Archive for February, 2013

• Morning News: February 15, 2013
  Eddy Elfenbein, February 15th, 2013 at 5:45 am

  War Not Worth Winning as G-20 Debates Yen Intentions

  Weidmann Says ECB Won’t Cut Interest Rates to Weaken Euro

  Confidence on Upswing, Mergers Make Comeback

  Berkshire and 3G Capital in a $23 Billion Deal for Heinz

  US Airways CEO Parker Is Man Behind The Merger

  Icahn Ups Stakes in Ackman Feud With Herbalife Holding

  PepsiCo 4th-Quarter Profit Rose 17%; Issues Weak Year View

  G.M.’s Profit Rises Despite Weakness in Europe

  CBS Profit Misses Estimates as Streaming Revenue Slumps

  PPR Predicts 2013 Growth as Bottega Veneta Leads Luxury Boom

  Under Armour Finds Feminine Side to Go Beyond $2 Billion

  Blackstone Keeps Most of Its Money With SAC

  De Beers Sees Glimmer Of Hope For Hard-Pressed Diamond Market

  Joshua Brown: Why Investors Need to Understand “Total Yield”

  Jeff Carter: European GDP Takes a NoseDive

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• My Favorite Heinz Movie Reference
  Eddy Elfenbein, February 14th, 2013 at 11:55 am

  Angela Lansbury and James Gregory in The Manchurian Candidate:

• $72.50 is Too Much for Heinz
  Eddy Elfenbein, February 14th, 2013 at 11:08 am

  Warren Buffett’s Berkshire Hathaway ($BRKB) has agreed to buy H.J. Heinz ($HNZ) in a deal worth more than $23 billion. The deal calls for HNZ shareholders to get $72.50 per share in cash. That’s a 20% premium to yesterday’s closing price.

  

  I like Heinz. It’s a great consumer staples business: steadily rising sales, earnings and dividends. My concern, however, is the buyout price. I think Buffett is paying far too much for Heinz. Here are the earnings-per-share figures for the last few years: $2.38, $2.63, $2.90, $2.87, $3.08, $3.35. We’re half-way through this fiscal year (which ends in April) and HNZ is on track to earn $3.54 per share, and the Street expects 3.79 per share for next year.

  That’s a good trend. Heinz is growing but it really isn’t growing that fast. Over the last nine years, sales have increased from $8.24 billion to $11.65 billion. That’s less than 4% per year.

  I understand that the market places a premium on stability of earnings but I have a hard time valuing Heinz at more than $60 per share. And that’s just at fair value. If I were looking to get Heinz at a bargain, I would be more interested in seeing close to $50 per share.

  I should point out that Buffett’s part of the deal is quite good. He’s putting up $4.4 billion in equity and buying $8 billion of 9% preferred stock. At the elevated price, the equity will yield 2.84%.

• DirecTV Earns $1.55 Per Share
  Eddy Elfenbein, February 14th, 2013 at 9:59 am

  Great news this morning from DirecTV ($DTV). The satellite-TV company reported blow-out earnings. For Q4, DTV earned $1.55 per share which was up from $1.02 per share a year ago. Wall Street has been expecting $1.13 per share so this was a big beat.

  The key to DirecTV’s success is its business in Latin America. They’re growing very well there. DTV now has 10.3 million subscribers in that region which is up from 7.9 million one year ago. Last quarter, DirecTV added 658,000 customers in Latin America which was more than expected.

  DirecTV is still huge in the United States, but growth has slowed down as the market has matured. Last quarter, DTV added 103,000 subscribers in the U.S. to bring their total to 20.1 million. I was also pleased to see that the cancellation rate in the U.S. dropped from to 1.43% from 1.52% last year.

  The only negative is that DTV said its earnings will take a hit from the currency devaluation in Venezuela. The company also announced a $4 billion share buyback which is equivalent to about 13% of DTV’s market value. The shares have been up as much as 3.4% today. For all of 2012, DTV earned $4.58 per share.

