Author Archive

  • Morning News: November 23, 2011
    , November 23rd, 2011 at 6:52 am

    European Banks Get ‘False Deleveraging’

    Bank of Greece: Greece Faces Last Chance to Stay in Euro Zone

    Euro Zone Heads for Contraction

    Belgium, France Lead Govt Bond Market Losses Wednesday

    International Monetary Fund Offers Short-Term Credit as Insurance for Nations

    Crude Oil Drops After German Bond Sale Signals Deepening of Euro Crisis

    3rd-Quarter U.S. Growth Revised Down to 2 Percent

    Financial Finger-Pointing Turns to Regulators

    Fed to Test Six Big Banks for Euro Stress

    U.S. Postal Service Hires Evercore for Restructuring Advice

    F.C.C. Seeks Review of AT&T Merger With T-Mobile

    Groupon’s I.P.O. Pop, Now Deflated

    Merck to Pay $950 Million Over Vioxx

    Black Friday Deals See Stores Bowing to Shoppers

    Epicurean Dealmaker: Sovereign Triviality

    Paul Kedrosky: Going Public Decreases Innovation

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  • Medtronic Earns 84 Cents Per Share
    , November 22nd, 2011 at 11:23 am

    Before the opening bell, Medtronic ($MDT) reported earnings of 84 cents per share which beat expectations by two cents per share. Overall, this was a solid quarter:

    Sales increased for the company’s insulin pumps and heart pacemakers. Weakness persisted in its businesses that sell implantable heart defibrillators and products for spinal surgery, which together make up about 40 percent of revenue.

    Medtronic Chief Executive Omar Ishrak told analysts on a conference call that he expects the pressure on those units to eventually reverse as macroeconomic conditions improve.

    The company also reiterated its estimates for this year which is a diluted EPS ranging between $3.43 and $3.50. The stock is up about 3.5% today.

    Here’s a look at Medtronic’s quarterly results for the past several years:

    Quarter EPS Sales in Millions
    Jul-01 $0.28 $1,456
    Oct-01 $0.29 $1,571
    Jan-02 $0.30 $1,592
    Apr-02 $0.34 $1,792
    Jul-02 $0.32 $1,714
    Oct-02 $0.34 $1,891
    Jan-03 $0.35 $1,913
    Apr-03 $0.40 $2,148
    Jul-03 $0.37 $2,064
    Oct-03 $0.39 $2,164
    Jan-04 $0.40 $2,194
    Apr-04 $0.48 $2,665
    Jul-04 $0.43 $2,346
    Oct-04 $0.44 $2,400
    Jan-05 $0.46 $2,531
    Apr-05 $0.53 $2,778
    Jul-05 $0.50 $2,690
    Oct-05 $0.54 $2,765
    Jan-06 $0.55 $2,770
    Apr-06 $0.62 $3,067
    Jul-06 $0.55 $2,897
    Oct-06 $0.59 $3,075
    Jan-07 $0.61 $3,048
    Apr-07 $0.66 $3,280
    Jul-07 $0.62 $3,127
    Oct-07 $0.58 $3,124
    Jan-08 $0.63 $3,405
    Apr-08 $0.78 $3,860
    Jul-08 $0.72 $3,706
    Oct-08 $0.67 $3,570
    Jan-09 $0.71 $3,494
    Apr-09 $0.78 $3,830
    Jul-09 $0.79 $3,933
    Oct-09 $0.77 $3,838
    Jan-10 $0.77 $3,851
    Apr-10 $0.90 $4,196
    Jul-10 $0.80 $3,773
    Oct-10 $0.82 $3,903
    Jan-11 $0.86 $3,961
    Apr-11 $0.90 $4,295
    Jul-11 $0.79 $4,049
    Oct-11 $0.84 $4,132

  • Q3 GDP Revised Down to 2%
    , November 22nd, 2011 at 10:43 am

    The initial estimate was 2.5% but today it was revised down to 2%.

