Archive for January, 2006

• The Super Bowl Indicator
  Eddy Elfenbein, January 26th, 2006 at 10:08 am

  No matter who wins the Super Bowl, the indicator points to good news for investors.

• GM’s Earnings Report
  Eddy Elfenbein, January 26th, 2006 at 10:00 am

  What a disaster! General Motors (GM) lost a stunning $4.8 billion last quarter, or $8.45 a share. This is GM’s fifth straight quarterly loss. Bear in mind that this is a $23 stock, and they lost $8.45 a share! That loss comes to over $50 million a day. This figure includes “one-time” items which amount to $3.6 billion, or $6.36 a share. Excluding those charges, GM only lost $2.09 a share. Wall Street was expecting a loss of 12 cents a share. As lousy as Ford’s earnings were, they at least beat the Street.
  President Bush said that the automakers should develop “a product that’s relevant.” Ouch.

• Danaher & Respironics
  Eddy Elfenbein, January 26th, 2006 at 9:38 am

  This morning, Respironics (RESP) reported earnings of 36 cents a share which was inline with Wall Street’s expectations:

  Fiscal second-quarter net income was $24.1 million, or 33 cents per share, compared with $20.1 million, or 28 cents, a year ago. Net income for the current quarter included stock compensation expenses representing about 3 cents per diluted share after taxes.
  Excluding items, the company reported a profit of 36 cents per share, matching the average analyst estimate, according to Reuters Estimates.
  Net sales totaled $257.9 million, up 14 percent. Foreign currency exchange rates reduced revenue by about by 1 percent during the quarter.
  Domestic revenue increased 15 percent to $176.9 million.
  For fiscal-year 2006, Respironics forecast earnings per share, excluding equity compensation expense, in the range of $1.46 to $1.48. Earnings per share estimates for the quarter ending March 31, are expected to be 40 cents to 41 cents, excluding items.

  Danaher (DHR) earned 81 cents a share, which beat estimates by one penny a share:

  Industrial tool maker Danaher Corp. on Thursday said fourth-quarter profit rose 20 percent, helped by stronger demand for professional instruments used in environmental science and medicine.
  Earnings increased to $261.6 million, or 81 cents per share, from $217.7 million, or 67 cents per share, a year earlier.
  Analysts on average expected profit of 80 cents per share, according to Reuters Estimates.
  Sales also topped forecasts, rising 14 percent to $2.26 billion. Revenue rose 24 percent in Danaher’s professional instrumentation division, its biggest, to $1.17 billion.
  Chief Executive Lawrence Culp said in a statement that he was confident the company would be able to deliver “excellent results in 2006,” but did not issue a specific earnings forecast.

  Also, Chipotle’s (CMG) IPO price was raised for the second time. The stock will now go public at $22, or 38 times earnings.

• The Devil Wears Prada
  Eddy Elfenbein, January 25th, 2006 at 5:50 pm

  
  MarketWatch:

  When Ben Bernanke steps into Alan Greenspan’s shoes at the Federal Reserve on Feb. 1, he’ll be under pressure to prove he’ll be vigilant on inflation, several Wall Street economists say.

  Motley Fool:

  In two weeks, Ben Bernanke will try to fill the shoes of the venerable Alan Greenspan as Federal Reserve chairman and begin to shape policy for the largest free market economy in the world.

  Portsmouth Herald News:

  Academician has big shoes to fill as Fed Reserve head

  San Diego Union Tribune:

  Big shoes to fill

  U.S. News and World Report:

  Following the legend of Greenspan, Bernanke certainly has big shoes to fill.

  St. Petersburg Times:

  One focus is the transition at the Federal Reserve Board, where Alan Greenspan is on his way out as chairman and Ben Bernanke is stepping into those extra-large shoes.

  Black Enterprise:

  Big Shoes to Fill

  The Daily Yomiuri

  It will not be easy for Bernanke, who is tasked with overcoming domestic and external problems that could short-circuit the currently sound U.S. economy and to fill the big shoes of Greenspan, who has won international recognition for his economic policies.

