Archive for January, 2012

  • After the Close: CR Bard Beats Earnings, AFLAC Misses But Guides Higher for 2013
    , January 31st, 2012 at 6:09 pm

    The S&P 500 just closed out its best January in 15 years. The 55-point gain was the largest for January on record.

    After the bell today, we had two more earnings reports. CR Bard ($BCR) reported fourth-quarter earnings of $1.70 per share which was two cents better than expectations.

    Revenues rose 4.9% to $751.9 million. For the year, Bard earned $6.40 per share. That’s a 14% increase over the $5.60 Bard earned in 2010. Based on today’s close, Bard is going for 14.45 times trailing earnings.

    Timothy M. Ring, chairman and chief executive officer, commented, “Fourth quarter constant currency net sales growth of 5% was at the top end of our guidance and allowed us to exceed adjusted EPS guidance for the quarter and for the year. Our revenue growth is being driven by a combination of geographic investments, external acquisitions and internal research and development. By combining top-line growth with disciplined expense management and share-repurchase programs, we have been able to meet our short-term commitments to shareholders while positioning the company for healthy long-term growth.”

    AFLAC ($AFL) reported fourth-quarter operating earnings of $1.48 per share which was four cents below expectations. Three months ago, AFLAC said it expected to earn $1.45 to $1.52 per share for the fourth quarter. This is a slight disappointment to me because I had been expecting AFLAC to beat expectations by a few pennies per share.

    AFLAC reiterated their earnings forecast for this year of growth of 2% to 5%. For the year, AFLAC had operating earnings of $6.33 per share. That means the company sees earnings for 2012 ranging between $6.46 per share and $6.65 per share.

    The best news, however, is that AFLAC said it expects the rate of earnings growth in 2013 to exceed that of 2012. That’s excellent news. If we take the mid-point of AFLAC’s range for this year’s growth (3.5%) and assume 4% growth for 2013, that translates to earnings of $6.81 per share.

    Daniel P. Amos stated: “Aflac had another strong year. Growth of operating earnings per diluted share was in line with our goal of an 8% increase before the impact of foreign currency. That result was also consistent with guidance we provided when we released third quarter results. We had conveyed in the third quarter that following nine months of restrained expenditures, we planned to increase spending on IT and marketing initiatives in the fourth quarter to strengthen our business, and that’s exactly what we did. I am pleased that 2011 marked the 22nd consecutive year in which we achieved our earnings objective.

    “Aflac Japan gets high marks for another great quarter and year. The tremendous sales momentum they generated this quarter, largely propelled by success in selling through banks, significantly exceeded our expectations for the year and especially for the quarter. In fact, Aflac Japan’s fourth quarter production set an all-time quarterly record, which is especially remarkable considering 2011 was the year Japan was hit with the most devastating natural disaster in its history.

    “We are also pleased with Aflac U.S. results for the quarter and year. It has been, and continues to be, the longstanding goal and vision of Aflac U.S. to be the leading provider of voluntary insurance in the United States, and our sales results in 2011 build on that vision. Through our efforts, we continue to expand Aflac’s potential to connect with employees at more companies, large and small, across the United States.

    The 2009 addition of group products to our existing portfolio has allowed us to leverage our strong brand and provide more options for customers of both our traditional and broker distribution channels. In 2011, product marketing efforts geared toward existing accounts contributed to strong sales for our veteran agents. Additionally, you’ll recall that we have been establishing and developing relationships with brokers that handle the larger-case market. While this broker initiative is still in its infancy, we are excited about the opportunity this channel presents for future growth.

    “The strength of our capital ratios demonstrates our commitment to maintain financial strength on behalf of our policyholders and bondholders. As we have communicated over the past several years, sustaining a strong risk-based capital, or RBC ratio, remains a priority for us. We had conveyed that our goal was to end 2011 with an RBC ratio in the range of 400% to 500% with a target of 450%. Although we have not yet finalized our statutory financial statements, we estimate our 2011 RBC ratio will be between 480% and 520%. Additionally, we are comfortable with our solvency margin ratio and continue to apply rigorous stress testing under extreme scenarios.

