Archive for 2011
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Buffett In India
Eddy Elfenbein, March 27th, 2011 at 1:00 pmThe investing guru is touring India and charming them with his folksy wisdom:
At one point, Mr. Buffett said Berkshire Hathaway kept about $10 billion in cash on hand just in case “Ben Bernanke runs off to South America with Lindsay Lohan,” a remark that of course drew laughter. “We have to be prepared for anything.”
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Barron’s on Oracle
Eddy Elfenbein, March 26th, 2011 at 6:39 pmIn today’s Barron’s, Miriam Gottfried explains why Oracle ($ORCL) kicks ass:
Fourth-quarter guidance was strong with management forecasting above-consensus revenue, new software licenses and earnings for the seasonally strong close to the year. Analysts say margins could come in at peak levels of 51%—reached before the 2010 acquisition of Sun Microsystems—over the next several years as businesses continue to ramp up spending. That Sun acquisition appears to be paying off, much to the surprise of numerous skeptics, driving sales of hardware without damaging margins.
Oracle offers a squeaky clean balance sheet with $9.7 billion, or $1.87 a share, in cash. And to top it off, shares trade at a reasonable 14.5 times projected-forward earnings.
“Oracle’s engineered systems are resonating (50% sequential-Exadata growth), enterprise application spending is firmly back, and gross and operating margins continue to positively surprise,” wrote Ross MacMillan, an analyst with Jefferies & Co.
(…)
Oracle shares have historically outperformed in June as investors anticipate strong fourth-quarter results, according to Citigroup analyst Walter H. Pritchard.
“Shares trade at a 10% premium to the S&P versus a historical ceiling of 20%, leaving some room for multiple expansion,” he wrote in a note. “We’d continue to buy as we see trends as sustainable, seasonal strength on tap and headroom to valuation.”
We would follow that advice and snap up some Oracle shares on the promise of a profitable, growth-fueled future.
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Earl Scruggs And Lester Flatt – Cripple Creek
Eddy Elfenbein, March 25th, 2011 at 4:12 pmThe trading week is over. Let Lester and Earl get your weekend started right.
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Good Day for Oracle
Eddy Elfenbein, March 25th, 2011 at 12:48 pmNice movement on the earnings report. The shares briefly broke $34 this morning.
Oracle ($ORCL) also offered guidance for this quarter (fiscal Q4) of 69 to 73 cents per share.
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Q4 GDP Growth = 3.1%
Eddy Elfenbein, March 25th, 2011 at 9:26 amIn January, the first report on Q4 GDP said that the economy grew by 3.2%. Then in February, that was revised down to 2.8%. Then this morning, it was revised back up to 3.1%.
Glad that’s all cleared up!
Economists had expected G.D.P. growth, which measures total goods and services output in the United States, to be revised up to 3.0 percent. The economy expanded at a 2.6 percent rate in the third quarter. For the whole of 2010, the economy grew 2.9 percent, while corporate profits grew 20.4 percent, the most since 2004.
Data so far suggest that the economy maintained this growth pace in the first quarter of this year, but there are concerns that rising oil prices could crimp consumer spending and slow the economic recovery.
The pick-up in growth has been acknowledged by the Federal Reserve, which injected huge amounts of money into the economy to stimulate demand. The central bank is expected to end its $600 billion government bond buying program at the end of June.
The raised fourth-quarter growth estimates reflect stronger business spending and inventory accumulation.
Business investment rose at a 7.7 percent rate instead of 5.3 percent, lifted by spending on equipment and software (Oracle Hint Hint!!), as well as on structures. Spending grew at a 10.0 percent pace in the third quarter.
Spending on software and equipment increased at a 7.7 percent rate instead of 5.5 percent. Investment in structures rose at a solid 7.6 percent, the first increase since the second quarter of 2008.
Business inventories increased $16.2 billion instead of the $7.1 billion estimated last month, subtracting a smaller 3.42 percentage points from G.D.P. growth rather than the previously reported 3.70 percentage points.
Excluding inventories, the economy expanded at an unrevised 6.7 percent pace, the fastest increase in domestic and foreign demand since 1998. Domestic purchases grew at a 3.2 percent rate instead of 3.1 percent.
Consumer spending, which accounts for more than two-thirds of United States economic activity, grew at a 4.0 percent rate in the final three months of 2010 instead of 4.1 percent. It was still the fastest since the last three months of 2006, and an acceleration from the third quarter’s 2.4 percent rate.
