Author Archive

  • Morning News: February 7, 2012
    , February 7th, 2012 at 5:20 am

    German Workers Demand 6.5% Raise as Siemens Sees Recession

    Europe’s Banks Reluctant to Lend to Companies in Need of Cash

    Greek Talks Resume Amid Strike

    Dollar’s China Conundrum

    IMF Urges Beijing to Prepare Stimulus

    Japan Adopts Stealth Intervention as Yen Gains Threaten Exporter Earnings

    Crude Oil Trades Near Six-Week Low on Forecast of Rising U.S. Stockpiles

    Global Steel Giant ArcelorMittal Sees H1 Pick Up, Concern on Europe

    UBS Profit Drops 76% on Investment Bank Loss

    Toyota Shows Optimism Despite Gloom

    Yum! Brands Profit Climbs 30% On China Growth

    Glencore and Xstrata Agree $90 Billion Deal

    Standard Life to Vote Against Xstrata-Glencore Merger

    Verizon, Redbox Plan Netflix Challenge

    BP Set for First Post-Spill Dividend Increase

    Those Millions on Facebook? Some May Not Actually Visit

    Paul Kedrosky: Stopping the Brain Drain

    Howard Lindzon: StockTwits…The Month of January in Tickers

    Be sure to follow me on Twitter.

  • Sysco Earns 46 Cents Per Share
    , February 6th, 2012 at 1:10 pm

    I don’t get why Sysco ($SYY) is down so much today. The restaurant supplier reported fiscal second-quarter earnings of 46 cents per share which was two cents better than Wall Street’s forecast. Revenue also was a little better than expectations. The company said that it squeezed by higher food inflation. Still, Sysco’s stock is off about 5% today.

    Here are some details on their second quarter. It looks good to me:

    Sales for the second quarter were $10.2 billion, an increase of 9.2% compared to sales in the same period last year. Food cost inflation, as measured by the estimated change in Sysco’s product costs, was 6.3%. Inflation continued to be broad-based, but was impacted most significantly by increased prices for meat, canned/dry and frozen products. This compares to inflation of 4.5% in the prior year period, and 7.3% in the first quarter of fiscal 2012. In addition, sales from acquisitions (within the last 12 months) increased sales by 0.7%, and the impact of changes in foreign exchange rates for the second quarter decreased sales by 0.1%. Case volume for the company’s Broadline and SYGMA operations combined grew 3.6% during the quarter including acquisitions, and 2.8% excluding acquisitions.

    Gross profit for the second quarter was $1.8 billion, an increase of 4.8%, compared to the prior year. Operating expenses in the second quarter increased $94 million, or 7.1%, compared to operating expenses in the prior year period. This was due mainly to a $58 million increase in payroll expense, a $12 million increase in gross business transformation expenses, a $10 million increase in fuel expense and a $9 million lower benefit from COLI, partially offset by a $7 million decline in expenses for the corporate-sponsored pension plan. Excluding gross business transformation expenses and the impact of COLI, adjusted operating expenses increased 5.5%. Management believes that excluding these items better represents the company’s underlying business performance.

    Operating income was $427 million in the second quarter, decreasing $10 million, or 2.3% compared to operating income in the prior year. Excluding gross business transformation expenses and the impact of COLI, adjusted operating income increased 2.5%.

    Net earnings for the second quarter were $250 million, a decrease of $8 million, or 3.1%, compared to net earnings in the prior year. Diluted EPS in the second quarter of fiscal 2012 was $0.43 which included a $0.03 negative impact from gross business transformation expenses. Last year’s second quarter EPS was $0.44, which also included a $0.03 negative impact from gross business transformation expenses, partially offset by a $0.02 benefit from COLI. Excluding gross business transformation expenses and the impact of COLI, second quarter fiscal 2012 adjusted EPS was $0.46, an increase of 2.2% compared to the prior year.

  • The Genetics of Wall Street
    , February 6th, 2012 at 12:07 pm

    Two researchers looked at the DNA of Wall Street traders:

    So what did the scientists find? It turned out that successful traders—Drs. Zak and Sapra measured success in terms of longevity on Wall Street—tended to hit a sweet spot of dopamine activity; their genes kept them from experiencing either very high or very low levels of the molecule. These prosperous professionals were much more likely to have so-called Goldilocks genes, placing them solidly in the middle of the dopamine distribution.

    “The best traders are willing to take risks,” Dr. Zak says. “They definitely want to make lots of money. But they’re also able to take a long-term perspective and check their impulses. Being able to balance these competing interests seems to require a balanced dopamine system.”

    Dr. Zak notes that it’s far too soon to use his genetic assay as a hiring tool—the results still need to be replicated. Still, it’s possible to imagine a future in which the financial sector requires less oversight because firms have found a way to hire more prudent employees.

