Thursday, February 26, 2009

Healthcare sector takes a beating after speeches by Obama and economic advisors.

Traders responded to Obama’s budget proposal cuts by selling of healthcare companies. Humana was down almost 20% today, dropping from 40 to 23.64 since Monday. While over the past week, shares of the S&P 500 Managed Health Care sector fell 21%, shares of Humana were hit the hardest because Medicare plans are a large portion of their business. The Centers for Medicare and Medicaid Services (CMS) has invited public comment on these preliminary rates before releasing final rates on April 6, 2009. Humana, as well as other companies in the industry will attempt to fight these newly proposed payment rates at the hearing. In my opinion little can be done considering the president and his economic leaders have targeted Medicare Advantage as a major cost cutting initiative. Jared Bernstein, the U.S. Economic Policy Adviser was on MSNBC yesterday and called out Medicare Advantage, saying it was inefficient and slashing payment rates would be a tremendous source of savings.

Wednesday, February 25, 2009

U.S. government proposes lower than expected Medicare rates. Humana downgraded by S&P, shares tumble.

HUM shares fell 25% on Monday after Medicare rate increases for 2010 were lower than analyst expected. As mentioned in the February 5th “Humana 4Q Earnings” post, Humana is particularly vulnerable to changes in government policy. Projections for Medicare Advantage, the company’s catalyst for long-term growth, will have to be altered to account for the lower rates. Should the preliminary payment rates become final, the company will be forced to either increase premiums or cut benefits to maintain projected profitability, which may cause customers to abandon the programs. Most analyst agree that the actual rates may be slightly more favorable, however it is important to consider Obama’s call for health-care reform.

"The cost of health care has weighed down our economy and our conscience long enough. So let there be no doubt, health-care reform cannot wait, it must not wait and it will not wait another year,"

HNZ 3Q09 Eanrings 2/24/09-James Fowler

Heinz announced yesterday that 3Q09 EPS rose 12% to $0.76. This earnings growth reflects increased pricing, their decision to hedge translation exposures on key currencies, and higher organic sales of brands such as Heinz Ketchup and soup, and Classico pasta sauces. Net income grew 11% to $242M, due to favorable mark-to-market gains, as well as a lower effective tax rate of 26%. Organic sales grew approx 2% while unfavorable foreign exchange rates of 11.4% caused net sales to decrease 7.5%. Organic sales in emerging markets grew 9%, but decreased to 3.2% after the negative FX impact. Operating cash flow during the quarter increased 25% to $233M which reflects effective working capital management and tight control over capital spending.

Heinz reported a sound quarter during a challenging economics times. The results of the quarter reflect my original thesis of people staying in to eat more meals at home. Even during these tough times the Heinz brand ketchup showed organic growth which indicates that people are less willing to trade down to a value brand, at least for ketchup. Although the price increases came at the wrong time coupled with lower volumes, I still think Heinz is going to benefit from more consumers remaining at home to eat. HNZ seems to be in great shape and is also making great progress in emerging markets. Sentiment is to hold the position. Price target-$45 to $50

Wednesday, February 18, 2009

CHK posts $866 million 4th quarter loss on massive asset writedown

CHK reported earnings for the fourth quarter of -$866 million, primarily due to weak natural gas prices that caused a $1.73 billion writedown on the value of their energy reserves. Management predicts that rig counts will bottom out during the first half of 09' at 105-106. Before the impairment charge, CHK reported revenues of $,2981 billion, a 43% increase YOY.

Despite the massive write-down, I believe that CHK is still the leader in its peer-group due in part to their asset monetization strategies and their exceptional hedging (80% of 09 est. production hedged at above $7 per mcfe). Demand for natural gas will continue to slump during the first half of 09' however, as the economy recovers and commercial demand for natural gas increases, CHK should benefit nicely. Current price target - $37.97

Monday, February 16, 2009

NVDA Manufacturer Rumored to Unveil Tegra Prototype Next Week

Michael Rayfield, general manager of Nvidia's mobile business unit, disclosed that a manufacturing prototype Mobile Internet Device (MID) may be unveiled at Nvidia's booth in Barcelona at the Mobile World Congress conference, which starts next week.

