Dell CEO Sees Revenue Growth Picking Up
Posted by Eddy Elfenbein on March 1st, 2006 at 12:40 pm

Duh.

Dell Inc., which last year disappointed investors with slower-than-forecast revenue growth, expects growth to pick up after the current quarter, Chief Executive Kevin Rollins said on Wednesday.
Dell, the world’s biggest personal computer maker, last month said it expected revenue in its fiscal first quarter to rise 6 percent to 9 percent from a year earlier, much less than the double-digit pace of prior periods.
“Our belief is that we would want to grow faster than that,” Rollins said at a Goldman Sachs technology investment conference in Phoenix, Arizona. “A six to 9 percent growth rate is not something we aspire to.”
Rollins said growth should increase as the company focuses on selling more-expensive products and services after it last year cut prices on entry-level consumer computers, causing it to twice miss analysts’ revenue estimates.

The stock is currently less than $1 above its 52-week low.

Asbestos, Inc.
Posted by Eddy Elfenbein on March 1st, 2006 at 11:10 am

James Surowiecki on asbestos litigation.

H&R Block’s Taxes
Posted by Eddy Elfenbein on March 1st, 2006 at 11:02 am

It can’t be good news when H&R Block messes up its own taxes. Here’s the 8-K report:

The restatement pertains primarily to errors in determining the Company’s state effective income tax rate for the fiscal quarters ended October 31, 2005 and July 31, 2005, fiscal years ended April 30, 2005 and 2004 and the fiscal quarters for fiscal years 2005 and 2004. These errors resulted in a cumulative understatement of state income tax liability (net of federal income tax benefit) of approximately $32 million as of April 30, 2005.

SEC: Overstock Isn’t Behind Probe
Posted by Eddy Elfenbein on March 1st, 2006 at 10:57 am

The SEC has said that Overstock.com isn’t behind the investigation into a short-selling ring:

The chief executive of Overstock.com on Wednesday said federal regulators, not the online retailer, were behind the investigation into business journalists as part of a probe into alleged manipulation of the company’s stock.
Patrick Byrne told business news network CNBC that the U.S. Securities and Exchange Commission’s recent subpoenas of journalists who had criticized Overstock came at the agency’s own initiative.
The San Francisco office of the SEC took the unusual step of issuing subpoenas to two Dow Jones & Co. columnists, Carol Remond and Herb Greenberg, to demand telephone records, e-mails and other documents related to Overstock.com.
“It’s my sense that the SEC was onto Herb’s scent long before we came along,” Byrne said. “I have not orchestrated the SEC investigation.”
Byrne acknowledged speaking to SEC officials about the probe, but dismissed the notion that the subpoenas were related to a lawsuit Overstock filed in August against hedge fund Rocker Partners and research firm Gradient Analytics.

Update on the Buy List
Posted by Eddy Elfenbein on March 1st, 2006 at 10:39 am

For the first two months of the year, the Buy List is up 2.12%. That may not sound like a lot, but it’s ahead of the long-term average, although we’re slightly behind the S&P 500 which is up 2.59% (not including dividends).

J&J Is Looking Cheap
Posted by Eddy Elfenbein on March 1st, 2006 at 10:22 am

Has anyone else noticed how cheap Johnson & Johnson (JNJ) is? Good, I thought it was just me. Nearly a year ago, the stock was at $70. Today, it’s around $57.
The company dodged bullet thanks to Boston Scientific (BSX) snatching Guidant (GDT) from them. I was terrified that J&J was going to get stuck with Guidant. As you may have heard me say before, I’m not a fan of mega-mergers.
One of the best ways to find good values on Wall Street is look for the strongest stocks in the weakest sectors. Right now, that’s health care. While Merck (MRK) and Pfizer (PFE) are having their problems, the good stocks like J&J are also being punished.
I’ll give you another good example of this. In 1990, almost all financial stocks were tossed in the garbage. AFLAC (AFL) is one of the best around, and even they saw their stock plunge from (post-split) $3 a share to $1.70. To make a short story shorter, now it’s at $46.
So yes, Johnson & Johnson will manage to survive. The company is Wall Street’s version of a blue blazer. It never goes out of style. The most recent catalyst for J&J’s shares to fall was its “weak” earning report. Of course, for J&J, weak is relative. Earnings came in at 73 cents a share, which was in line with the Street’s estimate. But the surprise was that for the first time in 22 years, revenues declined. The company also guided slightly lower for this quarter.
For the year, J&J sees earnings of $3.78 to $3.85 a share, which means the shares are going for about 15 times earnings. Notice how we saw Medtronic (MDT) also fall on fundamentally good earnings. It’s just because it’s a large-cap health care stock. On Wall Street, you simply can’t argue with a mob. If they want to see bad news, they’ll find it.
I also expect J&J to raise its dividend soon from 33 cents a share to (I’m guessing) 37.5 cents, which is a yield of 2.6%.
Here’s a chart of J&J over the past 18 years. Note the P/E ratio line.

