• CWS Market Review – April 27, 2012
    Posted by on April 27th, 2012 at 6:27 am

    This has turned out to be a very good earnings season, and it might be strong enough to help the market break out of its April slump. The S&P 500 just wrapped up its best three-day run since February. On Thursday, the index broke 1,400 for the first time in three weeks, and the Dow is within striking distance of a new bull market high.

    For Q1, earnings for the S&P 500 now look to grow by 3.3%. That’s not great, but going into earnings season, analysts had been expecting measly growth of just 0.8%. According to the latest numbers from Bloomberg, 267 stocks in the S&P 500 have reported first-quarter earnings. Of that, 190 have topped estimates while 32 have reported inline and 45 have fallen short. That “beat rate” is the highest in at least ten years.

    Some folks will say that the only reason the beat rate is so high is that estimates were dramatically cut back in the months leading up to earnings season. That’s true, but it ignores the important fact that the damage from Europe hasn’t been nearly as bad as what many investors expected. Remember how Greece was going to bring everyone down? Or how the Double Dip was upon us? Well, that ain’t gonna happen. In fact, more companies are raising their earnings guidance. The S&P 500 is on track to earn more than $105 this year.

    In this week’s CWS Market Review, we’ll take a look at the recent earnings report from our Buy List stocks. Dude, how about AFLAC? The insurance company shocked Wall Street this week (but not us) by reporting very solid numbers. The stock jumped nearly 8% on Wednesday.

    We also have a slew of earnings reports coming next week including Fiserv ($FISV), Harris ($FISV) and Wright Express ($WXS). By the way, Wright staged a nice rally this past week. I think investors correctly suspect another good earnings report is on its way. I’m also expecting another strong report from Nicholas Financial ($NICK).

    Bard Beats Estimates by Four Cents Per Share

    But first, let’s review some of the earnings reports from this past week. In last week’s CWS Market Review, I said that CR Bard’s ($BCR) Q1 guidance of $1.53 to $1.57, “sounds about right.” I’m happy to say that I was wrong. On Tuesday, the company reported earnings of $1.61 per share which was four cents higher than Wall Street’s consensus. The earnings report noted that the medical equipment company is doing especially well outside the United States.

    For Q2, Bard sees earnings ranging between $1.61 and $1.65 per share. For the full year, they’re sticking with their previous forecast of 3% to 4% growth. Bard earned $6.40 per share in 2011 so that translates to 2012 earnings of $6.59 to $6.66 per share. My view: That’s probably too low, but it makes sense to be conservative early on in the year. Bard is a very strong buy any time you see shares below $102.

    Reynolds American ($RAI) was our first earnings dud this season, and I suspect it will be the last. The company earned 63 cents per share which was two cents shy of estimates. The shares took a hit and briefly dropped below $40. As I said in last week’s CWS Market Review, I’m not at all concerned if Reynolds beats or misses by a small amount. The key is their full-year guidance and the company just made it clear—they’re sticking with it. Reynolds sees earnings this year ranging between $2.91 and $3.01 per share. If you’re an investor seeking income, you may want to take advantage of this pull-back in Reynolds. The shares currently yield 5.52% which is equivalent to roughly 730 points on the Dow. Reynolds is a very good stock.

    On Tuesday, Hudson City ($HCBK) announced first-quarter earnings of 15 cents per share, which was inline with estimates. The good news is that the bank continues to recover. For last year’s first quarter, the bank got hammered for a loss of $1.13 per share. The problem for Hudson City is that as rates remain low, so will their profit margins. Still, the bank is healthy and the stock is very underpriced. Hudson City now yields 4.53%. The shares are a good buy up to $7.50.

    AFLAC Crushes Wall Street’s Estimate

    Now for the best news of the week which was AFLAC’s ($AFL) blow-out earnings. Last week, I said that Wall Street’s earnings forecast of $1.65 was “almost certainly too low.” I was right—the company earned $1.74 per share. One of the reasons for the earnings surprise was the yen/dollar exchange rate which added four cents per share to the bottom line. AFLAC also revised its sales growth forecast for AFLAC Japan to +10%. Previously, they had been expecting a sales decline.

