Archive for May, 2012

• The NYT Features Joe Weisenthal
  Eddy Elfenbein, May 10th, 2012 at 10:17 am

  In today’s New York Times, Binyamin Appelbaum features my good pal Joe Weisenthal. Here’s a sample:

  In Weisenthal, Blodget has found a market-obsessive who embodies his vision. Weisenthal, 31 and still a bit baby-faced, is funny, omnivorous and well versed in the mechanics of the economy. In the intensely competitive world of financial blogging, dominated by young men who work long hours and comment on every new development, Weisenthal stands apart by starting earlier, writing more, publishing faster.

  During the course of an average 16-hour day, Weisenthal writes 15 posts, ranging from charts with a few lines of explanatory text to several hundred words of closely reasoned analysis. He manages nearly a dozen reporters, demanding and redirecting story ideas. He fiddles incessantly with the look and contents of the site. And all the while he holds a running conversation with the roughly 19,000 people who follow his Twitter alter ego, the Stalwart. He spars, jokes, asks and answers questions, advertises his work and, in the spirit of our time, reports on his meals, his whereabouts and whatever else is on his mind.

  He is like the host of a daylong radio show, except no one speaks out loud. He rarely makes phone calls. His phone almost never rings.

  Some of what he writes is air and sugar. Some of it is wrong or incomplete or misleading. But he delivers jolts of sharp, original insight often enough to hold the attention of a high-powered audience that includes economists like The Times columnist Paul Krugman and Wall Street heavies like the hedge-fund manager Douglas Kass and the bond investor Jeff Gundlach.

  Last summer, amid rising concern that the economy would tip back into recession, Weisenthal repeatedly highlighted contrarian chunks of evidence suggesting that we were actually on the verge of stronger growth. It was a lonely view for a long time. It was also correct.

• Morning News: May 10, 2012
  Eddy Elfenbein, May 10th, 2012 at 5:38 am

  Greeks May Hold $510 Billion Trump Card in Renegotiation

  Spain Underplaying Bank Losses Faces Ireland Fate

  Merkel Says “Growth on Credit” Would Deepen Crisis

  China Posts Wider Trade Surplus In April On Weak Imports

  Chinese Banks Get Nod In U.S.

  Czech Power Giant CEZ’s First-Quarter Profit Declines 16% on Higher Albanian Tariffs

  Home Prices Rise in Half of U.S. Cities as Markets Stabilize

  Fannie Mae Won’t Seek Aid After Posting $2.7 Billion Profit

  Cisco Shares Fall as Forecasts Miss Analysts’ Estimates

  Sony Profit Forecast Misses Estimates as TV Sales Decline

  Green Mountain Founder Feeling Burned By Stock Flap

  Behind Bed Bath & Beyond’s Cost Plus Deal

  A Circle of Tech: Collect Payout, Do a Start-Up

  Memo to Would-Be Members of the 1%: Move to the Northeast or Mid-Atlantic

  Phil Pearlman: The False Truths of Social Finance

  Roger Nusbaum: What Does Long Term Actually Mean?

  Be sure to follow me on Twitter.

• Bed Bath & Beyond Buys Cost Plus
  Eddy Elfenbein, May 9th, 2012 at 9:13 am

  Bed Bath & Beyond ($BBBY) has opened up their wallet. The company is buying Cost Plus ($CPWM) for $22 per share which works out to $495 million. Based on yesterday’s closing price, that’s a 22% premium. The best part for BBBY shareholders is that the deal is all cash.

  Who exactly is Cost Plus? According to the press release:

  Cost Plus, Inc., which will continue to be headquartered in Oakland, California following the transaction, is a leading specialty retailer of casual home furnishings and entertainment products in the United States. The company currently operates 259 stores under the names World Market, Cost Plus World Market, Cost Plus Imports, and World Market Stores in 30 states.

  I like this deal and it’s a small dent in Bed Bath & Beyond’s checkbook. According to the most recent balance sheet, BBBY is sitting on $1.76 billion in cash, which is $7.61 per share. In terms of BBBY’s stock, that deal is worth about $2.14 per share.

  The deal is expected to close during BBBY’s second quarter (June, July and August). BBBY expects the deal to be “slightly accretive.” Let me explain what that means: BBBY is “buying” CPWM’s earnings at a price less than the going rate for BBBY’s earnings. As a result, the deal will show a net increase to BBBY’s bottom line for this year.

  The press release notes: “Bed Bath & Beyond Inc. continues to model a high single digit to a low double digit percentage increase in net earnings per diluted share in fiscal 2012.”

  Bed Bath & Beyond was down at the open but it’s now up for the day.