The growth in exports was not as strong as previously estimated, while imports were revised a touch down. Trade added 3.27 percentage points to G.D.P. growth instead of 3.35 percentage points. Government spending contracted at a 1.7 percent rate rather than 1.5 percent, because of weak state and local government outlays.
The G.D.P. report confirmed a pick-up in inflation pressures on surging food and gasoline prices. The personal consumption expenditures index rose at a revised 1.7 percent rate in the fourth quarter instead of 1.8 percent. That compared with the third quarter’s 0.8 percent increase.
But a “core” price index closely watched by the Fed advanced at a revised 0.4 percent rate instead of 0.5 percent. The increase was the smallest rise on record.
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CWS Market Review – March 25, 2011
Eddy Elfenbein, March 25th, 2011 at 8:11 amAfter overreacting to the events in Japan and Libya, the stock market is slowly returning to normal. On Thursday for the first time in two weeks, the S&P 500 finished the trading day above its 50-day moving average, closing at 1,309.66, an impressive turnaround from the March 16th intra-day low of 1,249.05. That’s nearly a 5% bounce in less than six days.
Another good example of the market’s return to normalcy is the fall-off in the $VIX , which is often called “the fear index.” Before the earthquake, the VIX was ranging in the upper-teens. Then everyone freaked out and on March 16th, the VIX got up to a high of 31.28. But on Thursday, it closed at just 18. The message is clear: the fear is subsiding.
Several of our stocks have rebounded quite well. Leucadia National ($LUK), for example, just hit another new 52-week high. The stock is already a 25% winner for us this year. I love LUK, but I never would have guessed it would be our top-performer in the first quarter. Sometimes you never know which stock will be your breakout star!
I’m also impressed by how well our Buy List stocks are holding up versus the market. In the last week, our Buy List gained 3.42% compared with 2.82% for the S&P 500. For the year, we’re up 5.72% to the S&P 500’s 4.14%.
I’m also pleased to see that shares of AFLAC ($AFL) have come back strongly, but I still think they have a way to go. AFL closed Thursday at $53.07 which is a big turnaround from touching $48 only a few days ago. On the blog, I posted two videos of CEO Dan Amos reiterating that the company is doing well and that they have no change to their full-year forecast. It was also nice to see shares of Ford ($F) break $15 on Thursday. The stock had its highest close this month.
But now let’s focus on the great earnings report from Oracle ($ORCL). The company had already said that it was expecting earnings for the February quarter (the third of their fiscal year) to range between 48 cents and 50 cents per share. Wall Street’s consensus was 50 cents per share. In last week’s issue of CWS Market Review, I said that I was expecting Oracle to earn 53 cents per share. Well…I was right in that they beat their forecast, but I was off by a penny. Oracle earned 54 cents per share!
This is very good news for Oracle. For last year’s third quarter, they earned 38 cents per share, so 54 cents this year represents very strong growth. Oracle also announced that it is raising its small quarterly dividend from five cents per share to six cents per share. I’m particularly impressed by the way Oracle is integrating Sun Microsystems into the Oracle universe. Sales of new software licenses jumped 29% to $2.21 billion. That’s often a good indicator of future revenue. Total revenue rose 37% to $8.76 billion.
I had been hoping that the company would offer guidance for its fourth quarter, which is historically its strongest quarter, but I haven’t seen anything yet. (BTW, Larry Ellison missed the conference call due to…jury duty. I’m completely serious.) On Thursday, the stock closed at $32.14. I think it’s very likely that ORCL will break its current 52-week high of $33.71 very soon. I had said that Oracle was an excellent buy below $32 per share. After looking at these earnings, I’m raising my buy price to $34 per share.
Next week is the final week of the first quarter (that was fast!). On Friday, April 1st, we’ll get the ISM report and the jobs report for March. I don’t expect much change in the ISM. The number will probably be in the high-50s or low-60s. I’ve often said that this is one of the best barometers for how well the economy is doing. The overall economy continues to expand but at a frustratingly slow pace.
The employment report is a different story. The economy simply hasn’t been creating enough jobs and I’m afraid that at some point, this will hurt the ability of companies to expand their profits. The unemployment rate peaked at 10.1% in October 2009. But even in the most recent report, 16 months after the peak, unemployment is still at 8.9%. Since the recession officially ended in the middle of 2009, the economy has created a grand total of 22,000 non-farm jobs.
