Saturday, November 29, 2008

CHK 15.1% loss on SEC shelf filing

On Friday, November 28, CHK announced the potential issuance of up to 50 million shares of common stock in order to fund future capital expenditures. The company does not anticipate issuing any shares until 2009. The recent filing is viewed by analysts as a move to enhance flexibility and is not a sign that the company is having liquidity issues.

Friday, November 21, 2008

CHK (27.5% one day loss on Nov. 20)

The Energy Information Administration released weekly Natural Gas storage information for the previous week and inventories were up 16 bcfe. Most analysts were expecting little to no change in inventories and this event had a significant impact on energy companies across the board. The sector severely outpaced the losses inucrred by the broader tape as double digit percentage losses were commonplace for the day. Natural gas prices were also down to the 6.20 level. Highlighting the effect that changes in the price of the commodity have on CHK.

Ensco 19.9% loss-James Fowler

Yesterday ESV fell roughly 20%. The main reason is that oil traded down to a 3 year low, below $50 a barrel. In the current market environment, energy names seem to move with the price of oil and natural gas. I still believe that oil is not going to stay this low for long and as oil begins to trade back up, so will energy names. ESV still has a tremendous amount of backlog and continues to win new contracts. Just recently, ESV won two three-year contracts in the GOM for $367M, at around $167K a day per contract.

I went into the model and did a scenario analysis, and assumed revenues would be flat from 3Q08 through 4Q09, while keeping expenses the same and I still come up with a price target of $69. Nothing has fundamentally changed with ESV and feel it is still a definite hold.

Wednesday, November 19, 2008

Carnival Cruise Lines 10.49% loss

Carnival today fell 10.49% and is currently Trading at 16.47. This was accompanied by the S&P 500 being down over 6% and its main competitor Royal Carribean down over 17%. Today Royal Carribean discontinued its stock dividend which has followed in the footsteps of Carnival which recently also suspended their dividend. The market being down and the news of Royal Carribean cutting their dividend sent the cruse line companies down but Carnival had the smallest percentage drop among them.

DuPont suffers 9.88% loss

Today DuPont (DD) suffered a 9.88% loss and is currently trading at $24.26. While the broader market was down 5% today, the reasoning behind the near 10% decline in DD was the sudden news that BASF SE, which makes such items as fertilizers, glues and cosmetic ingredients, said it would temporarily close 80 plants worldwide due to slumping demand and cut production at 100 more, including its major U.S. facilities in Louisiana and Texas. This led to a major sell off in chemical companies as a whole, but DuPonts percentage drop was one of the largest among them. Deutsche Bank analyst David Begleiter said the magnitude of the announcement was "unprecedented" and said the fourth quarter will likely be the chemical industry's toughest since the fourth quarter of 2001.

We are going to keep DD as a HOLD for today, and the materials group will be discussing future plans for DD at tomorrows meeting.


Tuesday, November 18, 2008

GLW-Q4 revised earnings-RM

I just wanted to briefly touch upon GLW's revised earnings this morning. As I stated when making my stock pitch, GLW's main driver is panel makers utilization rates. During Q3 earnings management warned that even though panel makers are at 70% utilization, it is possible it will continue to fall to as much as 50%. This was already priced into the valuation because of the conservative approach I took. The .20 to .28 cent EPS estimate is now expected to at the lower end at the conclusion of the quarter. The 17% fall in share price was completely overblown. As I expected in gained back more than half of the losses by day end. GLW finished off 6.88% on the day.

Illinois Tool Works Inc. (3 months ended Oct. 31)

Operating revenue rose 8.8 percent for the three months ended October 31. This growth was primarily driven by acquisitions and currency translation. Proven strong acquisition performance in the past was part of my thesis for this acquiring this position. I believe there is tremendous value within the industry and ITW will be able to benefit from this. Base revenues did fall into negative territory because of the continued softening within the North American and European end markets. ITW did trim the top end of their guidance to $3.32. Management believes full year diluted EPS could range from $3.24 to $3.32 assuming a total revenue growth of 10 to 11 percent. Below is the segment operating revenue breakdown Y/Y.

*Industrial Packaging: +10.6 %
*Power Systems and Electronics: + 3.4 %
*Transportation: +11.0 %
*Construction Products: - 4.5 %
*Food Equipment: + 6.9 %
*Polymers and Fluids: +52.2 %
*All Other: + 6.0 %

Monday, November 17, 2008

Humana Q3

First some information on the past Q and some company guidance…

• Humana has completed major acquisitions in the past quarter. Metcare Health Plans, Inc in August, PHP Companies in October and Cariten Healthcare in November. These acquisition included in co's estimate of FY09 EPS of $5.90-6.10. This estimate is above street consensus.
• It missed EPS estimates by .40 a share and guides Q4 EPS below consensus. However as mentioned earlier FY09 EPS is above consensus.

Information regarding political and economical events…

• More intense competitive pressure along with a slumping US economy and challenging credit markets will cause significant strain and consolidation in the industry
• Democratic party reform may hit may hurt programs flourishing under Bush administration. Only time will tell.

However we still believe the company belongs in our portfolio because

• Humana has strong capital and liquidity with its $1 billion in revolving credit still available
• Growth in Commercial Specialty products
• The federal government announced regulatory changes to combat skyrocketing premiums for Humana’s Medicare Advantage plans. A significant advantage because Medicare has been seen as one of the companies most challenging prospects.

Finally, We believe that the baby-boomer population will continue to make this a successful pick in the long term and that the fundamental operations of the business have not changed enough to break the thesis and sell the stock.

