CommScope Bought Out for Half Off
Posted by Eddy Elfenbein on October 27th, 2010 at 10:40 am

Shares of CommScope are much higher today on the news that it’s being bought out by Carlyle Group for $3.9 billion. The price tag comes to $31.50 per share which is a 36% premium to yesterday’s close.

CommScope is working to revive sales after the global recession hurt demand last year. Carlyle is banking on an increase in demand for fiber-optic networks as phone- and Internet-service providers update their systems to accommodate increasing amounts of video and data.

CommScope, which sells its products worldwide, said revenue this quarter will be $730 million to $780 million, missing the $805.9 million predicted by analysts in a Bloomberg survey. The company has raised prices as its costs have increased, cutting into sales, Chief Financial Officer Jearld Leonhardt said in a separate statement. Sales a year earlier were $748.5 million.

The buyout is the good news. The bad news is that even after a 36% premium, CommScope is still going for half its 2007 high. It’s even well below where it was in 1999 and 2000.

Sure, many stocks are in the same boat, but I think it’s important to put a 36% premium into some context.

Earnings Calendar
Posted by Eddy Elfenbein on October 27th, 2010 at 9:30 am

Here’s our updated earnings calendar for the stocks on the Buy List:

Note that this only covers the stocks on the March/June/September/December reporting cycle. Also, the $0.30 cent estimate for Nicholas Financial isn’t the Street’s view, but it’s my view.

Morning News: October 27, 2010
Posted by Eddy Elfenbein on October 27th, 2010 at 7:58 am

Canadian Men are Confident about Stock Market

Oil Is Steady as Consumer Confidence Climbs, Dollar Rebounds

Orders for U.S. Durable Goods Likely Climbed, Boosting Growth

Stock Futures Dip as Investors Rethink Stimulus Views

India’s Currency Attracts Investors, but Damages Exports

Mortgage Applications in U.S. Increase, Spurred by Lower Borrowing Costs

Comcast 3Q Profit Falls 8.2%; Adjusted Results Beat Street Views

P&G First-Quarter Profit Falls 6.8%, Tops Analysts’ Estimates

Sprint Posts Wider Loss Than Estimated on Handset Upgrade Costs

Why There Are No Televisions at Fusion

Malcolm Gladwell on General Motors
Posted by Eddy Elfenbein on October 26th, 2010 at 10:51 pm

Here’s a sample from the latest New Yorker:

Next up was General Motors. Team Auto’s idea was to bypass the traditional bankruptcy procedure, in which the entire company would be restructured through a protracted process of negotiation with creditors. Instead, the company would be divided into two. “Old G.M.” would contain the unwanted factories and debts and unused assets—all of which would be wound down and sold over time. The best parts of the automaker would be transferred to “New G.M.,” an entity funded and owned by the American taxpayer. The task of carving out the new entity was enormously complex, and involved rewriting countless contracts with unions, suppliers, and creditors. To minimize disruption to the company’s operations, Team Auto worked with lightning speed. Rattner would rise at five-thirty, be on the treadmill at the gym by six, and in the office by seven. Lunch was a tuna-fish sandwich at his desk. He wouldn’t be back at his rented condo in Foggy Bottom until eight or nine, catching up on the day’s e-mails before heading to bed. One of Rattner’s team members spent his first month on a friend’s couch in Virginia. Another worked around the clock during the week, and then made the five-hour drive every weekend to see his family, in Pittsburgh. None had any time for ceremony. At one point, two members of Team Auto, Brian Osias and Clay Calhoon, called for a sitdown with senior Chrysler executives at eleven on a Saturday morning. “The executives were almost all middle-aged industry veterans,” Rattner recounts. “Osias was thirty-two years old and Calhoon was twenty-six, and both looked younger than their years.” Calhoon announced to the room, “We’re going to sit at this table until we’re done.” They were there until 2 A.M. on Sunday. On another occasion, the Team Auto member Harry Wilson had a meeting with senior G.M. officials, who arrived with a hundred-and-fifty-page document. Rattner writes, “ ‘What’s this?’ Harry asked. ‘The agenda,’ came back the reply. Harry, almost laughing, said, ‘You can’t run a meeting with a 150-page agenda!’ ” He substituted his own. Rattner took the job as Auto Czar in February. He was back home in New York, mission accomplished, by July.

Rattner has since run into some trouble. Recently, an S.E.C. investigation into a “pay to play” scandal involving the New York state pension fund led to sanctions against Rattner, who has reportedly accepted a two-year ban from the securities business. But there is no question that the auto bailout represents one of the signature accomplishments both of his career and of the Obama Administration. In August, G.M. posted its second quarterly profit in a row, its best result in three years. Chrysler, for its part, is now safely in the hands of Fiat, at least for the time being. Two years ago, when the heads of G.M., Ford, and Chrysler came to the Senate in the hope of gaining relief, no one could have imagined such a favorable outcome. At the time, the Center for Automotive Research estimated that the collapse of the Big Three would result in as many as three million lost jobs. So soon after the Wall Street rescue, there seemed little public or political appetite for another taxpayer bailout. The reaction of Richard Shelby, the ranking Republican on the Senate finance committee, was typical. “I don’t believe they’ve got good management,” he said of G.M. “They don’t innovate. They are a dinosaur. . . . I don’t believe the twenty-five billion dollars they’re talking about will make them survive. It’s just postponing the inevitable.” The reason to bring in a private-equity expert is that he would never be so defeatist. To someone like Rattner, there is nothing wrong with giving a dinosaur money if you think you can fix the dinosaur. One might even say that the private-equity investor prefers the dinosaur, because dinosaurs are cheap, which increases the potential profit at the end. And then the world will look at him with awe and say, “Wow, you turned around a dinosaur”—even if, on closer examination, that wasn’t what happened at all.