The article details that Nvidia-based Tegra chips could find their way into MIDs on sale for $99 with up to 15 hours of battery life. High definition video playback capability will make the Tegra chipset that more appealing.


ITW - Operating Revenue Falls 15% but Reaffirms Guidance

ITW said Monday, its base revenues slid 16 percent on weakness in North America, Europe and Asia. The company posted a 6 percent decrease in contributions from currency translation. Acquisitions helped revenue by 7 percent in the period.

ITW did reaffirmed its first-quarter and full-year 2009 guidance. For the full year, ITW anticipates earnings in a range of $1.84 to $2.48 per share. The guidance assumes a sales decline of 6 percent to 12 percent.

Wednesday, February 11, 2009

NVDA F4Q09 Earnings 02/10/2009-(Daren Pon)

Nvidia reported annual revenue of $3.4 billion, a 16% year-over-year decrease, while fourth quarter revenue was down 60% year-over-year at $481.1 million. Nvidia realized a net loss of $147.6 million, a GAAP loss of 27 cents a share. Excluding special items, non-GAAP loss per share of 18 cents was worse than the street expected 11 cent loss. Nvidia shares were down today from $8.57 to $8.15, a 12.55% loss for the day following yesterday's drop of 7.2% in after-hours trading.

Cash, cash equivalents, and marketable securities was down $49 million to $1.26 billion. Nvidia regained market share in its core high end desktop GPUs, but overall desktop GPU demand was soft with growth dropping 34%, coupled with trends to more integrated graphics solutions in laptops, leading to discrete laptop GPU a growth decline of 63%. During the conference call, CFO Marvin Burkett stated "Today we can’t say confidently when and by how much revenue will increase. We can only say that we currently don’t see further declines and our outlook is for flat to slightly up revenue for the first quarter."

Despite the financial turmoil Nvidia has experienced over the past couple quarters, I still believe that it is a strong company with a lot of long-term potential. Their most recent technological advancements have placed them the forefront of parallel computing with CUDA, a platform that can accelerate computationally intensive tasks up to 100x over CPUs and that is being taught in over 100 universities globally. Likewise PhysX presents a very tangible advantage for Nvidia GPU cards over AMD/ATI, or will at the very least lead to licensing revenues. They seem to be aware of the cannibalization of notebook GPU revenues caused by netbook and handheld sales, and have better positioned themselves with their ION and Tegra Solutions. That being said, it is never easy to see such significant loses, but Nvidia still has the ability to turn things around, highly dependent on the success of their vision for the future of computing.

Tuesday, February 10, 2009

DD Commits to 5 year earnings growth outlook-Ed

See below link for details

CSCO Sells $4 Billion in Bonds; Increase Acquisition War-chest

Cisco's 10-year notes were sold Monday at two percentage points above Treasuries for a yield of 4.979%, while a 30-year portion of Cisco's offering sold for a yield of 5.916%. Cisco's strong financial position allowed it to secure reasonable rates.

While Cisco has nearly $30 billion in cash on their balance sheet, only about $3-4 billion is in U.S., so the debt offering helps Cisco avoid taxes associated with moving their cash in from overseas.

Cisco has raised debt only one other time in its history. This was when it used $6.5 billion in debt to purchase cable-box maker Scientific-Atlanta Inc. in 2006.


Friday, February 6, 2009

NVDA Tegra Smart Phone Rumors

Nvidia was up 7.34% today from 8.49 to 9.36 after rumors resurfaced about a Microsoft branded smart phone and even a third incarnation of the Apple iPhone to incorporate the Nvidia Tegra platform.