  NPR:

  In terms of his role as a political player, analysts agree he has some big shoes to fill.

  Investors Business Daily

  Bernanke knows he has big shoes to fill.

  Smart Money:

  You’d think Alan Greenspan shows up to work in a clown costume with all the talk about the next Federal Reserve chairman having big shoes to fill.

  The Onion:

  Greenspan, Entourage Demolish Hotel Room

• Fair Isaac Earns 52 Cents a Share
  Eddy Elfenbein, January 25th, 2006 at 5:23 pm

  Fair Isaac (FIC) just reported earnings of 52 cents a share. I was wrong on sales growth. Revenues came in at $202.8 million, growth of just 3.7%. The good news was net margins, which held up at 17%. With the addition of stock options, the company earned 43 cents a share. Overall, this looks very good. I’ll have to dig into the numbers a little bit more to see all the messy details.
  The company also guided inline for next quarter (52 cents a share) and next year ($2.16 a share). I have to say that I’m very pleased with these results.
  Varian Medical Systems (VAR) beat by a penny a share (34 cents versus 33 cents). The stock tends to be much more volatile, so it could react negatively.
  Also, Bed Bath & Beyond (BBBY) announced a $200 million increase to its share buyback program. The old program was for $400 million.
  Still more earnings to come. Tomorrow we’re going to get results from Danaher (DHR) and Respironics (RESP). Wall Street is expecting 36 cents a share from Respironics, and 80 cents from Danaher.

• Medicare Drug Benefit Sparks an Industry Land Grab
  Eddy Elfenbein, January 25th, 2006 at 12:49 pm

  
  The WSJ has a fascinating article today on the business impact of the new Medicare prescription drug benefit. Our own UnitedHealth (UNH) is one of the major beneficiaries:

  Defying early predictions that private insurers wouldn’t offer prescription-drug policies, dozens of companies are offering regional plans and 10 are selling them nationwide. The government is heavily subsidizing the policies, for which 42 million people are eligible. It’s a big and unexpected growth opportunity at a time when the industry’s traditional business — administering employer health benefits — is stagnant or shrinking.
  UnitedHealth, based in Minnetonka, Minn., is one of the most aggressive players and one of the most successful so far. It has signed up about 2.8 million Medicare beneficiaries, either to stand-alone drug plans or within its more comprehensive Medicare plans. It picked up 1.5 million more sign-ups from its acquisition in December of PacifiCare Health Systems.

• Boston Scientific Wins
  Eddy Elfenbein, January 25th, 2006 at 10:38 am

  This time, it looks like it’s finally over. Guidant’s (GDT) board has accepted Boston Scientific’s (BSX) higher bid. BSX will pay $42 a share in cash, and $38 a share in stock. In my opinion, that’s way too much.
  For its part, J&J will get $705 million for Guidant breaking its earlier agreement. BSX smartly stayed a step ahead of regulators by agreeing to sell part of Guidant to Abbott Labs (ABT).
  This was a big victory for a couple of hedge funds and lots of lawyers and investment bankers. J&J nearly made a big mistake.
  Speaking of bidding war, one of our Buy List stock, Danaher (DHR), will bow out of a bidding war for First Technology. Honeywell (HON) initially agreed to buy the company for 275 pence, then DHR bid 330. Honeywell came back and bid 365, which it’s going to get.
  Disney (DIS) agreed to buy Pixar (PIXR) for $7.4 billion. Or more accurately, Pixar agreed to be bought by Disney. Steve Jobs will be the new chairman. Disney is too good a company for its current management.