I’ve also included a chart of Dollar General (DG), another stock that’s beginning to look cheap:

What’s Your Wonderlic?
Posted by Eddy Elfenbein on February 28th, 2006 at 6:15 pm

Vince Young got a 6 on his Wonderlic test.
What’s your score?

Donaldson’s Earnings
Posted by Eddy Elfenbein on February 28th, 2006 at 4:36 pm

The press release makes it sound great, but this was a disappointing quarter for Donaldson (DCI). The company missed the Street’s estimate by a penny a share.

Donaldson Company, Inc. today announced record second quarter diluted earnings per share (“EPS”) of $.32, up from $.31 last year. Net income was a record $26.9 million, versus $26.7 million last year. Sales were a record $392.9 million, up from $388.4 million in fiscal 2005.
For the six-month period, EPS was another record at $.69, up from $.62 last year. Net income increased 9 percent to $59.1 million compared to $54.1 million last year. Sales were a record $796.3 million, up 5 percent from $761.3 million in fiscal 2005.
“Our operating margin improved to 10.2 percent year-to-date from 9.6 percent last year, despite absorbing $2.2 million, or $.02 per share, of stock option expenses into operating profits this year,” said Bill Cook, Chairman, President and CEO. “Donaldson is running very well, with our continued focus on cost reduction efforts offsetting higher commodity prices and driving the improvement in our profit margins. We reduced our full year sales outlook mainly due to currency translation since the dollar is currently weaker against the Euro and Yen than it was in the second half of last year. However, we expect continued positive year-over-year sales growth and for operating margins to continue at these improved levels, giving us confidence in delivering our 17th consecutive year of record earnings.”

Google Is Having Issues
Posted by Eddy Elfenbein on February 28th, 2006 at 11:28 am

Down 10%.

Google Inc. shares slid as much as 13 percent, their biggest-ever decline, after finance chief George Reyes said growth is slowing at the world’s most-used Internet search engine.
“We’re getting to the point where the law of large numbers starts to take root,” Reyes said today at a Merrill Lynch & Co. investor conference in New York. “Growth will slow. Will it be precipitous? I doubt it.”

I wish someone had seen this coming.
More: Mark Hulbert on insider selling at Google (“off the charts”).

Burger King’s IPO
Posted by Eddy Elfenbein on February 28th, 2006 at 10:14 am

IBD looks at Burger King’s IPO:

THE BUZZ
Unlike last year, 2006 is set to produce some massive, high-profile initial public offerings. And while the terms for Burger King’s IPO are still in the works, the deal should be — if you’ll pardon the expression — a whopper.
Burger King’s rivals have certainly been busy. McDonald’s scored a hit when it did a partial spinoff of Chipotle Mexican Grill in January.
Wendy’s is planning a similar spinoff of Tim Hortons sometime next month.
Now comes the debut of the world’s second-largest fast-food operation. The main question will be how much investors believe in the financial turnaround engineered by Burger King’s new chief executive, Greg Brenneman.
When the company filed its prospectus on Feb. 16, analysts could look at the numbers in detail for the first time.
“The balance sheet is nothing to write home about,” said Francis Gaskins, president of IPOhome.com. “But they’ve turned it around on an operating basis. That’s the interest here.”
THE COMPANY
Burger King was founded as a drive-up hamburger stand in 1954. Three years later it rolled out its trademark Whopper.
In 1967, after much growth, the company was bought by the Pillsbury Co., which in turn was bought by Grand Met in 1989.
A still bigger fish, Diageo, came in and swallowed up Grand Met. Diageo is a British beverage company that owns venerable booze brands such as Gordon’s, Smirnoff, Johnnie Walker and Jose Cuervo.
It was an odd fit for a U.S. fast-food giant, and Burger King suffered an identity crisis. Between 1989 and 2002 the chain went through eight chief executives and drifted out of the limelight.
In 2002 a group of equity investors — led by Texas Pacific Group, Bain Capital Partners and the Goldman Sachs Funds — bought Burger King. What they found was financial chaos.
More than a third of Burger King’s North American franchisees were over-leveraged, and its largest franchisee declared bankruptcy.
In 2004 the investment group tapped Brenneman, a turnaround specialist, to head Burger King.
Brenneman wasted no time shuffling the deck. On his watch Burger King has closed more than 800 underperforming restaurants, written off some $106 million in franchisee debts and experimented with aggressive discounting.
By last year Burger King’s finances were improving.