Archive for October, 2011

  • Nicholas Financial Earns 46 Cents Per Share
    , October 27th, 2011 at 10:45 am

    NICK just reported great fiscal Q2 earnings of 46 cents per share which was at the top of the range I gave yesterday. That’s a 39% increase over last year. For the first half of their fiscal year, NICK has made 90 cents per share. The company also said that it will pay another 10-cent dividend.

    My earlier forecast was that NICK could make as much as $1.70 per share for this calendar year. That must have seemed very optimistic when I made it but now it looks very doable. In fact, I think NICK can make $1.75 per share.

    This was an outstanding quarter. Let’s dig through some of the important numbers. Total receivables are up to $272.8 million which is a little lighter than I expected.

    The gross yield came in at 25.21% which is the highest in a year. The two bites we take out of gross yield are interest expense which was just 1.81%, the lowest on my records, and provision for credit losses which was a measly 0.26%. That line can be the earnings killer. This means that NICK’s portfolio is doing well.

    After those two are subtracted, the end result is the net yield which came in at 23.14%. That’s an increase of nearly 10% from three years ago. Out of that, we take 9.85% for costs and that gives us a pre-tax yield of 13.29%. That’s very, very good.

    Here’s a NICKs Stats with some of the performance stats for the past several quarters.

    Nicholas Financial, Inc. that for the three months ended September 30, 2011 net earnings increased 39% to $5,520,000 as compared to $3,982,000 for the three months ended September 30, 2010. Per share diluted net earnings increased 35% to $0.46 as compared to $0.34 for the three months ended September 30, 2010. Revenue increased 9% to $17,211,000 for the three months ended September 30, 2011 as compared to $15,732,000 for the three months ended September 30, 2010.

    For the six months ended September 30, 2011 net earnings increased 43% to $10,823,000 as compared to $7,558,000 for the six months ended September 30, 2010. Per share diluted net earnings increased 41% to $0.90 as compared to $0.64 for the six months ended September 30, 2010. Revenue increased 10% to $33,845,000 for the six months ended September 30, 2011 as compared to $30,684,000 for the six months ended September 30, 2010.

    “Our strong growth in earnings per share for the three and six months ended September 30, 2011 were primarily the results of an increase in the average finance receivables and a reduction in the net charge-off rate,” stated Peter L. Vosotas, Chairman and CEO. We also recently opened our 58th branch location in Huntsville, AL and continue to develop additional markets. We expect to open between 2-4 new branch locations during the remainder of our current fiscal year, which ends March 31, 2012.

    As a result of our continued earnings growth and stable capital position, the Board of Directors has voted to continue issuing a quarterly dividend equal to $.10 per common share, to be paid on December 20th to shareholders of record as of December 13th.

  • Q3 Real GDP Growth = 2.5%
    , October 27th, 2011 at 10:30 am

    The initial report for third-quarter came out this morning and it showed that the U.S. economy grew by 2.5% in real terms. That’s okay but still not close to what we need. Still, it’s the best growth in a year.

    We’ve finally passed the peak from the fourth quarter of 2007. In those 15 quarters, the economy has grown by a grand total of 0.2%.

    Here’s a stat that sums it up: The U.S. economy has grown less in the last 11 years than in the four years before that.

    Here’s a look at real GDP since 2005. (I’ve given up trying to find a letter to describe this…N? U? V?)

  • Huge Opening
    , October 27th, 2011 at 10:06 am

    Wow! This is one of the best openings I’ve seen in a long time. Everything that was being held back by Europe is up.

    AFLAC ($AFL) has been as high as $47.98 which is an 11.5% jump.

    JPMorgan Chase ($JPM) is also very strong. At one point, up nearly 10%.

    Nicholas Financial‘s ($NICK) earnings are due shortly.

  • Futures Point to Strong Open
    , October 27th, 2011 at 6:53 am

    Thanks to the deal in Europe, the stock market looks to open much higher today. The futures for the S&P 500 are currently at 1,263.10. The index could hit the highest levels in nearly three months.

  • Amazon Way Overpriced
    , October 27th, 2011 at 6:20 am

    Shares of Amazon.com ($AMZN) got body slammed yesterday for a 12.7% loss after the company reported terrible earnings. For the third quarter, Amazon earned just 14 cents per share which was 10 cents below Wall Street’s forecast. For comparison, Amazon netted 51 cents per share in the same quarter one year ago.

    I think this is just the beginning of Amazon’s sell-off. Even after the big drop, the stock is very richly priced. Three months ago, Wall Street thought Amazon could earn $2.40 per share for this year. Now they’ll be lucky if they can earn $1.80 per share. Similarly, Wall Street had been expecting the company to earn $3.80 per share next year. I think those estimates will soon be pared back to less than $3 per share.