    The economy in the U.S. expanded less than previously estimated in the third quarter, reflecting a drop in inventories that points to a pickup in growth as 2011 comes to a close.

    Gross domestic product climbed at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate, revised Commerce Department figures showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg News called for no revision. Excluding stockpiles, so-called final sales climbed 3.6 percent, the most since last year’s fourth quarter.

    Gains in retail sales, manufacturing and housing this quarter, combined with lean inventories, raise the odds the world’s largest economy will pick up. At the same time, unemployment and stagnant wages mean consumer spending has been fueled by reductions in savings that cast doubt on whether increases will be sustained into 2012, just as the risks from government cutbacks and the European debt crisis intensify.

    Here’s your fun stat of the day: Real GDP growth over the last 15 quarters = 0.09%.

  • America’s New Age of Plenty
    , November 22nd, 2011 at 10:18 am

    Fascinating article from Edward Luce at the Financial Times:

    Because of better technology, notably breakthroughs in drilling, the US all of a sudden realises it is sitting on a century’s worth of gas supply. When Mr Obama came to office, the country faced projections of rising natural gas imports from places like Qatar.

    The same technology has unlocked ever-growing estimates of once inaccessible “tight” oil lurking beneath America’s rocks. In its immediate neighbourhood, Alberta’s huge expanse of “tar sands” contains oil reserves that rank Canada second only to Saudi Arabia. In Brazil, recent advances in offshore oil drilling will relegate Venezuela into second place in the region.

    Without any real input from Washington, windfalls just keep dropping into America’s lap. Welcome to a new age of plenty.

  • Morning News: November 22, 2011
    , November 22nd, 2011 at 6:39 am

    France’s AAA Status in Tatters as Yields Surge

    Ireland Faces $26 Billion Fall in Drug Exports

    Spain’s Borrowing Costs Skyrocket

    Debt Crisis Lurches Toward Heart of Euro Zone as Rifts Grow

    Tokyo Exchange Bid Values Osaka Securities at $1.68 Billion

    China Herd Follows the Shorts

    Gold Rebounds From One-Month Low as Sovereign-Debt Concerns Stoke Demand

    Supercomittee Failure Poses Threat to U.S.

    As Layoffs Rise, Stock Buybacks Consume Cash

    Hewlett’s Profit Falls 91%, But It Beats Expectations

    Netflix Stock Plunges, After Rental Giant Sells $400 Million in Stock, Debt

    KKR Near $7 Billion Deal to Buy Most of Oil and Gas Producer Samson

    U.S. Trustee Faults MF Global Customer Committee Proposal

    A Blow to Pinstripe Aspirations

    Roger Nusbaum: Is The Market Frustrated?

    Jeff Miller: Investors’ Guide to the Supercommittee Failure

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  • Nike’s Incredible Track Record
    , November 21st, 2011 at 3:28 pm

    Nike ($NKE) is one of those great stocks that doesn’t get nearly as much credit as it deserves. In 1984, the shares were going for less than 50 cents each (split adjusted).

    Just a few weeks ago, NKE hit an all-time high of $97.68. That’s a gain of more than 21,000% in 27 years which is about 22% annualized. Not many hedge funds can do that. The S&P 500 is up about 610% over the same time span.

    I should add that those numbers don’t include dividends and Nike just raised its dividend by 16% to 36 cents per share. The new dividend works out to a yield of 1.6%.

    In early 1997, Nike got to be super-expensive — over $36 per share (again, split adjusted). Three years later, when the market was peaking, Nike was down to just $13. Still, Nike has managed to rebound and outperform the market even when we measure from its early 1997 peak.

    I like the company a lot but the stock is rather pricey. I think NKE would be a much better buy if it dropped down to $70.

    The chart below shows Nike’s stock along with the S&P 500. For comparison, I’ve given the S&P 500 the same starting base as Nike.

