Morning News: February 5, 2015
Posted by Eddy Elfenbein on February 5th, 2015 at 7:11 am

EU Raises Growth Forecasts, Cuts Inflation Outlook

One Way Greece Can Keep Its Banks Alive

China Bank Move Leaves Companies Cold

F.C.C. Plans Strong Hand to Regulate the Internet

Pfizer Agrees to Buy Hospira in Deal Valued at About $17 Billion

BT Agrees to Buy UK’s Largest Mobile Operator EE

RadioShack Said to Plan Bankruptcy Filing by Thursday

Sprint Revenue Falls on Price Cuts and Promotions

GM Earns $2.8 Billion in ’14, Sets $9,000 Profit Sharing

Ford Raises Pay for 500 Workers as Demand Grows for F-150 Pickup

Dunkin’ Brands Cuts Outlook as Sales Growth Slows

Under Armour Inc. Beats Expectations Again, Reveals 2 New Acquisitions

Anthem Hacked in ‘Sophisticated’ Attack on Customer Data

Joshua Brown: Or Maybe Just Stop Entirely

Roger Nusbaum: Retirement Realities and Contingencies

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Strong Earnings from Cognizant
Posted by Eddy Elfenbein on February 4th, 2015 at 3:40 pm

Before the bell, Cognizant Technology Solutions (CTSH) reported Q4 earnings of 67 cents per share. That beat consensus by two cents per share. Revenues jumped 16.4% to $2.74 billion.

Cognizant has been expanding its health-care market offerings to take advantage of an industrywide overhaul that its customers are dealing with. Last year, Cognizant agreed to buy TriZetto Corp. from Apax Partners for $2.7 billion in an all-cash deal to expand in health-care industry software — its biggest acquisition.

Health-care companies “have to be more flexible and nimble because of this consumerism,” Gordon Coburn, president of Cognizant, said in an interview at the Nasdaq in New York. “In addition to the traditional services that we have always offered, we will build and maintain your system for you.”

Cognizant also said they see Q1 earnings of at least 69 cents per share. That was a penny below consensus (note they said “at least”). They see Q1 revenues of at least $2.88 billion which was just above consensus of $2.86 billion.

For all of 2015, Cognizant projects earnings of at least $2.91 per share. That’s five cents below consensus. They see revenues of at least $12.21 billion which was higher than consensus of $12.16 billion.

The stock has been up as much as 8.2%. CTSH hit a new 52-week high of $59.64 per share.

Morning News: February 4, 2015
Posted by Eddy Elfenbein on February 4th, 2015 at 7:15 am

China’s Central Bank Cuts Reserve Requirement Ratio

Staples to Buy Office Depot in Deal Valued at $6.3 Billion

GM Posts Much Higher-Than-Expected Profit; Seeks to Boost Dividend

Sony Trims Loss Forecast After Strong Third Quarter on Higher Sensor Sales

Alibaba is Using Drones to Deliver Tea

Ford Hiring Move Brings 48% Raise for Hundreds of Workers

Merck Sales Fall Amid Headwinds

Cognizant Quarterly Revenue Rises 16.4%, Beats Estimates

Boston Scientific Revenue Climbs on Cardiovascular Strength

Yahoo Found the Perfect Small Business to Offload on its Alibaba Spin-Off

SAP Aggressively Moves Customers to Its Database

Petrobras CEO Steps Down Amid Brazil’s Biggest Graft Scandal

Disney Profit Jumps 19%, Even as ESPN Falters

Howard Lindzon: A Month off Twitter ….A February Decompress

John Hempton: Dear Eurozone Officials, Mr. Putin is Waiting

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AFLAC Earned $1.29 per Share
Posted by Eddy Elfenbein on February 3rd, 2015 at 5:39 pm

AFLAC (AFL) just reported Q4 operating earnings of $1.29 per share. The weak yen knocked off eight cents per share.

For the year, AFLAC made $6.16 per share which was two cents below what they made in 2013. The weak yen cost them 26 cents per share last year. Ignoring currency, AFLAC’s earnings rose 3.9% last year.

OUTLOOK

Commenting on the company’s fourth quarter results, Chairman and Chief Executive Officer Daniel P. Amos stated: “We are extremely pleased with our sales in Japan and the U.S. More importantly, our 2014 operating earnings per diluted share growth of 3.9% excluding currency was at the high end of our 3% to 4% expectation.

