns $1.33 Per Share
Posted by Eddy Elfenbein on February 1st, 2011 at 4:31 pm

After the closing bell, AFLAC (AFL) reported Q4 operating earnings of $1.33 per share which was two cents below Wall Street’s expectation.

As I said before, I’m not terribly concerned with AFLAC’s earnings. Instead I was focused on earnings guidance for this year.

Earlier, the company had said they expect operating growth to come in at the low end of their 8% to 12% target for 2011. For 2010, AFL’s operating earnings were $5.53 per share. Eight percent growth works out to $5.97 per share on a stock that closed today at $58.53.

Basically, AFLAC isn’t telling us anything we didn’t already know or reasonably expect. In my book, no bad news is very good news for AFLAC. The stock is going for less than ten times the low end of the company’s estimate.

This is the outlook section from today’s earnings report:

Commenting on the company’s fourth quarter and full-year results, Chairman and Chief Executive Officer Daniel P. Amos stated: “Aflac had a very solid year from a financial perspective, despite ongoing challenges in the economic landscape. Our results were consistent with our guidance for the fourth quarter and the full year. Growth of operating earnings per diluted share was in line with our goal of a 9% to 12% increase before the impact of foreign currency.

“Aflac Japan gets high marks for a great fourth quarter and year, following strong sales results in 2009. Our strategy of offering relevant products through an expanding distribution system contributed to sales results that exceeded our targets for two consecutive years. 2010 was the year of the bank channel, having secured buy-in from more than 90% of banks in Japan who’ve agreed to sell Aflac products. We have also customized our product portfolio to appeal to new market segments by enhancing the benefits of our existing product line. In addition, our Japanese operations continued to improve top-line growth throughout 2010, while the expansion of the profit margin also enhanced Aflac Japan’s earnings growth.

“We are also pleased with the operations and financial results of Aflac U.S. As we discussed throughout 2010, sales growth in the United States was primarily held back by the ongoing weak economic environment. We believe Aflac U.S. sales have been impacted by consumer confidence and small business sentiment that continues to hover at low levels. While we remain cautious in our short-term sales outlook for Aflac U.S., our longer-term view has not changed. We believe the need for the products we sell remains very strong and we are taking measures to better reach potential customers through our product and distribution strategy. This includes broadening our product portfolio to include group products in addition to our traditional individually issued products.

“Furthermore, our balance sheet remained strong throughout 2010, and we believe that our investment approach of effectively matching assets to policy liabilities is the most prudent approach for our policyholders and shareholders. More than anything, we have intensely focused on assessing our capital level. Aflac’s capital position from a U.S. regulatory standpoint steadily improved throughout 2010. Our goal was to end 2010 with a higher risk-based capital (RBC) ratio than our year-end 2009 RBC ratio of 479%. Although we have not yet finalized our statutory financial statements, we estimate our 2010 RBC ratio exceeded 580%. I believe our ability to maintain a strong RBC exemplifies our effective capital management strategy.

“Our decision as to whether to increase the dividend or repurchase our shares is a function of our capital position. As a result of strong capital levels and solid financial strength, I am pleased 2010 marked the 28th consecutive year Aflac has increased cash dividends. Our capital position also gave us the confidence to resume our share repurchase program, and we purchased two million shares in the fourth quarter. We anticipate repurchasing six to 12 million shares in 2011.

“As we look ahead to 2011 sales opportunities in the United States, with the unemployment rate showing little sign of improvement and the confidence of consumers and employers remaining relatively low, we expect sales to be flat to up 5% for Aflac U.S. In Japan, with two consecutive years of strong sales results, we expect sales to be in the range of down 2% to up 3%.

“As I commented in our third quarter release, we will likely be at the low end of the 8% to 12% range for operating earnings per share growth in 2011. Although interest rates have increased somewhat in the United States recently, they have not increased as much in Japan, and yen yields remain very low. If we assume 8% earnings per share growth, we would earn $5.97 per diluted share, excluding the impact of the yen. If the yen averages 80 to 85 to the dollar for the full year, we would expect reported earnings to be in the range of $6.09 to $6.34 per diluted share.”

S&P 500 Breaks 1,300 Again
Posted by Eddy Elfenbein on February 1st, 2011 at 11:08 am

Fiserv (FISV), Leucadia National (LUK) and Nicholas Financial (NICK) are all at new highs today.

On top of that, AFLAC (AFL) is very close to a new high.

The S&P 500 got as high as 1,302.63 which is just 0.04 shy of the 29-month high.

$45 Per Share? Yes We Can!
Posted by Eddy Elfenbein on February 1st, 2011 at 10:45 am

Guess what stock is up 172% since Obama became president?

Answer = Haliburton (HAL). It’s at another 52-week high this morning.

January ISM = 60.8
Posted by Eddy Elfenbein on February 1st, 2011 at 10:14 am

Wow. The ISM was very strong. The index for January hit 60.8 up from 58.5 in December.

Another Look at the Cyclical Top
Posted by Eddy Elfenbein on February 1st, 2011 at 9:54 am

On January 10th, the ratio of the Morgan Stanley Cyclical Index (^CYC) to the S&P 500 reached an all-time high of 0.844.

Then from January 11th to January 21st, the CYC underperformed the S&P 500 for seven-straight sessions. This lead me to say that cyclicals were probably headed for a long period of underperformance.

The CYC responded by beating the S&P 500 for four-straight days before getting crushed on Friday. That turned out to be the CYC’s worst relative performance in over five months.

