Archive for July, 2011
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Larry Summers on Tech Valuations
Eddy Elfenbein, July 21st, 2011 at 11:39 amLarry Summers can be called many things. Dumb ain’t one of them. This is what he says of tech valuations:
If you look at the price earnings ratio for technology companies relative to the price earnings ratios for all industrial companies, you take that ratio, PE technology divided by PE industrial, you can plot that ratio over the last 40 years, and it is at the lowest point that it’s ever been.
This is what he has to say of his portrayal in the movie, The Social Network:
One of the things you learn as a college president is that if an undergraduate is wearing a tie and jacket on Thursday afternoon at three o’clock, there are two possibilities. One is that they’re looking for a job and have an interview; the other is that they are an asshole.
(Via Arnold Kling)
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Buy List Earnings Calendar
Eddy Elfenbein, July 21st, 2011 at 11:27 amHere’s a look at some of the upcoming earnings reports for our Buy List stocks. I haven’t included Nicholas Financial ($NICK) or Leucadia National ($LUK) since they’re not currently followed on Wall Street.
Stock Symbol Date Estimate Result JPMorgan Chase JPM 14-Jul $1.21 $1.27 Johnson & Johnson JNJ 19-Jul $1.24 $1.28 Stryker SYK 19-Jul $0.90 $0.90 Abbott Labs ABT 20-Jul $1.11 $1.12 Reynolds American RAI 22-Jul $0.71 Ford F 26-Jul $0.60 Fiserv FISV 26-Jul $1.08 Gilead GILD 26-Jul $0.99 AFLAC AFL 27-Jul $1.54 Deluxe DLX 28-Jul $0.71 Becton, Dickinson BDX 2-Aug $1.43 Wright Express WXS 3-Aug $0.87 Sysco SYY 15-Aug $0.57 Moog MOG-A TBA $0.70 Reynolds American Earnings Preview
Eddy Elfenbein, July 21st, 2011 at 9:46 amFrom AP:
Reynolds American Inc., the second-biggest U.S. cigarette company and the maker of Camel brand products, is expected to report rising profit despite lower revenue when it releases its second-quarter results before the stock markets open Friday.
Americans are continuing to buy fewer cigarettes as they face rising taxes and greater smoking bans, health concerns and social stigma.
WHAT TO WATCH FOR: Investors will be looking for signs that growth in Reynolds American’s Pall Mall brand will continue. The company, based in Winston-Salem, N.C., has promoted Pall Mall as a longer-lasting and more affordable cigarette. It says half the people who try the brand continue using it as they weather the weak economy and high unemployment. Reynolds also sells Natural American Spirit cigarettes, and Kodiak and Grizzly smokeless tobacco.
Pall Mall’s first-quarter volume grew 16 percent, and its share of the U.S. market increased 2 points to 8.5 percent. Camel volumes were stable and its share of the cigarette market rose slightly to 7.8 percent. But the company’s other brands are dragging down overall volumes, which fell about 5 percent in the first quarter.
Analysts also will look at the company’s smokeless tobacco products — a segment of the tobacco industry that’s growing and becoming increasingly competitive as companies fight the decline in cigarette sales. Reynolds American’s smokeless volumes grew 13.2 percent last quarter, and its market share grew 1.3 points to 31.1 percent of the U.S. market.
Altria Group Inc., the largest U.S. tobacco company and parent of Marlboro maker Philip Morris USA, said Wednesday that, while cigarette sales fell slightly, it was getting higher prices. Altria’s top-selling Marlboro brand lost 0.2 points of market share to end up with 42.6 percent of the U.S. market, but it sold about 1 percent more of the brand.
WHY IT MATTERS: Reynolds American’s results will help reveal key tobacco industry trends in the U.S.
Continued strength from Pall Mall could mean smokers are still switching to cheaper brands to save money, and those who tried the brand during the recession are remaining loyal. But if volumes of premium brands like Camel are rebounding, that could signal consumers are adjusting to higher prices on cigarettes following federal and state tax hikes.
WHAT’S EXPECTED: Analysts expect Reynolds American to report adjusted earnings of 71 cents per share, which would be equivalent to $1.42 if not for a stock split the company conducted Nov. 16. Analysts expect Reynolds American to report revenue of $2.1 billion, according to FactSet.
LAST YEAR’S QUARTER: Reynolds American reported adjusted income of $1.32 per share. Its revenue was $2.24 billion, excluding excise taxes.
Icahn’s Bid for Clorox
Eddy Elfenbein, July 21st, 2011 at 8:53 amI love me a good old-fashioned bidding war. That’s why I’ve become intrigued by Carl Icahn’s bid for Clorox ($CLX). For one, Clorox is one of those stable old-line consumer products companies that I like. You can project earnings pretty clearly—or at least more clearly than you can with other companies.
On Friday, Icahn bid $76.50 per share for the Clorox. The stock had closed on Thursday at $68.43 so Icahn was offering a very generous premium (11.8%).