    “As we look ahead to 2012 sales opportunities in the United States, we expect Aflac U.S. sales to increase 3% to 8%. Following Aflac Japan’s outstanding sales growth of 18.6% last year, I think it’s reasonable to expect Aflac Japan sales will decrease within the range of down 2% to down 5% for the year.

    “Looking ahead, I want to reiterate that our objective for 2012 is to increase operating earnings per diluted share 2% to 5% on a currency neutral basis. This range reflects the impact of portfolio derisking and investing significant cash flows at low interest rates. We expect the rate of earnings growth in 2013 to improve over 2012.”

  • The Golden Cross
    , January 31st, 2012 at 11:25 am

    Technical analysts are atwitter this week as the S&P 500 just passed a “Golden Cross.” This is when the 50-day moving average breaks above the 200-day moving average.

    This is supposed to be good for the market. Personally, I’m rather skeptical of these technical milestones. After all, the S&P 500 has already soared a good deal off its October low. It seems strange to say after a very solid rally that now is the time when things looks good.

    I do pay a little attention to where the market is versus its 50- and 200-DMA. This is not for any trading guidelines but because historically the market is a trend-sensitive data set. Momentum does exist and it’s a powerful anomaly to current theory.

  • The Onion Was First
    , January 31st, 2012 at 10:54 am

    From April 23, 2007:

    Even CEO Can’t Figure Out How RadioShack Still In Business

    FORT WORTH, TX—Despite having been on the job for nine months, RadioShack CEO Julian Day said Monday that he still has “no idea” how the home electronics store manages to stay open.

    “There must be some sort of business model that enables this company to make money, but I’ll be damned if I know what it is,” Day said. “You wouldn’t think that people still buy enough strobe lights and extension cords to support an entire nationwide chain, but I guess they must, or I wouldn’t have this desk to sit behind all day.”

    The retail outlet boasts more than 6,000 locations in the United States, and is known best for its wall-sized displays of obscure-looking analog electronics components and its notoriously desperate, high-pressure sales staff. Nevertheless, it ranks as a Fortune 500 company, with gross revenues of over $4.5 billion and fiscal quarter earnings averaging tens of millions of dollars.

    “Have you even been inside of a RadioShack recently?” Day asked. “Just walking into the place makes you feel vaguely depressed and alienated. Maybe our customers are at the mall anyway and don’t feel like driving to Best Buy? I suppose that’s possible, but still, it’s just…weird.”

    From January 31, 2012:

    RadioShack shares drop 30% after forecast

    NEW YORK (MarketWatch) – Shares of RadioShack Corp RSH -29.13% plunged 30%, or $3.03, to $7.20 on Tuesday, a day after the electronics retailer said its fourth-quarter quarter earnings per share would be 11 cents to 13 cents, versus the expected 36 cents by analysts surveyed by FactSet. Janney Capital Markets downgraded the shares to neutral from buy and gave a fair value estimate at $7. Analysts at Janney said it was unclear when gross margin will bottom out and cited concerns over the firm’s weak performance around post-paid business with Sprint S -1.16%, its biggest carrier partner. In the fourth quarter, RadioShack’s gross margin narrowed to 35% from 41% a year ago.

  • Harris Beats By Three Cents
    , January 31st, 2012 at 10:47 am

    Today is a big earnings day for us. AFLAC ($AFL) and CR Bard ($BCR) report after the close. This morning, Harris Corp ($HRS) reported earnings of $1.22 per share which was three cents better than estimates. The December quarter is the second quarter of Harris’ fiscal year.

    “Harris posted solid second quarter results with earnings per share in line with the prior year, despite orders and revenue being dampened by the constrained government spending environment,” said William M. Brown, president and chief executive officer. “The sequential increase in operating income for the company, driven by operating margin improvement in all of our segments, was encouraging. Cash flow from operations increased significantly compared to the previous quarter and the prior year, supporting expectations for strong cash flow again this year.”

