AFLAC’s Earnings
Posted by Eddy Elfenbein on April 27th, 2010 at 4:17 pm

After the bell, AFLAC (AFL) reported first-quarter operating earnings of $1.41 per share. With insurance companies, it’s more important to focus on operating earnings since net earnings can be heavily influenced by investments. The Street was looking for $1.32.
This is what AFL had to say about guidance:

With one quarter of the year complete, we continue to believe we are positioned for another year of solid financial performance. Although challenges posed by weak economic conditions clearly persist, particularly in the United States, we still believe our goal for increasing operating earnings per diluted share is reasonable and attainable. As such, our goal remains an increase of 9% to 12% this year in operating earnings per diluted share, excluding the impact of the yen. If the yen averages 90 to 95 to the dollar for the full year, we would expect reported earnings to be in the range of $5.24 to $5.56 per diluted share. Using that same exchange rate assumption, we would expect second quarter operating earnings to be $1.33 to $1.38 per diluted share.

The stock is at $52.41 and they see full-year EPS coming in between $5.24 and $5.56. That’s a forward P/E Ratio of 9.4 to 10. AFLAC is a very good buy.

Putting Today In Perspective
Posted by Eddy Elfenbein on April 27th, 2010 at 3:30 pm

The Dow is off about 150 right now. I see that people are concerned.
My how we forget what real volatility looks like!
Here’s a look at the daily changes in the Dow since the beginning of 2008:

Update: The Dow closed down 213 points.

Sector Performance
Posted by Eddy Elfenbein on April 27th, 2010 at 2:42 pm

Bespoke has a handy round-up of how the S&P 500 sectors have performed over the past few years:

The important lesson for investors is to see how much less volatile the consumer staples are (these are the stocks that are the opposite of cyclicals). Staples tend to fall the least and rally the least.
Here’s a listing of the 41 stocks in the S&P 500’s Consumer Staples sector. I’ve included each stock’s dividend yield:

Watch The Senate Hearings Live
Posted by Eddy Elfenbein on April 27th, 2010 at 9:55 am

You can see the Senate testify before Goldman Sachs here.
Wait, I might have that backwards. It’s getting hard to tell.
Here are live blogs from:
TBI
WSJ
NYT
FT
Reformed Broker
Dealbreaker

Guardian
Simon Johnson at PBS
This is a perfect opportunity for a Godfather 2-like scene when Frank Pentangeli testified before the Senate. Fab starts reading his testimony and Blankfein walks in with Fab’s brother Olivier and takes a seat in the back row. Then Fab suddenly recants: “Abacus? I never heard of an Abacus.”

Wright Express’ Earnings
Posted by Eddy Elfenbein on April 27th, 2010 at 9:32 am

One more Buy List stock reported earnings this morning. Wright Express (WXS) said it earned 61 cents per share for its first quarter which was four cents better than Wall Street’s expectations. In February, Wright said to expect Q1 earnings between 53 and 58 cent per share so they’re doing even better than their own forecasts. The company’s revenues rose 22.3% to $83.8 million which was just shy of expectations.
Wright said that Q2 earnings should range between 61 and 66 cents per share. For all of 2010, Wright sees earnings-per-share coming in between $2.39 and $2.54. This is a big increase from the earlier range of $2.26 to $2.46.
Bottom line: This was a very good report. The strange thing about Wright is why its shares didn’t do anything for the first few months of the year. Going back to last September to up until a few weeks ago, WXS mostly bounced between $28 and $32. Then two weeks ago, out of the blue, WXS started to break out. Who knows what traders are thinking? The shares are down again this morning. That’s OK, I can deal with folks who don’t see a bargain. Wright Express continues to be an excellent buy.
After the closing bell, AFLAC (AFL) is due to report. This is one of my favorite Buy List stocks. The consensus estimate is that AFLAC will earn $1.32 a share.

What Letter Would You Give This Chart?
Posted by Eddy Elfenbein on April 26th, 2010 at 1:45 pm

On Friday, the government will release its initial report on first-quarter GDP growth. The economy has grown for the last two quarters but it’s been far short of what should be expected when you emerge from a nasty recession.
Economists and market-watchers are debating what letter the recovery will look like — will it look like a V, a U or possibly a W? Here’s what the Real GDP chart looks like, but I’ve added a guess for Friday’s data point (3.6% growth).

To me it looks like a U. Or maybe a backwards J. I dunno. Possibly another letter?

