Archive for April, 2016

• Weak Rebound in Durable Goods
  Eddy Elfenbein, April 26th, 2016 at 11:50 am

  The Fed is meeting today and tomorrow, and we’ll get our first look at Q1 GDP on Thursday. Ahead of that, today we learned that durable goods rebounded last month, but not by much.

  Orders for long-lasting U.S. manufactured goods rebounded less than expected in March as demand for automobiles, computers and electrical goods slumped, suggesting the downturn in the factory sector was far from over.

  The Commerce Department said on Tuesday that orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, increased 0.8 percent last month after declining 3.1 percent in February.

  Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, were unchanged after a downwardly revised 2.7 percent decrease in the prior month. These so-called core capital goods orders were previously reported to have decreased 2.5 percent in February.

  Economists polled by Reuters had forecast durable goods orders advancing 1.8 percent last month and orders for manufactured capital goods increasing 0.8 percent.

• Wabtec Earns $1.05 per Share
  Eddy Elfenbein, April 26th, 2016 at 8:46 am

  This morning, Wabtec (WAB) reported Q1 earnings of $1.05 per share. That was five cents better than Wall Street’s estimates. Quarterly revenues fell 5.7% to $772.03 million. That was below the consensus of $798.86 million.

  Raymond T. Betler, Wabtec’s president and chief executive officer, said: “We continue to expect another record earnings year, even as we face challenges in some of our key markets. We are responding to these challenges with aggressive cost- and efficiency-improvement programs, while continuing to invest in growth opportunities around the world. We remain optimistic about our long-term prospects and expect to continue to benefit from our diversified business model, balanced growth strategies and rigorous application of the Wabtec Performance System.”

  Wabtec reaffirmed their 2016 guidance of $4.30 to $4.50 per share.

• Morning News: April 26, 2016
  Eddy Elfenbein, April 26th, 2016 at 7:12 am

  Germany’s Yield Gap Over Japan at Most in 2016 Before BOJ Meets

  Japan Consortium Misses Out on $38.5 Billion Australian Submarine Deal

  Saudi Reform Plan Pleases Markets, Doesn’t Reassure Skeptics

  Fed Statement Could Offer Clues Toward June Rate Decision

  Taxpayer Subsidies to Companies Fall 70% as U.S. States Pull Back

  Big Bank Shareholders Face a Crucible This Week at Annual Meetings

  Tribune Plays Coy as Gannett Makes a Bid

  Charter Poised to Win Regulatory Approval for Time Warner Cable Deal

  Low Oil Price Pushes BP to $485 Million Loss

  Nokia to Acquire French Connected Health Start-Up Withings

  Standard Chartered Surges on Surprise Drop in Impairments

  Buffett Makes It Easier to Be Sure He Hasn’t Drifted Away at 85

  Mitsubishi Motors’ Improper Mileage Tests Date Back to 1991

  Cullen Roche: There Are No Good Gold Analysts

  Jeff Carter: A Moral Case for Breaking the Law

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• Express Scripts Earns $1.22 per Share
  Eddy Elfenbein, April 25th, 2016 at 4:15 pm

  Express Scripts (ESRX) just reported Q1 earnings of $1.22 per share which matched Wall Street’s expectations.

  The following compares first quarter 2016 and 2015 operating results:

  Adjusted claims of 323.5 million, up 5% – See Table 1

  EBITDA of $1,460.0 million, down 3% from 2015 adjusted EBITDA – See Table 3

  EBITDA per adjusted claim of $4.51, down 8% from 2015 adjusted EBITDA per adjusted claim – See Table 3

  GAAP net income of $526.1 million, up 19%

  Adjusted net income of $791.4 million, down 2% – See Tables 5 and 5A

  GAAP diluted earnings per share of $0.81, up 35%

  Adjusted diluted earnings per share of $1.22, up 11% – See Table 4

  Net cash flow provided by operating activities of $751.2 million, up 167%

  ESRX also raised guidance:

  The Company increased 2016 adjusted earnings per diluted share guidance from a range of $6.10 to $6.28 to a range of $6.31 to $6.43. The guidance range represents growth of 14% to 16% over 2015. Consistent with 2015, the Company expects revenues related to a large client contract will be realized in the second quarter due to the structure of the contract. Additional details on this guidance can be found in Table 6 including items excluded from this range.

  For Q2, Express expects earnings to range between $1.55 and $1.59. Wall Street had been expecting $1.57 per share.

• Dividends Are Hot
  Eddy Elfenbein, April 25th, 2016 at 12:58 pm

  

  Bloomberg notes an interesting development in the market—there’s been a rush towards safety. Since September, the Low Vol ETF (SPLV) is up more than 50%. In fact, over the last month, the SPLV has been more volatile than the rest of the market. As a result, dividend-paying stocks are going for some pretty pricey valuations.

  Whatever’s happening, it’s pushed dividend paying stocks to a record price-earnings ratio, 9.4 percent above the four-year average. The 20.4 P/E of these otherwise slow-growing companies make them look more like technology stocks, which at 19.1 times earnings are now trading at a lower valuation.

  The demand for yield stocks has been enhanced by a dovish Federal Reserve. The S&P 500 Dividends Aristocrats index has gained 7.1 percent this year and reached a record on Tuesday. The S&P 500 has posted a 2.3 percent gain over the same period. The iShares High Dividend ETF also reached its highest net asset value on Tuesday.

• Aramco to IPO
  Eddy Elfenbein, April 25th, 2016 at 11:20 am

  Saudi Arabia is trying to change itself. The kingdom wants to diversify away from oil. Old habits are hard to break.

  One big step will be an IPO for Aramco. This would be, by far, the largest company in the world. One of the Saudi princes thinks the value of the company could exceed $2 trillion.

  Saudi Aramco’s sale is a key part of the “Saudi 2030 Vision” announced Monday to overhaul the economy and reduce the kingdom’s reliance on oil, he said. It will help increase transparency, he said.

  “If Saudi Aramco is listed then it must announce its statements and it will do that every quarter,” he said. “It will be under the supervision of all Saudi banks, all analysts, all Saudi thinkers. Even more all international banks and research and planning centers in the world will monitor it intensively.”

  Aramco’s crude reserves of about 260 billion barrels are almost 10 times those of Exxon Mobil Corp. Its daily production of more than 10 million barrels is more than the domestic output of every U.S. oil company combined.

  “In 2020, I think we will be able to live without oil,” Prince Mohammed said. “We will need it but we can live without it.”

• Don’t Expect a Rate Hike this Week
  Eddy Elfenbein, April 25th, 2016 at 11:07 am

  This looks to be an interesting week with a Fed meeting, the first GDP report for Q1 and many more earnings reports. Express Scripts (ESRX) is due after the close.

  The futures market currently thinks there’s a 1 in 43 chance that the Fed will raise rates this week. I’d put it close to 1 in 300, but that’s me. The futures market sees the odds rising to 1 in 2 at the Fed meeting five months from now. I suspect that the futures market may need to turn a bit more hawkish.

  The next Fed meeting after this week will be just eight days before the big Brexit vote across the pond. The outlook is grim for much of Europe. Six months ago, analysts saw profits for the STOXX Europe 600 rising by 8.2% this year. That’s now down to -2.2%, and Morgan Stanley just said it will be -5%.

  The Fed has projected that it will raise rates twice this year. Interestingly, the five-year “breakeven,” meaning the difference between the five-year Treasury and the five-year TIPs, has risen to 1.56%. That’s a nine-month high.

• Morning News: April 25, 2016
  Eddy Elfenbein, April 25th, 2016 at 7:20 am

  Global Stocks Drop With Oil as Glut Seen Persisting; Yen Rises

  Middle East Economies Face Oil Revenue Fall, IMF Says—Energy Journal

  German Business Sentiment Has Weakened in April

  How Argentina Settled a Billion-Dollar Debt Dispute With Hedge Funds

  How a Bestseller Helped Change the Rules of Retirement

  Gannett Offers $815 Million for Tribune Publishing

  Ball to Sell Beverage-Can Assets to Ardagh for $3.42 Billion

  Apple Results to Show How Far iPhone Sales Have Fallen

  Saudi Prince Says Aramco Valuation Seen at Above $2 Trillion

  Xerox’s Revenue Falls on Lower Printer Sales

  The Future of Coke and Pepsi Depends on This Unlikely Beverage

  Philips Slumps as Lighting IPO Looks Increasingly Likely

  Theranos’s Fate Rests With a Founder Who Answers Only To Herself

  Josh Brown: Bad Active Management Can’t Survive the Internet

  Jeff Miller: Weighing the Week Ahead: Can Stocks (finally) Set a New Record?

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• Why Diversification Matters
  Eddy Elfenbein, April 23rd, 2016 at 10:15 pm

  On Friday, Microsoft (MSFT) dropped 7.17% thanks to its earnings report. Personally, I didn’t think the earnings report was that bad but I’ve learned that it’s hard to argue with a market that’s out for blood.

  

  Despite the big hit from Microsoft, I was pleased to see that our Buy List slightly outperformed the market on Friday. This is a good lesson on why diversification is so important.

  Roughly speaking, MSFT was a 36-basis-point drag on the whole portfolio (7.17% divided by 20; that’s not exact but it’s good enough for our purposes).

  On Friday, the S&P 500 gained just under half a basis point so it rounds to being flat for the day while our Buy List gained 0.03%. A strong portfolio is like a well-rounded sports team — on any given day, you’ll never know who the hero will be.

• Barron’s Likes Biogen
  Eddy Elfenbein, April 22nd, 2016 at 8:03 pm

  In the wake of its strong earnings report, Johanna Bennett at Barron’s notices that Biogen (BIIB) is going for a good value,

  Biogen investors have good reason to stay bullish.

  Tecfidera sales appear to have stabilized. Biogen has a major restructuring underway and has one of the most promising experimental drug pipelines in the industry.

  With the company reportedly exploring the sale of its hemophilia drug business, Biogen’s $6.8 billion cash pile could swell, spurring more acquisitions and share buybacks.

  At 15 times expected 2016 earnings, the stock has rarely been this cheap in the last five years, due partly to growth concerns.

  (…)

  While investors are scrutinizing Tecfidera sales, Biogen stock is worth buying given its attractive valuation, depressed price and the company’s appealing prospects.

  The shares are up 6.3% in the last two days.