    This is a good earnings report from Harris. The only sour note, and it’s not a biggie, was the company’s revenue guidance for the entire year. Harris now sees revenues ranging between $6 billion and $6.2 billion. Wall Street had been expecting slightly more, $6.15 billion to $6.3 billion.

    On the plus side, Harris sees full-year EPS ranging between $5.10 and $5.30. That’s not bad at all. The Street had been expecting $5.07 per share. The stock is up nicely today. It’s currently over $40 per share which is still less than eight times this year’s earnings.

  • Morning News: January 31, 2012
    , January 31st, 2012 at 5:40 am

    EU Nears Confrontation Over Greek Rescue

    European Leaders Agree to New Budget Discipline Measures

    Profit Plummets at Spain’s Biggest Bank

    Trade Protest Is Planned on Eve of a Chinese Leader’s Visit

    Oil Rises From One-Week Low as Japanese Industrial Output Climbs

    F.T.C. Fines a Collector of Debt $2.5 Million

    Treasury Investigates Freddie Mac Investment

    Toshiba Swings Into the Red

    Honda Profit Slumps on Thai Floods, Strong Yen

    J&J Shakes Up McNeil Unit Again

    Apple Names Browett to Lead Retail Business Amid Global Push

    Pep Boys to Be Sold in $791 Million Buyout

    New Fund Hopes to Prove Thesis of Outspoken Analyst

    After a Year of Delays, the First Starbucks Is to Open in Tea-Loving India This Fall

    RIM Committee Stresses Importance of Independent Chair

    Cullen Roche: The Most Destructive Monetary Myth in the USA…

    Roger Nusbaum: More on “Just Don’t Lose It”

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  • 5-Year Treasury Yield Drops to 0.73%
    , January 30th, 2012 at 1:34 pm

    The yield on the five-year Treasury has plunged to another all-time low. The yield is currently 0.73%.

    Here’s some perspective. Despite being 20 times longer, the total cash flow on the 5-year bond is less than the total cash flow from a 3-month T-bill at its peak rate in 1981 when it yielded 17%.

  • Interview with Medtronic’s CEO
    , January 30th, 2012 at 10:34 am

    Fox Business News talks with Omar Ishrak in Davos, Switzerland.

  • Morning News: January 30, 2012
    , January 30th, 2012 at 5:44 am

    Greek Coalition Is Said to Back More Austerity

    Greek Debt Talks Risk Derailing EU Summit Plan

    Davos Tells Euro Leaders to Fix Crisis for Good After Two Years of Failure

    Spain Economy Shrinks, Taking It to Edge of Second Recession

    China’s Wen: Government Debt Risk “Controllable,” Sets Reforms

    U.S. Banks Tally Their Exposure to Europe’s Debt Maelstrom

    Oil Dips Below $111, EU and Iran Eyed

    Cattle Herd Shrinks to Smallest in 60 Years

    Small Business Hiring Slows, Wages Dip in January

    Philips Swings to Net Loss

    Exxon Mobil to Sell Its Japanese Arm for $3.9 Billion

    Eastman Chemical to Buy Solutia for $3.4 Billion

    Switzerland’s ABB to Buy Electrical Parts Maker

    BlackBerry Under Siege in Europe

    Canon President Steps Down as Forecast Misses

    Credit Writedowns: Banking Wasn’t Meant to Be Like This

    Epicurean Dealmaker: The Rape of Persephone

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  • Facebook Could File for IPO Next Week
    , January 27th, 2012 at 2:45 pm

    From WSJ:

    Facebook Inc. could file papers for an initial public offering as early as next week and is close to picking Morgan Stanley as the lead underwriter for its IPO, said people familiar with the matter.

    Facebook could file papers for the IPO as early as this coming Wednesday, but that timing is still being discussed, said a person familiar with the matter. The company is currently looking at a valuation of $75 billion to $100 billion, this person said.

    Morgan Stanley, people familiar said, is the strong frontrunner for the much-coveted “lead left” position on Facebook’s IPO documents to be filed with the Securities and Exchange Commission.