“With 2014 marking Aflac Japan’s 40th year of operations, it is especially impressive that third sector sales increased 28.5% in the fourth quarter, particularly in comparison to strong third sector sales results that came in the fourth quarter of the prior two years. Aflac Japan’s third sector sales growth for the year was 6.1%, which was at the high end of our annual sales target. On the distribution side, our traditional agencies have been, and remain, key to our success. I’m also pleased that we continued to build on our partnership with Japan Post throughout the year, expanding the number of postal outlets and their agents selling our cancer products. Cancer insurance sales through all distribution outlets were up an impressive 176% for the quarter. As we look ahead to 2015, we believe that for the first nine months, third sector sales will average a 15% increase. With fourth quarter sales facing difficult comparisons, we believe third sector sales in the final quarter of 2015 could be down sharply. However, as always, we will be working to find ways to minimize that decline. At the end of the second quarter, when we have more insight, we will give additional guidance on the fourth quarter.

“Turning to Aflac U.S., I am very pleased with our fourth quarter sales results, which surpassed our expectations, increasing 14.1%. The strong fourth quarter sales drove annual sales results to an increase of .7%, which significantly exceeded our most recent sales expectation for the year. It is rewarding to see the changes we made to our sales organization in 2014, both in the career agent channel and the broker channel, yielded such promising results. Although one quarter doesn’t make a trend, I am very encouraged with how far we’ve come in a short period of time. However, I am not willing to say we’ve had a sales turnaround until I see first half sales results in 2015. Saying that, I remain encouraged and believe we should have a 3% to 7% increase in U.S. sales, with a target of 5%.

“Although we have not yet finalized our statutory financial statements, we estimate our 2014 risk-based capital ratio, or RBC, remained very strong and will exceed the third quarter estimate. Additionally, as a result of a significant decline in interest rates that led to substantial unrealized gains in the investment portfolio, Aflac Japan’s solvency margin ratio, or SMR, improved significantly, and we expect that it will be above 850%.

“We entered into a new reinsurance agreement on October 1, which released approximately ¥55 billion of Aflac Japan’s regulatory reserves. Half of that transaction was retroceded to an Aflac Incorporated subsidiary at the end of the year.

“As we have said for many years, we believe that growing the cash dividend and repurchasing our shares are the most attractive means for deploying capital. In 2014, we repurchased $1.2 billion, or 19.7 million of our shares, which is consistent with what we had communicated last October. We currently plan to repurchase $1.3 billion of our shares in 2015. As we indicated last quarter, we also increased the cash dividend 5.4%, effective with the fourth quarter, marking the 32nd consecutive year in which we’ve increased the cash dividend. Our objective is to grow the dividend at a rate generally in line with the increase in operating earnings before the impact of foreign currency translation.

“Once again, I was very pleased that we ended the year with our operating earnings per share at the high end of our 2014 estimate, although that result creates a tougher comparison when we look to 2015. Our objective remains to grow 2015 operating earnings per diluted share before currency 2% to 7%. Because overall financial markets are currently very challenging and interest rates are at significantly depressed levels, it is difficult to invest cash flows at attractive yields. Therefore, we will be very disciplined in selling first sector products in Japan, which will reduce cash flows to investments. I would also remind you that the progression of this year’s benefit ratios in both the U.S. and Japan, which have seen favorable trends, could also have a significant impact on our results. As always, we are working very hard to achieve our earnings-per-share objective while also ensuring we deliver on our promise to policyholders.”

Here’s AFLAC’s EPS range for this year under different yen/dollar ratios:

Fiserv Earns 89 Cents per Share
Posted by Eddy Elfenbein on February 3rd, 2015 at 4:19 pm

Solid quarter from Fiserv (FISV). The company earned 89 cents per share for Q4, and $3.37 per share for all of 2014. That’s up from $2.99 for 2013. Fiserv forecasts a range of $3.73 to $3.83 for 2015. Very good.

“We delivered strong results in 2014 highlighted by adjusted internal revenue growth approaching the top-end of our guidance, and our 29th consecutive year of double digit adjusted earnings per share growth,“ said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “Increased sales, expanded operating margin and record free cash flow add to our momentum as we enter 2015.”

(…)

Outlook for 2015

Fiserv expects adjusted internal revenue to grow in a range of 5 to 6 percent. The company also expects adjusted earnings per share in a range of $3.73 to $3.83, which would represent growth of 11 to 14 percent over $3.37 in 2014.

“We expect acceleration in our adjusted internal revenue growth again in 2015, along with margin expansion, strong free cash flow and continued shareholder-friendly capital allocation,” said Yabuki.

A Range-Bound Market
Posted by Eddy Elfenbein on February 3rd, 2015 at 11:37 am

This is starting to look like a range-bound market. Whenever the S&P 500 gets below 2,000, it soon rallies. Yet when it gets above 2,060 or so, the index suddenly gets nervous. Sixty of the last 63 closes have been between 1,990 and 2,090. That goes back to the beginning of November.