    This next part gets a little technical so please bear with me. Because of some accounting changes, AFLAC’s earnings for last year will be restated slightly lower. However, AFLAC says that its 2012 earnings-per-share target of $6.46 to $6.65 is still on. Previously, AFLAC had said that it sees earnings growing by 2% to 5% for this year. With the restatement, that now becomes 3% to 6%.

    But here’s the key: AFLAC has said that earnings growth in 2013 will be better than 2012, and they reiterated that again this week. So let’s say that AFLAC earns $6.60 per share this year. Considering they just beat earnings by a lot, I think it’s reasonable to assume they’ll be at the high end of their range. That translates to 5% growth for this year. If AFLAC accelerated to, say, 6% growth next year, that comes to earnings of $7 per share. In other words, the stock is probably going for a little more than six times next year’s earnings.

    I like AFLAC a lot. The stock had been trending lower ever since the last earnings report which was a miss by four cents per share. But Tuesday’s strong earnings report led to a 7.8% surge on Wednesday. I expect a continued rally from AFLAC. The stock is a strong buy up to $53.

    One quick word on Johnson & Johnson’s ($JNJ) dividend. In the CWS Market Review from two weeks ago, I said that Johnson & Johnson will soon raise its dividend for the 50th year in a row. My expectation was that J&J would raise the dividend from 57 cents to 60 cents per share. I was right about the dividend increase but I was off on how much by one penny. J&J raised their quarterly dividend to 61 cents per share. Going by Thursday’s close, Johnson & Johnson now yields 3.77%. That’s nearly twice a 10-year Treasury. Plus, J&J’s debt is rated AAA while Uncle Sam’s is not. I rate Johnson & Johnson a strong buy up to $70 per share.

    Look for an Earnings Surprise from Wright Express

    We have more Buy List earnings ahead. This Tuesday, May 1st, Fiserv and Harris report earnings. Then on Wednesday, Wright Express reports. I’ll touch on a few of these stocks briefly.

    Fiserv ($FISV) is an excellent stock. The company previously said it sees earnings this year coming in between $5.04 and $5.20 per share which means the stock is going for less than 14 times earnings. That’s a good deal. However, my concern is that Wall Street’s forecast for Q1 is $1.15 which may be slightly too high.

    If Fiserv misses, the stock will take a beating. If you’re looking to start a position here or add to a current one, wait until after the earnings report. The stock may be a lot cheaper. Make no mistake—the long-term outlook for Fiserv is excellent. The stock is a good buy up to $75.

    Wright Express ($WXS) is our best candidate for an earnings beat next week. Three months ago, Wright said to expect Q1 earnings between 87 and 93 cents per share. The company has made it a habit to beat their forecast by a good margin. For all of 2012, Wright expects earnings between $4.10 and $4.30 per share. Look for more good news here. I’m raising my buy price from $65 to $68 per share. (By the way, Investor’s Business Daily had a good article, “Wright Express Invests Creatively In Its Staff.”)

    I don’t know when Nicholas Financial ($NICK) will report its earnings but I suspect it will be on Thursday, May 3rd. The used car financier is hugely undervalued. Here are some numbers: This earnings report will be for NICK’s fiscal fourth quarter. For the first three quarters, the company made $1.35 per share. Assuming they make 45 cents per share for fiscal Q4, that will bring earnings for the year to $1.80 per share. This means NICK is going for 7.3 times earnings. They can easily raise their 10-cent quarterly dividend by 50%. At the very least, NICK should be a $17 stock.

    I don’t have much to say about quiet little Harris Corp. ($HRS) except that it continues to perform. Harris already boosted its dividend by 18% this year. The company sees fiscal-year earnings (ending in June) ranging between $5.10 and $5.30 per share which makes the stock very inexpensive. Harris is a solid buy up to $45.