• Morning News: February 14, 2013
  Eddy Elfenbein, February 14th, 2013 at 7:20 am

  Euro Zone 2012: Not a Single Quarter Showing Economic Growth

  BOJ Chief Defends Policy Ahead Of G20 As Economy Contracts

  Indian Inflation Slows to 38-Month Low; Boosts Rate-Cut Case

  BNP Paribas Begins Overhaul After Fourth-Quarter Profit Drop

  Obama Bid for Europe Trade Pact Stirs Hope on Both Sides

  Calmly, Pick for Treasury Offers Replies to Senators

  401(k) Balances Reached Record on 2012 Stock Market Rally

  Small Businesses Still Struggle, and That’s Impeding a Recovery

  American and US Airways Announce $11 Billion Merger Deal

  Citigroup Lost $15 Million With UBS’s ‘Crap’ CDO Blessed by S&P

  Cisco Forecasts Sales That Miss Some Analysts’ Estimates

  Rio Tinto’s New CEO Vows Cost Cuts And Disposals

  India’s Tata Motors Q3 Net Profit Halves, JLR Margin Sags

  Groupon Surges on Expected E-Commerce Expansion

  Credit Writedowns: Japanese RORO

  Roger Nusbaum: Not All Stock Picking is Wildly Complex

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• 11 Stocks to Sell Right Now
  Eddy Elfenbein, February 13th, 2013 at 12:01 pm

  Here’s a list of 11 stocks that investors should sell as soon as possible. I’ve included yesterday’s closing price for future reference.

  Company	Symbol	Close 2/12/2013
  TiVo	TIVO	$13.15
  Forest Labs	FRX	$35.74
  salesforce.com	CRM	$172.36
  Netflix	NFLX	$177.95
  Amazon.com	AMZN	$258.70
  Zillow	Z	$36.15
  Red Hat	RHT	$55.33
  Weyerhaeuser	WY	$30.31
  Iron Mountain	IRM	$34.47
  iRobot	IRBT	$21.41
  HomeAway	AWAY	$24.83

• January Retail Sales +0.1%
  Eddy Elfenbein, February 13th, 2013 at 10:05 am

  The Commerce Department reported that retail sales rose by just 0.1% last month. That’s not very strong, but part of the problem was that higher taxes took a bite out of consumers. Still, the report was inline with what economists were expecting.

  Economists also like to look at “core sales,” which is retail sales excluding cars, gas and building materials. In others words, they want to focus on basic consumer spending habits. For January, core sales also rose by 0.1%.

  Even though the Q4 GDP report was rather poor, economists were impressed by the strength of consumer spending. That’s why people are interested to see if that trend is holding up into Q1. This is especially important for our retail stocks like Bed, Bath & Beyond ($BBBY) and Ross Stores ($ROST). If you recall, Ross recently said they had pretty good sales for January.

  I should add that the Q4 GDP report will probably be revised higher thanks to the recent trade report. In fact, it will most likely go from being a negative number to a positive one.

  The outlook in Europe got a boost this morning when the industrial production number came in at 0.7% growth which was better than the 0.2% that was expected.

  In the U.S. market, the Volatility Index ($VIX) is close to hitting a six-year low today. If this keeps up, we might have to change the name from the VIX to the NIX. The VIX closed yesterday at 12.64 while the low is 12.29 from January 18th. The last time we were that low was February 27, 2007 which was the start of the financial crisis.

• My Simple Rule for Government Financing
  Eddy Elfenbein, February 13th, 2013 at 9:43 am

  As part of my continuing effort to solve all of the world’s problems, I’ve devised a simple rule for the U.S. budget deficit. Here it is:

  (Unemployment Rate x 2) – 10 = Budget Deficit / GDP

  Here’s how my rule has held up (in blue) against the real budget deficit (in red).

  

• Morning News: February 13, 2013
  Eddy Elfenbein, February 13th, 2013 at 7:20 am

  BoE Will Tolerate Inflation To Aid Growth

  G-7 Roils Currency Markets With Split on Yen Views

  IEA Trims Oil Demand Forecast

  Wheat Falls to Seven-Month Low as Rain in Plains May Boost Crop

  Obama Paints Wider Role for Government in Middle Class Revival

  Raising Minimum Wage Would Ease Income Gap but Carries Political Risks

  Silicon Valley and Immigrant Groups Find Common Cause

  Small-Business Optimism in U.S. Improves for Second Month

  Comcast Buys Rest of NBC’s Parent

  ING Cutting 2,400 Jobs as Quarterly Profit Misses Estimates

  Peugeot Citroën Reports Record Loss

  Big Investors Stiffen Their Resistance to Dell’s Offer

  Apple Said to Have Team Developing Wristwatch Computer

  Pragmatic Capitalism: Market Volatility and Returns

  Joshua Brown: begging your pardon…

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• The Yen Drag
  Eddy Elfenbein, February 12th, 2013 at 7:07 pm

  I thought this chart was interesting. It shows how much better the Nikkei Index has done than the iShares MSCI Japan Index ($EWJ) which is, of course, denominated in dollars. Japanese stocks are indeed doing well but devaluation explains some of it, though not all of it.