FactSet Research Systems Earns $1.20 per Share
Posted by Eddy Elfenbein on September 17th, 2013 at 10:49 am

This morning, FactSet Research Systems ($FDS) reported fiscal fourth-quarter earnings of $1.20 per share. The stock is down today because technically, that counts as an “earnings miss.” The Street was at $1.21 per share but that’s just traders being traders. Three months ago, FactSet gave us a range of $1.18 to $1.21 per share so the company is hitting its own targets. FactSet’s revenues rose 6% to $219.3 million, and net income was $51 million.

The big metric for FactSet is ASV or annual subscription value. For the quarter, ASV rose by 6% to $888 million. That’s a good number and it points towards strong revenue over the next year.

For fiscal Q1, which ends in November, FactSet expects revenues between $222 and $225 million. They also see earnings coming in between $1.21 and $1.24 per share. Wall Street had been expecting $1.23 per share. The bottom line is that business continues to go well for FactSet. The company earned $1.11 per share in last year’s Q1.

From the earnings report, here are some financial highlights from Q4:

ASV from U.S. operations was $606 million and $282 million was related to international operations.

U.S. revenues were $149.9 million, up 6% from the year ago quarter.

Non-U.S. revenues rose 5% to $69.4 million as compared to the same period in fiscal 2012. Excluding the impact from foreign currency, the international growth rate was 6%.

GAAP operating margin was 32.2%. Adjusted operating margin was 33.4%, compared to 34.0% a year ago.

The effective tax rate for the fourth quarter was 28.1%, down from 31.7% a year ago. Excluding income tax benefits recorded during the second quarter of fiscal 2013 primarily from the reenactment of the U.S. Federal R&D credit, the annual effective tax rate was 28.9%.

Quarterly free cash flow was $71 million, up 38% over the year ago quarter. For the full fiscal 2013 year, FactSet generated $251 million in free cash flow which is 20% higher than a year ago.

Here are their expectations for Q1:

Revenues are expected to range between $222 million and $225 million.

Operating margin is expected to range between 33.0% and 34.0%, which includes a 30 basis point reduction from Revere.

The annual effective tax rate is expected to range between 28.5% and 29.5% and assumes the U.S. Federal R&D tax credit will be re-enacted by the end of the first quarter of fiscal 2014.

GAAP diluted EPS should range between $1.21 and $1.24, the midpoint of the range represents 10% growth over last year’s first quarter. GAAP diluted EPS assumes the U.S. Federal R&D tax credit will be re-enacted. If the U.S. Federal R&D tax credit is not re-enacted, first quarter’s GAAP diluted EPS will be reduced by $0.03.

Yesterday, the shares hit an all-time high of $113.05. Today they’re down to $108-$109.

Microsoft Ups Dividend by 22%
Posted by Eddy Elfenbein on September 17th, 2013 at 10:10 am

The stock market has rallied for nine of the ten days in September thus far, and we’re on track for another up day today. All eyes are on the Fed which begins its important two-day “tapering” meeting in Washington.

The best news this morning is that Microsoft ($MSFT) just announced a big dividend increase. I had projected that MSFT would raise their quarterly dividend by three cents — rising from 23 cents to 26 cents per share. I wasn’t optimistic enough. The software giant just raised their quarterly dividend by five cents per share to 28 cents. That’s a 22% increase. MSFT also announced a $40 billion buyback program.

The new repurchase program, which has no expiration date, replaces another $40 billion buyback plan that was due to lapse at the end of this month, Redmond, Washington-based Microsoft said today in a statement. The company’s quarterly dividend will rise 22 percent to 28 cents a share, payable to shareholders on Dec. 12.

“These actions reflect a continued commitment to returning cash to our shareholders,” Chief Financial Officer Amy Hood said in the statement.

For the year, the company will pay out $1.12 per share. Based on yesterday’s close, that translates to a yield of 3.41%.