• Morning News: May 9, 2012
  Eddy Elfenbein, May 9th, 2012 at 5:47 am

  Moody’s Bank Downgrades Risk Choking European Recovery

  German Exports, Imports Hit Highs

  CAAM: Beijing Should Refrain From Policies Affecting Auto Industry Development

  U.S. Millionaires Told Go Away as Tax Evasion Rule Looms

  Oil Prices Fall Ahead Of US Data, Rising OPEC Output

  Morgan Stanley’s Michael Grimes Is Where Money and Tech Meet

  For Morgan Stanley, Third Cut Is the Deepest

  Toyota to Treble Profit This Year, Trim Costs

  Disney Races to Exploit ‘Avengers’ After 21% Profit Rise

  Margin Calls Cost Green Mountain Chairman, Director

  Glaxo to Begin Hostile Offer for Human Genome Sciences

  Prudential Confident On Outlook As New Business Profits Rise

  ING Profit Excluding Charges Beats Estimates, Boosting Shares

  Allianz Confirms Target

  Softbank: In Strategic Alliance To Create PayPal Japan

  Howard Lindzon: Momentum Tuesday…Cracks!

  Epicurean Dealmaker: Occupy Galt’s Gulch

  Be sure to follow me on Twitter.

• DirecTV Earns $1.07 Per Share
  Eddy Elfenbein, May 8th, 2012 at 10:20 am

  DirecTV ($DTV) reported first-quarter earnings of $1.07 per share. That beat Wall Street’s consensus by either one or two cents, depending on the source. A year ago, DTV earned just 85 cents per share.

  DirecTV’s sales rose 12% to $7.05 billion which was $10 million more than consensus. The company has done well in North America, but they see their future lying in Latin America.

  Put it this way: DTV added 81,000 subscribers in the U.S. last quarter. In Latin America, they aded 593,000. Yet there are more than twice as many current subscribers in the U.S. as there are in Latin America.

  The problem is that it costs more to get a subscriber in Latin America, so that hurts DTV’s margins. This was a good quarter for DTV. The stock is off some because it wasn’t the kind of blowout quarter that we’ve seen.

  The company said that it plans to make $4 per share this year and $5 next year. I think they can surpass those marks with ease.

• The Flash Crash Fairy Tale
  Eddy Elfenbein, May 8th, 2012 at 9:45 am

  Two years ago, the stock market crashed in a few minutes, and in almost the same amount of time, it recovered.

  The public wanted to know why; how could this have happened?

  So the government did what governments do: they filed a report. The official report blamed a securities firm, Waddell & Reed, for dumping too many futures at once and screwing things up.

  This is a nice story for the government to tell because it lays the fingers on a known entity. The bad boys at Waddell & Reed screwed up the market.

  The government’s story has one small problem — it’s not true. At least not according to Eric Scott Hunsader. Mark Buchanan writes:

  The actual crisis struck in the three minutes between 2:41 p.m. and 2:44 p.m., when the market fell another 5 percent to 6 percent. Hunsader’s analysis suggests this plunge was caused by high-frequency traders. They typically act as liquidity providers, standing ready to buy and sell at certain price levels. But the day’s volatility prompted them to dump their holdings to avoid losses. In a matter of minutes, they actively sold an accumulated stock of about 2,000 E-mini contracts. It was this selling, not Waddell & Reed’s passive orders, that caused liquidity to disappear.

  There is nothing blameworthy about what the high-frequency traders did. Market makers aren’t charities, and their algorithms were only saving their skins amidst extreme market turbulence. Their actions do, however, rather undermine the common argument that high-frequency traders bring wonderful benefits to the market through the liquidity they provide. That liquidity, as many have pointed out, has a rather ghostly quality and tends to vanish when needed most.

  The government’s story boils down to “some big meany came along and harmed our precious market.” They found a culprit and blamed it. That’s what governments do.

  The government couldn’t have told us the real reason. So why did the market crash?

  The answer is that there’s no answer. It’s just what markets do.

• Morning News: May 8, 2012
  Eddy Elfenbein, May 8th, 2012 at 5:46 am

  Socialist Elephants Stampede for Jobs With Hollande

  Bankia’s Rato Steps Down as Spain May Offer Banks Rescue

  India Vows Cuts in Iranian-Oil Imports as Clinton Visits

  Consumer Credit in U.S. Increases by Most in 10 Years

  U.S. Could Make $15.1 Billion on AIG Bailout: GAO

  HSBC Profit Beats Analysts’ Estimates on Investment Bank

  KPN Jumps After America Movil Makes $3.4 Billion Offer

  Toshiba Forecasts 83% Profit Increase, Beating Estimates

  Electronic Arts Drops as Forecasts Misses Analysts’ Views

  MasterCard Heats Up Battle For ‘Mobile Wallet’

  Munich Re Returns to Profit as Disaster Claims Fall

  Statoil Profit Falls

  As Car Owners Downsize, the Market Is Strong for Their Used S.U.V.’s

  Amazon Leaps Into High End of the Fashion Pool

  Nigerians Outstrip Americans in London Fashion Spending

  Joshua Brown: Where Is Everybody?

