Friday, January 29, 2010
Company-wide gross margin jumped .7% from a year ago to 20.8%, led by North America which jumped to 23.6% from 21.5% a year earlier. International gross margin dropped almost a percent, to 17.7%.
The analyst community, as usual with Amazon, is deliberating over how much of a premium the shares deserve to other stocks - a game that i have no idea how to play. Among analyst reactions, one guy that's not having a great morning is Hamed Khorsand of BWS financial. He upgraded the shares to STRONG BUY today. Not a BUY, but a STRONG BUY. This is coming off the SELL rating he stuck with since late July of last year. Hmmm, in (an attempted?) defense of his call, I note that he downgraded the stock back when its forward PE was about 42, and is upgrading it with the forward PE at about 36....hey i tried.
The company cited BIG operating and free cash flow, but it's important to note that a full $1billion of the company's $2.9billion in Free Cash Flow was due to extending accounts payable. More to the point, they extended it by an EXTRA billion compared to how much they pushed it out last year. I certainly won't scoff at this impressive working capital management, but it's often not sustainable to this degree, so it's best to adjust the free cash flow for investment decisions.
Copyright 2010 AlphaNinja
Revenue of $48billion came in 20% above the Street average estimate, and 8% above the street high estimate. I don't know how they were so off on that one...
At first glance, earnings of 1.53 per share look lighter than the 1.70 the Street was expecting, but after pulling out 20cents per share in charges, they came in ahead of expectations.
Refining margins were absolutely disastrous this quarter, as expected. For the fourth quarter, downstream (Refining, marketing and transportation) lost $613million, versus a profit of $2.08billion a year ago. Jaysus.
Despite that horrible number, CVX shares are positive today, up a little over half a percent. Investors might be betting that the 8% smack to the stock already this year is a bit much, and the 3.7% expected dividend yield doesn't hurt either...
Copyright 2010 AlphaNinja
More than any other reason, a slowdown in inventory reduction was the reason for the big number.
Thursday, January 28, 2010
And the Chinese have balked at being the dumb money to the rescue:
Durable goods orders for December came in at +.3%, a far cry from the estimated +2%.
Especially weak were aircraft orders and computer-related orders, which might be why tech shares are off much more than other sectors today.
Wednesday, January 27, 2010
Putting this device within a couple hundred dollars of the competition is a huge deal. Why pay a little less for an Amazon kindle when for $100 more you get Apple's elegant design and impressive technical edge?
Apple shares just jumped to $208 from about $200 an hour ago, while Amazon shares are off $3 from their intraday high, as Apple's aggressive pricing will wage war on their successful Kindle.
This thing looks ridiculous. Briefing is updating from the presentation:
Copyright 2010 AlphaNinja
Nothing about the commentary was terribly surprising. They cited improvement in the direction of the economy, and said that the fed funds rate would remain at 0-.25% for the foreseeable future.
What's got the market nervous about sooner-than-expected raise increases is that unlike the December minutes, this time there was a dissenter:
The Financial Times is reporting that Greece has tapped Goldman Sachs to sell about 25billion (Euro) of bonds, hopefully to China.
And that's just how it will go. Greek and Goldman officials will slobber over the Chinese, telling them what a "powerhouse they are," when in the end they're looking for someone to buy garbage that no one else wants.
The debt might be priced at 6.4% on ten-year notes, only about 3% more yield than US treasuries of the same duration. That, despite the chance of Greece defaulting on its debt being about 15times higher than the US:
For 2010, CAT estimates earnings of 2.50 per share, a bit below the Street average estimate of 2.70. Revenue guidance is a range of +10% to +25% versus 2009's $32.4billion - so a midpoint of $38billion versus the street estimate of $36billion. That 10-25% increase in revenue is being scoffed at this morning, part of the reason shares are down 6%.
I'm on the conference call right now, will update this model later today. But here's a quick look at earnings and Free Cash Flow scenarios for CAT over the next few years. I'm generous on gross margin and many other metrics. Management's 2012 call for $60million in revenue, if they actually got there, would probably lead to a double in the stock price. I think the revenue numbers here are wildly optimistic, but I'll share them in a "upside" look:
In q4, CAT was still able to handily cover its interest payments, to the tune of about 7.5times.
Looking at 2009, the numbers show what a massively leveraged company CAT is. They held the line on gross margin well, as it actually increased by 1%. But sales fluctuations can KILL this company, as their largely fixed cost nature (operating costs of $7.9billion vs $8.5billion the previous year) is susceptible to wild fluctuations in sales. :Last year's $12.9billion in Gross Profit easily covered operating expenses, but in 2009 that gross profit dropped by $4.4billion while operating expenses fell only $540million. Dangerous...