    The stock closed yesterday at $198.40 which is down from the high of $246.71 from just two weeks ago. Amazon is currently going for 62 times forward earnings, which is an elevated multiple for an estimate that’s plunging.

    My advice is to steer clear of Amazon.com.

    Here’s a chart of Amazon’s stock (in blue, left scale) and its earnings-per-share (black line, right scale). The two lines are scaled at a ratio of 50-to-1 which means that the P/E Ratio is exactly 50 when the lines cross. The red line represents Wall Street’s forecast.

  • Europe Agrees to Agree on Plan to Rescue the Euro
    , October 27th, 2011 at 5:55 am

    The stock market is poised to soar on the news:

    European leaders, in a significant step toward resolving the euro zone financial crisis, early Thursday morning obtained an agreement from banks to take a 50 percent loss on the face value of their Greek debt.

    The agreement on Greek debt was crucial to assembling a comprehensive package to protect the euro, which has been keeping jittery markets on edge.

    The accord was reached just before 4 a.m. after difficult bargaining. The severe reduction would bring Greek debt down by 2020 to 120 percent of that nation’s gross domestic product, a figure still enormous but more sustainable for an economy driven into recession by austerity measures.

    The leaders agreed on Wednesday on a plan to force the Continent’s banks to raise new capital to insulate them from potential sovereign debt defaults. But there was little detail on how the Europeans would enlarge their bailout fund to achieve their goal of $1.4 trillion to better protect Italy and Spain.

    After all the buildup to this summit meeting, failure here would have been a disaster. While the plan to require banks to raise new capital was generally approved without difficulty — banks will be forced to raise about $150 billion to protect themselves against losses on loans to shaky countries like Greece and Portugal — the negotiations over the Greek debt were difficult.

    “The results will be a source of huge relief to the world at large, which was waiting for a decision,” President Nicolas Sarkozy of France said.

    Chancellor Angela Merkel of Germany said: “I believe we were able to live up to expectations, that we did the right thing for the euro zone, and this brings us one step farther along the road to a good and sensible solution.”

  • Morning News: October 27, 2011
    , October 27th, 2011 at 5:42 am

    EU Sets 50% Greek Writedown, $1.4 Trillion in Rescue Fund

    Europe Agrees to Basics of Plan to Resolve Euro Crisis

    Bank of Japan Expands Stimulus as EU Crisis Boosts Yen

    Bank Race for Capital to See Pay, Dividends Cut

    Shell’s Profit Soars

    American Gas Gets Boost From Cheniere

    Boeing Posts Strong Profit but Cuts Delivery Forecast

    Chemicals Giant BASF’s Third-Quarter Profit Beats Estimates

    Taiwan Semiconductor’s Net Profit Down 35%

    Volkswagen Quarterly Profit Surges on Audi A6, Tiguan SUV Demand

    Nintendo Slashes Forecast Again to Just Break Even

    Sprint Reports Smaller Loss and a Gain in Subscribers

    Sony to Buy Ericsson Share of Sony Ericsson

    A Stunning Fall From Grace for a Star Executive

    Lance Roberts: The Key To The Next Recession – The Consumer

    Stone Street: Analyzing the Popular Proposals for Mortgage Principal Writedowns, Part I

    Be sure to follow me on Twitter.

  • AFLAC Earns $1.66 Per Share, Raises Dividend By 10%
    , October 26th, 2011 at 4:29 pm

    AFLAC ($AFL) just released their third-quarter earnings report and the company earned $1.66 per share in operating profit.

    This was a great report. In last week’s CWS Market Review, I said the company could easily earn $1.64 per share which was higher than Wall Street’s consensus ($1.60) and higher than the company’s guidance ($1.54 to $1.60). Even my optimistic forecast wasn’t high enough.

    AFLAC also raised their quarterly dividend from 30 cents to 33 cents per share which is a 10% increase.

    The best news is that AFLAC raised their 2011 guidance. The company said, assuming a stable yen/dollar exchange rate, that they expect to earn between $1.45 and $1.52 per share in Q4. For all of 2011, they expect to earn between $6.30 and $6.37 per share. Until now, the 2011 guidance was for $6.09 to $6.34 per share so this is good news.

    For next year, the company reiterated its forecast of operating earnings growth of 2% to 5%.

    Commenting on the company’s third quarter results, Chairman and Chief Executive Officer Daniel P. Amos stated: “We are pleased with our overall results in the third quarter of 2011. Aflac Japan sales greatly exceeded our expectations, largely because of our ability to develop relevant products such as WAYS that appeal to banks and Japanese consumers alike. We are proud of Aflac Japan’s remarkable results, especially following two years of exceptional sales growth and the challenges in 2011 resulting from the most devastating natural disaster in Japan’s history. Our outstanding sales results in 2011 will create difficult comparisons in 2012.

    “We were also pleased that Aflac U.S. continued to generate strong sales results, despite the continued weakness in the U.S. economy. Strategic coordination between our sales and marketing areas, which are more closely aligned than ever, continues to benefit our sales results. On the product side, sales have benefited significantly from the addition of group products to our Aflac U.S. product portfolio and strategic, coordinated sales and marketing efforts. On the distribution side, Aflac U.S. has continued to generate significant recruiting gains, which we believe benefited from targeted advertising activities that promote the Aflac sales opportunity. As a result of our positive performance in both Japan and the U.S., we posted strong consolidated financial results.

    “As we have communicated over the past several years, maintaining a strong risk-based capital, or RBC ratio, remains a top priority for us. Although we have not yet completed our statutory financial statements for the third quarter, we estimate our RBC ratio will be within the range of 500% and 540% at the end of September. Our strong capital position has enabled us to increase our cash dividend for the 29th consecutive year. I am very pleased with the action by the board of directors to increase the quarterly dividend by 10.0%, effective with the fourth quarter of 2011. Our objective is to grow the dividend at a rate that’s in line with or somewhat better than earnings-per-share growth.

    “With three quarters of the year complete, we continue to believe we are positioned for another year of solid financial performance. Throughout the year, both Aflac Japan and Aflac U.S. have continued to do a very good job managing our operations, including expense control. As we have stated previously, our expectation was to increase spending in the last half of the year, particularly on marketing and IT initiatives in the fourth quarter. Despite our expectation for higher spending in the fourth quarter, I am confident we will achieve our 2011 objective of growing operating earnings per diluted share at 8%, excluding the impact of the yen. If the yen averages 75 to 80 to the dollar for the last three months of the year, we would expect reported operating earnings for the fourth quarter to be in the range of $1.45 to $1.52 per diluted share. Under that exchange rate assumption, we would expect full year operating earnings of $6.30 to $6.37 per diluted share.

    “Looking ahead, I want to reiterate our expectation that 2012 operating earnings per diluted share will increase 2% to 5% on a currency neutral basis. Furthermore, once the effects of our proactive investment derisking program and low interest rates have been integrated into our financial results, we believe the rate of earnings growth in future years should improve.”

  • My Forecast for Nicholas Financial’s Earnings
    , October 26th, 2011 at 3:43 pm

    Tomorrow Nicholas Financial ($NICK) is due to report earnings for their fiscal second quarter. I continue to believe this is a remarkably undervalued company.

    Let’s go over their business. NICK makes loans for the used car market. Unfortunately, investors seem to think that NICK is just another subprime lender, hence the dirt-cheap valuation.

    This view is simply incorrect. NICK is very well run and the company doesn’t dump off its loans but instead holds them to maturity.

    I have some concerns about NICK’s business but they’re not due to the quality of the company’s portfolio. That still remains very high. The issue going forward is really about growth. It’s going to get much harder for them to get originations. Competition is heating up.

    The good news, and there’s lots of it, is that NICK should still churn out the profits. The company can borrow very cheaply (LIBOR +300) and lend out at 25% or more. Receivables are running at about $270 million or so and debt is around $120 million. That should translate into revenue of roughly $17 million, give or take, for the quarter.

    By my numbers, NICK should report earnings of 44 or 46 cents per share tomorrow. That would mean the company has earned 88 to 90 cents per share in the first half of their fiscal year, and $1.66 to $1.68 for the last four quarters. That’s outstanding.

    I’ve said that NICK could earn as much as $1.70 per share for this calendar year. Now I think NICK can earn $1.75 per share for this calendar year. If so, this means that NICK is going for 5.76 times this year’s earnings which is less than half the multiple for the S&P 500.

    I think NICK is at least a $17 stock that’s currently going for $10.

    I should add that management also seems concerned about NICK’s ability to grow rapidly and that may be the reason behind the 10-cent quarterly dividend. I can’t say I’m a huge fan of it, but neither am I opposed to it. There’s nothing wrong with handing out some profits. NICK is an excellent stock.

  • I Don’t Care What Anyone Says, This Graph Still Freaks Me Out
    , October 26th, 2011 at 2:57 pm

    The S&P 500 alongside the 10-year TIPs spread:

    Stocks continue to like inflation expectations.