The CYC looks to outperform the S&P 500 again today. Here’s an updated look at the CYC divided by the S&P 500:

Waiting on AFLAC and the ISM
Posted by Eddy Elfenbein on February 1st, 2011 at 9:09 am

Yesterday, the Dow closed out its best January in 14 years. Today, the focus will be on the ISM report which is due out later this morning and AFLAC’s earnings which are due after the bell.

The current estimate for the ISM Index is 57.5 which sounds about right. As I’ve mentioned before, the ISM is probably one of the best indicators that tells us if we’re in a recession or not.

The index is wired so that any reading above 50 indicates that the economy is expanding and any reading below 50 signals a contraction. NBER, the folks who date recessions, have shown a strong tendency to declare months below 45 as recessions. In the chart below, notice how strongly declines in the ISM correspond with recessions (the grey bars).

January will most likely be the 18th-straight month of a 50+ reading. What I especially like about the ISM is that it comes out on the first business day of the month, and there aren’t endless revisions.

We’re also going to get a report on construction spending plus auto and truck sales.

The economic news that came out yesterday was very encouraging. The Chicago PMI, which gauges economic activity, jumped to its highest level since 1984. For January, the index hit 68.8 up from 66.8 in December.

The Commerce Department reported that personal incomes rose 0.4% in both November and December. The problem is that spending rose by 0.7% in December and 0.3% in November.

The numbers showed that Americans saved $613 billion in December which was a drop of $20 billion from November. The savings rate fell from 5.5% to 5.3%. This data series will get a jolt this year thanks to the 2% cut in payroll taxes which began on January 1st.

Morning News: February 1, 2011
Posted by Eddy Elfenbein on February 1st, 2011 at 8:11 am

S&P Cuts Egypt Outlook

Kenya’s Shilling Gains Vs. Dollar as IMF Approves $508.7 Million Facility

Oil’s Rally Ends as Egypt Risk Subsides; Brent Stays Above $100

Manufacturing Activity Hits Record High

The Case for Ignoring the Stock Market

ADM Q2 Profit Tops Street View on Robust Demand

Warehouse Giants AMB Property, ProLogis to Merge

Bank of America Top Bank Brand, Goldman 16th in Survey

Coke Adds Billion Dollar Brand from China to Portfolio

Exxon’s 4Q Profit Rises, Helped by Higher Oil Prices

Nokia May Be Lowered at S&P in First-Ever Rating Cut

Joshua Brown: Carlos Slim Weighs In On Food Inflation

Howard Lindzon: Wow – It’s a Great Time to Be an Entrepreneur

Earnings Season So Far
Posted by Eddy Elfenbein on January 31st, 2011 at 4:03 pm

This earnings season is shaping up to be a good one. Here are some numbers via Zacks:

*4Q earnings season off to strong start, with 206 of the S&P 500 reports in, median surprise of 4.28% and surprise ratio of 3.73 for EPS, 1.53% and 2.94 for revenues.
*Reported (206 firms) fourth quarter earnings growth of 31.2%, expected (294 firms) year-over-year growth of 19.5% for the vast majority of firms yet to report. On the Revenue side, 7.88% growth reported, but decline of 1.37% expected for those yet to report.
*Full-year total earnings for the S&P 500 expected to jump 43.3% in 2010, 14.7% further in 2011. Growth to continue in 2012 with total net income expected to rise 12.0%.
*Total revenues for the S&P 500 expected to rise 6.09% in 2010, 4.77% in 2011, and 4.89% in 2012. Excluding Financials, revenues expected to be up 8.99% in 2010, 5.97% in 2011 and 5.45% in 2012.
*Revisions ratio for full S&P 500 at 1.98 for 2011, at 1.82 for 2012 — both very bullish readings. Ratio of firms with rising to falling mean estimates at 2.05 for 2011, 1.66 for 2012, also very positive readings. Total revisions activity expanding rapidly, making the revisions ratios more significant.
*S&P 500 earned $544.3 billion in 2009, expected to earn $782.9 billion in 2010, $898.1 billion in 2011. In 2012, the 500 are collectively expected to earn $1.0057 Trillion.
*S&P 500 earned $57.68 in 2009: $82.62 in 2010 and $94.77 in 2011 expected, bottom-up. For 2012, $106.17 expected in early read. Puts P/Es at 15.7x for 2010, and 13.7x for 2011 and 12.2x for 2012.

CWS Buy List Earnings Calendar
Posted by Eddy Elfenbein on January 31st, 2011 at 1:55 pm

Here’s an update of our earnings calendar. So far, every stock but one has beaten Wall Street’s earnings forecast.

The Ford Story
Posted by Eddy Elfenbein on January 31st, 2011 at 1:03 pm

Via the WSJ’s MarketBeat blog, I came across this piece on Ford (F) written by Itay Michaeli of Citigroup.

No, although the Q4 miss may (at least temporarily) take some of the premium out of the stock. The Ford investment story has revolved around product, market share gains and robust pricing—metrics that were alive and well in Q4. What we learned is that Ford’s margins weren’t immune from seasonal pressures (as consensus implied) and that commodity/structural costs remain clear 2011 headwinds. Ultimately, if Ford continues to execute on its global strategy, Q4’10 won’t be remembered as a turning point. To that, we remain positive on Ford’s 2011 product cadence, but do believe GM gains an advantage in 2012-14—one of the factors behind our Hold rating on Ford.