• Profits Plunge at the New York Times
  Eddy Elfenbein, January 24th, 2006 at 2:49 pm

  Earnings dropped 11% for the year and 45% for the quarter:

  Circulation revenue remained under pressure, though the company, which owns The New York Times, The Boston Globe, The International Herald Tribune and other newspapers, as well as television and radio stations, reported a 6.2 percent increase in advertising sales for the quarter. But the company said revenue for January was “off to a slower start, especially in the entertainment and classified automotive categories.”
  Newspaper companies, like other media companies, are in the midst of a struggle to adapt themselves to the new ways in which readers and viewers consume news and entertainment on the Internet and digital devices. While advertising rates and revenue are increasing online – the Times Company said advertising revenue at its newspaper Web sites jumped 30.3 percent – that growth has not completely made up for the decline in revenue and profits from newspapers and other older media.

• Earnings Preview for Fair Isaac
  Eddy Elfenbein, January 24th, 2006 at 2:36 pm

  Fair Isaac (FIC) will report its earnings after the close tomorrow. If you’ve read this blog for awhile, you know that I’m a big fan of this company. They’re known for the FICO credit score, and they’re the dominant player in the industry.
  Last year, Fair Isaac reported that its first-quarter (ending in December) sales jumped 15%, but its earnings were only 36 cents a share, the same as the year before. But the next three quarters were very strong. Fair Isaac beat estimates by six, then nine, then four cents a share. I think they’ll beat estimates again.
  The current estimate is for 50 cents a share. If revenues come in at $210 million, which is just 7.4% sales growth, and net margins fall to 17% (the average has been about 17.5%-18%), then Fair Isaac will earn $35.7 million for the quarter. That would be about 55 cents a share.
  I think I’m being cautious on the net margin number, but perhaps a little aggressive for sales growth. Sales growth is the hardest to pin down. Don’t think that Fair Isaac is heavily tied to mortgage lending. For example, when you get those “pre-approved” credit cards in the mail, have you ever wondered how they know you’re a good risk? Odds are Fair Isaac told them.
  For the year, Wall Street expects Fair Isaac to earn $2.16 a share, and $2.46 a share next year. Here are the financial results from the past few years:

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  Year	Revenues	Oper Income	Pre-Tax	Net	EPS
  1999	$277,041	$46,375	$50,600	$29,980	$0.62
  2000	$298,630	$44,614	$47,070	$27,631	$0.56
  2001	$329,148	$72,107	$76,853	$46,112	$0.89
  2002	$392,418	$47,112	$53,098	$17,884	$0.32
  2003	$629,295	$174,194	$172,140	$107,157	$1.40
  2004	$706,206	$179,866	$168,815	$102,788	$1.31
  2005	$798,671	$193,011	$194,088	$134,548	$1.86

• Golden West Financial Beats Earnings
  Eddy Elfenbein, January 24th, 2006 at 11:31 am

  This is why I like dull stocks. Sure, Golden West Financial (GDW) is boring, but it never lets me down. While everyone else is reporting slower mortgage business, GDW keeps motoring along. Today the S&L reported better-than-expected earnings. For the fourth quarter, the company earned $1.37 a share, three cents more than estimates. The shares are up about 40 cents today.
  Two more of our dull stocks report tomorrow, Varian Medical (VAR) and Fair Isaac (FIC). The estimate for Varian is for 33 cents a share. How’s this for consensus? All eight analysts who follow Fair Isaac estimate earnings of 50 cents a share. Our health care stocks got clobbered yesterday, but Varian is gaining back much of what it lost.
  Earnings season is Judgment Day on Wall Street. Intel (INTC) has dropped for seven straight days. It looks like it may break that streak today. The company missed by three cents a share and fell 11% last Wednesday on 280 million shares. I really underestimated how much Advanced Micro (AMD) has cut into Intel’s business. Michael Sivy has a good analysis of Intel’s problems.
  One stock that almost never fails during earnings time is Coach (COH). The company beat earnings by three cents a share, and the stock is up about 7% today.
  Johnson & Johnson (JNJ) reported very good earnings today. Profits were up 79%. This reminds me of why I don’t want JNJ to win the war for Guidant (GDT). Guidant’s board has until tomorrow to accept Boston Scientific’s (BSX) higher offer. For the first time in 22 years, Johnson & Johnson reported that its revenue dropped.