Perhaps the most interesting change recently has been the surge in oil. Of course, this is really coming off a very deep bottom. West Texas Crude has rallied the last three days, and it looks like it will do so again today. The spot price is back above $50 per barrel. Energy stocks have also been doing well, but again, that’s after a painful fall. Interestingly, the recent uptick in oil has not been matched by a downtick in the dollar.

We have two earnings reports due after the close, from AFLAC and Fiserv. Shares of Ford are having a nice day after a good sales report for January. Sales rose more than 15%, but remember that this is compared with a polar-vortexed January last year. Ford got as high as $15.79 today which it hasn’t seen in two months.

Ford said its retail sales increased by 13 percent —the best retail sales month for Ford since 2004. The Dearborn automaker said passenger car sales to retail customers rose by 6 percent, utilities were up 10 percent and truck sales rose 23 percent.

Ford sold 54,370 F-Series pickups last month, up 16.8 percent in January, marking the best January for F-Series since 2004. Lincoln brand sales also jumped 10.8 percent.

I have to add that the plunge in earnings estimates is staggering. On September 30, the expectations for 2015 earnings for the S&P 500 were $136. That’s the index-adjusted number. By December 31, it was down to $131. Now it’s down to $120. For comparison, the S&P 500 probably earned about $114 last year up from $107 in 2013.

The Stock Market Likes It Boring
Posted by Eddy Elfenbein on February 3rd, 2015 at 9:25 am

I was playing around with some market data and I found something interesting I wanted to pass along. It turns out that the really big gains from the stock market happen during the boring days.

I took all of the daily closing figures for the S&P 500 from 1932 through 2014. I didn’t count Saturday trading which existed up until the 1950s. In total, I had more than 20,000 daily closes.

Here’s what I found: The S&P 500 rose by more than 1.17% over 1,900 times (about 9.2% of the time), and it fell by more than 1.17% over 1,800 times (about 8.7% of the time). While the down days are fewer in number, they tend to be more severe. If we combine all the days with moves greater than 1.17%, it nets out almost perfectly to zero.

In other words, all those high-volatility days add up to nothing. The market’s entire gain comes on days when the S&P 500 rises or falls less than 1.17%. The rest is just noise.

What’s interesting is that many of those big up days come very near to those big down days. It’s almost as if bull and bear markets are illusions — there’s only a normal market with occasional brief but sharp panics. Even what appear to be long, secular bear markets see their worst pain concentrated within a short window.

Morning News: February 3, 2015
Posted by Eddy Elfenbein on February 3rd, 2015 at 6:57 am

Greek Retreat on Writedown May Move Fight to Spending

Erdogan’s Pressure on Basci for Rate Cut Shows No Sign of Letup

Australian Dollar Skids to Six-year Low After RBA Shock

RBI Rajan’s SLR Cut Won’t Boost Lending Now But It’s Reform for Long Term

Apple’s Bond Sales Wave Red Flag on US Interest Rate Outlook

As BP Shows, Corporate Profits Can Be Pretty Much Anything You Want Them To Be

Alibaba and Lending Club Will Loan US Businesses $300,000 to Buy Chinese

Exxon Mobil Revenue and Profit Off 21% on Oil Decline

Disney to Push Back Shanghai Theme Park Opening to 2016

Amazon in Talks to Buy Some of RadioShack’s Stores

Japanese TV Makers Retreat From Overseas Markets

Santander Profits Up on Branch Focus

Lenovo’s Smartphone Challenge: Battling Apple, Xiaomi in China With Motorola

Cullen Roche: Rand Paul’s Federal Reserve Goose Chase

Jeff Carter: A Super Bowl Example of Leadership

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The Shake Shack IPO
Posted by Eddy Elfenbein on February 2nd, 2015 at 5:18 pm

Shares of Shake Shack ($SHAK) debuted on the market last week. The shares were priced at $21 and opened at $47. At one point, SHAK got as high as $52 per share.

Investors often ask me about high-profile IPOs and I almost always encourage investors to avoid them. Remember that companies only go public if they think they can get a good price, so their interests are directly opposed to yours.

It’s no surprise that most studies show that IPOs don’t perform well. A few big winners got all the attention.

I honestly don’t see how Shake Shack is worth half this price.

The S&P 500 Total Return Index
Posted by Eddy Elfenbein on February 2nd, 2015 at 5:02 pm

Here’s an updated look at the S&P 500 Total Return Index, meaning the S&P 500 plus dividends. Short version: It’s been a good six years but before that was…kinda rough.