    Facebook’s IPO, which people familiar with the matter earlier said could raise as much as $10 billion, has been hotly anticipated as a defining moment for the latest Web investing boom. The Menlo Park, Calif. social-networking company, which has more than 800 million members, has changed the way people interact with each other and share information on the Internet.

    A Facebook spokesman declined to comment. A Morgan Stanley spokesman also declined to comment.

  • CWS Market Review – January 27, 2012
    , January 27th, 2012 at 10:04 am

    Hold on, folks! We’re now at the crest of the fourth-quarter earnings season. For the overall market, the numbers are, to use a technical term, pretty blah. Earnings growth is tracking at a measly 4.4%. The silver lining is that if we exclude financials (and don’t I wish we could!), growth is tracking at 12.5%.

    Bloomberg reports that 172 companies in the S&P 500 have reported earnings so far. Of that, 104 have beaten expectations while 28 have missed and 20 were inline. That’s a “beat rate” of just over 60% which sounds better than it is. Wall Street likes to keep a firm hand on expectations so normally most companies exceed expectations. But a beat rate of 60% would actually be one of the worst earnings seasons in years. On top of that, we have to remember that a lot of analysts had lowered their estimates going into earnings season.

    Despite the mediocre results, the stock market continues to thrive. The S&P 500 got as high as 1,333.47 early in the day on Thursday which is a six-month high; plus it’s more than 24% above the intra-day low from October 4th. Believe it or not, the index isn’t far from making a post-crash high. But instead of calling this a rally, I think it’s more accurate to say that the stock market is taking back much of the ground it lost during the freak-out panic attack we saw over the summer. Yikes, that wasn’t fun. That’s when the debt ceiling debate and S&P downgrade gave the market a super-atomic wedgie. In just two weeks, the S&P 500 plunged more than 16%.

    Those were scary times, but those who stuck it out have seen big gains. In the CWS Market Review from six months ago, I wrote: “So is it time to sell? Absolutely not. In fact, this would be a terrible time to sell.” Since then the S&P 500 has gained nearly 10%.

    The reason the market was so panicked this summer was that investors thought that the debt crisis in Europe had the potential to bring down our economy. I thought that was outlandish, and only now are investors seeing that reality. Jamie Dimon, the CEO of JPMorgan Chase ($JPM), made news this week when he said something perfectly obvious: if Greece if defaults, big whoop—it will have almost no impact on U.S. banks. Don’t get me wrong. I feel bad for the Greeks, but we’re not seeing a repeat of 2008.

    Slowly and steadily, the denouement of the Greek drama is beginning to take shape. The good news is that the spillover effect to other countries appears to be far less severe that originally feared. While two-year notes in Greece now yield over 200% (yes, two effing hundred percent), yields in other trouble spots are coming down. The yield on the 10-year Italian bond just dropped below 6% for the first time in six weeks. In November, Italian bond yields were 575 basis points higher than German yields. Today that spread is down to 418 basis points. In Spain, the spread is down to 334 points. In other words, people are starting to chill out.

    The worst of the euro crisis is passing and its impact on our markets is rapidly dissipating. Last week I highlighted the fact that the correlation between the euro and the S&P 500 had dropped from 0.91 in November to 0.66 recently. This has led to far less volatility in our market plus higher stock prices despite the sluggish earnings reports. Last year the S&P 500 closed lower by 0.50% or more 72 times. It’s only happened once this year (-0.58% on Thursday).

    Now let’s get to the most over-rated news story this week which came from our dear, dear friends at the Federal Reserve. Bernanke & Co. said that they don’t anticipate raising interest rates until at least 2014. They’re making the Mayans sound optimistic! I know this news sounds dramatic but it’s not a commitment to do anything. The simple fact is that the Fed has a pretty dismal forecasting record. Plus, the Fed’s main goal should be establishing its credibility in the present. That’s what the bond market cares about. The Fed’s job isn’t about predicting what may or may not happen three years from now.