    Given the massive amounts of money at stake, spending a few hundred dollars on a DNA kit might strike Wall Street as a particularly wise investment.

  • Markets Surges on January Jobs Report
    , February 6th, 2012 at 10:51 am

    The market was thrilled with the news from the Labor Department on Friday. Nonfarm payrolls rose by 243,000 in the month of January. The unemployment rate dropped to 8.3% which is a three-year low. The private sector led the way, adding 257,000 jobs.

    This was very good news even though the overall picture remains grim. In the last two years, 3.1 million jobs have been created. The problem is that in the two years prior to that, 8.7 million jobs were lost. At the current rate of job creation, we’ll still need a few more years to get back to normal.

    Stock prices, however, responded very positively. The Dow jumped to its highest level since 2008. The Nasdaq Composite hit an 11-year high. Our Buy List had an exceptionally strong day on Friday. While the S&P 500 gained an impressive 1.46%, our Buy List was up by 2.01%. By the close, we were up just 10.01% for the year compared with 6.94% for the S&P 500.

    Thanks to its strong earnings report, Fiserv ($FISV) jumped by 4.39% to $65.88. Ford ($F) added 4.32%. AFLAC ($AFL) briefly broke through $50 per share. Nicholas Financial ($NICK) rose by 3.81% to close at $13.90. Hudson City ($HCBK) also climbed by more than 4%.

  • Morning News: February 6, 2012
    , February 6th, 2012 at 5:23 am

    Europe Leaders Maintain Pressure on Greece to Complete Deal

    Strike Looms As Greek Party Leaders Push For Deal on Reforms

    Hedge Funds Underestimating Policymakers’ Will to Impose Greek Bond Losses

    China Risks Growth-Rate Cut if Europe Worsens

    China Bans Airlines From EU Carbon Scheme

    Citigroup Gets Approval for China Credit Cards

    Eni Nigeria Pipeline Struck by Delta Militants in ‘Sign of Things to Come’

    Foreclosure Deal Deadline Arrives as States Must Choose Whether to Sign On

    Facebook’s Mobility Challenge

    Randgold Profit Rises Fourfold on Increased Output, Price Gain

    Vodafone Abandons Greek Merger on European Union Opposition

    Korean KT Corp’s Net Profit Rises

    A Mortgage Tornado Warning, Unheeded

    Blankfein to Speak Out for Same-Sex Marriage

    Jeff Carter: Teaching Entrepreneurship

    Epicurean Dealmaker: Apocalypse, Ciao!

    Be sure to follow me on Twitter.

  • Woody Allen on Candid Camera
    , February 4th, 2012 at 7:59 pm

    This is so cute:

  • CWS Market Review – February 3, 2012
    , February 3rd, 2012 at 5:42 am

    Stocks continue to like 2012. On Tuesday, the S&P 500 closed out its best January in 15 years. Plus, the index just regained its composure this week after hitting a four-day skid which is a tie for our longest losing streak since August.

    On Thursday, the S&P 500 finished the day just shy of a six-month high. Technicians are also excited due to the recent “Golden Cross.” That’s when the index’s 50-day moving average jumps above the 200-day moving average. I’m rather skeptical of these chart pattern thingies, but I will note that historically the market rather likes Golden Crosses. In the 12 months following a Golden Cross, the S&P 500 has gained an average of 10.2%. That would bring us up to 1,460 by next February.

    Putting chart patterns aside, the really odd change on Wall Street is that daily volatility has chilled out in a serious way. Just a few months ago, share prices were swinging like Benny Goodman. But now, they’re swinging like…well, Benny Bernanke. Today it’s a big deal if the S&P 500 moves up or down by 0.4%. Four months ago, the Volatility Index ($VIX) was over 45. Today it’s near 18.

    Why is everything so much calmer? One issue was the debt ceiling debate and downgrade that put everyone on edge this past summer. Now those are gone. The other issue was Europe. Mind you, the mess across the pond is still ugly, but the recent spate of encouraging U.S. economic data has shown investors that the euro won’t drag us down the drain.

    This brings me to earnings season. As I mentioned last week, the earnings so far have been pretty mediocre. Not bad, just somewhat sluggish. Earnings are still growing, but the rate of growth is dropping quickly. That’s to be expected since the recovery, such as it is, is from more than two-and-a-half years ago. The latest numbers show that Q4 earnings growth for the S&P 500 is tracking at 3.5%. But if we exclude financials, growth is at 8.2%.

