Morning News: April 22, 2011
Posted by Eddy Elfenbein on April 22nd, 2011 at 7:54 am

Asian Stocks Swing Between Gains, Losses on Japan Budget, Factory Restart

Canadian Stocks Rise as U.S. Dollar Slips, Metal Producers Gain

Greek, Irish, Portuguese Bonds Slump on Default Bets; Bunds Rise

Third Day of Shanghai Strike Threatens China Exports

China Yuan Hits Fresh Peak Amid US Debt Concerns

Euro Near 16-Month High Before French, Italian Economic Reports

Gold Climbs to Record as Debt Concern, Inflation Boost Investment Demand

US Stocks Finish Week Higher, Boosted By Earnings

Mitsubishi UFJ Financial Group Eyes New US Prospects After Rejiggering Ties With Morgan Stanley

Could This Law Prevent A US Debt Ceiling Catastrophe?

Toyota Sees Slow Return to Normal

JPMorgan to Return $861 Million to Lehman Brokerage

New York Times Shares Fall as Ad, Circulation Revenue Decline

Howard Lindzon: Apple…Overwatched and Underowned!! $AAPL

Joshua Brown: Joel Stein’s 100 Things

Now the Dow Is Beating the S&P 500
Posted by Eddy Elfenbein on April 21st, 2011 at 10:29 am

In January, I noted that the Dow Jones Industrial Average had missed the rally. The index had significantly underperformed the S&P 500.

Now the S&P 500 is the one that’s lagging. The Dow has already passed its pre-quake high from mid-February while the S&P 500 is still trying to clear that hurdle. Yesterday, the Dow had its highest close since June 5, 2008. That was the last time the Dow had closed over 12,500.

The index first closed above 1,250 on September 26, 1983. The index first closed above 125 on March 3, 1925. That was the day before Calvin Coolidge was inaugurated. He became president after Harding’s death and then won the election in 1924.

Why is the Dow doing better? Part of the reason is regression to the mean. Better earnings from companies like Johnson & Johnson ($JNJ) are helping those stocks that have weighed down the Dow. Also, the Dow doesn’t have as many cyclical stocks as the broader market, so when cyclicals begin to suffer, the Dow will outperform.

Erin Burnett’s Red Bra
Posted by Eddy Elfenbein on April 21st, 2011 at 9:54 am

Updated Q1 Earnings Calendar
Posted by Eddy Elfenbein on April 21st, 2011 at 8:57 am

Reynolds American Earns 59 Cents Per Share
Posted by Eddy Elfenbein on April 21st, 2011 at 7:59 am

Reynolds American ($RAI) just reported earnings of 59 cents per share which was a penny better than expectations.

Reynolds American Inc. (NYSE: RAI) today announced first-quarter 2011 adjusted EPS of $0.59, up 5.4 percent from the prior-year quarter, driven by strong performance on key brands, higher pricing and productivity improvements. Adjusted results exclude the impact of first-quarter 2010 changes in federal health-care laws and the Canadian governments’ settlements, as well as first-quarter 2011 implementation costs related to plant closings and tax items. First-quarter reported EPS was $0.60, up 328.6 percent.

RAI reaffirmed adjusted EPS guidance for 2011 in the range of $2.60 to $2.70, up 4.4 percent to 8.4 percent. This guidance excludes charges related to plant closings and tax items.

Morning News: April 21, 2011
Posted by Eddy Elfenbein on April 21st, 2011 at 7:21 am

German Business Confidence Fell for a Second Month in April

OECD Urges Japan to Raise Sales Tax

Greeks Gird for Losses as Debt-Cutting Odyssey Enters Year Two

Crude Oil Futures Higher In Asia; Upbeat Demand Outlook

Gold’s Glittering History

Bernanke Bond Market Signals No Shift With Obama Deficit Cutting

Marchionne to Gain Chrysler Control Early as Fiat Raises Stake

GE Profit and Revenue Top Street View

Nokia Posts Strong Earnings

DuPont Raises Full-Year Forecast After First-Quarter Profit Tops Estimates

Oilfield Services Giant Schlumberger Sees Profits Rise 40%

American Express Q1 Net Income Up 33%

Wells Fargo Profit Jumps, but Revenue Falls Slightly

Amgen 1Q Profit Falls 3.6% As Costs Rise

Joshua Brown: Icahnology in the New York Times

Paul Kedrosky: Flash: Goldman Sachs Has Clients!

Gilead Sciences Bombs
Posted by Eddy Elfenbein on April 20th, 2011 at 7:58 pm

Gilead Sciences ($GILD) just reported an awful quarter. Man, this one was UG-LEE!

GILD earned 87 cents per share for Q1 which was a full ten cents below the Street’s expectation. Revenue dropped 7.7% to $1.93 billion which was $100 million below the Street’s estimate.

Sales of HIV drug Truvada rose 2 percent to $673.1 million, while sales of Atripla rose 7 percent to $744.5 million — but the totals fell short of respective average analyst estimates of $688 million and $793 million.