Among reasons why the EPS outlook isn't better, the company cites a higher tax rate and an unfavorable product mix (higher % of lower margin sales). From the prepared Q&A:
CAT cites an uptick already in aftermarket service parts and sees this as an indicator of growing demand...but it also must be seen as an indicator of "fix-it versus buy-a-new-one" mentality.
Below is from the company's earnings presentation comparing 2009 operating income to 2008. The red bars show negative drags on operating margin, while the green shows positive impacts. CAT's focus on procurement, manufacturing efficiencies and reductions in headcount could lead to a springboard effect if sales turn around.
Tuesday, January 26, 2010
S&P Official #2: I know right...model def (definitely) does not capture half the risk.
S&P Official #1: We should not be rating it.
S&P Official #2: We rate every deal. It could be structured by cows and we would rate it.
(note to regular AlphaNinja readers - NO, I will not soon tire of posting this pic!)
FORT LAUDERDALE, Fla., Jan. 26, 2010 (GLOBE NEWSWIRE) -- Parlux Fragrances, Inc. (Nasdaq:PARL - News) announced today that Mr. Neil J. Katz has resigned from his position as Chairman and Chief Executive Officer of the Company due to philosophical differences regarding the future direction of the Company. Mr. Katz had held this position since July 2007, and has been instrumental in acquiring a number of new licenses during this period. Mr. Katz, who is expected to remain with the Company as a Director and consultant, stated, "A number of opportunities have arisen which require my attention. Parlux is a fine company, and I anticipate being able to assist the Company during this transition and in the future."
The Company also anticipates reporting its earnings for the three and nine months ended December 31, 2009 on February 3rd, 2010. The Company notes larger than expected product returns from U.S. department store customers have reduced the Company's net sales for the third quarter ended December 31, 2009 to approximately $50 million from the previously announced estimate of $52 million, and it expects to report a net loss for that quarter of approximately $5 million."
They're also seeing the end of their GUESS? license, which will hit revenue:
And what shall Berkshire Hathaway replace in the index? Why, Burlington Northern (BNI), which is being acquired by Berkshire Hathaway.
This is intended to be a federal funded site, though it originated through consumer protection legislation. It will be funded by the $5 user fees and its currently administered by the Justice Department.
JNJ is facing challenges on multiple fronts. It's prescription drug business continues to face challenges from generic competition, and this will only get worse if the president gets his way on shortening patent protection timeframes. The company is also not immune to the weak economy, as elective surgeries see a decline, and their consumer division is challenged by trade-downs to private label products. Everything from contact lens sales to diabetes-test strips are under pressure, as more and more healthcare items become "discretionary."
Gross margin took a hit in the quarter, but the company made most of that back by reducing SG&A costs:
On thing I like right off the bat from their earnings presentation is the comparison of their original guidance to actual 2009 results - they came in VERY accurate on their predictions, giving us confidence in future guidance.
In their outlook, JNJ sees global healthcare spending increasing about 5.4% annually between now and 2014 with 2014 worldwide spending of $6.8trillion. International results have been very strong, as healthcare coverage in the developing world expands at a rapid pace:
2010 Free Cash Flow Yield, based on by FCF estimate of about $13.8billion, is a FAT JUICY 8.6%. The denominator I use is Market Value - Cash, causing people to wonder why I net out cash but don't add back debt. I exclude debt because if you bought the company and assumed the debt, they still earn 53times their quarterly interest payments.
That 8.6% Free Cash Flow Yield is far too rich for a company like this, despite clear headwinds. So what's an appropriate yield? I'll look to their debt, with full knowledge that it's overpriced. JNJ's 2029 6.95% notes are trading at 123cents on the dollar, to yield 5%. I think a Free Cash Flow Yield (FCFY) is easily fair for this company, suggesting a stock price of $75 a share once cash is added back. That's a 20% gain and only a Price-to-Earnings ratio of 14 for a world class company. Stocks like this are why I see bigger gains ahead for the DJIA.
Several Dow30 components have reported earnings. Johnson & Johnson (JNJ) shares are down but rebounding, after beating EPS expectations by 5cents. The weakness in shares is likely due to tepid 2010 guidance, which disappointed some investors.
Dow30 member Travelers (TRV) beat BIG, with q4 earnings of 2.12 per share versus the street expectation of 1.49. Says the firm, "
A S&P500 sector heatmap, from Finviz:
Copyright 2010 AlphaNinja
Monday, January 25, 2010
In a just-released filing, Apple (AAPL) reported Q1 (Dec 26th was the end of their fiscal first quarter) earnings per share of $3.67 versus the street expectation of $2.07. What is truly ridiculous is that of THIRTY EIGHT wall street analysts covering the stock, the high estimate was still a dollar less than what they reported. Even more insane is that revenue of $15.7billion beat the street high estimate by about $3BILLION dollars. Truly remarkable.
