• 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.

  • Looking at Apple’s Value
    Posted by on April 25th, 2012 at 10:42 am

    If you haven’t heard yet, Apple ($AAPL), which I believe is some sort of fruit company, reported outstanding earnings yesterday. For the last nine years, the shares have gained an average of 1% each week. When looking at this company’s numbers, words really do fail me.

    What you can’t do with words you can do with a chart, so below I’ve made a chart of Apple’s stock along with its earnings-per-share. What’s incredible to me is that the stock is still going for a fairly decent price.

    The blue line is Apple’s stock and the red line is Apple’s earnings-per-share. The black line is Wall Street’s earnings forecast (I’ll have more on the black line in a moment.) The blue line follows the left scale and the red line follows the right scale.

    The two lines are scaled at a ratio of 16 to 1 which means that whenever the lines cross, Apple’s P/E Ratio is exactly 16. I don’t mean to suggest that’s the appropriate multiple for Apple. I used 16 simply because it makes the chart more readable.

    About the black line. Apple’s earnings yesterday not only exceeded Wall Street’s forecast but also beat the forecast for the same quarter one year from now. As a result, it appears that Wall Street expects an earnings slowdown. Of course, this isn’t true because analysts will most certainly revise their estimates much, much higher.

    For now, I think the best way to view Wall Street’s forecast is to imagine the black line extending from $41 currently to roughly $57 by the end of next fiscal year (September 2013).

    With trailing earnings of $41 per share, an earnings multiple of 16 translates to a price of $656. If Apple can earn $57 next fiscal year, then 16 times that comes to $912. I’m not saying Apple will do this, but I believe these are very reasonable assumptions.

    Actually, this may understate Apple’s P/E ratio due to the company’s giant pile of cash. The company has an astounding $110 billion in cash. That’s roughly $116 per share. That $116 is probably contributing almost nothing to Apple’s bottom. I mean…have you seen short-term interest rates lately? The only info I have is from the earnings report which lists “other income” of $148 million. Annualized, that’s about 0.5% of Apple’s cash horde.

    So to properly look at Apple’s value, we need to apply a multiple to an earnings forecast and then add $116 to that. By the way, Apple will soon start paying a quarterly dividend of $2.65 per share which comes to $10.60 for the year.

    Addendum: Here’s the same chart but with a log scale. I apologize but I don’t know how to make a readable log chart excel chart, so you’ll have to do with seeing the log value on the y-axis. It gets the point across since you can see the earnings line climbing at a consistent rate.

    Notice how slightly the recession impacted Apple. You can also see how conservative the earnings estimates are compared with Apple’s earnings trend.

    (Instead of a ratio of 16 to 1, this chart has a log spread of 1.2 which comes to a ratio of 15.85 to 1, so it’s nearly the exact same.)

  • Morning News: April 25, 2012
    Posted by on April 25th, 2012 at 5:41 am

    Britain Plunges Into First Double-Dip Recession Since the 1970s

    Rising Euro Yields Keep Banks on Life Support

    Merkel Pushes Back Against Hollande Call to End Austerity Drive

    South Korea Halts Customs Clearance of U.S. Beef

    ECB’s Draghi Wary of Both Crisis Action And Exit Strategy

    Gold Perched At $1,641 On Equities, All Eyes on Fed

    SEC Says Egan-Jones Made False Claims in Regulatory Filings

    Apple Profit Rises on Higher iPhone and iPad Sales

    High-End TV Sales Help LG Electronics Triple Q1 Profit

    Credit Suisse Scrapes Q1 Profit on Cost Cuts, Fixed Income

    China Unicom First-Quarter Profit Trails Estimates on 3G

    SAP Backs Outlook as Profit Rises

    Siemens Cuts Full-Year Profit Forecast on Wind Power Char

    Ericsson Profit Hit by Operator Caution

    ABB Gains From North American Growth As Profit Rises

    Credit Writedowns: Graphite: Time to Invest, or Flavor of the Day?

    Jeff Carter: Does Spot Drive Price Discovery, or Is Spot a Derivative of Futures Price Discovery?

    Be sure to follow me on Twitter.

  • Bard Offers Q2 Guidance of $1.61 to $1.65 Per Share
    Posted by on April 25th, 2012 at 12:58 am

    On the earnings call, CR Bard ($BCR) offered second-quarter earnings guidance of $1.61 to $1.65 per share. Wall Street had been expecting $1.65.