Buy List Earnings This Week
Posted by Eddy Elfenbein on April 26th, 2010 at 12:52 pm

Five of our Buy List stocks will report earnings this week. Here they are along with Wall Street’s consensus:

What If the Fed Delivers a Surprise Rate Increase?
Posted by Eddy Elfenbein on April 26th, 2010 at 11:38 am

The stock market continues to climb. The S&P 500 has made up all it lost after the Goldman news, and we’re on our way to the highest close since Lehman Brothers went belly up.
My feeling has been that as long as interest rates are low and profits are growing, then the market will rally. Still, the market is nearing B-Day. This will be the day when Ben Bernanke and the Federal Reserve finally decide to raise interest rates. The futures market currently thinks the Fed will have rates at 0.25% sometime this summer (that’s really not much of an increase since the current range is 0% to 0.25%) and 0.5% by the end of the year.
But what if the Fed decides to surprise everyone by raising rates by 50 basis points or more before? This would be a dramatic move. Gold would plunge and the stock rally might halt in place. The benefit for the Fed is that it’s not much of a move but it would send a strong signal to investors that the economy is getting better and that the central bank is determined to unwind its dramatic policy moves of the past two years.
I doubt a surprise rate hike would have a long-term impact of stock prices, but it would certainly change the tone of the market. A surprise hike is a long shot, but it’s not out of the question. No one can ignore the fact that earnings have been improving quite dramatically. This has been a great earnings season so far. Profits are running 22% ahead of estimates and this is leading analysts to raise their forecasts:

The earnings upgrades come as income beats Wall Street estimates at the fastest rate ever for the third time in four quarters. More than 80 percent of the 173 companies in the S&P 500 that reported results have topped estimates, compared with 79.5 percent in the third quarter and 72.3 percent in the three- month period before that, Bloomberg data show.

It looks very likely that the S&P 500 is on track to earn $80 for 2010 and possibly $95 for 2011. That’s my view but UBS is even more optimistic. They just upgraded their target for the S&P 500 to 1,350. They see EPS coming in at $92 for this year and $100 for 2011. UBS writes: “Moreover, the “junk trade” has re-emerged, with the most economically-sensitive companies and lower quality stocks outpacing the broader market.”
This is exactly what I noted last week.
One final note, Netflix (NFLX) is up another $8 a share today. I think I know how this story ends. I just don’t know when the last act will start.

Barron’s: Fiserv Could Jump 20% From Here
Posted by Eddy Elfenbein on April 26th, 2010 at 7:32 am

Fiserv (FISV), one of our Buy List stocks, gets some love from Barron’s:

Earnings are on track to rise to $4 per share this year from $3.66 in 2009, and to gain nearly 10% in 2011 to $4.44, placing the price/earnings multiple at 13.4 times 2010 projections and 12.1 times 2011 expectations. (Per-share earnings are reported “as adjusted” for the adding back of goodwill amortization, for a clearer gauge of the underlying business.) This is cheap for such a high-quality, industry-leading business, which merits a multiple equal to or better than the Standard & Poor’s 500’s 15-plus times ’10 forecasts. Also, it suggests at least 20% upside for Fiserv shares.
Because Fiserv’s business is so steady, many investors value it on free cash flow, which has exceeded reported earnings in recent years — a favorable trend. Free cash flow hit $668 million in 2009, up from $603 million in ’08. The company is guiding Wall Street to expect more than $700 million this year. With a market value of $8.2 billion, investors are getting a free-cash-flow “yield” of nearly 9%, at a time when corporate-bond investors are happy to accept 5% or 6%. The stock historically has traded above 14 times free cash flow. With nearly $5 a share of free cash penciled in for 2011, that multiple suggests a price target near 70.

The next earnings report is due this Thursday after the bell. The Street is expecting 97 cents per share, up from 88 cents a year ago. Here are the annual EPS results for the past few years:
2003: $1.61
2004: $1.92
2005: $2.31
2006: $2.53
2007: $2.66
2008: $3.29
2009: $3.66
That’s what I like to see — nice steady increases. I think EPS for 2010 will come in around $4.05, give or take. Fiserv is an excellent buy.

Fabulous Fab’s conflicted love letters
Posted by Eddy Elfenbein on April 26th, 2010 at 7:17 am

Oh wonderful. Everything I didn’t want to know about Fabrice:

Fabrice Tourre and his girlfriend talked like a couple very much in love.
They emailed back and forth about how they wanted to curl up in each other’s arms and how they looked forward to tender moments together. Tourre, a Goldman Sachs bond trader, also wrote in the emails of the impending collapse of the subprime mortgage market and how he was masterminding ways at Goldman to make money from it.
Little did they know that three years later these very personal emails written through Tourre’s Goldman Sachs e-mail account would become part of one of the biggest investigations into the subsequent financial crisis.
…
“It’s bizarre I have the sensation of coming each day to work and re-living the same agony – a little like a bad dream that repeats itself,” Tourre writes. “In sum, I’m trading a product which a month ago was worth $100 and which today is only worth $93 and which on average is losing 25 cents a day …That doesn’t seem like a lot but when you take into account that we buy and sell these things that have nominal amounts that are worth billions, well it adds up to a lot of money.”
He added, “When I think that I had some input into the creation of this product (which by the way is a product of pure intellectual masturbation, the type of thing which you invent telling yourself: “Well, what if we created a “thing”, which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price?”) it sickens the heart to see it shot down in mid-flight… It’s a little like Frankenstein turning against his own investor ;)”
Tourre, 28 when he wrote the emails, reflects on the strangeness of being so young, yet being in such a critical role with pressures from those above him at the firm to make money.
“… I am now considered a “dinosaur” in this business (at my firm the average longevity of an employee is about 2-3 years!!!) people ask me about career advice. I feel like I’m losing my mind and I’m only 28!!! OK, I’ve decided two more years of work and I’m retiring.”

That last part was about the only thing he got right.