Morning News: September 17, 2013
Posted by Eddy Elfenbein on September 17th, 2013 at 6:21 am

The Landesbanken: Inside Germany’s Trillion Euro banking Blind Spot

U.K. Inflation Slows to 2.7% on Transport, Clothing Prices

Europe August Car Sales Drop as Demand Lowest on Record

Poland Proves Best in Years Since Lehman: Riskless Return

A Bitter ‘Fertilzer War’ Gripping Belarus and Russia is Helping U.S. Farmers

Manufacturing Rebound Led by Autos Supports Growth

Two-Name Race Drops to One, but Guessing Continues

In Budget Faceoff, Obama Warns of ‘Economic Chaos’

Less Tapering Becomes Tightening Credit No Matter What Fed Says

Wall Street Exploits Ethanol Credits, and Prices Spike

Regulators to Charge JPMorgan Chase $750 Million in London Whale Cases

Anglo American Drops Alaska Investment

Packaging Corp. to Buy Boise for $1.28 Billion

Jeff Carter: Why Going Public Is Good For Twitter

Roger Nusbaum: A Doozy of Quote

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Looking at Starbucks
Posted by Eddy Elfenbein on September 16th, 2013 at 2:57 pm

I don’t have much that is profound to say with this graph, but I spent some time making it and didn’t want it to go to waste. This is the share price of Starbucks ($SBUX) along with its earnings-per-share.

The share price is in black and it follows the left scale. The earnings are in yellow and follow the right scale. The red line is Wall Street’s consensus. The two lines are scaled at a ratio of 25 to 1 so whenever the lines cross, SBUX’s P/E Ratio is exactly 25.

The point I wanted to get across is how rapidly SBUX’s valuation has grown over the last year. It’s also interesting to see, despite some wild stock moves, how stable SBUX’s earnings growth appears to be.

I can’t say if 25 is the right P/E Ratio for Starbucks. I used 25 simply because I think it makes the chart look best. In 2006, SBUX traded at more than 56 times earnings.

I want to make it clear that looking at a stock’s P/E Ratio is just one way to analyze a stock. To get a full picture, there are many other metrics you must look at. I was struck by how dramatic the recent run-up is. The company is also benefiting from a steep drop in coffee prices. Personally, I don’t think Starbucks would be a bargain unless it dropped to $60 per share.

Traders Now See Later Rate Hike
Posted by Eddy Elfenbein on September 16th, 2013 at 12:12 pm

The reason for the Larry Rally is that traders see a rate hike coming later under Yellen:

Traders now give a 55 percent probability of the first rate hike in December 2014, and 68 percent chance in January 2015, according to CME Group’s Fed Watch, which generates probabilities based on the price of federal funds futures traded at the Chicago Board of Trade. On Friday, traders saw a better-than-even chance of the first increase in October 2014.

The Fed has said they don’t see raising rates until the middle of 2015 at the earliest.

Industrial Production Rises 0.4% in August
Posted by Eddy Elfenbein on September 16th, 2013 at 11:27 am

The Federal Reserve reported that industrial production rose by 0.4% last month. That’s the biggest increase in six months. This data series has been quietly weak the last few months. Wall Street had been expecting a rise of 0.5%. Fortunately, this small miss isn’t enough to quell the Larry Rally.

Output at factories, mines and utilities climbed 0.4 percent after no change the prior month, a report from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey of 85 economists called for a 0.5 percent advance in August. Manufacturing, which makes up 75 percent of total production, advanced by the most this year.

The strongest vehicle sales in almost six years are propelling factory activity, encouraging companies such as Ford Motor Co. (F) to boost plant capacity. A pickup in global markets and stronger consumer demand would help spark further progress in the sector that struggled earlier this year.

“Companies have to increase production in order to keep up with demand,” said Brett Ryan, a U.S. economist at Deutsche Bank Securities Inc. in New York, whose firm is the second-best forecaster of production for the past two years, according to data compiled by Bloomberg. “You have an elevated level of unfilled orders, so that bodes well for production.”

The Summers Rally
Posted by Eddy Elfenbein on September 16th, 2013 at 11:05 am

Today is the start of Fed week, but the big Fed news today isn’t about this week’s meeting. Instead, it’s that Larry Summers has withdrawn his name from consideration for being the next Fed chair. This almost certainly means that President Obama will appoint Janet Yellen to succeed Ben Bernanke.

The market is rallying strongly on the news. The S&P 500 is back over 1,700 this morning and is currently up to 1,702. We’re not far from an all-time high for the index. The Russell 2000, in fact, is already at a new high.

