• This Is a Great Earnings Season
    Posted by 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 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.

  • IBM’s $10 Billion Share Buyback
    Posted by on October 26th, 2010 at 10:57 am

    Shares of IBM (IBM) are getting a nice boost today on news that the company has approved a $10 billion share buyback plan.

    OK, that’s nice and it makes for great press releases.

    But here’s my contention. How would shareholders vote if they had the choice between $8 per share now or a $10 billion buyback plan that will theoretically lift the stock by $8 per share?

    Even after considering the tax consequences, I have no doubt that shareholders would vote for the cash. And those who want more shares could use their new cash to buy more IBM stock. It’s that simple. But IBM is giving no choice to its shareholders and it’s using corporate cash to buy a stock that’s doubled in less than two years.

    (We should also remember that IBM merely approved a buyback plan. It may take a long time to be implemented.)

  • Ford Keeps on Cruising
    Posted by on October 26th, 2010 at 10:37 am

    Earlier this year, I got a big head start on the media when I called Ford (F) my “Stock of the Decade.” Perhaps I had been rushing things but you never know with these media phenomena.

    The good news is that Ford keeps proving me right. Today the car maker reported earnings of 38 cents per share, 10 cents better than the Street’s estimate. This was Ford’s sixth-straight quarter of making a profit. The company is also working to pay down their massive (MASSIVE) debt.

    Bolstering the financial performance, Ford also announced it paid down its revolving credit line by $2 billion and will make a cash payment of $3.6 billion on Friday to cover the last of its health-care trust obligations. The Voluntary Employee Beneficiary Association covers 195,000 retirees and their spouses. It was established by the U.S. auto makers and the United Auto Workers as of way of helping the auto maker reduce rising health care costs. The UAW has control of the trust.

    These actions alone will reduce the company’s overall automotive debt to $22.8 billion from $27.3 billion at the end of June.

    Ford also plans to lower its debt even further by offering two convertible debt securities in the fourth quarter. Holders will be offered a cash premium as an inducement for them to convert the debt into shares of Ford common stock.

    The company has said that it expects all of its business units will be profitable in Q4 and next year. Not getting a bailout seems to help Ford among consumers. In North America, Ford’s pre-tax profit jumped from $314 million to $1.6 billion. Sales of F-Series pickups have picked up by 25% over the past year.

  • Morning News: October 26, 2010
    Posted by on October 26th, 2010 at 7:37 am

    15 Inviolable Rules for Dealing with Wall Street

    Stock Futures Dip; Home Price, Confidence Data Eyed

    Bernanke Asset Purchases Risk Unleashing 1970s Inflation Genie

    5 Reasons Why Warren Buffet Is Wrong About Hedge Funds

    DuPont Net Falls 10%, Raises View

    Shrinking Bank Revenue Signals Dawn of `Worst’ Growth Decade

    China Telecom Giant Makes Push for U.S. Market

    Bank of England Chief: Basel III Incomplete Answer

    Fed Throws its Weight into Foreclosure Probe

    Texas Sends Amazon.com a $269 Million Tax Bill

  • My Earnings Forecast for Nicholas Financial
    Posted by on October 25th, 2010 at 4:27 pm

    This Thursday, little Nicholas Financial (NICK) will report earnings for their fiscal second quarter. It’s hard to say what Wall Street’s consensus is because, well…no one follows NICK. As far as I know, I’m the only one.

    Here’s my take: The good news is that the story is still the same. NICK’s business has improved dramatically since the credit crisis. The company continues to make money and the quality of their portfolio is a lot better.

    Here’s my estimate for this earnings report:

    Receivables: $245 million
    Gross yield: 25%
    Interest Expense: 2.5%
    Provision for Credit Losses: 2.8%
    Pre-Tax Yield: 10%
    EPS: 30 cents or more

    Those are just guesses but I doubt I’m too far off. Even if I’m off by a bit, the fundamental story is the same. The portfolio is growing slowly. The quality of the portfolio is improving. The yield spread between what they borrow and what they lend is gigantic.

    Last quarter they made 29 cents per share and the quarter before that, they made 28 cents per share. For this calendar year (which is not the same as NICK’s fiscal year), they should make about $1.20 per share, maybe $1.25 per share.

    Even at the current higher stock price of $10, NICK is still very inexpensive. If they earn $1.20 per share for 2010, that’s basically like a 12% bond. By comparison, 30-year Treasuries are going for less than 4%.

    Of course, I don’t know how the market will react to earnings. It seems like the stock woke up all of a sudden about one month ago. Who knows why? As I said before, the story is still the same. Fundamentally, nothing has changed. My view is that NICK is a great buy under $12 per share.

  • Apple Vs. Google
    Posted by on October 25th, 2010 at 11:27 am

    Russ Roberts spoke to Thomas Hazlett of George Mason in a podcast about the rivalry between Apple and Google:

    It is commonly argued that Apple with its closed platform and tight control from the top via Steve Jobs is making the same mistake it made in its earlier competition with Microsoft. Google on the other hand is lauded for its open platform and leveraging of a large number of suppliers for its Android phone, for example. Hazlett, drawing on his recent article in the Financial Times, argues that these arguments fail to recognize the different competitive advantages of Apple and Google and the implications of those advantages for the companies’ respective strategies. The conversation concludes with a discussion of the move to application-based web browsing such as Facebook, Twitter, and the implications for Google.

    The podcast is 68 minutes long.

  • Buy List +11.5 YTD
    Posted by on October 25th, 2010 at 10:21 am

    Our Buy List is having a very nice day so far but I should remind you (and me) to never judge a market day until the closing bell.

    All 20 stocks are trading higher. AFLAC (AFL) broke $56 per share and is very close to a new 52-week high. Intel (INTC) is inches away from $20 per share. Both Nicholas Financial (NICK) and Reynolds American (RAI) are at fresh 52-week highs.

    The Buy List is currently up 1.20% for the day and 11.50% for the year.

  • Fiserv and AFLAC’s Earnings Due this Week
    Posted by on October 25th, 2010 at 8:53 am

    This will be another busy week for earnings. I’m especially looking forward to Friday’s GDP report. This will be our first look out how well the economy did during the third quarter.

    So far, the much-talked-about Double Dip has been in the second derivative. The rate of growth has slowed down, but we haven’t actually seen negative growth. I don’t expect much from this report, perhaps around 2%.

    On our Buy List, Fiserv (FISV) and AFLAC (AFL) both will report on Tuesday. Fiserv rarely deviates much from Wall Street’s earnings forecast.

    The Street currently expects $1.00 per share for Q3 earnings. In July, they gave full-year guidance of $3.96 to $4.07 per share. I wouldn’t be surprised if they lifted the low end of that forecast.

    AFLAC said it expects Q3 earnings of $1.35 to $1.38 per share. Of course, since much of AFLAC’s business is in Japan, much of the fine-tuning depends on the yen/dollar rate. For all of 2010, AFLAC sees earnings of $5.34 per share.

  • Morning News: October 25, 2010
    Posted by on October 25th, 2010 at 7:16 am

    Dollar Sell-off Resumes Post G20, Fed Policy Key

    BP Sells Gulf of Mexico Fields to Pay for Oil Spill

    Singapore’s Offer for ASX Misses Mark

    G-20 to Avoid `Competitive Devaluation,’ Prod China

    Markets Smell Recovery as Consumers Drive Retail Sales

    Short Sales Resisted as Foreclosures Are Revived

    Existing Home Sales in U.S. Probably Rose for a Second Month

    App Makers Take Interest in Android

    Children Want Gadgets Not Toys for Christmas

    Try Not To Be Too Smart