    The immediate impact of the Fed’s news was that the Treasuries in the middle part of the yield curve soared. On Thursday, the yield on the five-year Treasury dropped down to 0.77% which is an all-time low. The three-year yield is down to 0.31% which is just above the all-time low of 0.29% from September 19th. Think about that. You can stuff your money away until 2015 and make a grand total of less than 1%. Even though the Fed made a lot of headlines this week, investors ought to ignore this news. My take is that it’s rather silly to see news in what someone else thinks may happen three years from now.

    Now let’s jump to our Buy List because this has been a great week for us. Stryker ($SYK), for example, gapped up 4% on Wednesday thanks to a good earnings report. Also on Wednesday, Hudson City Bancorp ($HCBK) rallied to a six-month high. But our biggest winner was CA Technologies ($CA) which soared nearly 10% on the news that it’s raising its dividend fivefold. CA now yields twice as much as a 10-year T-bond. Take that, Benny!

    Through Thursday, our Buy List is up 7.25% for the year compared with 4.84% for the S&P 500. It’s still early and we know all too well how quickly the market’s mood can change, but I have to admit that I’m very pleased with how 2012 is going. Let’s not get cocky. Investors should focus on high-quality companies selling at good prices. As always, don’t chase stocks. Instead, let good stocks come to you.

    Now here’s a quick recap of our earnings news from this week:

    On Tuesday, Johnson & Johnson ($JNJ) reported Q4 earnings of $1.13 per share which was four cents better than estimates. The only sour note is that JNJ sees earnings for 2012 ranging between $5.05 and $5.15 per share. Wall Street had been expecting $5.21 per share. Johnson & Johnson is a good buy up to $70.

    Stryker ($SYK) reported Q4 earnings of $1.02 per share which matched forecasts. The company also reiterated its outlook for “double digit” earnings growth for this year. That means EPS of at least $4.09. Frankly, I think Stryker is low-balling which makes sense at the beginning of the year. I’m keeping my buy price at $55. Don’t chase this one.

    Hudson City Bancorp ($HCBK) reported a loss of 73 cents per share but that’s because the bank extinguished a massive amount of debt. Smart move. This gives a major boost to their balance sheet. Early on Wednesday, HCBK got as high as $7.46 although it gave much of it back later on. Still, this is a very good value. I rate Hudson City a solid buy up to $7.50.

    What else can I say about CA Technologies ($CA)? For a boring stock, this is certainly treating us very well. For Q4, the company earned 65 cents per share, 11 cents more than estimates. CA also raised its EPS range for fiscal 2012 from $2.13 – $2.18 to $2.21 – $2.25. And to top it all off, the company jacked up its annual dividend fivefold from 20 cents per share to $1 per share. This stock is up nearly 25% on the year for us. I’m raising my buy price from $24 to $27.

    As I said, we’re just at the crest of earnings season. We have many more reports to come. On Friday, Ford ($F) and Moog ($MOG-A) are due to report. I’m very excited for Ford this year. The company has done a brilliant job turning itself around. Last year was Ford’s third-straight annual profit.

    Once the final numbers are in, Ford probably will have made $20 billion in 2011 which would make it their best year since 1998. Wall Street currently expects Ford to earn $1.66 per share this year which means the auto company is going for just over eight times earnings. One fund manager said about Ford, “The stock is too cheap for a company that has done very right.” Well put. I think the stock has a reasonable shot of breaking $15 per share before the year is up (that’s another 17% from here).

    Next Tuesday, January 31st, we’ll have three reports; AFLAC ($AFL), CR Bard ($BCR) and Harris Corp ($HRS). On Thursday, Fiserv ($FISV) is due to report.

    I’m excited to see what AFLAC has to say. The stock came very close to hitting $50 this week which it hasn’t done since May. (Remember it was at $31 only four months ago.) Three months ago, AFLAC said it expects to earn $1.45 to $1.52 for the fourth quarter. My numbers say that’s too low. I’ll be interested to see if AFLAC revises its 2012 earnings growth forecast of 2% to 5%. I think they will at some point, but maybe not this early in the year.

    That’s all for now. Earnings will be the big story next week. Then on Friday, all eyes will be focused on the jobs report. My prediction: Whatever the jobs report says, Republicans and Democrats will argue over it. You heard it here first. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy