Archive for July, 2013

• New Highs on Strong Earnings
  Eddy Elfenbein, July 31st, 2013 at 9:28 pm

  Today was another good day for the Buy List. Our 20 stocks gained 0.45% today compared with a 0.01% loss for the S&P 500. This is the fourth day in a row that we’ve beaten the market. Our Buy List is now up 22.93% for the year compared with 18.20% for the S&P 500. Interestingly, this is the third day in a row that the S&P 500 closed with a 1,685 handle.

  Our big winner today was obviously Fiserv ($FISV) which closed the day at $96.24 or 4.03% higher. At one point today, Fiserv came within 12 cents of $100 per share which was a gain of 8% on the day. This is what a good earnings report will do.

  AFLAC ($AFL) also rallied on its earnings report, although I feared the stock was going to lose ground today. Shares of AFL got as high as $62.55 today which was a new 52-week high. At the close, AFLAC finished at $61.68 for a 1.36% gain. The AP noted that analysts are still favorable on the stock.

  WEX Inc. (WEX) also hit a new high today thanks to its earnings report. WEX got as high as $88.59 today before it closed at $86.94 for a 1.25% gain. In the last three months, WEX has gained 28%.

  We also had new highs from CR Bard ($BCR), Harris ($HRS) and Bed Bath & Beyond ($BBBY), plus Stryker ($SYK) and Medtronic ($MDT) came very close to new highs.

• “We’ve been the best performing tech company in Europe”
  Eddy Elfenbein, July 31st, 2013 at 9:11 pm

  Mark Hurd was on CNBC:

• Today’s Fed Statement
  Eddy Elfenbein, July 31st, 2013 at 2:01 pm

  Here’s today’s Fed statement:

  Information received since the Federal Open Market Committee met in June suggests that economic activity expanded at a modest pace during the first half of the year. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen somewhat and fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

  Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

  To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

  The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

  To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

  Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

  Phil Izzo at the WSJ has the changes from the last statement.

• The Government Revises All GDP Data
  Eddy Elfenbein, July 31st, 2013 at 12:37 pm

  Do you feel wealthier today? According to the government, the economy is about 3% larger than originally reported. The reason is that the number collectors are now looking at intangibles in the economy. The Bureau of Economic Analysis revised the entire NIPA data series today.

  Here’s a look at real GDP growth since 1947 (in trillions of dollars). The Old Series is based on 2005 prices. The new one is based on 2009 prices.

  

  It turns out that the recent recession wasn’t as severe as originally believed. From Q4 2007 to Q2 of 2009, the economy shrank by -4.26% instead of the original -4.69%. The recovery was a bit stronger as well. Interestingly, the first-quarter of 2011 previously had shown very meager growth. It turns out, the economy slightly receded.

  Here’s a comparison between the two data series. The increase in the adjustment has been pretty continuous over the last 65 years. Note that 2005 is used for the old series and 2009 is for the new, so the chart below is not a 1-to-1 comparison. There’s a difference of about 9% due to inflation between the data series.

  

• Fiserv Jumps 5% in Early Trading
  Eddy Elfenbein, July 31st, 2013 at 9:54 am

  Big market day today. The S&P 500 is above 1,692 this morning. The big winner on our Buy List is Fiserv ($FISV) which is currently up 5.44% thanks to its strong earnings report. While AFLAC’s ($AFL) earnings were above expectations, that guidance was below the Street. Still, the reasons are understandable and the shares are only down 64 cents which is about 1%.

  Reuters ran the numbers and found that Ford Motor ($F) could close its pension gap by the end of next year. That was unthinkable not that long ago.

  The government reported that the U.S. economy grew by 1.7% last quarter. That was actually faster than expected. Economists were expecting an increase of less than 1%. Growth for Q1 was revised downward from 1.8% to 1.1%.

  ADP, the private payroll firm, said that the economy created 200,000 new jobs last month. That’s right inline with what the economy has done for the last three months. On Friday, we get the official report from the Feds.

• Dan Amos on CNBC
  Eddy Elfenbein, July 31st, 2013 at 9:28 am

  Here’s AFLAC’s CEO on CNBC:

• Morning News: July 31, 2013
  Eddy Elfenbein, July 31st, 2013 at 6:50 am

  German Unemployment Rises to 6.8% in July

  Beijing Offers Growth Assurance In Its Economic Balancing Act

  Following Bernanke Means Using Precedent of Unprecedented Policy

  Obama Offers New Deal on Corporate Taxes, Jobs

  Consumer Confidence Dips a Bit

  Schneider Electric to Buy Invensys for $5.2 Billion

  BNP Paribas Quarterly Net Falls 4.7% on Loan Provisions

  Panasonic’s Quarterly Profit Soars to $1.1 Billion

  Tough Times for the ‘Biggest Victim’ in Smartphone War

  Potash Sector Rocked as Russia’s Uralkali Quits Cartel

  AB InBev Profits From Premium Lagers, Price Hikes

  Bill Ackman’s Herbalife Nightmare Gets 100 Percent Worse

  JPMorgan Top Exec Blythe Masters Dodges Penalty As Bank Settles Energy Manipulation Charges For $410 Million

  Credit Writedowns: House Price Inflation Causing Problems for Many in the U.S.

  Cullen Roche: Why Didn’t QE Cause High Inflation?

  Be sure to follow me on Twitter.

• Strong Earnings from Fiserv and AFLAC
  Eddy Elfenbein, July 30th, 2013 at 9:23 pm

  Thanks to a very good earnings report from Harris Corp. ($HRS), our Buy List had another market-beating day. Shares of HRS eventually closed at $56.97 which is a gain of 7.84% for the day. While the broader indexes are just shy of their all-time highs, the Nasdaq closed today at its highest level since September 29, 2000.