    A few weeks ago, I said that earnings expectations for 2012 were too high and that they needed to come down. That’s exactly what happened. Wall Street now expects the S&P 500 to earn $105.52 next year which is a modest increase over the $96.90 for 2011. But Wall Street expects earnings to accelerate for the second half of the year. The current forecast is for first-half earnings growth of 5.95% and second-half growth of 11.72%. I’m not completely sold on that idea just yet (and it’s still early). But if that comes to pass, it would be an enormous boost for stocks. The Dow could stand at 15,000 before the year is done.

    Now let’s turn to our Buy List because we had another solid week. For the year, we’re beating the S&P 500 by a margin of 7.84% to 5.40%. Stocks like Wright Express ($WXS) and CA Technologies ($CA) just hit fresh 52-week highs. CA is already a 30% winner for us. Now I want to briefly summarize the Buy List earnings reports for the past week.

    I was looking forward to Tuesday’s earnings report from AFLAC ($AFL). Sadly, the results weren’t as good as I expected though the company still delivered impressive numbers. For the quarter, AFLAC had operating earnings of $1.48 per share. This was four cents below Wall Street’s forecast. Three months ago, AFLAC said that it expected to earn $1.45 to $1.52 per share, so the company was still in its own range.

    The most important news is that AFLAC reiterated its growth forecast of 2% to 5% for 2012. That means earnings of $6.46 to $6.65 per share for this year. Plus, the company said that growth will be even better in 2013. That’s very good news and it’s far more important than a four-cent earnings miss. I was also pleased to see that AFLAC is paring back its investments in Europe. That move is long overdue.

    The stock pulled back early Wednesday but eventually regained what it lost. AFLAC is currently going for less than eight times this year’s earnings estimate. That’s roughly a 40% discount to the S&P 500. AFLAC is an excellent buy up to $53 per share.

    On Thursday, Nicholas Financial ($NICK) reported quarterly earnings of 45 cents per share. Since no one follows the stock, I can’t say whether or not this beat expectations. But I follow the company and the earnings certainly impressed me.

    If you’re not familiar with NICK, the company makes used car loans. The accounting is conservative and NICK holds on to the loans. This is no originate-and-dump scheme. One year ago, I thought that NICK could earn as much as $1.50 per share for this calendar year (their fiscal year ends in September). The company did so well that I eventually raised my forecast to $1.75 per share, and that turned out to be right.

    Now let’s add some perspective: Three years ago, shares of NICK got as low as $1.64 per share. That means the stock was going for less than one times earnings that were three years out! That’s how much investors don’t get this stock. Going by Thursday’s close, the stock is going for just 7.65 times earnings. This is a very inexpensive stock.

    I think NICK’s earnings will continue to do well. The Fed has said that short-term rates will remain low for some time. NICK has also lowered its debt ratio which makes the stock less risky. That could boost the earnings multiple. The shares have rallied recently and NICK hit a new all-time high of $13.69 on Wednesday. I’m raising my buy price to $15.

    On Tuesday, medical device-maker CR Bard ($BCR) reported earnings of $1.70 per share which topped estimates by two cents per share. Investors were pleased and the stock gapped up over $95 for the first time since September. For the year, Bard earned $6.40 per share which is up from $5.60 in 2010. That’s good growth especially in this environment. On their earnings call, Bard said they expect Q1 earnings-per-share between $1.53 and $1.57. The Street had been expecting $1.56. Bard is usually very close with their earnings guidance.

    Interestingly, Bard’s nominal earnings figures for 2010, 2011, 2012 and 2013 will probably be very similar to AFLAC’s. The difference is that Bard’s stock is about double AFLAC’s. Bard is a good buy up to $96 per share.

    Harris Corp. ($HRS) had one of our best earnings reports yet. It’s funny how those quiet stocks often deliver the most surprising results. For their fiscal Q2, Harris earned $1.22 per share which was three cents more than expectations. The stock jumped nearly 5% on Tuesday. Harris now sees fiscal-year earnings between $5.10 and $5.30 per share. Even at the higher price, Harris is still going for a ridiculously cheap valuation of less than eight times earnings. This is a solid buy up to $45.

    We’re nearly done with earnings season. Three more Buy List reports are due next week. Sysco ($SYY) reports on Monday, February 6th. Then on February 8th, Reynolds American ($RAI) and Wright Express ($RAI) are due to report. Wright is the one to watch. The last few earnings reports have been very strong. Wright has given guidance of 88 cents to 94 cents per share. Look for another strong report.