What’s interesting is that Icahn isn’t even interested in buying the company. He already owns 9.4% and he’s more interested in getting a bidding war started between other consumer products companies. Icahn even suggested potential buyers. (Here’s his letter.)
On Friday, shares of $CLX closed at $74.55, which is short of Icahn’s offer. This means that investors are doubtful that a bidding war will start. In any event, Clorox’s board shot back saying that it had no interest in Icahn’s bid (“Our board has unanimously determined Mr. Icahn’s unsolicited proposal is neither credible nor adequate.”)
This is one of those tricky areas because the board is supposed to be working for the benefit of shareholders. As a result, the board’s position has to be that a nice premium (albeit hostile) for shareholders isn’t in their best interest. Theoretically, that can make sense. Still, it’s a lot of money to leave on the table.
Then Icahn responded with a higher bid, $80 per share (check out Carl’s letter; he goes into ALL-CAPS mode). Although it’s more than the original, I doubt that will be enough to get the board to change its mind. Perhaps it will convince them that Icahn is serious.
In my opinion, these bids over-value Clorox. Wall Street currently expects the company to earn $4.06 per share this fiscal year (which ends next June). That values CLX at nearly 20 times forward earnings. That’s just too rich.
I hate watching boards shoot down offers of over-payment. I doubt an offer like this will come again soon. I’m not sure any competing bids will come along, and Icahn may be forced to pull his offer. If I were a CLX shareholder, I’d get out of the stock right now.
Morning News: July 21, 2011
Eddy Elfenbein, July 21st, 2011 at 7:41 amEuro Leaders Start Talks on Sovereign Debt Crisis
Chinese Manufacturing Set to Contract
Why The Debt-Ceiling Brawl Hasn’t Rattled Bonds, Yet
Polish Government’s Funding Costs Fall Below Spain’s in 10-Year Bond Sale
China Risks Inflation, Property Price Bubble: IMF
European Bank Bets Crush Returns for Managers
U.S. Consumers Denied Auto, Card Loans to Get Free Copies of Credit Scores
Travelers Swings to Loss on Record Catastrophe Costs
Nokia Posts Loss as Sales Drop
Whirlpool Swings To 2Q Loss On Charge, Lower North America Sales
PepsiCo Net Income Rises 18% on Snack Sales
Express Scripts To Buy Medco Health For $29.1B >ESRX
Roche Raises Full-Year Outlook; Sees Core Earnings Per Share Up About 10%
Howard Lindzon: Zillow…The Disruption Continues
Joshua Brown: “Is Gold Money?” No, It’s an ETF.
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A Look at Apple’s Blowout Earnings
Eddy Elfenbein, July 20th, 2011 at 9:41 amAll eyes on Wall Street seemed to be focused on Apple‘s ($AAPL) earnings report. Once again, the company did not disappoint. Apple earned an astounding $7.79 per share for the second quarter.
It’s almost difficult to put these numbers into context. Shares of Apple are up over 60-fold in a little over eight years. That means that the shares have doubled, on average, every 17 months.
If you had bought Apple 13 years ago, you’d now be making all of your money back every three months. That means the company made more money in the second quarter than the entire company was worth in 1998.
Here’s a look at Apple’s share price along with its trailing 12-month earnings-per-share. The blue line is Apple’s stock and it follows the left scale. The yellow line is earnings and it follows the right scale. The two lines are scaled at a ratio of 20-to-1, so whenever the lines cross that means Apple’s P/E Ratio is exactly 20.
There’s no deep reason why I chose a ratio of 20. It just seemed to provide the graph the best fit. The red line is Wall Street’s forecast. The problem is that yesterday’s earnings report was so strong that it made a joke of Wall Street’s forecast, so please don’t pay too much attention to the red line. I expect to see those projections increased dramatically.
I also think it’s interesting that Apple’s earnings growth was barely dented by the recession. Also, the stock’s valuation is hardly extreme, at least based on earnings. Just a month ago, Apple closed at $315 per share which was less than 13 times earnings.
Abbott Labs Earns $1.12 Per Share
Eddy Elfenbein, July 20th, 2011 at 7:57 amAbbott Laboratories ($ABT) just reported second-quarter earnings of $1.12 per share which topped Wall Street’s forecast by one penny per share. This report extends Abbott’s streak of beating Wall Street’s consensus by one penny per share to seven straight quarters.
The best news is that Abbott is raising its full-year guidance by four cents per share at each end. The old range was $4.54 to $4.64 per share; the new range is $4.58 to $4.68 per share.
Diluted earnings per share, excluding specified items, were $1.12, at the high end of Abbott’s previous guidance range and reflecting 10.9 percent growth. Diluted earnings per share under Generally Accepted Accounting Principles (GAAP) were $1.23, reflecting growth of 48.2 percent, including specified items.