AFLAC Earns $1.45 Per Share
Posted by Eddy Elfenbein on October 26th, 2010 at 4:58 pm

AFLAC (AFL) just reported Q3 operating earnings today of $1.45 per share. (I have to apologize because this was a surprise. For some reason, I was expecting AFL’s earnings tomorrow.)

For insurance companies, we always want to look at the operating number. The company said to expect $1.35 to $1.38 per share. Wall Street was expecting $1.39 per share.

These are great results. I can’t believe this stock is going for 38 times quarterly earnings.

The average exchange rate of the yen in the quarter was 85.74 to the dollar, stronger than 93.56 a year earlier. The yen hit 15-year highs against the dollar in the quarter.

For the year, Aflac expects operating earnings of $5.52 to $5.57 per share, assuming the yen averages somewhere between 80 and 85 to the dollar in the fourth quarter.

Aflac also warned that, if interest rates stay at historically low levels, operating earnings growth in 2011 would likely be at the low end of its forecast range — 8 percent to 12 percent before currency impacts.

S&P 500 Gains 0.0017% Today
Posted by Eddy Elfenbein on October 26th, 2010 at 4:48 pm

The S&P 500 rose from 1,185.62 yesterday to 1,185.64 today.

Woo!

That’s a gain of 0.0017%. If you annualize it, that comes to 0.43% which still beats a three-month T-bill.

Our Buy List rose by 0.0084% today, so we beat the market. Our Buy List has closed higher for 13 of the past 16 days.

Fiserv Earns $1.04 Per Share
Posted by Eddy Elfenbein on October 26th, 2010 at 4:26 pm

After the bell, Fiserv (FISV) reported Q3 earnings of $1.04 per share. The Street was looking for $1.00. As I said, Fiserv rarely deviates much from guidance. Four cents is a pretty nice beat for them.

They kept the full-year guidance range the same at $3.96 to $4.07 per share. That seems very out-of-date since Fiserv has already made $2.99 per share for the first three quarters of 2010.

As a result, we can expect Q4 earnings between 97 cents and $1.08 per share. But if they make less than $1 per share this quarter, then we’ll know something went very wrong. In fact, if they made less than $1.04, it would be ugly.

I wish they had raised the low-end of guidance. Maybe that will come later this year. The stock is down modestly after-hours.

The TIPs Yield Curve
Posted by Eddy Elfenbein on October 26th, 2010 at 3:27 pm

Here’s a look at the yield curve of inflation-protected Treasury securities, otherwise known as TIPs:

This chart is, in my opinion, pretty stunning. Investors greatly prefer the liquidity and reliability of U.S. government debt to just about everything else.

The media made a lot of noise yesterday about the TIPs auction due in April 2015 going off at a negative yield. (It’s the 12th data point from the left, right near the -0.5% line.) But the TIP due in July 2017 is going for slightly less than 0.0%.

Update: Paul has found the source!

This Is a Great Earnings Season
Posted by Eddy Elfenbein on October 26th, 2010 at 2:19 pm

The numbers have been coming in fast this week and we can now say that this is a great earnings season. Dirk Van Dijk of Zacks has more details. Here’s a sample:

* Great start with a median surprise of 5.88%, and a 7.58 surprise ratio. Total of 128 positive surprises and just 17 disappointments. Positive year-over-year growth for 130, falling EPS for 28 firms, a 3.81 ratio. Total net income reported up 33.8%.

* Sales Surprise ratio at 1.78, median surprise 0.64%, 54.7% of all firms do better than expected on top line. Revenue growth healthy at 5.78%. Excluding financials, revenue growth at 10.2%.

* Total net income (for those yet to report) for the S&P 500 in the third quarter of 2010 is expected to rise 13.8% over third quarter of 2009 levels — a slowdown from the 37.4% growth those same firms had in the second quarter. A rebound to 15.8% growth expected in the fourth quarter.

* Net margins (among the 341 yet to report) expected to rise to 7.52% from 6.92% a year ago. Excluding financials, net margins expected to rise from 6.88% last year to 7.11% in the third quarter.

* Full-year total earnings for the S&P 500 expected to jump 42.5% in 2010, 11.0% further in 2011. Total revenues for the S&P 500 expected to rise 4.93% in 2010, 6.05% in 2011. Excluding financials, revenue growth of 8.38% expected in 2010, 7.01% in 2011.

* Net Margins marching higher, from 5.90% in 2008 to 6.42% in 2009 to 8.78% expected for 2010, 9.12% expected for 2011 — a major source of earnings growth. Net margins ex-financials 7.81% in 2008, 7.13% in 2009, 8.14% expected for 2010, 8.50% in 2011.

* Revisions ratio for full S&P 500 at 1.85 for 2010, at 1.21 for 2011, an improvement from last week. Ratio of firms with rising to falling mean estimates at 1.70 for 2010, 1.11 for 2011. Total revisions activity picking up, for 2010, all from estimate increases.

* S&P 500 earned $57.57 in 2009: $81.96 in 2010 and $90.78 in 2011 expected.

* Top Down estimates: $79.90 for 2010, $92.27 for 2011.

Owning Citigroup
Posted by Eddy Elfenbein on October 26th, 2010 at 12:46 pm

Thanks to its low price, the daily trading volume in Citigroup (C) is astounding. On heavy days, the volume exceeds 1 billion shares. That’s around 43,000 shares every second.

For this year, the daily average is about 600 million shares. The total for the year is 120 billion shares. Since the company has 29.05 billion shares outstanding, the average Citigroup shareholder owns the stock for about 10 weeks.