Gilead said U.S. sales were hit by temporary cutbacks at state-funded AIDS drug assistance programs (ADAPs) in Florida and Texas.

“Investors will want clarity on whether this is indicative of a longer-term trend,” said Cowen & Co analyst Phil Nadeau. “Gilead did maintain its full-year guidance, which suggests that this is not an ongoing problem.”

The company still expects full-year product sales of between $7.9 billion and $8.1 billion.

“We believe that the fundamentals of our business remain strong with regard to patient demand and prescription growth in the retail sector,” John Milligan, Gilead’s president and chief operating officer, said on a conference call.

The company’s quarterly adjusted profit of 87 cents per share fell well below the average Wall Street analyst forecast of 97 cents per share, according to Thomson Reuters I/B/E/S.

Gilead attributed the mismatch between U.S. demand and its sales revenue to budget problems in Texas and Florida, adding that the federal government recently set a fiscal 2011 ADAP budget of $885 million — up 6 percent from the prior year.

“The very latest intelligence we have gathered at the state level indicates that there is second-quarter purchasing by ADAP programs, including Florida, within the last week,” said Kevin Young, head of commercial operations at Gilead.

He said he had not heard about renewed buying by the Texas program.

The shares are down after-hours. There are a few brights (I don’t want to overstate this; it was a rotten quarter). First, Gilead is keeping their sales target the same. That’s good to know.

Also, GILD was already very cheap so an earnings miss shouldn’t have a dramatic impact on the shares. Instead of going for 11 times trailing earnings, GILD is now going for 11.4 times trailing earnings.

I still have eight months before I make my 2012 Buy List decisions, but Gilead just made my job a lot easier.

VIX = 14.30
Posted by Eddy Elfenbein on April 20th, 2011 at 12:53 pm

There’s been a lot of talk about the $VIX today which is an index of implied volatility. (Quick definition: Options prices require an input for volatility. Therefore you can take the current options prices and work backwards to see what the market is pricing for volatility). The $VIX just hit a three-and-a-half year low of 14.30.

The problem is that a lot of talking heads assume that a lower $VIX is good for stocks. It’s neither good nor bad. Volatility just is. I’ve found some evidence that the stock market does a little better than usual when the $VIX is very low, as in under 13.

Let’s remember that one of the best buying opportunities in the last 200 years came in March 2009 when the $VIX was at 50.

A Strong Opening — And Then What?
Posted by Eddy Elfenbein on April 20th, 2011 at 11:14 am

The good news is that we had a very strong opening to the stock market this morning.

The problem is that for the last several years, the market has performed horribly during the trading day. Most of the market’s gain has actually come when the market is closed — from the closing bell to the next morning’s opening bell.

(Via: MarketSci)

Earnings Preview for Nicholas Financial
Posted by Eddy Elfenbein on April 20th, 2011 at 9:48 am

Nicholas Financial ($NICK) will report its fourth-quarter earnings on May 5th. I’ve probably written more about NICK than any other stock. It’s done incredibly well for us and I’m very happy to say that I continue to see more success for NICK.

By just about any reasonable valuation, NICK is absurdly cheap. The stock closed Tuesday at $12.16 per share. Let’s look at some numbers. For the first three quarters of NICK’s fiscal year, the company earned $1.01 per share. I’m projecting that they’ll earn 40 cents per share for Q4.

If someone told me two years ago that NICK could earn 40 cents per share in one quarter, I would have thought they were nuts. And I never would have thought I’d be the one making that projection, but that’s a very reasonable target for NICK’s Q4 earnings.

That would bring NICK’s full-year earnings up to $1.41 per share which means the stock is going for 8.62 times trailing earnings. That’s an earnings yield of 11.6%. Let’s just say there aren’t many bonds giving you that.

Additionally, the quality of NICK’s portfolio is increasing. Some of the improvement in NICK’s bottom line is due to lower reserves. I really can’t hold that against the company since it means they were overly conservative during a very rough patch.

Short-term interest rates continue to be very low which also helps NICK. The company borrows for 5% and lends out for 25% which is an equation I like a lot. Mind you, there could be troubles in NICK’s future like higher oil prices or a downturn in the economy. Yet the company has shown how well it can manage itself during difficult times.

For the coming fiscal year, I think it’s very reasonable to assume NICK can earn $1.55 to $1.60 per share. If things go well, they can earn as much as $1.70. Even a modest earnings multiple on a conservative estimate means this is a $17 stock.

Since NICK is so small, it’s not followed by a single analyst on Wall Street. That’s their loss. While I feel very confident about 40 cents per share, I have no idea what the stock will do. I can’t say for certain that the market will finally realize the value in NICK, but I doubt this undervalued gem can stay a secret for long.

One final note: The stock jumped earlier this year on news of that NICK might be acquired. In my view, the biggest risk was that NICK would go for too low a price. Since we haven’t heard any news since, I think it’s safe to assume that the company felt the same way. If that’s the case, I’m glad they said “no.”

When NICK hits $17, I bet there will be even more offers.