Worldwide sales increased 9 percent to $9.6 billion, including a favorable 4.6 percent effect of foreign exchange. Sales were led by a 13 percent increase in Proprietary Pharmaceuticals sales. Durable Growth Business sales increased 7.5 percent, driven by double-digit growth in International Nutritionals, Point of Care Diagnostics and Established Pharmaceuticals. Innovation-Driven Device Business sales increased 3.1 percent, including double-digit growth in Molecular Diagnostics.
Emerging markets sales were nearly $2.6 billion, up 23.2 percent from the prior year, with strong growth across all of Abbott’s operating divisions.
The gross margin ratio was 60.2 percent in the second quarter, driven by favorable product mix.
Abbott is raising its previous ongoing earnings-per-share guidance range for the full-year 2011 to $4.58 to $4.68, confirming its outlook for double-digit growth over 2010 at the midpoint of the range. The previously issued guidance range was $4.54 to $4.64.
“Abbott is well-positioned for a strong second half of the year as we remain on track for double-digit EPS growth in 2011,” said Miles D. White, chairman and chief executive officer, Abbott. “We’re also pleased with our growth in emerging markets, as well as the progress of our broad-based pipeline, including several new product approvals, regulatory submissions and clinical trial initiations.”
The stock looks to open higher this morning.
Morning News: July 20, 2011
Eddy Elfenbein, July 20th, 2011 at 7:23 amChina’s Yuan Advances to 17-Year High on Record Fixing, Inflation Concern
Pound Pares Weakness as BOE Minutes Signal Less Push for Bond Purchases
Crude Oil Advances a Second Day on Decline in U.S. Supplies, Europe Talks
US Debt Hopes Boost European Shares
Home Construction Plays Catch Up
Strong Sales Help Extend Apple Streak
Profit Rises at Yahoo, but Ad Sales Are Softer
Bank of America Swings to Loss Amid Mortgage Troubles
Profit Up 13%, UnitedHealth Raises Outlook
Goldman’s Safer Positions Eat Deeply Into Its Profit
Energy Transfer to Buy Southern Union for $5.7 Billion to Counter Williams
Cnooc to Buy OPTI Canada for $2.1 Billion
U.S. to Close 800 Computer Data Centers
Ex-trader Admits Threatening to Kill U.S. Regulators
Stone Street: Book Review: Fatal Risk – A Cautionary Tale of AIG’s Corporate Suicide
Todd Sullivan: Housing & Foreclosure Stats Paint Improving Picture
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Stryker Earns 90 Cents Per Share
Eddy Elfenbein, July 19th, 2011 at 4:04 pmRight in line with expectations.
Second Quarter Highlights
Net sales increased 11.9% on a constant currency basis (16.3% as reported) to $2.05 billion
Sales of Reconstructive products increased 1.8% on a constant currency basis (7.4% increase as reported)
Sales of MedSurg products increased 11.9% on a constant currency basis (15.0% as reported)
Sales of Neurotechnology and Spine products increased 49.0% on a constant currency basis (52.6% as reported)
Adjusted net earnings increased 10.4% from $319 million to $352 million and adjusted diluted net earnings per share increased 12.5% from $0.80 to $0.90
Reported net earnings decreased 3.1% from $319 million to $309 million and reported diluted net earnings per share decreased 1.3% from $0.80 to $0.79“Our second quarter results validate the strength of our diverse sales footprint, enabling us to deliver on our commitments despite ongoing macro-economic challenges,” commented Stephen P. MacMillan, Chairman, President and Chief Executive Officer. “We are excited about our ability to leverage the breadth of our product offering through continued investments in R&D coupled with selective acquisitions, share repurchases and dividends in order to maximize shareholder value.”
Stryker has also reaffirmed its guidance for 2011:
2011 Outlook
The financial forecast for 2011 includes a constant currency net sales increase of 11-13% as a result of growth in shipments of Reconstructive products, MedSurg products and Neurotechnology and Spine products as well as sales growth through acquisitions. If foreign currency exchange rates hold near current levels, the Company anticipates net sales will be favorably impacted by approximately 2.5-3.5% in the third quarter of 2011 and by approximately 2.0 to 3.0% for the full year of 2011. Excluding the expected impact from foreign currency as well as acquisitions, sales growth is projected to be 5-7% for the full year of 2011.
The Company continues to project that adjusted diluted net earnings per share for 2011 will be in the range of $3.65 to $3.73, an increase of 10% to 12% over adjusted diluted net earnings per share of $3.33 in 2010. In 2011, the Company anticipates acquisition and integration-related charges of approximately $0.33 to $0.35 per share (net of income tax benefits), including transaction costs, integration-related charges and additional cost of sales for inventory sold that was stepped-up to fair value, as a result of the acquisitions of the Neurovascular and Orthovita businesses. This increase from the previously communicated range of $0.28 to $0.30 is a result of the closing of the Orthovita, Inc. and Memometal Technologies S.A. acquisitions.
No surprises here. This is a good report.
Pie Fawkes Day!
Eddy Elfenbein, July 19th, 2011 at 12:35 pmRupert Murdoch is attacked with a pie while testifying before Parliament.
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