  The market was also excited that Facebook ($FB) climbed all the way back its IPO price. So IPO investors are back up to…nothing!

  After the closing bell, we had two more Buy List earnings reports; Fiserv ($FISV) and AFLAC ($AFL). For the second quarter, Fiserv earned $1.50 per share which was six cents better than Wall Street’s consensus. That’s a very good number. Quarterly revenues rose 11.8% to $1.14 billion which was a bit short of consensus.

  Fiserv said:

  Our strong second quarter results included revenue and earnings acceleration in-line with our full-year expectations,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “Performance was led by 7 percent adjusted internal revenue growth in our Payments segment, solid sales and excellent free cash flow.

  Fiserv reiterated its full-year guidance of earnings ranging between $5.84 and $6.03 per share. For the first six months of 2013, Fiserv had earned $2.83 per share so I think they’re well on their way to hitting that guidance. Earnings are up 16% so far this year, and cash flow is up 22%. This company is clearly doing well. The stock is up 3.55% in the after-hours market.

  AFLAC reported Q2 operating earnings of $1.62 per share which was 11 cents better than estimates. Three months ago, the company gave us a range of $1.41 to $1.56 per share, so business is going better-than-expected. Plus, we have to consider that the yen/dollar exchange rate knocked 22 cents off earnings. Without that, operating earnings rose by 14.3%.

  For Q3, AFLAC sees operating earnings ranging between $1.41 and $1.51 per share. That’s less than the $1.56 per share Wall Street had been expecting. For the full-year guidance, AFLAC lowered the low-end of their range. The previous range was $5.99 to $6.37 per share. Now it’s $5.83 to $6.37 per share.

  Dan Amos, the CEO, said:

  Our objective for 2013 is to increase operating earnings per diluted share 4% to 7%, excluding the impact of the yen. Although we are above that range for the first half of the year, we plan on increasing spending in the second half of 2013. In Japan, we will increase expenditures on advertising and promotion for our new product launch in August. In the United States, we anticipate increased costs associated with initiatives related to health care reform. As such, we expect operating earnings to increase approximately 5% for the full year, before the impact of foreign currency. We will face a difficult comparison in the third quarter due to the tax benefit of $.10 per diluted share recognized in the same period last year. If the yen averages 95 to 105 to the dollar for the third quarter, we would expect earnings in the third quarter to be approximately $1.41 to $1.51 per diluted share. Using that same exchange rate assumption, we would expect full-year reported operating earnings to be about $5.83 to $6.37 per diluted share.

• Harris Jumps Nearly 8%
  Eddy Elfenbein, July 30th, 2013 at 10:04 am

  The S&P 500 broke above 1,693 this morning. Thanks to its great earnings report, Harris Corp. ($HRS) has jumped to $56.95 which is a 7.8% gain. After the close, we’ll get earnings reports from AFLAC ($AFL) and Fiserv ($FISV).

  

  Second-quarter earnings season is going well so far. Exactly 300 of the 500 stocks in the S&P 500 have reported, and 73% have beaten on sales while 55% have beaten on earnings. Of course, expectations for Q2 had been falling for more than a year.

  Today is the first day of the Fed’s two-day meeting. The policy statement will come out tomorrow. This is interesting because this meeting isn’t expected to be very important but the following meeting, in September, is expected to be very important. A growing number of Fed watchers think the central bank will announce its first tapering of its bond buying program. There may be some hints in tomorrow’s statement, but I doubt it will contain much.

  In March, I noted that Coach ($COH) had dropped to $48.43 per share which was cheap on a valuation basis, but there were good reasons for the low valuation. Since then, the stock has rallied to $60 per share. Today, however, the shares are getting slammed thanks to poor results in North America. Profits for the quarter fell 12%. Shares of COH are currently down $5 or 8.7%. I don’t think the problems are close to being fixed.

• Harris Reports Great Earnings
  Eddy Elfenbein, July 30th, 2013 at 9:05 am

  This morning, Harris Corp. ($HRS) reported fiscal fourth-quarter earnings of $1.41 per share which was 26 cents better than expectations. That’s a huge beat. Quarterly revenue dropped 5.3% to $1.36 billion which still topped estimates of $1.31 billion.

  Harris also had very good guidance for next year. For fiscal 2014, which ends in June of 2014, Harris sees earnings ranging between $4.65 to $4.85 per share on revenues of $4.95 to $5.05 billion. The Street had been expecting earnings of $4.62 per share on revenues of $5.03 billion. For the year, Harris earned $4.90 per share compared with $5.20 per share last year. Much of the decline was due to the government sequester.

  Fourth quarter results were solid in a tough government spending environment,” said William M. Brown, president and chief executive officer. “Performance benefited from our commitment to operational excellence and ongoing cost-reduction efforts, including restructuring actions announced in April that were executed faster than expected and generated fourth quarter cost savings. As we enter fiscal 2014, we now expect that restructuring and other actions will generate net annualized cost savings of approximately $60 million.”

  “We were particularly encouraged by the strong new orders momentum in the international tactical radio market. With a tactical book-to-bill of 1.49 and greater than one in both international and U.S. markets, tactical backlog increased substantially in the fourth quarter.”

  Harris is another good example of a high-quality stock delivering results after sluggish performance of its stock. Shares of Harris are only up 8% YTD which makes it one of the poorer performers on our Buy List. But what hasn’t changed is that it’s still a very well-run outfit.