  • Medtronic Earnings Preview
    , November 21st, 2011 at 1:36 pm

    From the AP:

    Medtronic Inc., the world’s largest medical device maker, reports fiscal second-quarter earnings Tuesday morning, as investors continue to monitor weak demand, pricing pressures and other issues hurting the entire medical device industry.

    WHAT TO WATCH FOR: Last quarter Medtronic reported declines for its two leading franchises, heart defibrillators and spinal implants, as tighter hospital budgets, reduced patient procedures and safety concerns led doctors to scale back use of the devices.

    Industry competitors like Boston Scientific Corp. reported weaker-than-expected earnings last month, with noticeable declines in sales of defibrillators, which are heart-zapping implants used to treat heart failure. Leerink Swann analyst Rick Wise estimates the market for the devices declined 14 percent in the first nine months of the year, compared with 2010.

    WHY IT MATTERS: Medtronic relies on defibrillators and spinal implants for more than 50 percent of its total sales. Medtronic and other device makers have seen profits drop since the Department of Justice began investigating alleged overuse of defibrillators in January.

    Then in June Medtronic’s spinal business took a major publicity blow after a medical journal alleged that the company downplayed the risks of its InFuse spinal repair protein. According to reports in Spine Journal, Medtronic also failed to disclose millions of dollars in payments to the authors who wrote the initial studies of InFuse. The implant, which is approved to treat degenerative spinal disk disease, accounted for 85 percent, or $750 million, of Medtronic’s total spinal business last year.

    Leerink’s Rick Wise said the ongoing pressure could lead Medtronic to scale back its full-year earnings guidance.

    “Though Medtronic seems well positioned to benefit from recent and upcoming product launches, incremental volume declines in both ICDs (implantable cardioverter defibrillators) and spine, with no clear signs of improvement, could prompt management to take an even more cautious stance on fiscal year 2012 guidance,” Wise wrote in a note to investors. Medtronic has stated it expects fiscal year earnings per share between $3.43 and $3.50.

    WHAT’S EXPECTED: Analysts polled by FactSet expect earnings per share of 82 cents on revenue of $4.07 billion for the company’s fiscal 2012 second-quarter.

    LAST YEAR’S QUARTER: In the second quarter last year Medtronic Inc. earned 82 cents per share on an adjusted basis on revenue of $3.9 billion.

  • Gilead Deal on CNBC
    , November 21st, 2011 at 10:34 am

  • Some Perspective
    , November 21st, 2011 at 10:13 am

    Thanks to today’s sell-off, the Dow is currently only a few points away from where it ended the last century (11,487 on December 31, 1999). In other words, we haven’t gone anywhere in nearly 12 years.

    That’s rough but it’s not unprecedented. On December 12, 1905, the Dow closed at 96.05. It would close at the exact same level on April 17, 1942. That’s 36 years and four months which is roughly the time from Richard Nixon’s resignation to today. The Dow was below 800 back then. Just think if we had seen no gain since then.

  • Gilead Buys Pharmasset for $11 Billion
    , November 21st, 2011 at 9:33 am

    Gilead Sciences ($GILD) announced a gigantic deal today. The company will buy Pharmasset ($VRUS) for $11 billion. Gilead currently has a market value of $30 billion.

    I’m guessing that Pharmasset squeezed every nickel from Gilead. The deal calls for GILD to pay $137 per share for each share of VRUS. That’s 89% more than its closing price on Friday.

    So what does Pharmasset have to offer? The WSJ:

    Clinical-stage drug developer Pharmasset last month reported it was further expanding a trial of its hepatitis C treatment, citing the oral drug’s rapid and consistent antiviral effects.

    Gilead’s research and development portfolio includes seven unique molecules in various stages of clinical development for the treatment of the disease.

    Gilead expects the deal will be dilutive to earnings through 2014 and begin adding to profit in 2015. The company expects to give further guidance after the deal closes, anticipated in the first quarter of next year.

    Gilead is down about 10% today. So far, I have to agree with the conventional wisdom that this is a great fit but it’s awfully darn expensive. I really wish Gilead’s board was in my fantasy football league.