  Cullen Roche: A New Way of Thinking About the Global Machine…

  Be sure to follow me on Twitter.

• Cognizant Technology Solutions Plunges, But It’s Not a Buy Yet
  Eddy Elfenbein, May 7th, 2012 at 2:49 pm

  One of my favorite companies is Cognizant Technologies Solutions ($CTSH). Note that I didn’t say it’s one of my favorite “stocks.” Being a great company and a great stock aren’t necessarily the same thing.

  Cognizant has made its mark by running computer call centers in India. This has been a hugely profitable business for them. Check out this growth in EPS since 2005: 53 cents, 78 cents, $1.15, $1.44, $1.78, $2.37 to $2.85. That’s exactly what I like to see–big increases each year.

  We had the stock on our Buy List in 2009 and it made 151% for us. But at the end of the year, I thought the stock had become far too expensive at $45 and removed it from the Buy List. For comparison, the company had earned $1.78 per share that year.

  Even though I got out early, I didn’t complain. By the end of 2010, Cognizant had run up to $73. By April 2011, CTSH was over $83 per share, meaning it had nearly doubled from a price I thought was too expensive.

  This is always the trouble spot for investors. Momentum runs it higher, but anyone with a basic understanding of math can tell you the stock is in trouble. The only question is when. As long as there’s no bad news, the good times can last.

  That came to an end today. Cognizant announced that it’s lowering its full-year guidance…are you sitting down?

  About 2%.

  So the shares are down around 20%. In other words, all the air that had gone into inflating the stock is leaving despite the actual news not being that bad. To be more precise, Cognizant lowered its full-year estimates from $3.69 to $3.62 per share.

  The company failed to grow as fast as it had expected, especially in the financial services and pharmaceutical sectors, President Gordon Coburn told Reuters.

  The banking sector – which brings in a quarter of Cognizant’s revenue – was flat in the first quarter for the company, hurt by softness among top North American clients.

  “In North America … the incredible volatility many of our (banking) clients are seeing right now is causing them to pause,” CEO Francisco D’Souza said on a conference call.

  The company counts J.P. Morgan Chase & Co, Rabobank and UBS AG among its core banking clients.

  Cognizant said it expects its banking and pharmaceutical sectors to remain sluggish for the rest of the year.

  

  I wouldn’t jump in just yet, but if CTSH can prove that it’s still growing at a rapid clip, I think this could be a very good buy.

• The Yen’s Impact on AFLAC’s Earnings
  Eddy Elfenbein, May 7th, 2012 at 1:11 pm

  I’ve been watching AFLAC‘s ($AFL) investor presentation. Since so much of AFLAC’s business is generated in Japan, the yen-to-dollar exchange rate can add or detract to the company’s bottom line.

  To their benefit, AFLAC prefers to gauge their performance before the impact of currencies. Here’s how it works: The stronger the yen, the more it helps AFLAC. Last quarter, the exchange rate added four cents to AFLAC’s earnings.

  The average exchange rate last year was 79.75. If that holds true for 2012, AFL sees full-year earnings between $6.46 and $6.65.

  If the exchange rate is 70, AFLAC estimates that will add 60 cents per share to 2012’s bottom line. If it’s 75, that will add 27 cents per share. At 80, it’s minus one penny. At 75, it’s minus 25 cents per share.

  The latest exchange rate is 79.9460. I don’t anticipate this being a major issue for AFLAC this year, but I wanted investors to know the dynamics because this can have a big impact on their business.

  On May 15th and 16th, the company will have more to say about guidance for 2013.

• Sysco Earns 49 Cents Per Share
  Eddy Elfenbein, May 7th, 2012 at 9:10 am

  First-quarter earnings season will soon be coming to a close, but there are still a few key reports left. This morning, Sysco ($SYY) reported adjusted earnings-per-share of 49 cents. Although that was five cents better than Wall Street’s consensus, Sysco’s CEO said the earnings “fell short of our expectations.” It was a one-penny increase over last year.

  Let’s dig into the numbers a bit. Sales rose 7.6% to 10.5 billion which is a record for the company. The March quarter was Sysco’s fiscal third. For the first three quarters of the fiscal year, Sysco has earned $1.50 per share compared with $1.38 last year.

  Sysco said that food cost inflation is running at 5.5%. I think it’s interesting to note that commodity inflation tends to weigh heavily on low-income consumers. Sysco noted that inflation in meat and poultry is over 10%. The company also said that foreign currency exchange rates knocked 0.2% off their sales growth.

  Last November, Sysco raised the quarterly dividend by one penny to 27 cents per share. That was the 42nd-straight annual dividend increase. I don’t know if they’ll raise their dividend again this year. I’m assuming they will to keep the streak alive, but it will most likely be another one-penny increase.

  The important part is that Sysco is clearly able to cover their dividend. A dividend decrease is certainly not in the works. Going by Friday’s close, Sysco yields 3.87%.