    That’s all for now. I’m writing this early Friday and the big jobs report will come out later today. Wall Street expects to see 225,000 new jobs created. If the market likes what it sees, February could be as strong as January. 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

  • Morning News: February 3, 2012
    , February 3rd, 2012 at 5:33 am

    Greece Seeks Second Rescue, Fights to Stay in Euro

    Rösler Opposes ECB Write-Down on Greece

    Spain Coaxes Banks to Merge as Extra Year Given to Purge Property Losses

    Wen Raises Prospect of China Aiding European Rescue After Meeting Merkel

    Malev Stops Flying as Hungary Cuts Its Losses

    Crude Trades Near Six-Week Low Before Jobs Report; Brent Premium Widens

    White House Offers Plan to Lure Jobs to America

    S.E.C. Is Avoiding Tough Sanctions for Large Banks

    Fed still divided as Fisher sees no need for QE3

    New Treasury Rules Ease 401(k) Annuity Purchase

    Panasonic Forecasts $10 Billion Loss

    Zuckerberg Remains the Undisputed Boss at Facebook

    Before the Toss, Super Bowl Ads

    Xstrata-Glencore ‘Highly Likely’ to Sell Lonmin, Liberum Says

    Edward Harrison: With Heavy Greek Exposure, Three Largest Banks in Cyprus Now Junk

    Joshua Brown: Fun With Economic Confidence, State by State Edition

    Be sure to follow me on Twitter.

  • Fiserv Earns $1.27 Per Share
    , February 2nd, 2012 at 4:09 pm

    More good earnings news. Fiserv ($FISV) just reported Q4 earnings of $1.27 per share which was inline with forecasts. Three months ago, they told us to expect a range between $1.23 per share and $1.29 per share.

    For the year, Fiserv earned $4.58 per share which is a big jump over the $4.05 per share from 2010. The best news, however, is the guidance they gave for 2012. Fiserv sees earnings-per-share ranging between $5.04 and $5.20. That’s growth of 10% to 14% which ain’t bad. The Street has been expecting $5.11 per share.

    “Revenue growth in the quarter was at its highest level in more than three years leading to our 26th consecutive year of double-digit adjusted EPS growth,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “Our market leading solutions have us well positioned to capitalize on important trends in the financial services industry.”

    (…)

    Outlook for 2012

    Fiserv expects 2012 adjusted revenue growth to be in a range of 4 to 6 percent and adjusted internal revenue growth to be in a range of 3.0 to 4.5 percent. The company also expects 2012 adjusted earnings per share to be in a range of $5.04 to $5.20, which represents growth of 10 to 14 percent over $4.58 in 2011.

    “Two consecutive years of strong sales along with the introduction of new, highly valued solutions, have us well positioned to deliver additional client value and enhance growth,” said Yabuki.

    If we take today’s close and the mid-point of the new EPS range, that means $FISV is going for 12.3 times earnings.

  • Nicholas Financial Earns 45 Cents Per Share
    , February 2nd, 2012 at 9:51 am

    Another great quarter from Nicholas Financial ($NICK):

    CLEARWATER, Fla., Feb. 2, 2012 (GLOBE NEWSWIRE) — Nicholas Financial, Inc. (Nasdaq:NICK – News) announced that for the three months ended December 31, 2011 net earnings increased 20% to $5,363,000 as compared to $4,475,000 for the three months ended December 31, 2010. Per share diluted net earnings increased 18% to $0.45 as compared to $0.38 for the three months ended December 31, 2010. Revenue increased 7% to $17,140,000 for the three months ended December 31, 2011 as compared to $15,995,000 for the three months ended December 31, 2010.

    For the nine months ended December 31, 2011 net earnings increased 35% to $16,186,000 as compared to $12,033,000 for the nine months ended December 31, 2010. Per share diluted net earnings increased 34% to $1.35 as compared to $1.01 for the nine months ended December 31, 2010. Revenue increased 9% to $50,985,000 for the nine months ended December 31, 2011 as compared to $46,679,000 for the nine months ended December 31, 2010.

    “Our strong growth in earnings per share for the three and nine months ended December 31, 2011 were primarily the results of a reduction in the net charge-off rate,” stated Peter L. Vosotas, Chairman and CEO. We also recently opened our 60th branch location in Kansas City, MO and we continue to develop additional markets.

    As a result of our continued earnings growth and stable capital position, on January 31, 2012 the Board of Directors declared another quarterly dividend equal to $0.10 per common share, to be paid on March 20th to shareholders of record as of March 13th.

    A year ago, I wrote that I wouldn’t be surprised to see NICK earn as much as $1.50 per share for this calendar year. Then in July, I upped my forecast to $1.70 per share. In October, I raised it to $1.75 per share.

    As it turns out, my last forecast was right: NICK earned $1.75 per share for the 2011 calendar year. Note that NICK’s fiscal year ends on March 31st. I’m just using the calendar year for the sake of comparison.

    Going by NICK’s closing price yesterday of $13.45, the stock is going for 7.7 times earnings. That means it has an earnings yield of 13%.