Looking out a little further, Bed Bath & Beyond ($BBBY) is due to report its fiscal fourth-quarter earnings on April 6th. As odd as it sounds coming in April, this is the report that covers the crucial holiday shopping season (December, January and February). In December, BBBY said it expects its earnings-per-share to be between 91 cents and 95 cents. I wouldn’t be surprised to see BBBY beat this by a few cents per share.
For the first three quarters of BBBY’s fiscal year, they’ve earned $1.95 per share, so they’re on track to earn $2.86 to $2.90 per share for their 2010 fiscal year. That means the company is going for about 16.5 times trailing earnings which means that the shares are fairly priced.
I hope BBBY will be able to give full-year guidance for 2011. If they do, I’m looking for something in the neighborhood of $3.30 to $3.40 per share. I like the stock a lot but I wouldn’t say it’s a screaming buy unless it dropped about 20% from here.
That’s all for now. Be sure to keep visiting the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!
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Morning News: March 25, 2011
Eddy Elfenbein, March 25th, 2011 at 7:00 amPortuguese Yields at Record Highs During EU Summit
Euro Rallies Versus Dollar on Summit Views, ECB Rate Increase Speculation
German Bonds Drop as Stocks Advance, EU Leaders Meet to Tackle Debt Crisis
Japanese Government Bond Buying to Fund Financial Firms
Oil Trades Near Two-Week High on Libya Conflict; JPMorgan Raises Forecast
Gold Trades Near Record on Europe Debt Risk; Silver Reaches 31-Year Peak
Fed’s Clash With Bank of America Raises Questions
U.S. Stock Futures Signal Gains; Techs in Focus
Fed Governor Duke Says Recovery May Be Slower on Households’ Caution
S.&P. Warns About ‘Excessive’ Bank Dividends
Research In Motion 4Q Profit Beats Forecasts; Outlook Falls Short
Toyota, Struggling With Part Shortages, to Restart Car Lines
G.E.’s Strategies Let It Avoid Taxes Altogether
Paul Kedrosky: Frothy Talk in Startup Land: Groupon, Color, Y-Combinator, Etc.
Joshua Brown: Bill Clinton, the Fee-Based Model and Me
James Altucher: 8 Unusual Things I Learned From Warren Buffett
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Oracle Earns 54 Cents Per Share, Ups Dividend By 20%
Eddy Elfenbein, March 24th, 2011 at 4:16 pmEvery so often, I get one right! Oracle ($ORCL) just reported earnings of 54 cents per share.
The company also raised its teeny quarterly dividend from five cents to six cents per share (hey, that’s 20%!).
Check out these numbers. Oracle had a great quarter.
Oracle Corporation today announced fiscal 2011 Q3 GAAP total revenues were up 37% to $8.8 billion, while non-GAAP total revenues were up 36% to $8.8 billion. Both GAAP and non-GAAP new software license revenues were up 29% to $2.2 billion. GAAP software license updates and product support revenues were up 13% to $3.7 billion, while non-GAAP software license updates and product support revenues were up 13% to $3.8 billion. Both GAAP and non-GAAP hardware systems products revenues were $1.0 billion. GAAP operating income was up 62% to $3.0 billion, and GAAP operating margin was 34%. Non-GAAP operating income was up 35% to $3.9 billion, and non-GAAP operating margin was 44%. GAAP net income was up 78% to $2.1 billion, while non-GAAP net income was up 42% to $2.8 billion. GAAP earnings per share were $0.41, up 75% compared to last year while non-GAAP earnings per share were up 40% to $0.54. GAAP operating cash flow on a trailing twelve-month basis was $9.9 billion.
“Strong revenue growth coupled with disciplined business management enabled an increase in non-GAAP operating margin to 44% and earnings per share to $0.54,” said Oracle President, Safra Catz. “Our hardware product gross margins increased to 55% in the quarter so we are now completely confident that we will exceed the $1.5 billion profit goal we set for the overall Sun business for the current fiscal year.”
“Q3 performance was broad based with all geographies reporting revenue growth of 30% or higher,” said Oracle President, Mark Hurd. “The sequential revenue growth for Exadata and Exalogic was up over 50%. And we expect to see an even higher growth rate for these two game changing technologies in Q4.”
“In Q3 we signed several large hardware and software deals with some of the biggest names in cloud computing,” said Oracle CEO, Larry Ellison. “For example, Salesforce.com’s new multi-year contract enables them to continue building virtually all of their cloud services on top of the Oracle database and Oracle middleware. Oracle is the technology that powers the cloud.”