    Bard added that it’s sticking with the full-year earnings forecast they gave in December which was for growth of 3% to 4%. They earned $6.40 per share in 2011 so that translates to 2012 earnings of $6.59 to $6.66 per share. I think that’s probably too conservative. At $98, the stock is a good value.

  • CR Bard Earns $1.61 Per Share for Q1
    Posted by on April 24th, 2012 at 6:16 pm

    We’ve had more good earnings news for our Buy List. This time, it came from CR Bard ($BCR). The company had told us to expect Q1 earnings to range between $1.53 and $1.57 per share. As it turns out, they netted $1.61 per share which was four cents more than Wall Street’s consensus.

    Sales came in at $730 million which is a 4% increase over last year. Interestingly, sales outside the U.S. were up by 10% while inside the U.S. they were up by just 2%.

    Bard’s CEO said, “The results this quarter reflect a good start to the year. While we haven’t seen much change in the U.S. environment, our increased focus and investments in international markets have provided rapid returns and strengthened our growth profile. We remain focused on daily execution of our product leadership strategy to take advantage of current opportunities while positioning ourselves for stronger growth in the future.”

    The stock has tried to break $100 per share in the past month but hasn’t been able to. Perhaps today’s earnings report will be the catalyst. This is an excellent stock. I rate it a buy anytime the price is below $102 per share.

  • AFLAC Earns $1.74 Per Share for Q1
    Posted by on April 24th, 2012 at 5:20 pm

    In last week’s CWS Market Review, I said that Wall Street’s consensus for AFLAC’s figure of $1.65 per share was “almost certainly too low.” I said that results would probably be close to $1.70 per share. Even an AFLAC bull like me was too low.

    AFLAC ($AFL) just reported Q1 operating earnings of $1.74 per share. (Remember that with insurance companies we always want to look at operating earnings.) That’s up from $1.62 per share one year ago. The yen/dollar exchange rate increased earnings by four cents per share.

    CEO Dan Amos said, “We are pleased with our overall results in the first quarter of 2012. Aflac Japan gets high marks for another great quarter. The tremendous sales momentum they again generated this quarter was largely propelled by success in selling through banks. Aflac Japan’s first quarter production set an all-time new annualized premium sales record for the third quarter in a row. More importantly, we believe the first quarter has positioned us for another strong year of sales activities in Japan. As a result, we now expect Aflac Japan’s full year sales to increase 10%, compared with our previous expectation of a sales decline.”

    AFLAC also reiterated its full-year earnings forecast of $6.46 to $6.65 per share. The stock is up to $44 per share in the after-hours market.

  • Energy Versus Technology
    Posted by on April 24th, 2012 at 11:11 am

    As I always say, stock-picking is important. Since July 1, 2008 the S&P 500 Tech Sector is up 33% while the Energy Sector is down 21%.

    By the way, Apple makes up roughly 21% of the S&P 500 Tech Index.

  • Fitch Upgrades Ford
    Posted by on April 24th, 2012 at 10:49 am

    More good news for Ford ($F):

    Fitch Ratings upgraded Ford Motor Co to investment grade on Tuesday, marking a key step that brings the second-largest U.S. automaker closer to reclaiming its Blue Oval trademark.

    Fitch upgraded Ford and its captive finance arm to “BBB-” from “BB+” to reflect the improvement in Ford’s finances since its near collapse in 2006. Ford has lowered its break-even point since the last recession and improved its vehicle lineup.

    Still, the agency said Ford also faced the risk of slower-than-expected global demand for vehicles, particularly in Europe.

    “Fitch believes that the work that has been accomplished has put the company in a solid position to withstand the significant cyclical and secular pressures faced by the global auto industry,” the credit ratings agency said in a release.

    Earnings are due out on Friday.

  • Reynolds American Earns 63 Cents Per Share
    Posted by on April 24th, 2012 at 10:00 am

    Reynolds American ($RAI) reported first-quarter earnings of 63 cents per share, which was two cents below estimates. Quarterly revenues fell 2.9% to $1.93 billion which was below the revenue estimate of $1.97 billion.

    I said in CWS Market Review:

    I’m not so concerned if the company beats or misses by a few pennies per share. The important thing to watch for is any change in the full-year forecast of $2.91 to $3.01 per share. If Reynolds stays on track to meet its forecast, I think we can expect the tobacco company to bump up the quarterly dividend from 56 cents to 60 cents per share.

    Reynolds reiterated its full-year guidance of $2.91 to $3.01 which is the most important thing.