I took a look at Apple in early December in a piece titled "2 and 4, the most important numbers when looking at Apple." I said shares were headed higher, in part due to expected earnings beats like this one.
Gross margin improved 3% as a percent of sales, while operating expenses dropped from 11.8 to 10.8%. Apple sold 3.36million Mac computers, a 33% UNIT increase from a year ago. (WOW) iPhone sales increased 100% on a unit basis and iPod units sold declined 8% (as must be expected, with iphones cannibalizing sales)
Tomorrow, Wall Street will trip over itself upgrading the stock. Notably, the forward guidance is above expectations, probably catching many by surprise. The tendency is for Apple to give conservative guidance that they can easily beat - but in this instance that conservative "easily-topped" guidance is already above where the street is.
So what are the shares worth? I'd say the shares will easily hit the mid 200's this year, as it would imply a mid-teens multiple + cash balance. Using a 2010 estimate for Free Cash Flow Yield of 5% and adding in cash would get me to about $230 per share, but with upside potential from new products and the ever increasing desktop market share Apple is grabbing, this stock could command even better valuation levels. Either way, color me extremely impressed by this performance.
Copyright 2010 AlphaNinja
"Banks have been committing themselves increasingly to financing real estate. The reason for this is simple. Because they cannot underwrite or deal in securities, they have been losing out to securities firms in financing public companies—that is, most of American business other than small business. It is less expensive for a company to issue notes, bonds or commercial paper in the securities markets than to borrow from a bank.
Where, then, can banks find borrowers? The answer, unfortunately, is commercial and residential real estate.
Real-estate loans rose to 55% of all bank loans in 2008 from less than 25% in 1965. These loans will continue to rise in the future, because only real-estate, small business and consumer lending are now accessible activities for banks.
This is not a good trend, because the real-estate sector is highly cyclical and volatile. It was, indeed, the vast number of subprime and other risky mortgages in our financial system that caused the weakness of the banks and the financial crisis. Requiring banks to continue to lend to real estate, because they have few other alternatives, virtually guarantees another banking crisis in the future."
Copyright 2010 AlphaNinja
Not much news behind today's gains, but rather a bit of recovery after last week's harsh selling. General Electric(GE) and Caterpillar(CAT) are the DJIA's biggest gainers.
GE estimates were raise at UBS this morning, as the firm sees improving results in Capital Finance. Goldman Sachs is also out with positive comments on GE today, saying earnings will increase thanks to lower tax rates and improving industrial results.
Wal-Mart (WMT) is in the news this morning, after a weekend announcement that they'll lay off 11,000 people. The headline news is not nearly as bad as it sounds on the job front, as most of these positions in food demonstration will be outsourced to Shopper Events, who if they were publicly traded would likely be up massively today.
Copyright 2010 AlphaNinja
Friday, January 22, 2010
After a major setback to his agenda in the Tuesday senatorial election in Massachusetts, the President went looking to pick a fight - his words, not mine:
The finer points of the administration's plan will - like healthcare, like the stimulus - be figured out by someone else, but in general the idea is to restrict the investing and trading activities of banks that access the Fed discount window or rely on FDIC insurance, etc. Again, these are "best-guess" estimates, as the details have yet to be determined. Some are rightly pointing out that actions like this might not have prevented the financial sector meltdown anyway. Bear Stearns, for example, wasn't accessing the Fed discount window or enjoying FDIC backing - they just bought a LOT of garbage.
The biggest worry is the possibility that "proprietary trading" will be curbed, and the main target here would be Goldman Sachs. The estimate being thrown around is that principal trading accounts for 10% of revenue for Goldman, and probably a much higher % of net income. Principal investments at other banks are likely closer to 2-4%, so the potential legislation will not be a serious hit to earnings. Even Goldman has downplayed the impact on their earnings:
Some of the attempts to reign in risk-taking seem completely appropriate, as the administration said these steps were "in the spirit of Glass-Steagall," the former rule preventing commercial banks from engaging in most securities trading. While people (myself included) applaud that effort, they also wonder whether this President is qualified to implement a truly massive re-order of the banking landscape, given his previous views of the financial industry and the private sector in general. Writing in his book Dreams From My Father, Obama referred to his brief stint on Wall Street (a job he reluctantly took), as being "like a spy behind enemy lines":
Bank stock shareholders should take comfort that everyone from Geithner to Bloomberg to Barney Frank are coming out against this new attack on banks. And even if some sort of new restrictions on bank involvement in private equity or principal transactions is enacted, the negative effect to earnings will be very small.