Sunday, November 16, 2008

Brown-Forman Q12009

Brown-Forman posted a decline of 5% in YOY EPS for the first quarter of 2009. However, this decline in earnings was due to 25% of their Agave plants (used for making tequila) dying unexpectedly. While the company stated that it was not uncommon for a portion of the Agave stock to be unusable this high of a loss was very uncommon and should be a onetime event. Excluding this onetime charge the fundamentals of the company remained strong, as they experienced a 12% increase in EPS (excluding the $22M non cash charge) accompanied by a 7% increase in net sales. The majority of the company’s current growth is coming from less developed markets such as Eastern Europe, Latin America and Southeast Asia as growth in many developed markets has declined due to the current economic conditions. The company has maintained its FY2009 guidance expecting 1%-8% growth in EPS for the year including the onetime non cash charge.

Moving forward much of the company’s growth is expected to come from areas outside the US and its main drivers are expected to be its Jack Daniels and Finlandia brands and from its 2007 acquisition of Case Herradura. The company has developed new harvesting strategies to become more efficient and prevent further losses such as the one due to Agave, and should stand to benefit from the current decline in commodity costs especially in fuel and grain. On a valuation basis the company is trading significantly below its historical average in PE, EV/EBITDA, P/S, P/B and P/CF.

Tuesday, November 11, 2008

Rockwell Collins Q4

Rockwell Collins posted a 17% gain in revenues for its fourth quarter on November 3, 2008. They posted these gains despite the strike of Boeing Co. and Hawker Beechcraft Corp. Boeing is a primary customer which suffered a seven-week strike in its commercial aircraft facility. It is expected that this strike has likely pushed back the 787 Dreamliner until 2010. However, demand has remained high for this aircraft as the backlog order is still in excess of six years due to “customers waiting for these more fuel efficient aircraft”. The strike which lasted 55 days lasted longer than I expected and was approximated that it reduced Rockwell’s top line by $40 million. Rockwell’s EPS was $1.13 per share, while one year ago it posted $0.93 per share. Rockwell beat the streets expectations which were expected at $1.07 per share. However, a tax credit helped boosted their earnings by $0.08 per share.

There are many continuing headwinds I expect to come with Rockwell. A continuing problem I see within the industry is the decline air traffic both domestically and globally. Specifically, global air traffic which had expected growth of 1% - 3%, is now expected to be flat because of the global economic downturn. Rockwell has also seen the cancellation of the Army’s Armed Reconnaissance Helicopter. There has also been a deferral of a $35 billion contract of aerial-refueling tanker and a $15 billion combat, search and-rescue helicopter contract. These contracts were awarded to Northrop Grumman and Boeing and Rockwell is a supplier to both. Along with these issues, the election of Barack Obama and with a Democratic Congress posses an interesting dilemma going forward. Expectations are for a cut in Pentagon spending because of overall tightening of our national budget as well as the expected withdrawal of troops in Iraq. Most recently, Rockwell implement a cost reduction plan which included a slash in employees of 300 or 1.5%.

With the issues mentioned above, as well as beating the street expectations for Q4 and the stock still not rebounding, I feel that a consideration to a sell or reducing or full position would be in the best interest for the group. I will be raising these issues at Thursday’s meeting for a final decision by Friday for the conference call.

Friday, November 7, 2008

NVDA F3Q09 Earnings 11/06/2008-(Daren Pon)

Nvidia shares tanked to $7.62 on Thursday, but rose to $8.40 after-hours when they released earnings, showing that they beat the street Q3 earnings estimates. Revenues were $898 million and net income was $61.7 million with Q3 earnings per share of $0.20, well above the $0.12 estimate. Also, gross margins increased from 39.1% to 41.9%. Nvidia closed on Friday at $8.72, a nearly 11% increase from our buy in price of $7.859.

Nvidia has successfully transitioned its manufacturing processes to the 55nm standard, has launched a successful partnership with Apple for its new line of Mac notebooks, and their parallel computing architecture CUDA has been gaining momentum. Additionally, Nvidia has re-priced their products in order to better recapture market share from AMD's increasing price competition. Nvidia was singled out to outperform when Citi upgraded the semiconductor industry earlier this week. While being down overall for Q3, Nvidia beat what was expected of them and I am satisfied with their performance and future profitability.

CSCO F1Q09 Earnings 11/05/2008 - (Daren Pon)

Cisco’s Q1 revenue was up 8% year over year at $10.3 billion from $9.55 billion a year ago and net income was $2.2 billion or 37 cents a share, up 2 cents from last year. Non-GAAP EPS was up 5% to $0.42, 3 cents above the street expectation. Additionally, gross margins increased to 65.6% from last quarter’s 64.9%. Enterprise year over year order growth across all of Cisco was down 11%, while the service provider, commercial and public sector were approximately flat from the year over year orders. Assuming that the global economy recovers to normal growth rates, CEO John Chambers maintains the long-term growth rate of 12-17%. Cisco forecasts Q2 estimates of 5-10% decrease in revenues from a year ago, gross margins of 64%, and capital expenditure of 39-41%. Cisco may seek to make key acquisitions during the economic downturn to increase future profitability.

Cisco still maintains a position of product leadership and has made great progress as an enabler of Web 2.0. Momentum could be realized from their strength in emerging markets and Japan; however, the great deal of Cisco’s profitability is tied into the overall resurrection of the global economy and in turn basic Information Technology spending. I suggest a hold on Cisco to wait for more favorable long-term conditions to arise, but would offer it as the first name to be slashed within the portfolio’s technology allocation to make room for more immediately profitable equity selections and to solidify diversification.