    I’m writing this on Friday morning, so the earnings for Ford ($F) and Moog ($MOG-A) are already out by the time you’re reading this. I’ll have more to say about them on the blog, but I will highlight the fact that Ford is an exceptional bargain right now. I doubt the stock will stay under $12 much longer.

    That’s all for now. Stay tuned for more earnings reports next week. We’re also going to get the April jobs report next Friday. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News: April 27, 2012
    Posted by on April 27th, 2012 at 6:26 am

    Downgrade Hits Spanish Bonds

    SNB Is Ready to Act as Franc Poses Challenges, Jordan Says

    Yuan Exceeds Previous Band For First Time Since Widening

    Italian Borrowing Costs Jump at $7.9 Billion Auction

    Goldman Insider Probe Grows

    Cooling Job Market Takes Toll on U.S. Confidence

    Chesapeake’s Outlook Dims as Board Switches Course on CEO Loans

    Trouble With the Top Man

    Starbucks Sells Off Big As High Coffee Costs Pressure Profits

    Sales Drive Daimler Profit

    BASF’s Oil Unit Offsets Flagging Chemicals Profits

    Honda Profit Jumps

    Sharp Posts Record Loss, Expects To Stay In Red

    Samsung Ends Nokia’s 14-Year Run as Biggest Handset Maker

    Cullen Roche: CSX: The Economy Is Slowly Improving

    Joshua Brown: Quick Take on Today’s Jeffrey Gundlach Presentation in NYC

    Be sure to follow me on Twitter.

  • Q1 Earnings Summary So Far
    Posted by on April 26th, 2012 at 12:19 pm

    So far 267 companies in the S&P 500 have reported earnings. Of that, 190 have beaten earnings, 45 have missed, and 32 have been inline. Earnings growth is tracking at 8% and without financials, it’s at 7.2%.

  • Johnson & Johnson Raises Dividend
    Posted by on April 26th, 2012 at 11:37 am

    For the 50th year in a row, Johnson & Johnson ($JNJ) raised its dividend. The company boosted its quarterly dividend from 57 cents to 61 cents per share. At the current price, the yield works out to 3.77%.

  • Morning News: April 26, 2012
    Posted by on April 26th, 2012 at 5:32 am

    Rand Rises to Three-Week High as Bonds Gain on Fed Statement

    Deutsche Bank Profit Drops on Debt Crisis

    Santander Profit Falls As Loan-Loss Provisions Jump

    Anti-Euro Le Pen Gain Spooks Overseas Investors in French Stocks

    Fed Cuts U.S. Growth Forecast for 2013 and 2014

    White House Announces Intention to Encourage Biological Manufacturing Methods

    Chasing Fees, Banks Court Low-Income Customers

    Nasdaq-100 Has Biggest Advance in 2012 as Apple Jumps

    For Apple, China Is Middle Kingdom

    Shell Profit Beats Estimates as Asset Sales Target Raised

    Barclays Profit Rises on Rebounding Investment Bank

    Caterpillar Revenue Misses Estimates as China Sales Slow

    Chrysler Reports Best Quarter Since Fiat Alliance

    Alcatel-Lucent Cautions on Europe, U.S.

    AstraZeneca’s Brennan to Retire; Forecast Cut

    Jeff Miller: Don’t Like the Real Data? Just Pretend!

    James Altucher: Note to Facebook Shareholders: What to Do After You Make a Zillion Dollars

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  • Guy Rang Closing Bell 90 Seconds Too Early
    Posted by on April 25th, 2012 at 9:57 pm

    Oops.

  • AFLAC’s Earnings Call
    Posted by on April 25th, 2012 at 6:19 pm

    From Seeking Alpha, here’s a key part of AFLAC’s ($AFL) earnings call. I highlight this because it hasn’t received much attention, but AFLAC actually raised its earnings guidance slightly for next year:

    We increased our cash dividend to shareholders in 2011 for the 29th consecutive year. Our objective is to grow the dividend at the rate in line with our earnings per share before the impact of the yen. I believe dividends are an important component of the value we provide the investors. We will again evaluate a dividend increase as the year progresses, but I am confident we will extend our consecutive annual dividend increases to 30 years.

    As we have indicated, given our capital structure, our ability to repurchase shares is largely tied to profit repatriation. We mentioned on our fourth quarter call, we estimated 2012 profit repatriation to be about JPY 25 billion, assuming no additional material investment losses through Aflac Japan’s FSA fiscal year end. We still believe that’s a reasonable estimate. We will make a decision about the amount of money we will transfer from Japan to the U.S. around mid-year. And thinking of that decision, we’ll be taking into consideration the needs of our stakeholders in Japan, including our policyholders, but we will continue to be cautious about deploying that capital. If we do purchase any shares this year, it would be late in the fourth quarter. Keep in mind there are many factors involved in this decision and we’ll closely monitor our options. Importantly, we don’t need to repurchase shares to make our 2012 earnings. Furthermore, assuming we incur no material investment losses between now and mid-2013, we would expect to maintain a strong solvency margin ratio and significant capacity for profit repatriation and share repurchase.

    You’ll recall, we previously shared that our 2012 operating earnings objective was 2% to 5% growth before currency. We expect the new accounting for DAC to lower earnings per share by approximately $0.05 this year. However, we believe we can cover that impact and still achieve our original target of $6.46 to $6.65 per diluted share before the currency. That means our range for this year increased actually to 3% to 6% over the restated 2011 numbers. We will give you details about 2013 outlook at the analyst meeting next month, as we do each year. But I can say that we still expect the rate of earnings growth in 2013 to improve over 2012. I’m very excited about the opportunities ahead for Aflac.

    Because of some accounting changes, AFLAC’s earnings for last year will be restated slightly lower. However, AFLAC says that its earnings-per-share target of $6.46 to $6.65 is still on. Previously, AFLAC had said that it sees earnings growing by 2% to 5% this year. Now that becomes 3% to 6%.

    But here’s the key: AFLAC has said that earnings growth in 2013 will be better than 2012, and they reiterated that again today. So let’s say that AFLAC earns $6.60 per share this year. Considering they just beat earnings by a lot, I think it’s reasonable to assume they’ll be at the high end of the range. That translates to 5% growth for this year. If AFLAC accelerated to, say, 6% growth next year, that comes to earnings of $7 per share.

  • Is the Market Up or Down?
    Posted by on April 25th, 2012 at 3:58 pm

    I’m not a big fan of price-weighted indexes like the Dow Jones Industrial Average. The S&P 500 is far better and that’s what I almost always refer to when I look at the market.

    Here’s a good example of how off indexes can be. Since March 24, 2000 — the peak of the market — the Dow is up 17.8% while the S&P 500 is down 8.9%. That’s a huge spread.

  • Today’s Fed Statement
    Posted by on April 25th, 2012 at 12:34 pm

    Hot off the presses:

    Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

    To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

    The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.

  • Hudson City Earns 15 Cents Per Share for Q1
    Posted by on April 25th, 2012 at 11:28 am

    Hudson City ($HCBK) just reported first-quarter earnings of 15 cents per share which was inline with forecasts.

    Hudson City Bancorp Inc posted a first-quarter profit as the lender kept aside less money to cover soured loans.

    The holding company for Hudson City Savings Bank reported net income of $73 million, or 15 cents per share, compared with a net loss of $555.7 million, or $1.13 per share, a year ago.

    Provision for loan loss for the quarter fell about 38 percent to $25 million as fewer borrowers are defaulting on loans, helping the bank set aside less capital to make up for those losses.

    Net interest margin – the difference between what the bank earns on loans and pays out on deposits – increased to 2.15 percent from 1.72 percent, a year ago.

    The company expects margins to be pressurized in 2012 as interest rates are expected to remain low.