Wright Express Beats By Two Cents
Posted by Eddy Elfenbein on February 12th, 2010 at 10:39 am

On Wednesday, Wright Express (WXS), one of the new stocks on this year’s Buy List, reported Q4 earnings, after costs, of 56 cents a share which was two cents higher than estimates. For 2009, net income pre share rose to $2.18 from $1.88 last year.
On the earnings call, this is what they had to say about future projections:

For the first quarter of 2010 we expect to report revenues in the range of 82 to $87 million. This is based on an average retail sales price of $2.78 per gallon. For the full year 2010, we expect revenues ranging from 360 to $370 million based on an average retail sales price of $2.80 per gallon.
In terms of earnings for Q1 of 2009 we expected to report adjusted net income in the range of $21 to $23 million or $0.53 to $0.58 per diluted share. We expected adjusted net income for the full year 2010 in the range of 89 to $97 million or $2.26 to $2.46 per diluted share and approximately 39 million shares outstanding.

If we take $2.36 as the midpoint, that means the stock is going for about 12 times this year’s earnings. The stock dropped initially on the news but rallied back yesterday. So far, it’s our biggest loser of the year.

The S&P’s P/E Ratio Falls to 18
Posted by Eddy Elfenbein on February 12th, 2010 at 9:13 am

With the recent dip in the stock market, the P/E Ratio of the S&P 500 is now down to 18. That number, however, is a bit misleading since earnings are still in the process of recovering from a nasty downturn.
Here’s a look at the S&P 500 (left scale) along with its earnings line (right scale). The two scales are plotted at a ratio of 16-to-1 so when the lines cross, the P/E Ratio is exactly 16. The future earnings line is S&P’s estimate.

The total earnings for 2009 will be about $57. Bear in mind that at one point, Goldman Sachs thought that it would be $40. I still think stocks are a good buy, but this is an instance where looking at the P/E ratio doesn’t tell us much. The recent earnings trend is such an outlier. Naturally, if the earnings forecast holds up, then I would expect stocks to be much higher one year from now.
Remember that stocks are best measured by their alternatives. In this case, I think the more telling metric isn’t the Price/Earnings, but the yield curve. The spread between the 30-year T-bond the 90-day T-bill is over 450 basis points, which is gigantic. Even at 5-years out, a Treasury only offers a yield of about 2.3%. With the kind of competition, stocks are the best investment.

Unraveling the Profit Puzzle at Goldman Sachs
Posted by Eddy Elfenbein on February 12th, 2010 at 9:10 am

Despite 10,000, the Dow Has Been Beating the S&P 500
Posted by Eddy Elfenbein on February 9th, 2010 at 11:48 am

Yesterday, the Dow closed below 10,000 for the first time in three month. As far as indexes go, I’m not a big fan of the price-weighted Dow. The cap-weighted S&P 500 is far superior.
Still, I will give the Dow credit for beating the S&P 500 over the past four years. Here’s a look at the Dow/S&P 500 Ratio:

For two days in November 2008, the ratio closed above 10. Before that, the ratio had last been above 10 in 1966.

Goldman Goes A-Blogging
Posted by Eddy Elfenbein on February 9th, 2010 at 11:00 am

Goldman Sachs’ spokesman, Lucas van Praag, responds to the NYT’s article at the Huffington Post. Here’s a sample:

NYT assertion: “Goldman’s demands for billions of dollars from the insurer helped put it in a precarious financial position by bleeding much-needed cash.”
The facts: Relative to the size of AIG’s overall business, Goldman Sachs was a small counterparty. We don’t believe our marks were “aggressive,” they reflected market prices at the time. We requested the collateral we were entitled to under the terms of our agreements. The idea that AIG collapsed because of our marks is not credible. In any event, the story later asserts that, by the spring of 2008, AIG’s dispute with Goldman Sachs was just one of its many woes.
NYT assertion: “In addition, according to two people with knowledge of the positions a portion of the $11 billion in taxpayer money that went to Societe Generale, a French bank that traded with A.I.G, was subsequently transferred to Goldman under a deal the two banks had struck.”
The facts: The assertion is false and misleading. Goldman Sachs provided financing to many counterparties, but in that role we would not have known whether a counterparty had obtained credit default protection, let alone from whom or in what amount.

(HT: Felix)

The Geography of a Recession
Posted by Eddy Elfenbein on February 8th, 2010 at 2:02 pm

Academic Study on Media Bias in Financial Newspapers
Posted by Eddy Elfenbein on February 8th, 2010 at 1:21 pm

Media Bias in Financial Newspapers: Evidence from Early-Twentieth-Century France

Abstract:
The financial market was well developed in France in the years before World War I, and there were many newspapers that provided information to investors. Yet commentators at the time faulted the financial press for inaccuracy and biases, which they linked to the existence of payments made by companies for coverage in the editorial section. This paper tests whether the payment scheme induced a systematic bias in the coverage of companies listed on the Paris stock exchanges by newspapers. The results show that, although firms’ media coverage was affected, the performance of firms actually touted by the press was good. Thus, the media bias can also be explained by newspapers choosing the companies’ exposures according to their editorial policy.

Mortgage Bankers Association Sells Headquarters at Big Loss
Posted by Eddy Elfenbein on February 8th, 2010 at 11:58 am

Ouch.

On Friday, CoStar Group Inc., a provider of commercial real estate data, announced that it had agreed to buy the MBA’s 10-story headquarters building in Washington, D.C., for $41.3 million. The price is far below the $79 million the trade group says it paid for the glass-walled building in 2007, while it was still under construction. The price also is far below the $75 million financing that the MBA received from a group of banks led by PNC Financial Services Group Inc. to finance the purchase.

Telegraph: Roubini Gets It Wrong
Posted by Eddy Elfenbein on February 8th, 2010 at 11:49 am

There’s finally some big media pushback against the Great Predictors, all of whom missed one of the greatest stock rallies in history:

Never mind what Nouriel Roubini, the New York economist credited with having seen the economic meltdown coming, is predicting for next year – surprise, surprise, he’s pessimistic – let’s take a look at what he forecast at the time of the World Economic Forum in Davos this time last year.
Er, well, the great sooth sayer and now standing feature of this mountain top conference for the elite of business and finance thought that even if governments and central bankers did everything right in terms of fiscal and monetary policy, we’d all still be in recession across the advanced economies for all of 2009 and 2010. And for sure, the S & P was going to 600. Admittedly, it did get as low as 650, but now it’s back above 1,000. If you’d listened to Mr Roubini, you would have missed out on one of the greatest stock market rallies ever. As for recession, some economies were growing again by the second quarter of last year, and even Britain is now showing marginal growth.
Still, these forecasting errors are perhaps forgiveable for one who got the big call spot on. Except that he was making it as far back as 2002. Which all goes to show that if you say something consistently enough for long enough, eventually you will be proved right.

(HT: TBI)

The Goldman/AIG Battle
Posted by Eddy Elfenbein on February 8th, 2010 at 11:44 am

The must-read story of the weekend was Gretchen Morgenson and Louise Story’s account of the battle between Goldman Sachs and AIG.
I have no independent love for Goldman Sachs and I’m perfectly happy to portray them as the villain. Still, I keep finding myself being attractive to another narrative—Goldman was smarter than everyone else.
Yves Smith and Tom Adams have more.