I think Wall Street saw the Summers vs. Yellen battle as a proxy of easy money versus tighter money. I understand the feeling and I’m in support of continued stimulus but those characterizations are very much over-simplified. Anyone who has studied the Fed from the mid-1990s knows that Janet Yellen is far from an automatic vote for the doves. She was once described by a colleague as a “small lady with a large I.Q.”

While I think Larry Summers is brilliant, as he’s often described, I’ll charitably add that being Fed chair doesn’t match well with his skill set. As a rule of thumb, if the S&P 500 gains $125 billion in market value on the news that you won’t be in charge of the Fed, then that’s probably a sign that it wasn’t meant to be.

One interesting group to watch lately has been the homebuilders. The Homebuilders ETF ($XHB) had been a giant winner until this spring. XHB vaulted from $12 in October 2011 to $32 by this May. Then it started lagging the market as interest rates rose. From May 14th to August 14th, the XHB lost 10.6% while the S&P 500 gained 2.1%. That’s not a huge loss but it was a surprise after being such an easy winner for so long. But lately, the XHB has snapped back to life.

Our Buy List stocks are doing quite well this morning. AFLAC ($AFL) is back over $62 per share. FactSet ($FDS) and Ross Stores ($ROST) both hit new 52-week highs, and Cognizant ($CTSH) is close as well. Oracle ($ORCL) is doing well, but we’ll learn a lot more later this week when they report.

Morning News: September 16, 2013
Posted by Eddy Elfenbein on September 16th, 2013 at 6:17 am

Three Losses to U.K. in a Week Limit EU Financial Reform Plans

Taiwan Chip Industry Powers the Tech World, But Struggles for Status

Indian Inflation Unexpectedly Accelerates As Food Prices Explode

Sahara Tomatoes Lure Graduates as Algeria Shifts From Oil

Eurozone Govts Must do More to Stimulate Investment: ECB Chief, Mario Draghi

How Bernanke Gets What He Wants Without Doing Anything

Former Obama Aide Summers Withdraws From Fed Chair Consideration

Five years After Lehman, Americans Still Angry at Wall Street

S&P Lifts JetBlue Rating on Improved Liquidity

American Airlines’ Plan Wins Bankruptcy Judge’s Approval

United Will Honor Free Tickets Sold By Mistake

Retailers Fight Exile From Gmail In-Boxes

Fiat CEO Says Chrysler To File For Listing This Week: FT

Epicurean Dealmaker: Go Ask Alice

Jeff Miller: Larry Summers Withdrawal: What Are The Implications?

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Blast from the Past
Posted by Eddy Elfenbein on September 15th, 2013 at 1:17 am

Five years ago:

The New York Times:
Lehman Files for Bankruptcy; Merrill Is Sold
By ANDREW ROSS SORKIN
Published: September 14, 2008

This article was reported by Jenny Anderson, Eric Dash and Andrew Ross Sorkin and was written by Mr. Sorkin.

In one of the most dramatic days in Wall Street’s history, Merrill Lynch agreed to sell itself on Sunday to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, filed for bankruptcy protection and hurtled toward liquidation after it failed to find a buyer.

The humbling moves, which reshape the landscape of American finance, mark the latest chapter in a tumultuous year in which once-proud financial institutions have been brought to their knees as a result of hundreds of billions of dollars in losses because of bad mortgage finance and real estate investments.

But even as the fates of Lehman and Merrill hung in the balance, another crisis loomed as the insurance giant American International Group appeared to teeter. Staggered by losses stemming from the credit crisis, A.I.G. sought a $40 billion lifeline from the Federal Reserve, without which the company may have only days to survive.

The stunning series of events culminated a weekend of frantic around-the-clock negotiations, as Wall Street bankers huddled in meetings at the behest of Bush administration officials to try to avoid a downward spiral in the markets stemming from a crisis of confidence.

“My goodness. I’ve been in the business 35 years, and these are the most extraordinary events I’ve ever seen,” said Peter G. Peterson, co-founder of the private equity firm the Blackstone Group, who was head of Lehman in the 1970s and a secretary of commerce in the Nixon administration.

The Scarecrow
Posted by Eddy Elfenbein on September 13th, 2013 at 4:45 pm