Nvidia has taken an active stance in advocating the push for ultra-portable and mobile graphics solutions through both its Tegra and ION solutions. The ION, a combination of an Intel Atom CPU and a Nvidia 9400M GPU, is already being noted as "industry-changing" by Laptop Magazine. The ION platform is most notably found in the new Apple Macbooks, but will soon find its way into netbooks later this year. This focus on portable devices is a good bet with core desktop sales growth diminishing.


Thursday, February 5, 2009

CSCO F2Q09 Earnings 02/04/2009-(Daren Pon)

Cisco reported revenue of $9.1 billion, a 7.5% year-over-year decrease. Cisco generated $3.2 billion in cash in Q2 resulting in cash and investments of approximately $29.5 billion, the second highest level of cash flow from operations in any quarter. GAAP EPS were $0.26, a 21% decrease year-over-year and adjusted income was 32 cents a share, compared to analyst expectations of 30 cents a share. Cisco shares were up today from $15.54 to $16.35, a 3.22% gain.

Despite beating street expectations, CEO John Chambers also provided a grim forecast for the third quarter. While maintaining Cisco's long-term growth goals of 12-17% third quarter sales are expected to decrease 15-20%, or $7.8 billion to $8.3 billion, below analyst expectations of $8.7 billion. Additionally, Chambers noted restructuring layoffs of around 2,000 jobs, or 3% of their global workforce of 67,000.

It is my opinion that Cisco has both a strong management team and huge reserves of cash on their balance sheet; however, the time it will take for them to return to "normal" levels of growth is too far in the future. The UASBIG portfolio is currently overweight in technology. I reiterate my position on Cisco as the first name to cut from the sector in favor of more immediately profitable companies. There are just not enough catalysts within our investment horizon.

Humana 4Q Earnings

On February 2nd, Humana Inc. (Hum) reported fourth-quarter 2008 earnings per share of $1.03 compared to the $1.43 for the same period in 2007 and a street consensus of $1.06.

Higher expenses from the prescription drug plan (PCP) were one of the largest contributing factors to a 28.4% decrease in profit. Revenue for the same period increased from $6.34 billion to $7.49 billion, primarily driven by an increase in Medicare Advantage memberships.

The company has predicted earnings for 2009 will be between $5.90 and $6.10 (full year). We continued to make substantial operational progress in 2008 that enables us to forecast significant growth in 2009 EPS,” Humana president and CEO Michael McCallister said in a news release. The catalyst for this growth is the projected progress by Medicare Advantage. The good news is that the program is currently quite successful. Long term success will be driven by the ability to keep medical costs 15% below Original Medicare. Customer loyalty is also very high, with less than 1% of members leaving to go back to Original Medicare. However, relying to heavily on Medicare leaves Humana particularly vulnerable to changes in government policy.

Shares of Humana rallied in response to the numbers, primarily due to 09 outlook. The stock has been performing well as of late, but still down ~2% in total.

Wednesday, February 4, 2009

Article on Heinz

Here is the link to an article on Heinz that I thought was interesting

Because the link is so long you have to copy and paste each of the two lines separately

Tuesday, February 3, 2009

Moody's Downgrade - ITW

Moody's Investors Service said Tuesday it downgraded ITW because of lower operating margins. Moody's cut Illinois Tool's senior unsecured debt rating to A1 from Aa3. The outlook is negative. About $3.6 billion of debt is affected. "The downgrade of the senior unsecured rating follows the sharp decline in operating margins that occurred in the 2008 fourth quarter," said Jonathan Root, a Moody's analyst, in a statement. End of Story

Analyst Upgrade - ITW

JPMorgan analyst Ann Duignan upgraded the stock to "Overweight" from "Neutral," citing Monday's manufacturing report by the Institute for Supply Management.
The trade group of purchasing executives said manufacturing activity rose during January to 35.6 from a record low of 32.9 in December. That was well above the reading of 32.6 economists had expected.
Duigan also cited strenghts that we saw in the company as well (strong balance sheet, decentralized management style)
ITW rose 4.7% on the day.

Monday, February 2, 2009

IP see's continued decline amid analyst downgrades