In addition, Oracle also announced that its Board of Directors declared a quarterly cash dividend of $0.06 per share of outstanding common stock, reflecting a 20% increase over the previous quarter’s dividend of $0.05. This increased dividend will be paid to stockholders of record as of the close of business on April 13, 2011, with a payment date of May 4, 2011.
The stock closed that day at $32.14. It’s hard to believe this stock was below $30 last week. I expect to see a new 52-week high soon.
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The S&P 500 Is Over Its 50-DMA
Eddy Elfenbein, March 24th, 2011 at 12:04 pmThat didn’t take long!
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Oracle’s Earnings Preview
Eddy Elfenbein, March 24th, 2011 at 11:18 amAfter the closing bell, Oracle ($ORCL) is due to report its fiscal Q3 earnings. This is for the quarter that ended on February 28th.
When the very-strong second-quarter earnings report came out in December, the company said to expect EPS for Q3 to be between 48 cents and 50 cents. Wall Street had only been expecting 44 cents per share, and a year ago Oracle released earnings of 38 cents per share. For Q3, the company said that revenue growth will be between 31% and 35%.
Personally, I think the company is low-balling the Street which is understandable. Remember that for Q2, Oracle said to expect EPS between 46 and 48 cents. Instead, they earned 51 cents per share.
My estimate is that Oracle will report earnings of 53 cents per share. I’ll also be curious to hear what they have to say about Q4. A year ago, Oracle earned 60 cents per share. Wall Street currently expects 66 cents per share for this year’s fourth quarter. I strongly doubt Oracle will only grow its earnings by 10%.
Even if the company low-balls the Street again, which it will, I still think they can offer guidance of 70 cents per share. We can also expect to hear some strong words from Mr. Ellison:
This quarter, some analysts expect brash talk about Hewlett-Packard, which under new Chief Executive Leo Apotheker is set to focus more on services and software, which will bring it directly into competition with Oracle in some core markets.
Oracle, headed by outspoken and combative Silicon Valley billionaire Larry Ellison, is likely to shoot back on Thursday.
“I’d be very surprised if you don’t get some very competitive talk about HP’s plans,” said Michael Yoshikami at YCMNET Advisors, noting that Oracle has a history of colorful remarks about beating its competitors, such as Germany’s SAP and International Business Machines Corp .
Like IBM and Cisco Systems Inc , Oracle and Hewlett-Packard are aiming to provide the infrastructure for companies to move toward “cloud computing,” where data is handled remotely in datacenters rather than on premises.
The looming battle between Oracle and Hewlett-Packard is given spice by the fact that HP’s former chief executive Mark Hurd — who left last year after a flap over inaccurate expense reports and a questionable relationship with a female contractor — now works at Oracle.
Wall Street expects Oracle’s fiscal third-quarter profit excluding one-time items to jump to 50 cents per share, according to Thomson Reuters I/B/E/S, up from 38 cents a year ago. The company itself said in December it expected between 48 cents and 50 cents.
Analysts have forecast $8.7 billion in revenue, up from $6.5 billion a year ago, although that quarter only included one month of hardware sales from the Sun acquisition, which closed in January 2010.
Some analysts warn that Oracle’s new exposure to hardware, through the Sun deal, means it may suffer from supply chain problems caused by Japan’s earthquake, which has constrained production of key computer components.
Oracle may also see some weakening of demand for its software in Japan, which accounted for 5 percent of sales last fiscal year, but analysts do not expect that to offset industry growth.
“Unless one wants to make a more aggressive assertion that either whole companies will cease to exist or the world is headed back into another Great Recession,” said Richard Davis, an analyst at Canaccord Genuity, “we side with the view of every software company with whom we have spoken — that they do not expect a material negative impact to underlying, almost universally favorable, demand trends.”
Here’s a look at Oracle’s stock and earnings. The stock is the blue line (left scale) and the EPS is the gold line (right scale). The two lines are scaled at a ratio of 15-to-1.
You can see that the earnings line was barely impacted by the recession. The future part of the gold line is based on Wall Street’s consensus which I think is too low.
If Oracle earns $2.31 for next fiscal year, which Wall Street expects, at a multiple of 16, that comes to nearly $37. If Oracle can earn $2.50, which isn’t out of the question, that’s a share price of $40.
- Tweets by @EddyElfenbein
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